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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
<TABLE>
<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 No.)
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:
TITLE OF EACH CLASS
ON WHICH REGISTERED
----------------
None
NAME OF EACH EXCHANGE
---------------------
None
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 19, 1999 -- 9,146,312.
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, based upon the closing price on March 19, 1999
was $37,460,145.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement (to be filed pursuant to Regulation 14A) for
the Annual Meeting of Stockholders to be held April 29, 1999, is incorporated by
reference in Part III.
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<PAGE> 2
PART I
ITEM 1. BUSINESS.
Unimed Pharmaceuticals, Inc. (the "Company" or "Unimed") develops and
markets prescription pharmaceutical products. The Company's strategy is to
establish a leading position within specialty pharmaceutical markets. 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. Currently, the Company promotes three approved
drugs for these markets: Marinol(R) (dronabinol), an appetite stimulant and
antiemetic drug, Maxaquin(R) (lomefloxacin), a fluoroquinolone anti-infective
used in the urology and infectious disease markets, and
Anadrol(R)(oxymetholone), an orally active anabolic androgenic steroid used to
treat various anemias.
The Company is concentrating on markets in which relatively few specialized
physicians treat patients suffering primarily from chronic diseases. During
1998, the Company expanded its sales and marketing organization and expects to
further expand this function as new products are acquired and/or developed.
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.
The Company is a Delaware corporation incorporated in 1948. Unimed became a
publicly held company in 1961.
Marinol(R) (dronabinol)
Marinol (dronabinol) is an orally active cannabinoid, namely,
delta-9-tetrahydrocannabinol (THC), which like other cannabinoids, has complex
effects on the central nervous system, including central sympathomimetic
activity. Cannabinoid receptors have been discovered in neural tissues that may
play a role in mediating the effects of dronabinol and other cannabinoids.
Marinol is believed to exert its antiemetic effects through binding with these
cannabinoid receptor sites. Marinol is currently supplied as round soft gelatin
capsules containing 2.5mg, 5mg or 10mg 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 for the treatment of anorexia associated with
weight loss in patients with human immunodeficiency virus (HIV).
During 1997 and 1998, the Company conducted studies on alternative dosage
forms of Marinol. These studies were aimed at identifying a dosage form that
will allow quicker onset of action. The Company believes this may be beneficial
to, among others, cancer chemotherapy patients experiencing an emetic crisis.
Several dosage formulations were evaluated in 1998. The Company expects to begin
human clinical testing with the lead formulation in 1999.
The Company co-promotes (with the Roxane Laboratories unit of
Boehringer-Ingelheim US) Marinol through the Company's specialty sales force in
the U.S. primarily to HIV-treating physicians. Marinol is distributed in
international markets through foreign licensees.
Use of Marinol(R) in Cancer
Marinol is a safe and effective oral antiemetic (relieving drug-induced
nausea and vomiting) based on clinical studies in cancer patients undergoing
chemotherapy. 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. The Company believes its alternative dosage
form program, aimed at a new formulation that avoids first pass metabolism, will
expand the use of Marinol.
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Use of Marinol(R) in HIV Disease
Infection from HIV can have a largely irreversible and progressive effect
on the nutritional status of the patient. Often the compromised status of the
patient leads to weight loss, known as HIV wasting syndrome. Studies of
individuals with HIV 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.
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.
Potential Use of Marinol(R) in Alzheimer's Disease
Alzheimer's disease is believed to afflict an estimated 4.3 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's 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 Company is currently conducting a Phase II clinical study of Marinol
and its affect on patients suffering from disturbed behavior caused by
Alzheimer's disease along with other forms of dementia. The Company hopes to
show a positive effect of Marinol on the reduction of this disturbed (i.e.
aggressive and/or resistive) behavior. The Company is currently preparing for
the initiation of a Phase II dose-ranging study for Alzheimer's patients, as the
Company believes that behavior abnormality is a leading factor in the
requirement for institutionalization.
