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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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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
</TABLE>
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)
</TABLE>
Registrant's telephone number, including area code: (847) 541-2525
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS
ON WHICH REGISTERED NAME OF EACH EXCHANGE
------------------- ---------------------
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.25 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any further
amendment to the 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.
("Searle"), 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 affiliated company in Mexico, Syntex S.A. de C.V.
("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 [Cryptaz(TM) (formerly referred to
as NTZ(TM))] 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, namely, aggressive and/or resistive behavior, 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. The Company has worked closely with Searle to prepare an NDA
supplement for Maxaquin's use to treat chronic bacterial prostatitis. Filing of
this supplement is expected by late 1998.
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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 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 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: Cryptaz(TM) (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.
CRYPTAZ(TM) (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 Cryptaz 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 Cryptaz 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
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parasite for which there is no effective treatment. C. parvum inhabits the
respiratory and gastrointestinal tracts of animals and, increasingly, humans. In
1982, according to the Centers for Disease Control (CDC), the number of cases of
C. parvum 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 Cryptaz
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 Cryptaz 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 to initiate studies that may provide
additional indications for Cryptaz. These studies could include researching
Cryptaz 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/or
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
Cryptaz, 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 Cryptaz, 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 Searle 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.
Cryptaz, 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 Cryptaz-related patents directly.
The Company owns the Marinol, SERC, Anadrol, Androgel and Andractim
trademarks in the U.S. Use of the Cryptaz(TM) trademark is by agreement with
Romark Laboratories, L.L.C., the owner of the trademark.
EXECUTIVE OFFICERS
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<CAPTION>
TERM OF
NAME AGE POSITION BUSINESS EXPERIENCE
---- --- -------- -------------------
<S> <C> <C> <C>
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.
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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.
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.
<TABLE>
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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.
<TABLE>
<CAPTION>
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
Cryptaz 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
10-N -- Employment Agreement, dated as of November 3, 1994, between
the Company and Robert E. Dudley (filed by reference to
Exhibit 10-N to Annual Report on Form 10-K for fiscal year
ended December 31, 1995).
**10-R -- Distribution Agreement dated February 14, 1997, by and
between the Company and G.D. Searle & Co.
10-S -- Consulting Agreement dated July 23, 1996, by and between the
Company and E.J. Financial Enterprises, Inc (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.
*23-A -- Consent of Coopers & Lybrand, L.L.P.
*27 -- Financial Data Schedule
</TABLE>
- -------------------------
* Filed herewith.
** Confidential portions of the documents have been omitted and filed separately
with the SEC pursuant to Rule 24B-2 under the Exchange Act.
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
Cryptaz(TM), Androgel and Andractim. Successful development of Androgel and/or
Andractim may result in additional equity investment and milestone payments from
BioChem Pharma Inc.
F-9
<PAGE> 27
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The sublicense fee was $311,000. Concurrently, BioChem Pharma purchased for
$489,000, 50,771 shares of the Company's Common Stock.
Romark Laboratories, L.C.
In July 1996, the Company acquired an interest-bearing
convertible-subordinated debenture from Romark Laboratories, L.C. ("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 Cryptaz 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
affiliated company in Mexico, Syntex S.A de C.V. ("Syntex") 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.L
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 PROMULGATED
UNDER THE SECURITIES EXCHANGE ACT OF 1934,AS AMENDED
NORAC AGREEMENT FOR MANUFACTURE AND SALE OF THC
This AGREEMENT FOR MANUFACTURE AND SALE OF THC (this "Agreement") is made
as of January 1, 1995, by and between THE NORAC COMPANY, INC., a New Jersey
corporation ("NORAC"), and UNIMED PHARMACEUTICALS, INC., a Delaware corporation
("UNIMED"), with reference to the following facts:
WHEREAS, pursuant to an Agreement for Manufacture and Sale of THC dated
September 9, 1992 (the "Prior Contract"), UNIMED contracted with NORAC for the
manufacture by NORAC of D-9-tetrahydrocannabinol (the "product" or "THC") to
UNIMED'S specifications from the starting raw materials of olivetol and
paramenthadienol, and the sale of the completed product to UNIMED; and
WHEREAS, the Prior Contract has been completed; and
WHEREAS, NORAC and UNIMED wish to enter into a new contract for NORAC to
manufacture the product and sell it to UNIMED;
NOW, THEREFORE, in consideration of the covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. MANUFACTURE AND SALE OF PRODUCT. During the term of this Agreement,
NORAC agrees to manufacture and sell THC to UNIMED only, and UNIMED agrees to
purchase THC from NORAC only, all on the terms and subject to the conditions of
this Agreement. The term of this Agreement shall commence as of January 1,
1995 and terminate on December 31, 1999; provided, however, that this Agreement
shall be automatically renewed for additional one-year periods unless either
party has given the other party hereto at least one year's prior written notice
of its intention not to renew this Agreement.
1.1 1995 AND 1996 QUANTITIES AND PRICE. UNIMED ordered from NORAC a
target quantity of XXXXXXXXXXXX of product with an estimated delivery
date of December 31, 1995. Such order was delivered. UNIMED also
ordered from NORAC a target quantity of XXXXXXXXXXXX with an estimated
delivery date of December 31, 1996, at the following purchase prices per
kilogram of product:
<TABLE>
<CAPTION>
QUANTITY PRICE PER KG.
OF PRODUCT FOR 1996 ORDER
---------- --------------
<S> <C>
First XXXXXX/yr. $XXXXXX
Next XXXXXX/yr. $XXXXXX
After XXXXXX/yr. $XXXXXX
</TABLE>
<PAGE> 2
UNIMED's orders are firm and may not be cancelled unless this
Agreement is otherwise terminated in accordance with the terms hereof.
1.2 QUANTITIES AND PRICES AFTER 1996. In the event that UNIMED
fails to place an order for any of the remaining calendar years
hereunder of the initial term (i.e., 1997, 1998 and 1999), or any
extension thereof, for at least XXXXXXXXXXXX of product, UNIMED shall pay
to NORAC an amount equal to the difference between XXXXXXXXXXXXXXXXX made
by NORAC on product sold to UNIMED during the preceding calendar year).
In such event, NORAC shall inform UNIMED of the shortfall, and UNIMED
shall pay such amount to NORAC not later than December 31 of such year.
Notwithstanding the foregoing sentence, UNIMED shall not be obligated to
reimburse NORAC for any shortfall below XXXXXXXXXXXX if (i) the shortfall
is due to an allotment of the Drug Enforcement Administration (the "DEA")
for such lesser amount, and (ii) UNIMED has used its commercially
reasonable efforts to assist NORAC and Banner (or such other packaging
company engaged by UNIMED) in obtaining a DEA allotment of XXXXXXXXXXXX
or more. UNIMED acknowledges and agrees that NORAC's estimated current
capacity for manufacture of the product is XXXXXXXXXXXXXX, and that NORAC
may be unable to accommodate, and UNIMED shall not place, orders in
excess of that capacity or in excess of amounts permitted under
applicable laws and regulations (including, but not limited to, DEA
regulations and orders). The order for any given year shall be placed
with NORAC by July 1 of the preceding year and the estimated delivery
date of such order shall be no later than December 31 of the year for
which ordered (e.g., the order for 1997 shall be placed by July 1, 1996
and the estimated delivery date shall be December 31, 1997.) The price
for the product shall be the base purchase price set forth in Section 1.1
with the adjustment provided for in Section 1.3.
1.3 XXXXXXXXXXXXXXXXXXXXX
1.4 PAYMENT OF PURCHASE PRICE FOR PRODUCT; REQUEST FOR RETAINS;
ABANDONMENT OF BATCH.
1.4.1 PAYMENT. UNIMED will pay to NORAC the purchase price
for each batch of the product, as such purchase price is specified
in or determined pursuant to Section 1, XXXXXXXXXX, such
installments to be payable upon the occurrence of the following
milestones for such batch:
<TABLE>
<CAPTION>
NO. MILESTONE
--- ---------
<S> <C>
1 XXXXXXXXXXXX
2 XXXXXXXXXXXX
3 XXXXXXXXXXXX
4 XXXXXXXXXXXX
5 XXXXXXXXXXXX
6 XXXXXXXXXXXX (see
Section 1.5)
</TABLE>
2
<PAGE> 3
Upon the occurrence of each of milestones 1 through 5, NORAC
shall notify UNIMED of the occurrence thereof and, except for
the installment of the purchase price with respect to XXXXXXXXXXX
which shall be due and payable pursuant to Section 1.4.2, the
installment of the purchase price with respect to such milestone
shall be due and payable within ten (10) days thereafter. The
XXXXXXXXXXXXXXXXX of the purchase price shall be due and payable as
provided in Section 1.5. The XXXXXXXXXXXXXXXXX shall be adjusted
to reflect any difference between the installment payments made
under this Section and the purchase price for such product.
1.4.2 REQUEST FOR RETAIN OF PRODUCT. UNIMED may, within ten
(10) days following NORAC's notification of the occurrence of
milestone 3 described in Section 1.4.1 for each batch of the
product, request delivery of one Retain of the product (as defined
below) for UNIMED's analysis and approval (which approval shall not
be unreasonably withheld), provided that UNIMED or a laboratory
designated by UNIMED ("Licensed Laboratory") has all licenses and
approvals required by applicable laws and regulatory authorities to
accept delivery and analyze the product. ("Retain" for purposes of
this Agreement shall mean a representative sample of any given
batch of the product.) NORAC shall deliver a Retain of the product
to UNIMED or the Licensed Laboratory designated by UNIMED within
twenty (20) days following the date NORAC is notified of UNIMED's
request for such Retain pursuant to this Section. If UNIMED elects
to analyze the product, UNIMED shall notify NORAC of its approval
within twenty-one (21) days following the receipt by UNIMED or the
Licensed Laboratory designated by UNIMED of the Retain;
alternatively, UNIMED shall notify NORAC within such twenty-one
(21) day period of its reasons for not approving the Retain. In
the event that UNIMED approves of the Retain, UNIMED shall deliver
to NORAC the payment of the installment of the purchase price for
the product with respect to milestone 3 prior to the expiration of
the twenty-one (21) day approval period specified herein. In the
event that UNIMED disapproves of the Retain and NORAC agrees with
the reasons for such disapproval, NORAC may, at its option, either
(i) correct the deficiencies in the unfinished product identified
by UNIMED, notify UNIMED of such correction and send a new Retain
of the unfinished product to UNIMED or the Licensed Laboratory
designated by UNIMED for analysis and approval by UNIMED in
accordance with this Section (i.e., a new twenty-one (21) day
approval period shall apply), or (ii) abandon the product pursuant
to Section 1.4.3, in which case the provisions of Section 1.4.3
shall apply. In the event that UNIMED disapproves of the Retain
and NORAC disagrees with the reasons for such disapproval, the
dispute shall be resolved by an independent testing organization of
recognized repute within the U.S. pharmaceutical industry agreed
upon by the parties (which agreement shall not be unreasonably
withheld or delayed by either
3
<PAGE> 4
party), provided that such organization has all licenses and
approvals required by applicable laws and regulatory authorities to
accept delivery and analyze the product. The cost of such
determination shall be borne by the party against whom the decision
is made.