Rescheduling of Marinol from Schedule II to Schedule III of the Controlled
Substance Act (CSA)
In February 1995, the Company filed a petition with the U.S. Drug
Enforcement Administration (DEA) to re-schedule Marinol from Schedule II to
Schedule III of the CSA. After a lengthy review and upon concurrence from the
FDA and NIDA (National Institute for Drug Abuse), in November 1998 the DEA
published a proposed rule in the Federal Register announcing its intention to
re-schedule Marinol. Publication of the final rule is pending and Unimed expects
this to occur in 1999. Once Marinol is classified as a Schedule III drug,
patient access is likely to increase secondary to physicians' ability to write
prescriptions with up to five refills in a six-month period. Currently, Marinol
prescriptions may not be refilled. Thus, Unimed expects that the sales of
Marinol will be positively impacted by its re-scheduling, although the magnitude
of this impact is unknown.
Anadrol(R) (oxymetholone)
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 (oxymetholone) for the U.S., Canada and Mexico. The Company began
marketing and distributing Anadrol in the first quarter of 1998. Initial efforts
focused on HIV treating physicians with plans to market Anadrol to
hematologists, oncologists and nephrologists in the future.
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 cytotoxic
cancer with chemotherapy or radiation, which can be destructive to bone marrow.
Anadrol has been found to enhance the production and urinary excretion of
erythropoietin in patients with anemia due to bone marrow failure and often
stimulates production of red blood cells in the bone marrow. Anadrol also acts
in the bone marrow to stimulate stem cell development.
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Patients with HIV commonly have hematological abnormalities and almost all
have some bone marrow abnormality. Although a small number of HIV patients are
believed to be anemic when first seen by a healthcare professional, many more
eventually become anemic during the course of the disease. The factors that
contribute to the development of anemia in HIV patients include the disease
itself, opportunistic infections and their treatment, treatment with
antiretroviral drugs and the effects of chronic disease. A major cause of anemia
in HIV patients is impaired red blood cell production in bone marrow.
The Company is investigating further clinical studies that may lead to
additional uses of Anadrol. The Company is conducting Phase II/III trials with
Anadrol as a treatment for HIV wasting syndrome. In addition, the Company is
conducting research and development programs using Anadrol as a treatment for
chronic obstructive pulmonary disease and lipodystrophy. Ongoing clinical
development programs also include use of Anadrol in conjunction with reduced
exogenous administration of erythropoietin in renal disease patients and those
with HIV disease.
Maxaquin(R) (lomefloxacin HCl)
In February 1997, the Company acquired from G.D. Searle & Co. ("Searle"),
the long-term, exclusive 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. Maxaquin was acquired to establish a presence in the
urology and infectious disease therapeutic markets and to provide multiple
products to sell in the HIV market. The Company markets and distributes Maxaquin
in the U.S. through the Company's specialty sales force.
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 new drug application for the three-day use of Maxaquin
to treat uncomplicated urinary tract infections.
A potential new indication for Maxaquin is to treat chronic bacterial
prostatitis.
PRODUCT DEVELOPMENT
The Company has two compounds in clinical development: 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), a transdermal gel being
developed to treat men over the age of 60 for androgen deficiency.
Androgel(TM)
In 1995, the Company acquired exclusive rights to Androgel from
Laboratoires Besins Iscovesco S.A. ("Besins") in the U.S., Canada and Mexico.
Androgel is a proprietary topical gel formulation of the male sex hormone,
testosterone. Androgel is applied to the upper arms/shoulders and/or abdomen of
men who produce an insufficient amount of testosterone. This deficiency is
referred to as hypogonadism. Low testosterone is associated with a variety of
adverse effects, including psychogenic 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, HIV). Hypogonadism has also been implicated as a potential factor in
the etiology of HIV wasting syndrome.
In January 1999, the Company completed a pivotal Phase III human clinical
trial with Androgel for the treatment of hypogonadism. The multicenter study
compared applications of Androgel with a currently marketed testosterone
transdermal patch. Preliminary results of this Phase III trial indicate that
Androgel is well tolerated and effectively restores serum blood levels of
testosterone. In addition to measuring serum testosterone levels, the study also
measured the effects of testosterone replacement therapy on libido, lean body
mass, muscle strength, and body fat. The results showed positive effects of
testosterone replacement on
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sexual behavior, body mass composition, and mood. The Company expects to file a
new drug application ("NDA") for Androgel with the Food and Drug Administration
("FDA") in 1999.