1.4.3 ABANDONMENT OF BATCH. NORAC may abandon the
manufacture of any batch of the product at any time prior to the
issuance by NORAC's laboratory of a Certificate of Analysis with
respect to such batch. In the event of the abandonment of the
manufacture of any batch ("Abandoned Batch"), NORAC shall
notify UNIMED of such abandonment and, at NORAC's option, (i)
commence the manufacture of a new batch ("Replacement Batch"); or
(ii) return to UNIMED all installments of the purchase price for
the Abandoned Batch received prior to the date of abandonment. In
the event that NORAC elects to commence the manufacture of a
Replacement Batch following the abandonment of an Abandoned Batch,
(a) all installments of the purchase price previously received by
NORAC with respect to the Abandoned Batch shall be credited against
the installments of the purchase price payable with respect to the
Replacement Batch, and (b) UNIMED shall not be required to pay any
installments of the purchase price for the Replacement Batch until
the Replacement Batch reaches the same stage in the manufacturing
process as the Abandoned Batch had reached at the time of its
abandonment at which time UNIMED shall be required to pay any and
all additional installments of the purchase price with respect to
the Replacement Batch in accordance with Sections 1.4.1 and 1.5.
NORAC may use all or any portion of an Abandoned Batch in the
manufacture of a Replacement Batch.
1.5 DELIVERY. Upon the purification and distillation of the product
(milestone 6 described in Section 1.4.1) and the issuance of a
Certificate of Analysis by NORAC's laboratory, NORAC shall notify UNIMED
of same and, if so requested by UNIMED within ten (10) days of such
notification, NORAC shall send a Retain of the product to UNIMED or the
Licensed Laboratory designated by UNIMED for analysis and approval by
UNIMED (which approval shall not be unreasonably withheld), provided that
UNIMED or the Licensed Laboratory designated by UNIMED, as the case may
be, has all licenses and approvals required by applicable laws and
regulatory authorities to accept delivery and analyze the product. If
UNIMED elects to analyze the product, UNIMED shall notify NORAC of its
approval within twenty-one (21) days following the receipt of the Retain
by UNIMED or the Licensed Laboratory designated by UNIMED; alternatively,
UNIMED shall notify NORAC within such twenty-one (21) day period of its
reasons for not approving the Retain. In the event that UNIMED
disapproves of the Retain and NORAC agrees with the reasons for such
disapproval, NORAC may, at its option, either (i) correct the
deficiencies in the product identified by UNIMED, notify UNIMED of such
correction and send a new Retain of the product to UNIMED or the Licensed
Laboratory designated by UNIMED for analysis and approval by UNIMED in
4
<PAGE> 5
accordance with this Section (i.e., a new twenty-one (21) day approval
period shall apply), or (ii) abandon the product pursuant to Section
1.4.3, in which case the provisions of Section 1.4.3 shall apply. In the
event that UNIMED disapproves of the Retain and NORAC disagrees with the
reasons for such disapproval, the dispute shall be resolved by an
independent testing organization of recognized repute within the U.S.
pharmaceutical industry agreed upon by the parties (which agreement shall
not be unreasonably withheld or delayed by either party), provided that
such organization has all licenses and approvals required by applicable
laws and regulatory authorities to accept delivery and analyze the
product. The cost of such determination shall be borne by the party
against whom the decision is made. The sixth installment of the purchase
price for such batch shall be due and payable concurrently with UNIMED's
approval; provided, however, in the event that UNIMED does not have, and
UNIMED does not designate, a Licensed Laboratory which has all licenses
and approvals required by applicable laws and regulatory authorities to
accept delivery and analyze the Retain at the time of NORAC's
notification to UNIMED of the issuance of a Certificate of
Analysis for a batch of the product by NORAC's laboratory, the sixth
installment of the purchase price for such batch of the product shall be
due and payable within ten (10) days following such notification. Upon
receipt by NORAC of UNIMED's approval and the sixth installment of the
purchase price for such batch, the finished product shall be placed in
UNIMED's safe at NORAC's plant in Azusa, California (or if already in
UNIMED's safe, shall be segregated therein). Title to the product shall
pass to UNIMED upon placement or segregation, as the case may be, of the
product in UNIMED's safe following approval and payment, which act shall
constitute delivery to UNIMED and the date of which shall be herein
referred to as the "date of delivery." UNIMED may remove the finished
and paid for product from its safe at any time on or after the date of
delivery, provided that UNIMED has all licenses and approvals required by
applicable laws and regulatory authorities to take possession of the
product. Within a reasonable period following notification by NORAC that
NORAC's reasonable storage capacity for product has been reached, UNIMED
shall remove sufficient delivered product from NORAC's premises to allow
NORAC to continue production and delivery of the product. Within thirty
(30) days following the termination of this Agreement, UNIMED shall
remove all delivered product from NORAC's premises.
2. COMMERCIALLY REASONABLE EFFORTS BY NORAC; DELAYS IN DELIVERY. The
parties acknowledge and agree that the manufacture of THC is a complicated
process and that unexpected problems can arise during its production. Such
problems can include, but are not limited to, total or partial failure of
batches, shortages in batches, inability to manufacture or deliver the product
or delays in such manufacture or delivery (whether caused by inability or delay
in obtaining approvals from the DEA or other regulatory agencies or caused by
other factors), and the inability to obtain raw materials. NORAC will use
commercially reasonable efforts in meeting agreed production and delivery
schedules for the product as provided in this Agreement and in all construction
and manufacturing activities under this Agreement. NORAC will not be liable for
any damages of any nature or character whatsoever (including, but not
5
<PAGE> 6
limited to any increased cost of obtaining replacement product, lost
profits, and incidental and consequential damages) suffered by UNIMED by reason
of the failure of NORAC to manufacture and deliver the product in the amounts
and at the times agreed upon by the parties; provided, however, that the sole
and exclusive remedies of UNIMED shall be as provided in Section 7.3 hereof and
the remaining sentences of this Section 2, to the extent that each is
applicable. In the event that at least two-thirds (2/3) of the full amount of
product ordered by UNIMED is not delivered within ninety (90) days (or such
longer period as UNIMED approves in writing) after the delivery date specified
for such order, there shall be refunded to UNIMED, as its sole remedy, all
installment payments made for product not delivered. NORAC will keep UNIMED
informed of any potential delays in delivery and the parties agree to discuss
possible mutually agreeable solutions to any such problems. UNIMED may, at its
option, elect to extend any delivery period in writing. If such failure to
deliver at least two-thirds (2/3) of the full amount of product is due to
NORAC's material breach of its obligation to make a commercially reasonable
effort to produce and deliver the product (subject to Section 10.5), the sole
remedy (in addition to a refund on installment payments for THC not delivered
and the remedy provided by Section 7.3 below) which UNIMED shall have, in law
or in equity, is that UNIMED, at its option, may terminate this Agreement by
notification to NORAC within thirty (30) days after such ninety (90) day
period.
3. OBLIGATIONS OF NORAC.
3.1 SAMPLES AND BATCH RECORDS. During the term hereof, NORAC shall
prepare and maintain batch records and a file sample, properly stored,
from each batch of product manufactured. Upon termination of this
Agreement, NORAC shall offer such file samples to UNIMED, provided that
NORAC shall thereafter have access to same if required for regulatory or
other purposes required by law.
3.2 VISITS BY UNIMED. Subject to Section 10.16, NORAC shall permit
UNIMED's designated representatives to visit NORAC's facility at which
the product is manufactured from time to time for the purpose of
determining compliance with this Agreement, provided such inspections
shall occur after reasonable notice during regular business hours and
each visitor shall comply with NORAC's security procedures.
3.3 CHANGES BY NORAC. During the term hereof, NORAC may make
material modifications to the manufacturing equipment, or to the portion
of its manufacturing facility at which the product is manufactured, only
after providing written notice to UNIMED, and then only if such
modifications are in compliance with regulations and orders of the U.S.
Food and Drug Administration ("FDA"). NORAC may, without further
investigation, conclusively rely on any written notice by UNIMED that any
such modifications are in compliance with FDA regulations and orders,
which notification by UNIMED shall not be unreasonably withheld or
delayed by UNIMED.
6
<PAGE> 7
3.4 INSPECTIONS BY GOVERNMENT AGENCIES. NORAC shall promptly notify
UNIMED of any inspections by federal, state or local regulatory
representatives of the parties of its manufacturing facility at which the
product is manufactured and the results of any such inspections,
including actions taken by NORAC to remedy conditions cited in such
inspections.
3.5 PERMITS. NORAC shall obtain and maintain all licenses, permits
and registrations necessary for NORAC to manufacture and supply the
product hereunder, provided that there can be no assurances that DEA
allotments will remain available in any specific amount that may be
desired by Unimed; further provided, that NORAC agrees to use its
commercially reasonable efforts to obtain such allotment in the amount
requested by UNIMED from time to time and that UNIMED agrees to use its
commercially reasonable efforts to assist NORAC and Banner (or such other
packaging company engaged by UNIMED) in obtaining such allotment in the
amount requested by UNIMED from time to time.
3.6 ACCESS TO RECORDS. During the term hereof and for such longer
period as may be required by law, NORAC shall maintain, and (subject to
Section 10.16) shall grant UNIMED reasonable access to, all books and
records (including, but not limited to, batch records) related to the
manufacture of the product as may be necessary to determine compliance
with this Agreement or for such other purpose as may be required by law.
4. NORAC'S COVENANTS AND WARRANTIES. NORAC hereby covenants, represents
and warrants that:
4.1 COMPLIANCE WITH NDA. All product manufactured for UNIMED
pursuant to this Agreement shall, upon delivery to UNIMED, meet all
pertinent specifications in New Drug Application No. 18-651 (together
with all amendments and supplements thereto, if any) (the "NDA"), copies
of which specifications have been provided by UNIMED to NORAC, and any
other specifications for the product mutually agreed upon in writing by
NORAC and UNIMED.
4.2 COMPLIANCE WITH LAWS. NORAC will store all raw materials and
will manufacture and store the product in compliance with all then
applicable laws, rules, orders and regulations, including all then
current Good Manufacturing Practices of the FDA.
4.3 COMPLIANCE WITH THE ACT. As of the time of delivery of the
product to UNIMED, such shipment will not be, in whole or in part, (i)
adulterated within the meaning of the federal Food, Drug and Cosmetic Act
(the "Act"), or any applicable state law with a substantially similar
definition of adulteration; or (ii) an article which may
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not, under the provisions of Section 404 or 505 of the Act, be
introduced into interstate commerce.
4.4 TITLE TO THE PRODUCT. NORAC will have good title to all product
sold hereunder, which title shall pass to UNIMED as provided herein free
and clear of any lien or other conflicting interest of any kind of any
person claiming through NORAC.
4.5 NO OTHER WARRANTIES. Except as expressly set forth in this
Section 4, NO OTHER WARRANTY IS EXPRESS OR IMPLIED. NORAC SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. The provisions of Sections 4.1, 4.2 and 4.3 shall
expire, and have no further force and effect, with any respect to any
particular batch of product upon the delivery thereof to UNIMED.
5. UNIMED COVENANTS AND WARRANTIES. UNIMED hereby covenants, represents
and warrants that:
5.1 PERMITS. UNIMED will use commercially reasonable efforts to
maintain the NDA in effect.
5.2 FDA. UNIMED shall promptly notify NORAC of any additions to or
changes in FDA or other laws, rules, orders or regulations or to the NDA
which would affect the manufacture or storage of the product.
5.3 NO INFRINGEMENT. The product, when manufactured in accordance
with the specifications set forth in the NDA, does not infringe the
patent or other rights of any third person.
6. USE OF EQUIPMENT; CONSTRUCTION.
6.1 UNIMED EQUIPMENT. UNIMED has previously provided certain
equipment to NORAC for use by NORAC at its plant in Azusa, California in
connection with the manufacture of the product. UNIMED agrees that NORAC
may continue to use such equipment, together with all equipment
subsequently added pursuant to this Section 6 (collectively, the "UNIMED
Equipment"), without rent or other charge, throughout the duration of
this Agreement exclusively for the manufacture and sale of the product to
UNIMED. Upon termination of this Agreement, all of the UNIMED Equipment
shall, subject to Section 6.4 hereof, be returned to UNIMED at UNIMED's
expense.
6.2 FURTHER WORK. All costs, including but not limited to labor,
supplies, equipment and building permits, incurred in connection with the
acquisition of further
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equipment, construction projects and other work, all of which must be
expressly approved in advance in writing by UNIMED, shall be paid by
UNIMED. Details of costs shall be provided to UNIMED upon request.
6.3 COSTS OF CONSTRUCTION. Costs of work undertaken pursuant to
Section 6.2 shall include, but not be limited to, the following:
6.3.1 LABOR. All construction labor, other than normal
maintenance, shall be reimbursed by UNIMED at three (3) times the
direct hourly wage of each employee involved.
6.3.2 CONTRACTORS. All outside contractors engaged by NORAC
to assist in construction or other work shall be reimbursed by
UNIMED at cost plus ten percent (10%).
6.3.3 MATERIALS AND EQUIPMENT. NORAC shall be reimbursed by
UNIMED for all materials and equipment purchased by NORAC for work
requested or approved by UNIMED, at the identified cost therefor,
plus ten percent (10%) to cover the cost of miscellaneous supplies
and materials.
6.4 NORAC'S RIGHT OF FIRST REFUSAL. In the event that during the
term of this Agreement UNIMED desires to sell or otherwise transfer all
or any part of the UNIMED Equipment, UNIMED shall first offer in writing
to sell such equipment to NORAC at the same price and on the same terms
as offered by a bona fide purchaser offering to purchase such equipment
(the "Offer"). Such notice to NORAC shall be accompanied by a copy of
the Offer. NORAC shall have ten (10) days following the date of such
notice to elect to exercise its right of first refusal by so notifying
UNIMED in writing and by payment for such equipment at the price and on
the terms specified in the Offer within thirty (30) days after the
expiration of such ten (10) day period. If NORAC shall fail to so notify
UNIMED within the said ten (10) day period, it shall be deemed to have
rejected said offer. In that event, UNIMED may sell or transfer such
equipment to said bona fide purchaser provided that such equipment is
sold at a price at least equal to the price stated in the Offer and in
accordance with the other terms stated therein, and the provisions of
this Section 6.5 shall not thereafter apply to any subsequent sales or
other transfers of such equipment. If, however, no such sale or transfer
is consummated within one hundred twenty (120) days from the date of the
original Offer, the foregoing requirement that the UNIMED first offer to
sell such equipment to NORAC shall again apply.
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7. DEFAULT.
7.1 EVENT OF DEFAULT. It shall constitute an event of default by a
party under this Agreement if such party is in material breach of its
duties and obligations under this Agreement (including, but not limited,
to any failure to pay money when due) and fails to cure the same within
thirty (30) days after written notice thereof is given by the other
party.
7.2 TERMINATION. Upon the occurrence hereunder of any event of
default by a party hereto, (which event of default has not been cured
within the thirty (30) day period described in Section 7.1), the other
party may, upon notice to the defaulting party, and in addition to all
other rights and remedies available to it under this Agreement or at law
or in equity (except as otherwise expressly provided in this Agreement),
terminate this Agreement within a reasonable time after the occurrence of
such event of default.
7.3 TRANSFER OF TECHNOLOGY.
7.3.1 WRONGFUL TERMINATION OR FAILURE TO USE COMMERCIALLY
REASONABLE EFFORTS. In the event that NORAC either (i)
terminates this Agreement other than in accordance with any of the
provisions of this Agreement, or (ii) materially breaches its
obligation to make a commercially reasonable effort to produce and
deliver the product pursuant to this Agreement, then NORAC shall
immediately grant to UNIMED a perpetual, royalty free license to
all manufacturing know-how and technology used by NORAC to
manufacture THC. The foregoing license (i) shall be exclusive to
UNIMED, with the right to grant sublicenses, with respect to the use
of such know-how and technology to manufacture THC, and (ii) shall
permit UNIMED and its sublicensees to use such know-how and
technology only to manufacture THC and for no other purpose. NORAC
shall retain all rights to use such know-how and technology
(including the right to grant sublicenses) for the manufacture of
products other than THC.
7.3.2 OTHER TERMINATION. In the event of any termination of
this Agreement that occurs other than as described in clauses
(i) or (ii) of Section 7.3.1 above, and other than by reason of a
breach of this Agreement by UNIMED, the parties agree to discuss a
grant by NORAC to UNIMED of a license to use all of its
manufacturing know-how and technology used by NORAC to manufacture
the product for UNIMED, for such consideration as the parties may
mutually agree.
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8. INSURANCE.
8.1 PROPERTY AND CASUALTY INSURANCE. UNIMED shall provide property
insurance coverage for UNIMED'S equipment and finished product at
NORAC'S facility in accordance with standard practice in the industry.
UNIMED and NORAC shall be shown as loss payees thereunder as their
interests may appear. NORAC shall provide adequate property insurance
for the replacement cost of NORAC'S plant and equipment, to the extent
utilized in the production of the product. NORAC shall be reimbursed, in
accordance with Section 6.2 and other provisions of this Agreement, for
any out-of-pocket or labor costs it incurs in rebuilding, repairing or
replacing UNIMED's equipment or property used in the production of the
product.
8.2 LIABILITY INSURANCE OF UNIMED. UNIMED shall procure and
maintain in effect at all times during and after the term of this
Agreement, at UNIMED's sole cost and expense, a commercial general
liability policy of insurance in the minimum amount of $1,000,000,
combined single limit, and a products liability policy of insurance in
the minimum amount of $3,000,000, combined singly limit, insuring against
personal injury and property damage caused by storage after delivery,
distribution, sale, or use of the product, and contractual liability.
Each of such insurance policies shall (i) either be written on a claims
made or occurrence basis, at UNIMED's option; (ii) be obtained from an
insurer reasonably acceptable to NORAC; (iii) name NORAC as an additional
insured; (iv) contain a waiver of subrogation clause; (v) contain a
cross-liability endorsement or severability of interest clause in favor
of NORAC and UNIMED, including a waiver of any exclusion of liability
arising from a claim by one named insured against another named insured;
(vi) include broad form contractual liability coverage insuring UNIMED's
obligation to indemnify NORAC pursuant to Section 9.1; (vii) be
reasonably satisfactory to NORAC in form and content; (viii) state that
it is primary and not contributing with any other insurance maintained by
NORAC; and (ix) require that NORAC be given at least thirty (30) days'
prior written notice of the modification, cancellation or expiration
thereof. Concurrently with its execution of this Agreement, UNIMED shall
deliver to NORAC a certificate of insurance evidencing such insurance
policy and a copy of such insurance policy. The provisions of this
Section 8.2 shall survive the expiration or termination of this
Agreement.
8.3 LIABILITY INSURANCE OF NORAC. NORAC shall procure and maintain
in effect at all times during the term of this Agreement and for a period
of one (1) year thereafter, at NORAC's sole cost and expense, a
commercial general liability policy of insurance in the amount of
$1,000,000, combined single limit, insuring against personal injury and
property damage caused by the manufacture of the product and storage
thereof prior to delivery. NORAC shall not be obligated to approve or
maintain products liability insurance coverage. The commercial general
liability insurance policy required to be maintained by NORAC hereunder
shall (i) be written on a claims made or
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occurrence based policy, at NORAC's option; (ii) be obtained from an
insurer reasonably acceptable to UNIMED; (iii) name UNIMED as an
additional insured; (iv) contain a waiver of subrogation clause; (v)
contain a cross-liability endorsement or severability of interest clause
in favor of UNIMED and NORAC, including a waiver of any exclusion of
liability arising from a claim by one named insured against another named
insured; (vi) be reasonably satisfactory to UNIMED in form and content;
(vii) state that it is primary and not contributing with any other
insurance maintained by UNIMED; and (vii) require that UNIMED be given at
least thirty (30) days' prior written notice of the modification,
cancellation or expiration thereof. Concurrently with its execution of
this Agreement, NORAC shall deliver to UNIMED a certificate of insurance
evidencing such insurance policy and a copy of such insurance policy.
8.4 WORKERS' COMPENSATION OF NORAC. NORAC shall procure and
maintain in effect at all times during the term hereof workers'
compensation insurance policy, including employer's liability coverage in
accordance with applicable laws.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY UNIMED. UNIMED agrees to indemnify and
defend NORAC and hold it harmless from and against any and all claims,
damage, liability, loss, cost or deficiency (including, but not limited
to, reasonable attorneys' fees and other costs and expenses incident to
any suit, action, proceeding, inquiry or investigation or the defense of
any claim or for enforcing this indemnification provision) and to pay
NORAC on demand the full amount of any expenses, claims, liabilities or
other sums which NORAC pays or becomes obligated to pay on account of,
arising from or related to the storage after delivery, distribution, sale
or use of the product hereunder, including but not limited to breach of
warranty, strict liability or product liability claims (except to the
extent that NORAC is obligated with respect to such claims under Section
9.2). The provisions of this Section 9.1 shall survive the termination
of this Agreement.
9.2 LIMITATION OF LIABILITY OF NORAC; INDEMNIFICATION BY NORAC.
9.2.1 LIMITATION OF LIABILITY OF NORAC. UNIMED acknowledges
and agrees that notwithstanding any other provisions of this
Agreement, NORAC's liability hereunder and to third parties shall
be limited to claims, damages, losses, liabilities, costs or
deficiencies (including, but not limited to reasonable attorneys'
fees), arising from or related to the manufacture of the product or
storage thereof prior to delivery solely to the extent that the
injuries or damages giving rise to such claims occur and are
actually known by NORAC during the period of manufacture of the
product and storage thereof prior to delivery and shall exclude any
and all products liability claims; provided, however, that this
Section 9.2.1 shall not be construed to negate or supersede
UNIMED's remedies set forth in
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Sections 2 and 7.3 hereof under certain circumstances
specifically set forth therein. Nothing in this Section is
intended to affect any other limitations on the liability of NORAC
under any other provision of this Agreement or otherwise. The
limitation on NORAC's liability hereunder is a material
consideration for NORAC entering into this Agreement, it being the
understanding of the parties that UNIMED is providing NORAC with
the specifications for the manufacture of the product and the
approval of the product by UNIMED pursuant to Section 1.5 shall
constitute UNIMED's agreement and approval that the product
conforms to such specifications and the full and complete release
of NORAC and its directors, officers, employees, agents and
shareholders with respect to any and all claims, damages, losses,
costs or deficiencies, known and unknown, arising from or relating
to the manufacture or storage of the product.
9.2.2 INDEMNIFICATION BY NORAC. NORAC agrees to indemnify and
defend UNIMED and hold it harmless from and against any and all
claims, damage, liability, loss, cost or deficiency (including, but
not limited to, reasonable attorneys' fees and other costs and
expenses incident to any suit, action, proceeding, inquiry or
investigation or the defense of any claim or for enforcing this
indemnification provision) and to pay UNIMED on demand the full
amount of any expenses, claims, liabilities or other sums which
UNIMED pays or becomes obligated to pay on account of, arising from
or related to the manufacture of the product or storage thereof
prior to delivery solely to the extent that the injuries or damages
giving rise to such claims occur and are actually known by NORAC
during the period of manufacture of the product or storage thereof
prior to delivery (except to the extent that such claims arise from
UNIMED's gross negligence or willful misconduct). In no event
shall NORAC's indemnification obligations hereunder apply to any
products liability claims.
9.2.3 SURVIVAL. The provisions of this Section 9.2 shall
survive the termination of this Agreement.
10. MISCELLANEOUS.
10.1 WAIVER, AMENDMENTS AND MODIFICATIONS. Any of the terms or
conditions of this Agreement may be waived at any time by the party which
is entitled to the benefit thereof only by a writing executed by the
waiving party. This Agreement may be amended or modified at any time, in
whole or in part, only by a writing executed by the respective parties.
The provisions of this Section 10 shall survive the termination of this
Agreement.
10.2 NOTICES. All notices, requests and other communications
required or permitted hereunder shall be in writing, addressed to the
respective parties as follows:
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NORAC
The NORAC Company, Inc.
405 South Motor Avenue
Azusa, California 91702
Attention: President
UNIMED
Unimed Pharmaceuticals, Inc.
2150 E. Lake Cook Road, Suite 210
Buffalo Grove, Illinois 60089
Attention: Stephen M. Simes, President
Any notice or other communication sent by registered or certified mail,
return receipt requested, shall be effective on the date of receipt or
refusal of delivery by the addressee, as specified on the return receipt
therefor. Notice given in any other manner shall be effective upon
actual receipt by the addressee. Any party may change its address for
purposes of this Section by giving notice to the other party as provided
in this Section.
10.3 ASSIGNMENT.
10.3.1 This Agreement shall not be assignable by either party
without the prior written consent of the other. Notwithstanding the
foregoing, NORAC may, upon UNIMED's prior written consent which
shall not be unreasonably withheld, assign this Agreement and
delegate its performance hereunder to a wholly-owned subsidiary of
NORAC, and thereupon NORAC shall have no further obligations under
this Agreement, except in the event of the breach by such subsidiary
of any of its obligations under Section 1.4 to deliver to UNIMED any
batch of product and the failure by such subsidiary to return to
UNIMED any and all installments of the purchase price for such batch
previously paid by UNIMED pursuant to Section 1.4, NORAC shall be
obligated to return any such installments to UNIMED and NORAC shall
have no further obligations under this Agreement.
10.3.2 Notwithstanding the foregoing Section 10.3.1, either
party may assign its rights and obligations hereunder to a
successor by merger or to a purchaser of all or substantially all of
its business to which this Agreement relates (provided, however, that
this section shall not affect the provisions set forth in Section
10.4 or the subsections thereof or the protections to UNIMED
described therein).
10.4 UNIMED'S RIGHT OF FIRST REFUSAL. NORAC and its shareholders,
as an inducement to UNIMED to enter into this Agreement, agree as
follows:
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10.4.1 The shareholders of NORAC agree that during the term
of this Agreement they shall not sell or otherwise transfer a
controlling interest in NORAC (as "control" is defined in Section
10.4.5) to a direct competitor of UNIMED (as such term is defined
in Section 10.4.5), other than in accordance with this Section
10.4.
10.4.2 NORAC agrees that during the term of this Agreement it
shall not sell or otherwise transfer that portion of its
manufacturing facility in Azusa, California at which the product is
manufactured (such portion of the manufacturing facility being
herein referred to as the "Plant") other than in accordance with
the provisions of this Section 10.4. Notwithstanding the
foregoing:
(i) A sale or other transfer of the Plant to any person
or entity which controls, is controlled by or is under common
control with NORAC (as "control" is defined in Section
10.4.5) (such person or entity being herein referred to as a
"Control Person") shall not be subject to the provisions of
this Section 10.4; provided, however, any further sale or
other transfer of the Plant (except to another Control
Person) shall continue to be subject to the provisions of
this Section 10.4.
(ii) The foregoing provisions of this Section 10.4.2
shall not apply to any sale or other transfer of all or
substantially all of NORAC's manufacturing facility in Azusa,
California, of which the Plant is a portion; provided,
however, that it shall be a condition of such sale or other
transfer that any purchaser or other transferee shall assume
the obligations of NORAC under this Agreement.
10.4.3 If NORAC or its shareholders, as the case may be
("Offeror"), desire to sell or otherwise transfer a Subject
Interest (as defined in Section 10.4.5), as provided in Sections
10.4.1 or 10.4.2, the Offeror shall first offer in writing to sell
the Subject Interest to UNIMED at the same price and on the same
terms as offered by a bona fide purchaser offering to purchase the
Subject Interest (the "Offer"). Such notice to UNIMED shall be
accompanied by a copy of the Offer. UNIMED shall have ten (10)
days following the date of such notice to elect to exercise its
right of first refusal by so notifying the Offeror in writing and
by payment for such Subject Interest at the price and on the terms
specified in the Offer within thirty (30) days after the expiration
of such ten (10) day period.
10.4.4 If UNIMED shall fail to so notify the Offeror within
the said ten (10) day period, it shall be deemed to have rejected
said offer. In that event, the Offeror may sell or transfer the
Subject Interest to said bona fide purchaser
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provided that the Subject Interest is sold at a price at least
equal to the price stated in the Offer and in accordance with the
other terms stated therein, and the provisions of this Section 10.4
shall not thereafter apply to any subsequent sales or other
transfers of any Subject Interest. If, however, no such sale or
transfer is consummated within one hundred twenty (120) days from
the date of the original Offer, the foregoing requirement that the
Offeror first offer to sell the Subject Interest to UNIMED shall
again apply.
10.4.5 As used in this Section 10.4, the following terms
shall have the meanings specified in this Section 10.4.5:
"Control" shall mean having the power to direct or cause
direction of the management and policies of NORAC.
A "direct competitor of UNIMED" shall mean an entity
that sells a pharmaceutical product which directly competes
with Marinol.
"Subject Interest" shall mean either a controlling
interest in NORAC (provided that it is sold or otherwise
transferred to a direct competitor of UNIMED) or the Plant.
10.5 FORCE MAJEURE.
10.5.1 No party shall be liable for any failure to perform
its obligations hereunder where such failure results from causes
beyond the reasonable control of such party, including, without
limitation, strikes, lockouts, labor disputes, embargoes, acts of
God, inability to obtain labor or materials, governmental
restrictions, governmental regulations, governmental orders,
judicial orders, enemy or hostile governmental action, civil
commotion, earthquake, fire or other casualty, provided that the
party claiming the force majeure has given prompt notice thereof
to the other party. Performance by the party claiming the force
majeure shall be suspended for the duration of the force majeure,
subject to Section 10.5.2 below.
10.5.2 Notwithstanding the foregoing, in the event the
claimed force majeure prevents NORAC from commencing manufacture of
the product within six (6) months from the occurrence of the event
of force majeure, either party may terminate this Agreement and
cancel all orders for product hereunder not yet delivered
immediately upon written notice to the other. Upon notice of such
termination and cancellation, NORAC shall immediately refund to
UNIMED any and all amounts paid by UNIMED hereunder for product not
yet delivered. NORAC will, if requested, assist UNIMED in finding
alternative sources of supply for the product.
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10.6 PARTIES. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person, other than the parties hereto and
their successors and permitted assigns, any rights or remedies under or
by reason of this Agreement.
10.7 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach or interpretation thereof,
shall be resolved by binding arbitration in Los Angeles County,
California. The arbitrator, who shall be a retired judge of the Superior
Court, shall be selected jointly by the parties, or if the parties fail
to do so, shall be appointed by Judicial Arbitration and Mediation
Services, Inc. The arbitration shall be conducted in accordance with the
provisions of Part 3, Title 9 (Section 1280 et seq.) of the California
Code of Civil Procedure. The provisions of Section 1283.05 of the
California Code of Civil Procedure, which provides for certain discovery
procedures, is by this reference made a part hereof. A judgment upon the
award rendered in the arbitration may be entered in any court having
jurisdiction thereof. Neither the provisions of this Section nor the
exercise of any rights hereunder shall limit the right of any party to
institute and maintain litigation in order to obtain, at any time,
provisional or ancillary remedies including, without limitation,
attachment and injunctive relief; the institution and maintenance of such
litigation shall not constitute a waiver of the right of any party to
submit any controversy or claim to arbitration as herein provided. In
any action or arbitration proceeding brought under or arising out of or
relating to this Agreement, or the breach or interpretation thereof, each
party hereby consents to the jurisdiction of any competent court within
the State of California and to service of process by any means authorized
by California law.
10.8 ATTORNEYS' FEES. If any proceeding (including any arbitration
proceeding) is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection
with the provisions hereof, the successful or prevailing party in such
proceeding shall be entitled to recover its reasonable attorneys' fees
and other costs incurred in such proceeding.
10.9 LATE PAYMENT. If any amount is not paid when due under this
Agreement, interest shall thereafter accrue on such amount at a rate of
three percentage points (3%) in excess of the "prime rate" as reported in
The Wall Street Journal (or if more than one prime rate is reported, the
highest thereof) until such payment is received by the party to whom such
payment is owed (the "payee"), and, in addition, in the event that the
person obligated to make such payment (the "payor") fails to make payment
to the payee within twenty-one (21) days following the delivery to the
payee of written notice of non-payment, the payee shall be entitled to
receive a late charge in an amount equal to ten percent (10%) of the
overdue amount. The parties recognize that a default in making payments
as provided herein will require the payee to incur additional costs and
expenses
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and that the damages caused thereby would be extremely difficult
and impractical to ascertain. The parties agree that an amount equal to
the late charge plus the accrual of interest at the prime rate plus 3% is
a reasonable estimate as of the date hereof of the damage to the payee in
the event of late payment.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute only one instrument.
10.11 INTERPRETATION. The section headings of this Agreement are
for the convenience of reference only and shall not be deemed to alter or
affect the meaning of any provision hereof. This Agreement has been
reviewed by both parties and their respective counsel, and as a result,
shall be given a fair and reasonable interpretation without consideration
or weight being given to its having been drafted by any one party or its
counsel.
10.12 ENTIRE AGREEMENT. This Agreement hereto constitutes the
final, complete and exclusive agreement between the parties and
supersedes any and all prior negotiations, discussions, understandings
and agreements between the parties relating to the subject matter hereof
(including, but not limited to the Prior Contract).
10.13 TIME OF ESSENCE. Time is of the essence in the observation
and performance of the provisions of this Agreement.
10.14 SEVERABILITY. In case one or more of the provisions contained
in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
hereby.
10.15 GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of California,
without regard to principles of conflicts of laws.
10.16 CONFIDENTIALITY. The parties agrees that all information
obtained by them pursuant to Sections 3.2 or 3.6 or otherwise shall
remain strictly confidential and shall not be used or disclosed by either
party for any purpose other than to determine compliance with this
Agreement or for such other purpose as may be required by law. In the
event that disclosure is required by law, the recipient will be advised
of the confidential nature of such information and a confidentiality
agreement or protective order maintaining the confidentiality of such
information will be obtained to the maximum extent possible.
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed it as
of the day and year first above written.
UNIMED PHARMACEUTICALS, INC. THE NORAC COMPANY, INC.
By: By:
------------------------------ --------------------------------
Stephen M. Simes, Title:
President & CEO --------------------------
By: By:
------------------------------ --------------------------------
Title: Title:
------------------------ --------------------------
The undersigned, shareholders of NORAC holding a controlling interest (as
defined above) therein, hereby join in the foregoing agreement solely for
purposes of Section 10.4 thereof.
------------------------------------
------------------------------------
------------------------------------
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EXHIBIT 10.R
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 PROMULGATED
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into as of the ______ day of
February, 1997 but effective as of the close of business on February 28, 1997
("Effective Date") between UNIMED PHARMACEUTICALS, INC., a Delaware corporation
("Distributor") and G. D. SEARLE & CO., a Delaware corporation ("Company").
WHEREAS, Company has heretofore, directly and/or through others, promoted,
marketed and sold its Product (as hereinafter defined) in various countries in
the world;
WHEREAS, Distributor has the necessary facilities and resources to develop
the market for such Product in the Territory (as hereinafter defined), as well
as to carry out the duties hereinafter specified and is desirous of being
granted the right to sell such Product in the Territory; and
WHEREAS, Company is willing to grant such right to Distributor upon the
terms and conditions herein set forth;
NOW, THEREFORE, it is mutually agreed by the Company and Distributor as
follows:
1. APPOINTMENT AND ACCEPTANCE; CONTINGENCY.
(a) Subject to the following terms and conditions, Company hereby appoints
Distributor as Company's exclusive distributor (exclusive even as to the
Company and its affiliates and subsidiaries) in the United States excluding its
territories and possessions (the "Territory") of the product described in
Exhibit A (the "Product") for sale under the trademark "MAXAQUIN" (the
"Trademark") to any and all customers and accounts. Distributor hereby accepts
such appointment. The Company will not, directly or indirectly, use the
Trademark in the Territory during the term of this Agreement.
XXXXXXXXXXXXXXXXXX The parties will review sales information on a periodic
basis during the term of the Agreement and if they determine that there is any
violation of the territorial limitation of this license by either party,
appropriate action will be taken to prevent such violation in the future.
(b) It is understood and agreed by the Company and Distributor, that
Distributor may from time to time find it convenient, for the discharge of its
obligations hereunder, to appoint subdistributors, agents or dealers within the
Territory. Distributor shall be entitled to appoint subdistributors, agents or
dealers only if the following conditions have been satisfied:
<PAGE> 2
(i) Distributor shall have notified the Company in writing of the
name, address, and commercial experience of such prospective
subdistributor, agent or dealer and the Company shall have approved such
subdistributor, agent or dealer (which approval will not be unreasonably
withheld); and
(ii) Distributor shall have secured the enforceable written
agreement, in form and substance satisfactory to the Company, of any
subdistributor, agent or dealer that the latter:
(A) shall look solely and exclusively to Distributor for any
compensation of any kind and shall not have any claim or right to
any compensation of any kind whatsoever from the Company, in
particular, termination indemnities, payments, compensations or
other benefits; and
(B) shall have no rights with respect to the distribution of
the Product within the Territory greater than the rights of
Distributor under this Agreement.
(c) Distributor agrees that it shall be responsible for the full and
faithful performance of any duty or obligation under this Agreement delegated,
expressly or by implication, by Distributor to any subdistributor, agent or
dealer and shall indemnify and hold harmless the Company against any liability,
termination indemnity, loss, injury, claim, cost, or expense incurred by the
Company as a result of Distributor's appointment of any subdistributor, agent
or dealer. In particular, Distributor agrees to indemnify the Company for any
liabilities, claims, losses or any other costs or expenses which Company may
incur as a result of any claim by any such subdistributor, agent or dealer
during the term or after the expiration or other termination of this Agreement.
(d) Company represents and warrants to Distributor that it is the licensee
under a License Agreement (the "Master License") dated April 30, 1987, as
amended, between Company and Hokuriku Seiyaku Co., Ltd. (the "Licensor") to
certain patents relating to the Product (the "Patents"). Company has received
no notice of any outstanding dispute with the Licensor under the Master
License. Company further represents and warrants that the rights grant by this
Agreement to Distributor do not violate the license granted to Company under
the Master License. Company will use all reasonable efforts (other than the
payment of money not required under the express terms of the Master License) to
maintain the Master License in full force and effect for the term thereof.
Distributor acknowledges and agrees that the distribution rights granted
under this Agreement are subject to, and limited by, the terms and conditions
of the Master License, including any termination rights thereunder.
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<PAGE> 3
(e) Distributor further acknowledges and agrees that Company and its
Affiliates and Company's Licensor are the exclusive owners of the
quali/quantitative formula and all other information and know-how related to
the Product, and that they shall retain full rights to same.
2. DUTIES OF DISTRIBUTOR.
(a) Distributor accepts the foregoing appointment and agrees to provide
all of the usual and customary services of a distributor in the Territory,
which shall include, without limitation, the following:
(i) Distributor shall use all reasonable efforts to distribute and
sell and diligently promote the Product in the Territory. In this
regard, Distributor shall provide and maintain an aggressive and
efficient sales organization adequate for the needs of the Territory.
(ii) Distributor agrees to sell and distribute Product in a
professional and responsible manner.
(iii) Distributor agrees not to knowingly sell and distribute
counterfeit Company products or Product which has been misbranded or
adulterated or which is otherwise illicit.
(iv) Distributor agrees to include the Product at frequent
intervals in lists, bulletins or catalogs, as they may be issued by
Distributor to its customers, and agrees to check such customers'
supplies of Product regularly to insure adequate stocking and that the
Product is in saleable condition.
(v) Distributor agrees not to sell the Product outside the
Territory or knowingly sell the Product to customers in the Territory
intending to or who do resell outside the Territory.
(vi) Distributor agrees to store and ship the Product strictly in
accordance with the specifications in Exhibit A ("Specifications") and
Company's instructions and as otherwise required by law.
(vii) Distributor agrees not to make any warranty, guarantee, claim
or representation in connection with the Product, unless authorized by
Company or contained in written materials forwarded by Company to
Distributor.
(viii) Distributor agrees to keep Company periodically and regularly
apprised of the state of the market for the Product in the Territory.
3
<PAGE> 4
(ix) Distributor shall promptly forward to Company any known
Product related complaints (whether of a medical nature, including
adverse reactions and events, or product quality nature) and will assist
Company in resolving such complaints.
(b) Nothing contained in this Agreement shall be construed to restrict
Company's right, in its sole discretion, to discontinue manufacturing (or
having the Product manufactured on its behalf) or distributing the Product
within the Territory at any time, immediately upon prior written notice to
Distributor if in Company's reasonable scientific or medical judgment (based
upon medical or scientific reasons or on information or circumstances not known
or existing as of the date hereof by Company's senior medical officer), further
sale of the Product in the Territory is not advisable.
(c) Distributor warrants and agrees that it is not now selling and will
not during the term hereof sell in the Territory any goods directly competitive
with the Product. "Directly competitive" means a fluroquinolone product.
(d) Distributor also agrees to grant Company and its designated
representatives access from time to time as requested, during normal business
hours and upon reasonable notice, to all relevant packaging, advertising and
sales records, and to the premises at which Distributor stores any of the
Product.
3. PURCHASE OF PRODUCT.
(a) Distributor shall place purchase orders with Company for, and will
purchase and warehouse, such quantities of the Product as Distributor believes
may from time to time be required to meet trade requirements in the Territory.
(b) Distributor shall submit written purchase orders to the Company for
the Product and Company shall accept such orders to the extent that they meet
the other requirements of this paragraph (b) and do not exceed Company's
capacity to produce Product. All sales hereunder shall be subject to the terms
and conditions of this Agreement, except for quantity and delivery date terms
which may be specified in any purchase order hereunder; provided that, delivery
shall in no event be required in less than ninety (90) days from Company's
receipt of the applicable purchase order. In the event of any conflict, the
terms of this Agreement shall prevail over those contained in purchase orders
or any other documents submitted by Distributor in connection with this
Agreement. Concurrently with the execution of this Agreement, Distributor will
provide Company a forecast of estimated requirements for Product during the
following six (6) calendar quarters. Distributor shall exert all reasonable
efforts to make each forecast as accurate as possible and shall update such
forecast at the end of each calendar quarter for the following six (6) calendar
quarters. Company shall accept and fill orders to the extent they do not
exceed one hundred and twenty percent (120%) of Distributor's forecast for the
applicable calendar quarter and use all reasonable efforts to fill any portion
of such orders in excess of such
4
<PAGE> 5
amount. Unless the parties subsequently agree to the contrary,
Company's obligation to supply Product shall cease the earlier of ten (10)
years after the date of execution of this Agreement or, if Distributor's
purchases in any calendar year after 1996 are less than XXXXXXXXXXXXXX tablets
(XXXXXXXXXXXX) tablets in 1997], upon the expiration of two (2) years' notice
given by Company at any time thereafter. By the end of seven (7) years after
the date of execution of this Agreement, if Company does not agree to extend
its obligation to supply Product as described above, Company will provide
reasonable assistance to Distributor to find an alternative source of supply.
(c) The Product shall meet the Specifications, as the same may be amended
from time to time by agreement of the parties or by requirement of the U.S.
Food and Drug Administration ("FDA").
(d) Sales by Company to Distributor shall be made FOB shipping point
(Incoterms 1990) at Company's plant in Caguas, Puerto Rico (or such other
shipping point as may be agreed between the parties), initially at the prices
specified in Exhibit B, subject to Company's right, at any time and from time
to time, to modify such prices pursuant to the formula as set forth in Exhibit
B. All sales, use, gross receipts, added-value and other taxes, and similar
charges, shall be borne by Distributor. Title to the Product and risk of loss
or damage to the Product shall pass to Distributor upon delivery to the common
carrier at the shipping point.
(e) All payments by Distributor for Product shall be made in United States
dollars to Company's affiliate, Searle & Co. (or other designated affiliate),
by wire transfer to the bank account designated by such affiliate from time to
time, in a written notice to Distributor. Payment shall be due thirty (30)
days (sixty (60) days for the initial shipment) from the date of shipment. It
is understood and agreed that Distributor shall not be obligated to pay for any
shipment, or portion thereof, of Product that has been properly rejected by
Distributor pursuant to this Agreement.
(f) Company shall keep full and accurate books and records related to the
fully absorbed cost of the Product in sufficient detail so amounts payable
hereunder can be properly calculated. Such books and records shall be kept for
the longer of two (2) years after the close of the calendar year to which the
records apply or the period required by law. Commencing with the books and
records for calendar year 1998, Company shall permit (not more than once each
calendar year during the term hereof) independent accountants designated by
Distributor to whom Company has no reasonable objection, to examine said books
and records at reasonable times for the sole purpose of verifying the accuracy
of the written statements submitted to Distributor and the purchase price for
Product paid or payable. Said independent accountants shall not disclose to
Distributor any information other than information relating solely to the
accuracy of the accounting and payments made by Distributor pursuant to this
Agreement and shall otherwise be bound by the confidentiality provisions of
this Agreement.
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<PAGE> 6
4. OBLIGATIONS OF COMPANY.
(a) Subject to paragraph 3 above, Company agrees to use all reasonable
efforts to sell, or cause to be sold to Distributor by one or more of Company's
affiliates, on a timely basis the Product in quantities adequate to meet the
needs of the market throughout the Territory. In the event that Company is
unable to fill any accepted purchase order, Company shall promptly notify
Distributor. Distributor shall have the right under this Agreement to cancel
any quantity of Product for which Company has failed or will be unable for any
reason, including, without, limitation, the force majeure reasons enumerated in
paragraph 19(d) hereof, to deliver within one (1) month following the
applicable delivery date set forth in written purchase orders accepted pursuant
to this Agreement. Any such canceled quantities up to the limits of
Distributor's applicable forecast made in compliance with paragraph 3(b),
however, shall apply to determining the amount of Distributor's purchases for
purposes of the second to last sentence of paragraph 3(b) above.
(b) Company shall inform Distributor of any orders and/or inquiries for
Product in the Territory which it receives. Company shall not knowingly sell
the Product to customers intending to resell the Product in the Territory.
(c) To the extent permitted by law, any decision to recall or cease
distribution of the Product, as a result of the Product being in violation of
any law, rule or regulation or presenting a possible safety risk, shall be made
by Company, after consultation with Distributor. In the event of any recall,
Company shall, with Distributor's cooperation and assistance, determine the
scope and form of the recall and Distributor shall conduct the recall. Company
will provide Distributor with any information concerning the manufacturing of
the Product which may reasonably be required by Distributor to determine the
need for a recall. Costs for any recall shall be borne by the party required
to indemnify the other party in relation to such recall pursuant to paragraph
9. Notwithstanding the foregoing, if Company falls within a reasonable period
of time to recall Product delivered to Distributor pursuant to this Agreement
that Distributor reasonably determines should be recalled due to safety
concerns, Distributor reserves the right to recall such Product after
consultation with Company and subject to ouch reasonable conditions and
limitations as Company may request.
(d) Company shall perform quality control tests and assays on raw and
packaging materials and on finished Product as required under the
Specifications. Unless instructed otherwise in writing by Distributor, Company
will vend Distributor a certificate of analysis for each shipment of Product.
(e) Company shall provide Distributor with relevant material information
concerning clinical studies previously conducted by Company in the Territory
and useful in the promotion and sale of the Product.
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<PAGE> 7
5. DISTRIBUTION RIGHTS PAYMENTS.
(a) In order to secure the rights to distribute and market the Product in
the Territory, Distributor has agreed to pay Company the following sums:
(i) XXXXXXXXXX concurrently with the signing of this Agreement;
(ii) XXXXXXXXXX on the earlier of (A) the termination of this
Agreement for any reason, (B) January 2, 1998 or (C) the violation of the
Financial Covenant;
(iii) XXXXXXXXXX on the earlier of (A) the termination of this
Agreement for any reason, (B) January 2, 1999 or (C)the violation of the
Financial Covenant; and
(iv) XXXXXXXXXXXXXXX. Payments under this sub-paragraph (iv) shall
be made quarterly within sixty (60) days of the close of each calendar
quarter during the term hereof. Distributor agrees that notwithstanding
the foregoing, in no event shall payments to company under subparagraph
(iv) be less than XXXXXXXXXXX calendar years during the term hereof. If
this Agreement is terminated for any reason other than a reason expressly
listed in the paragraph below, in addition to any other payments which
may be due, Distributor shall pay Company XXXXXXXXXXXXX minimum annual
payments under this sub-paragraph (iv) for the full ten XXXXXXXXXXXX.
Distributor will make such payment within thirty (30) days of the
termination date.
If (A) either party terminates this Agreement under paragraph 19(d), (B)
Company (without Distributor's agreement) exercises its rights under paragraph
2(b), (C) the Master License is terminated other than due to the Distributor's
negligence, willful misconduct or breach of this Agreement, or (D) Distributor
exercises its rights to terminate under paragraph 10(b)(i), (ii) or (iii),
Distributor shall be entitled to the return of the following portions of its
paragraph 5(a)(i), (ii), and (iii) payment:
<TABLE>
<CAPTION>
AMOUNT RETURNED*
IF TERMINATED ----------------
DURING CALENDAR YEAR
--------------------
<S> <C>
1997 $XXXXXXXXX
1998 $XXXXXXXXX
1999 $XXXXXXXXX
</TABLE>
The foregoing shall be Distributor's sole remedy in the event of any
termination of this Agreement for any of the reasons described above.
In the event of the termination of the Agreement for any other reason or at any
other time, Distributor shall not be entitled to a refund of any payment made
under this Agreement.
7
<PAGE> 8
* The above amounts shall be netted against payments required hereunder,
including without limitation, payments required under each of sub-paragraphs
5(a)(i), (ii), (iii), and (iv) (but as to (iv) only the XXXXXXXXXXXXXXXXX of
Net Sales accrued but unpaid through the date of termination).
(b) For purposes of the above paragraphs, "Net Sales" means the gross
invoice value of the Product as and when sold by Distributor or its affiliates,
to unrelated third parties, less (i) ordinary and customary volume, cash and
trade discounts and rebates, (ii) credits, allowances, refunds and adjustments
actually credited or made to customers for spoiled, damaged, outdated and
returned Project, (iii) sales, use, excise, and value-added taxes, and (iv)
reasonable freight and insurance to the extent included in gross invoice value.
(c) Each payment shall be accompanied by the report required under
paragraph (d) below, plus such other information on the sale of Product as
Company may reasonably request. Except as otherwise provided in paragraph 3,
all payments to be made by Distributor to Company pursuant to this Agreement
shall be made in United States dollars by wire transfer to Company's account
number XXXXXXXXXXXXXXXXXXXXXXXXXX, New York, New York (or other bank or account
designated by Company) in immediately available funds and shall not be reduced
by any taxes, licenses, fees or other withholdings.
(d) Within thirty (30) days after the end of each calendar quarter during
the term hereof, Distributor will provide company a statement showing the
calculation of Net Sales (in form satisfactory to Company) and the calculation
of the payment due.
(e) The payments under sub-paragraphs 5(a)(i), (ii), and (iii) above shall
be non-refundable (except as otherwise expressly provided herein) and not
creditable against subparagraph 5(a)(iv) payments.
(f) Distributor shall keep full and accurate books and records related to
Net Sales of the Product in sufficient detail so amounts payable hereunder can
be properly calculated. Such books and records shall be kept for the longer of
the term of this Agreement plus two (2) years or the period required by law.
Distributor shall permit (not more than once each calendar year during the term
hereof) independent accountants designated by Company to whom Distributor has
no reasonable objection, to examine said books and records at all reasonable
times for the sole purpose of verifying the accuracy of the written statements
submitted by Distributor and the distribution rights fees paid or payable.
Said independent accountants shall not disclose to Company any information
other than information relating solely to the accuracy of the accounting and
payments made by Distributor pursuant to this Agreement and shall otherwise be
bound by the confidentiality provisions of this Agreement.
(g) Overdue amounts payable by Distributor to Company or its affiliate
under paragraph 3 and/or this paragraph 5 shall bear interest from the date due
to and including the
8
<PAGE> 9
date paid at the rate of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX per month or,
if lower, the highest rate permitted by applicable law.
(h) For purposes of this paragraph 5, "Financial Covenant" means that at
all times prior to the payment in full of amounts due under paragraph 5(a)(ii)
and (iii), Distributor's cash and cash equivalents plus short-term investments,
minus total current liabilities shall equal or exceed XXXXXXXXXXXX United
States dollars ($XXXXXXXXX). Distributor shall not later than fifteen (15)
days after the end of each calendar month, provide Company with an unaudited
balance sheet showing compliance with the Financial Covenant and certified by
Distributor's chief financial officer. In the event that Distributor breaches
the Financial covenant, payments under paragraphs 5(a)(ii) and (iii) shall be
immediately due and payable, without further notice or demand by Company and
without any cure period.
6. SALES PROMOTION AND REPORTS.
(a) Distributor shall maintain:
(i) such facilities in the Territory as are necessary for storing
and distributing the Product in the Territory;
(ii) an accurate and up-to-date list of customer" and prospective
customers; and
(iii) a system of recordkeeping to permit tracking of the Product
sold hereunder, in the event a recall of any Product is ordered.
Distributor shall retain, and grant Company and its representatives access
to, such records during the term of this Agreement and for a period of at least
two (2) years following its expiration or other termination.
(b) Distributor shall provide Company with detailed semiannual written
reports of its sales and sales promotion activities in such manner as Company
shall reasonably require.
7. TRADEMARKS AND OTHER PROPRIETARY RIGHTS.
(a) Company represents that the trademark registration for Maxaquin (the
"Trademark") is valid and subsisting in the Territory and, that to the best of
its knowledge, the Company has the exclusive right to use the Trademark in the
Territory.
(b) The parties have agreed, subject to any governmental approvals or
changes, to make changes in the labeling and packaging for the Product so that
they would include Distributor's corporate name.
9
<PAGE> 10
(c) Distributor acknowledges that the Trademark used in connection with
the Product is not Distributor's property, and Distributor shall not contest
such Trademark or seek to register or have registered any such Trademark or
trade name in the Territory. Distributor shall not display or use any
Trademark or trade name owned by the Company except during the term of this
Agreement and then only in a manner previously approved by Company; provided,
however, that no such prior approval shall be required for the use or
advertising or promotional materials prepared, designed, furnished or approved
in writing in advance by Company. Company shall respond to Distributors
written submissions in this regard within five (5) business days of receipt.
Distributor shall execute any documents necessary for the recordal of any
required registered user agreement in the Territory.
(d) Distributor shall promptly notify Company if Distributor becomes aware
of any actual or potential infringement of or conflict with Company's trademark
rights or any other proprietary rights relating to the Product in the
Territory. Company, at its expense, shall have the right to deal with such
infringement or conflict by appropriate legal proceedings (but Distributor
shall provide all reasonable assistance in connection therewith) and Company
shall be solely entitled to any compensation or other payment received in
connection therewith. However, if Company fails to commence and diligently
pursue appropriate legal proceedings against the infringer within sixty (60)
days of Distributor's notice to Company, Distributor shall be solely entitled
to deal with such infringement or conflict by such means as Distributor sees
fit (but Company shall provide all reasonable assistance in connection
therewith) and Distributor shell be solely entitled to any compensation or
other payment received in connection therewith. If the use of the Trademark is
enjoined in the Territory, Company shall provide Distributor with a substitute
trademark.
(e) Notwithstanding the foregoing paragraph, in the event Company fails to
commence and diligently pursue appropriate legal proceedings under paragraph
7(d) above, Distributor may, in addition to the other remedies provided in
paragraph 7(d) above, in its sole discretion, elect to register a new trademark
for the Product, which trademark shall be the sole and exclusive property of
Distributor.
8. COMPLIANCE WITH APPLICABLE LAW.
(a) Subject to Company's compliance with paragraph 9 and 15 below,
Distributor shall be responsible for compliance of the Product with all
applicable laws and regulations and governmental orders and decrees in the
Territory, federal, state and local. Further, Distributor shall promptly
inform Company in writing of any change or proposed change in requirements for
production, promotion or sale of the Product imposed by any governmental entity
in the Territory.
(b) Distributor shall communicate all ADE events in the Territory related
to Products sold in the Territory by Distributor to Company in sufficient time
and detail to enable Company
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<PAGE> 11
to comply with its reporting requirements under FDA regulations.
Sufficient time shall mean within three (3) days as to serious ADE's and within
seven (7) days as to non-serious ADE's.
In addition to its obligations under paragraph 15, every six months
Company will provide Distributor with periodic drug safety update reports
prepared in accordance with EC guidelines.
ADE shall mean any adverse drug experience as defined by FDA regulations
(c) Company shall promptly notify Distributor of any inspections by
federal, state or local regulatory representatives of any facility or
facilities where the Product is manufactured and/or packaged, and shall, if
such inspections directly relate to the Product, send Distributor copies of the
portions of the reports of any such inspections which directly relate to the
Product, including actions taken by Company to remedy condition cited in such
inspections.
(d) Subject to Distributor's compliance with its obligations under this
Agreement, Company shall obtain and maintain all government license, permits
and registrations necessary to manufacture, package and supply Product
hereunder.
(e) Not more frequently than once each calendar year during the term
hereof, Company shall allow a representative of Distributor (to whom Company
has no reasonable objection) to inspect the facility or facilities where the
Product is manufactured and/or packaged, to assure compliance with Company's
obligations under this Agreement. Such inspection shall be at reasonable
times, following reasonable notice and be subject to such confidentiality
agreement and rules as Company shall designate from time to time.
9. WARRANTY, INDEMNITY AND INSPECTION.
(a) Company warrants, represents and covenants that
(i) the Product, when delivered to the common carrier at the FOB
point, shall have been manufactured and packaged in accordance with
current good manufacturing practices of the FDA ("CGMPs") and meet the
then applicable Specifications;
(ii) On the date of shipment, no Product sold hereunder shall be
adulterated or misbranded within the meaning of the Federal Food, Drug
and Cosmetic Act, as amended (the "Act") , or within the meaning of any
applicable state or municipal laws in which the definitions of
adulteration and misbranding are substantially the same as those
contained in the Act, as the Act and such laws are constituted and
effective at the time of shipment, or consist of or include any product
or article which may not be introduced into interstate commerce;
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<PAGE> 12
(iii) Company shall have good title to all Product sold hereunder,
which title shall pass to Distributor as provided herein following
payment therefor, free and clear of any lien, encumbrance or other
conflicting interest of any kind; and
(iv) The New Drug Application which has been filed with the FDA for
the Product (the "NDA") is, to the best of Company's knowledge, accurate
and complete in all material respects as required by law.
(b) THE WARRANTIES SET FORTH IN PARAGRAPH (a) ARE EXCLUSIVE AND IN LIEU OF
ANY OTHER EXPRESS OR IMPLIED WARRANTY, INCLUDING ANY IMPLIED WARRANTY OF
FITNESS OR MERCHANTABILITY.
(c) All Product ordered hereunder shall be subjected to a visual
inspection upon receipt by Distributor. All claims for shortages,
alleged defects, or breaches of warranty which could be discovered by visual
inspection shall be made in writing to Company no later than thirty (30) days
after receipt of such Product and, if not so made, shall be irrevocably waived
by Distributor. If Company disputes Distributor's rejection (for alleged
Product quality reasons) made as provided above of all or part of any shipment
of finished Product such dispute shall be resolved by an independent testing
organization or consultant, or recognized repute within the pharmaceutical
industry in the Territory mutually agreed upon by the parties, the appointment
of which shall not be unreasonably withheld or delayed by either party. The
determination of such entity with respect to the rejection of all or part of
any shipment of finished Product shall be final and binding upon the parties,
but only as to the reasons given by Distributor in rejecting the shipment and
shall have no effect on any matter for which said entity did not render a
determination. The cost of such determination shall be borne by the party
against whom the decision is made.
(d) Except as provided in subparagraph (e) below, Distributor shall
indemnify and hold Company, its subsidiaries and affiliates and their
respective directors, officers, employees and agents harmless against all
claims, suits, demands, judgments or damages, including reasonable attorneys'
fees and court costs, arising out of or relating to Distributors (i) breach of
this Agreement, or (ii) handling, sale or promotion of the Product in the
Territory (including, without limitation any strict liability, product
liability, tort or similar claim).
(e) Company will indemnify and hold Distributor, its subsidiaries and
affiliates and their respective directors, officers, employees and agents
harmless against all claims, suits, demands, judgments or damages, including,
reasonable attorneys' fees and court costs, arising out of or relating to
Company's (i) breach of this Agreement or (ii) failure to supply Product
complying with any of the express Product quality requirements of this
Agreement or (iii) third party claims resulting from Product sold prior to the
Effective Date.
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<PAGE> 13
(f) Notwithstanding the foregoing or any other provision of this
Agreement, neither party shall be liable to the other for lost profits or
consequential damages of any kind.
10. DURATION AND TERMINATION AND REMEDIES.
(a) Subject to paragraphs (b) and (c) below, this Agreement shall be in
effect for the period from the Effective Date and until twenty (20) years after
such date.
(b) This Agreement may be terminated, effective immediately, by a party
("Injured Party") at any time upon written notice to the other party after:
(i) the failure of the other party to comply with then Agreement in
respect of any obligation other than an obligation to make any payment
hereunder, which failure is not cured within thirty (30) days of written
notice thereof;
(ii) the suspension, liquidation, dissolution or bulk sale, or
notice thereof, of the other party's business without the prior written
consent of the Injured Party or in the event of the calling of a meeting
of such party's creditors, an assignment by such other party for the
benefit of creditors, the insolvency of any kind of such other party, or
the filing of any attachment, distraint, levy, execution or judgment
against such party, any filing of a voluntary or involuntary petition
under the provisions of any bankruptcy act, or any application for or
appointment of a receiver for the property of such other party;
(iii) the cessation by such other party of its business; or
(iv) the other party fails to make any payment hereunder when due
and such failure continues for a period in excess of ten (10) days.
(c) Distributor may, at any time and in its sole discretion, upon not less
than ninety (90) days written notice to Company, terminate this Agreement for
any reason. In such event, Company shall complete manufacture and packaging of
all Product currently on order, and Distributor shall purchase and pay for such
Product. Distributor shall also pay Company's costs for all materials
(including labels) on hand or ordered by Company as of the date of the
termination and usable only with respect to the Product, provided that the
quantities of such materials are reasonably based on forecasted amounts of
Product.
(d) Upon termination of this Agreement for any reason, Distributor shall
promptly return to Company, at Company's cost, all price lists, catalogs and
other advertising literature furnished by Company and, if so requested by
Company in writing, all Product on hand which is in good and saleable
condition. If so requested by Company, Company shall pay Distributor for such
Product at Distributor's purchase price therefor under paragraph 3. Upon
termination of this Agreement for any reason, all related subdistributorship,
agency or dealership agreements
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<PAGE> 14
entered into by Distributor shall be automatically terminated. If
Company does not request return of Product held by Distributor, Distributor
shall have six (6) months from the date of termination within which to sell the
Products, subject to all the terms and conditions of this Agreement
(e) No termination pursuant to this Agreement shall give rise to any
obligation by either party to the other except as specifically provided in this
Agreement. In particular, each party agrees that it shall not be entitled to
any payment, whether by way of compensation, indemnity or penalty, arising out
of such termination. Any pre-existing claims, however, shall not be waived by
the parties as a result of such termination.
(f) In addition to any other rights it may have at law or in equity, if
Distributor breaches this Agreement and fails to cure such breach pursuant to
paragraph 10(b)(i) or (iv) above, the Company may on notice to Distributor
unilaterally amend the appointment in paragraph 1 to be as non-exclusive
distributor.
11. INSURANCE.
Distributor shall obtain and maintain, at its expense, product liability
insurance which includes the Product in an aggregate amount for all products of
not less than Ten Million US Dollars ($10,000,000). All such insurance shall
include Company as an additional insured and must be issued by such insurer and
have such deductibles as are acceptable to Company, in its reasonable
discretion. Distributor shall provide a certificate of insurance evidencing
such insurance concurrently with the execution of this Agreement and will
provide new certificates complying with this Agreement at least thirty (30)
days in advance of the stated expiration date of the period of coverage. Each
such certificate shall recite that the subject insurance is not cancelable and
may not be amended absent at least sixty (60) days notice to Distributor and
Company.
12. CURRENT PRODUCT SUPPLY CONTRACTS.
Company shall, if requested by Distributor, use reasonable efforts (but
shall not be required to make any payment) to obtain at the earliest
practicable date, by instruments in form and substance reasonably satisfactory
to Distributor, all consents and approvals to the assignment of material
agreements for the supply of Product to customers within the Territory. If,
with respect to any agreement to be assigned, a required consent to the
assignment is not obtained Company shall use reasonable efforts to keep in
effect and give Distributor (at Distributor's cost and expense) the benefit of
such agreement to the same extent as if it had been assigned and to the extent
not prohibited by that agreement, and Distributor shall perform Company's
obligations under the agreement or cooperate in Company's performance of such
obligations. Nothing in this Agreement shall be construed as an attempt to
assign any agreement that is by its terms nonassignable without the consent of
the other party.
14
<PAGE> 15
13. NDC NUMBERS AND MEDICAID REBATES.
(a) Promptly following the signing of this Agreement, Distributor shall
take any and all action necessary to change the National Drug Code number
("NDC") for the Product, which change shall be implemented as reasonably agreed
upon by the parties. For purposes of Company's Rebate Agreement with the
Secretary of Health and Human Services ("HHS") under Section 4401 of the
omnibus Budget Reconciliation Act of 1990, Company shall continue to make any
Rebate Payment (as defined in such Rebate Agreement) with respect to the
Product required thereunder; provided that, for Rebate Payments for which State
Medicaid Utilization Information reports show that Medicaid payment was made
for such drug after the Effective Date, Distributor shall reimburse Company for
all such Rebate Payments pursuant to the procedure established under paragraphs
16 and 18.
(b) Distributor shall notify all relevant persons and entities, including
Company and First Data Bank, of such NDC change and comply with all laws and
regulations of HHS or its sub-divisions and agencies (including HCFA) and the
Rebate Agreement.
(c) Distributor shall also provide Company all relevant information
regarding Distributor's sales, promotion, pricing and other activities with
respect to the Product, including pricing calculations for purposes of
determining "Best Price", necessary for Company to comply with the Rebate
Agreement.
14. RETURN OF PRODUCT.
(a) Company and Distributor shall make joint announcements to the trade
concerning Distributor's appointment, which announcements will advise customers
that there is no reason to return Product, Distributor shall not by its pricing
or other activities seek to induce its customers to return Product. Company
agrees to be responsible, in compliance with its currently prevailing returned
goods policies, for all costs and expenses with respect to the return by
Distributor's or Company's customers of Products shipped prior to the Effective
Date. Distributor agrees to be responsible for all costs and expenses with
respect to the return of Product shipped on or after the Effective Date.
(b) Distributor and Company shall track lot numbers for the purposes of
identifying when Product was sold. For those lots for which both
Distributor and Company have sold Product, returns shall be pro-rated between
Distributor and Company based upon the quantity of such lot sold by each party,
as determined by count of finished goods inventory at the Effective Date. Each
party will issue the appropriate credit for returns to its customers and any
net payment due to either party pursuant to this paragraph 14 will be made
quarterly pursuant to paragraph 18.
15
<PAGE> 16
(c) For purposes of this paragraph, Product will be deemed to have been
"returned" when received by Company or Distributor at their respective
warehouse facilities or returned goods agents, as applicable.
15. NDA COMPLIANCE.
(a) Provided that Distributor renders all reasonable assistance, including
without limitation by complying with paragraph 8 and the provisions below,
Company shall file all documents as are required to maintain the new drug
application for the Product ("NDA").
(b) In general, Distributor and Company will allocate and assist in the
preparation and review of regulatory filings and reports as follows:
(i) Annual NDA Progress Report - Company will prepare and file
with the FDA;
(ii) Adverse Drug Reaction Reports - Company will prepare and file
with the FDA;
(iii) Submission of promotional materials to the FDA - Distributor
will provide materials to Company concurrently with dissemination,
Distributor will prepare and file with the FDA and give Company
simultaneously a copy of Form 2253 (or its successor) and an original of
each promotional material;
(iv) Annual IND Progress Report - Company will prepare and file
with the FDA;
(v) IND Amendments - Company to prepare and file with the FDA; and
(vi) Annual antimicrobial susceptibility testing - Company shall
contract for this work and prepare submission. Company will file report
with the FDA (Annual NDA Progress Report), Company will prepare any
required labeling changes and file with the FDA.
(vii) Pending labeling changes as of the date of this Agreement -
Company will file with the FDA until all matters are resolved; provided
that Company has no obligation to initiate or conduct additional clinical
studies, data analyses or other material efforts in this regard.
(viii) Labeling changes after the date of this Agreement - Company
will prepare and file with the FDA.
16
<PAGE> 17
Company reserves the right to reject, or require changes in, the documents
prepared by Distributor, if in Company's opinion such documents are inaccurate
or fail to comply with applicable laws or regulations. Notwithstanding any
review by company, Distributor shall be solely responsible for the accuracy and
completeness at all information supplied to Company under paragraphs 8, 13 and
15. Company will provide Distributor with copies of reports filed under (i),
(ii), and (iv) above.
(c) Distributor shall compensate Company for its efforts pursuant to
sub-paragraph (a) and (b) above through payment at the rate of
XXXXXXXXXXXXXXXXX per calendar quarter, plus the contract cost of performing
the antimicrobial susceptibility testing (the latter payment due thirty (30)
days after company provides Distributor with a copy of the applicable invoice).
The quarterly payment shall be made at the same time as payments under
paragraph 5(a)(iv). The quarterly rate stated above shall increase each
calendar year commencing with 1998 by a percentage equal to the increase in the
Consumer Price Index (All Urban Consumers Index, 1982-84=100) over the prior
calendar year.
(d) Each party shall designate a regulatory affairs representative for
purposes of coordinating efforts under this Agreement and the two
representatives shall agree upon the procedures for assuring compliance with
the reporting and other filing requirements of the ADA.
16. REBATES AND CHARGEBACKS.
(a) From and after the Effective Date, Distributor shall be responsible
for any rebate payments with respect to the Product, whether by agreement,
government mandate or otherwise.
(b) From and after the Effective Date, Distributor shall be responsible
for all payments with respect to contract chargeback claims for the Product.
(c) In consideration of Distributor's agreements contained in (a) and (b)
above, Company shall pay or credit Distributor the amount of XXXXXXXXXXXX
dollars ($XXXXXXX).
(d) Nevertheless, for administrative convenience Company shall continue to
make any chargeback or rebate payments with respect to the Product required
under agreements, government mandates or otherwise which relate to the period
prior to the Effective Date or to supply contracts not assigned or assignable
under paragraph 12 or which are processed by the Company due to direct requests
of a customer, provided that Distributor shall reimburse Company for all such
payments.
17
<PAGE> 18
17. SPECIAL SERVICES.
(a) From and after the Effective Date, Company shall notify all customers
and formularies under contracts existing as of the Effective Date of this
Agreement that as of such date Distributor shall be the seller of the Product
in the Territory, by a writing in form and substance satisfactory to
Distributor (providing Distributor with a duplicate set of mailing labels for
its use).
(b) For its services under (a) above and under paragraph 16, Distributor
shall pay Company a fee equal to XXXXXXXXXXXXXXXXXX of the dollar amount of the
chargebacks and rebates in excess of the amount stated in paragraph 16(c) paid
by Company (or by Distributor on behalf of Company) to third parties with
respect to the Product.
18. QUARTERLY PAYMENTS.
The parties shall provide each other on a calendar quarterly basis (within
thirty (30) days after the end of the quarter) the information necessary to
calculate payments due under paragraphs 13, 14, 16 and 17 for the calendar
quarter just ended. The payments otherwise due under these separate paragraphs
will be aggregated for each party and the resulting two amounts netted against
each other, and the net payment due the applicable party shall be made not
later than sixty (60) days after the end of each calendar quarter by wire
transfer in immediately available funds to the bank and account designated from
time to time in a notice from the payee party.
19. MISCELLANEOUS PROVISIONS.
(a) The relationship between Company and Distributor hereunder is solely
that of seller and purchaser. Neither party shall have any power or authority
to bind the other in any manner and shall not hold themselves out as agents or
representatives of the other party for any purpose.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, without regard to the conflict of laws
principles of such state or any other jurisdiction.
(c) Any notice required to be given by either party shall be in writing
and hand delivered, sent by telecopier or mailed by registered airmail, postage
prepaid, to the other party at its address set forth below or at such other
address as shall have been designated by such other party by written notice.
Notices shall be deemed given (i) when received, if hand delivered or
telecopied or (ii) the earlier of receipt or five (5) days after deposit in the
mails as aforesaid, if mailed.
18
<PAGE> 19
if to Company, addressed to:
G. D. Searle & Co.
5200 Old Orchard Road
Skokie, IL 60077
Attention: Mr. John Shannon, Senior Director,
Business Planning and Development, Americas
Telecopier: (847) 470-6743
with a copy to:
General Counsel
Telecopier: (847) 967-2045
if to Distributor, addressed to:
Unimed Pharmaceuticals, Inc.
2150 East Lake Cook Road
Buffalo Grove, IL 60089-1862
Attention: Mr. Robert E. Dudley
President and CEO
Telecopier: (847) 541-2533
with a copy to:
Katherine A. Letourneau
760 Falls Circle
Lake Forest, IL 60045
Telecopier: (847) 295-2409
(d) The obligations of either party to perform under this Agreement (other
than any obligation to pay money) shall be excused if failure to perform or any
delay is caused by acts of God, strikes, civil commotion, riots, war,
revolution, acts of governments, lack of adequate production capacity, failure
or delay in plant start-up, breakdown of machinery, shortages of raw materials,
power shortages, or shortages of equipment, fuel, transportation or containers,
or any other cause beyond the reasonable control of the party obligated to
perform. Upon the occurrence of any such event, the duties and obligations of
the parties shall be suspended for the duration of the event preventing proper
performance under this Agreement; provided, however, that if such suspension
shall continue for more than one hundred twenty (120) days, either party may
terminate this Agreement immediately upon notice to the other party.
19
<PAGE> 20
(e) No waiver of any default hereunder by either party or any failure to
enforce any rights hereunder shall be deemed to constitute a salver of any
subsequent default with respect to the same or any other provision. No waiver
shall be effective unless made in writing and signed by the parties.
(f) This Agreement constitutes the complete agreement of the parties with
respect to the subject matter thereof. All prior proposals, communications,
agreements or understandings between Distributor and Company, whether oral or
written, concerning the subject matter hereof, if any, are superseded by this
Agreement. This Agreement may not be modified except in writing signed by both
parties.
(g) Distributor may not assign this Agreement or any right under it
without the prior written consent of Company.
(h) Company shall not be bound to honor any of Distributor's contracts for
resale or supply of the Product.
(i) Each party agrees for the term of this Agreement and a period of ten
years thereafter not to disclose, or use for any purpose except as
otherwise expressly provided herein, any confidential information relative to
the other party's business acquired pursuant to or during the term of this
Agreement. For the avoidance of doubt, all confidential and proprietary
information previously disclosed to Distributor by Company or related to the
Product's NDA or the Specifications are confidential and proprietary
information of company's and subject to the foregoing obligation. The foregoing
obligation shall not apply, however, to information (i) which is or becomes
public through no fault of the recipient, or (ii) which is made lawfully
available to the recipient by an independent third party, or (iii) which was
already in recipient's possession at the time of receipt from the disclosing
party as evidenced by its written records, or (iv) which is independently
developed by employees of the recipient after the date of this Agreement or (v)
which is required by law, regulation, rule, act or order of any governmental
authority or agency to be disclosed.
(j) If either party wishes to make any public disclosure concerning this
Agreement or the terms hereof, the other party shall be provided with an
advance copy of the proposed disclosure and shall have seven (7) business days
within which to approve or disapprove such disclosure. Approval shall not be
unreasonably withheld by either party. Absent approval, no public disclosure
concerning this Agreement or the terms hereof shall be made by either party.
Notwithstanding the foregoing, it is understood and agreed that no approval
shall be required in the event that the information to be disclosed has been
the subject of a prior public disclosure.
(k) The provisions of paragraphs 1, 2, 3, 5, 6, 7, 9, 10, 11, 13, 14, 16,
17, and 18 shall survive the expiration or other termination of this Agreement.
20
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
G.D. SEARLE & CO. UNIMED PHARMACEUTICALS, INC.
By: By:
-------------------------- ----------------------------------
Title: Title:
----------------------- -------------------------------
21
<PAGE> 22
EXHIBIT A
SPECIFICATIONS FOR PRODUCT
DOCUMENT NUMBER TITLE EFFECTIVE DATE
A-1
<PAGE> 23
EXHIBIT B
PRICE FOR PRODUCT
The price for Product shall be Company's "fully absorbed cost" plus
XXXXXXXXXXXXXXXXXXXX at the time of each order's receipt. For this purpose,
"fully absorbed cost" means:
(a) Costs of third party manufacturers, utilities, materials,
indirect materials and supplies used in the manufacturing and packaging
of Product;
(b) Wages of those employees directly employed in the manufacturing
and packaging of the Product;
(c) Wages of employees directly employed in quality control,
materials management or related functions which are applicable to the
manufacturing and packaging of Product and the salaries of the
supervisors of said functions (or an appropriate portion of such wages
and salaries it such personnel are not employed exclusively in said
manufacture);
(d) That portion of payroll taxes, benefits, social security
payments, vacation and bonus payments and other employee costs allocable
to the wages and salaries included within the provisions of subparagraphs
(b) and (c) above; and
(e) That portion of Company's manufacturing overhead expenses
apportioned in accordance with generally accepted accounting principles
to the manufacture and packaging of the Product supplied to Distributor.
Notwithstanding the foregoing, the prices for Product ordered prior to
December 31, 1997 shall be at set out below:
Initial Price U.S. $XXXXX (bottle of 20 tablets)
U.S. $XXXXX (100 count, unit dose)
B-1
<PAGE> 1
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
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<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.
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<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.
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<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.
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<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]
15
<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
3
<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
4
<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.
6
<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>