Andractim(TM)
In 1995, the Company also acquired exclusive rights from Besins in the
U.S., Canada and Mexico to Andractim, a patented topical gel formulation of the
male hormone, dihydrotestosterone ("DHT"). Previous clinical studies indicate
that DHT may be an effective androgen replacement therapy in men 60 and older
with below normal blood serum levels of testosterone (called geriatric
hypogonadism). Geriatric hypogonadism is associated with a variety of adverse
effects, including psychogenic impotence, lack of sex drive, diminished energy
and muscle weakness. Testosterone levels in men may decline beginning in their
late 40s. Androgen supplementation in aging men may be beneficial.
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. During 1998, the Company has also initiated a first multicenter Phase
III clinical trial in geriatric and expects to conduct further clinical testing
of Andractim in the treatment of benign prostate hyperplasia. A patent was
issued in 1998 for the use of DHT to prevent benign prostate hyperplasia.
Cryptaz(TM)
Cryptaz(TM) is an antiparasitic compound in development for the treatment
of cryptosporidial diarrhea. In November 1998, the Company transferred the
development and marketing rights plus associated know-how back to its licensor
for $1,000,000. Unimed will receive royalty payments on future Cryptaz sales if
and when approved by the FDA.
MARKETING AND DISTRIBUTION
The Company distributes and promotes its portfolio of proprietary drugs to
specialty physician markets -- therapeutic areas such as HIV -- where fewer than
10,000 physicians manage the majority of patients. The Company intends to focus
on U.S. markets and to pursue partnerships and corporate alliances to market its
products abroad.
In conjunction with the launch of Anadrol, the Company doubled its
specialty field sales force. The Company expects to further expand the sales
force (and associated management) in 1999 as an ongoing effort to support the
detailing of its three currently marketed products, Anadrol, Marinol, and
Maxaquin, to both current and new specialty physician markets.
The Company's sales force details Marinol primarily to HIV-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
HIV. In March 1997, the Company began to distribute Maxaquin to the same
physician specialists.
Marinol is approved for use as an antiemetic in South Africa, Israel, and
Canada and is under regulatory review for use as an appetite stimulant in
Canada.
The Company has sublicensed the right to register, market and distribute
Androgel and Andractim in Canada to BioChem Pharma Inc.
MANUFACTURING
Unimed does not have and does not expect to develop facilities to
manufacture its drug products in the foreseeable future. The Company's products
and development stage pharmaceuticals are manufactured under various agreements
with third party manufacturers. The Company's manufacturing and quality
assurance personnel do, however, authorize, monitor and approve virtually all
aspects of the manufacturing process. In-process and finished product
inventories are analyzed through independent testing laboratories and the
results reviewed and approved by the Company prior to release for distribution.
The Company generally carries at
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least two years of inventory of each of its marketable products as safety stock.
The Company also has a policy to fill orders by wholesalers on demand, and does
not intend to carry a backlog of orders at any time.
The NORAC Company, Inc. ("NORAC") supplies THC, the active ingredient in
Marinol, to the Company on an exclusive basis. 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 the Company. The Company is responsible for further
production of Anadrol. A contract for the production of the raw material for
Anadrol is being negotiated with Syntex and a manufacturing agreement has been
established with Oread Pharmaceutical Manufacturing, to supply the Company with
the finished packaged dosage form of Anadrol.
The Company has a supply agreement with Besins for Androgel and Andractim.
Under this agreement, the Company purchases clinical supplies, and upon 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 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 some states 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 controlled 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 processes. 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 a 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,
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approval, advertising and promotion of pharmaceutical products. Noncompliance
with applicable requirements can result in fines, recall and seizure of
products, total or partial suspension of production and governmental refusal to
approve new products or indications. The manufacture and sale of Marinol 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 HIV. 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 and will end in December 1999. In 1998, the Company received a
U.S. patent relating to the use of Marinol in treating dementia, particularly
Alzheimer's type dementia. The Company also has a patent application pending
relating to the use of Marinol to stimulate appetite and reduce weight loss in
HIV patients.
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 with an expiration of 2003. 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.
In July 1997, Syntex assigned and transferred the rights, title, and
interest in the Anadrol and Anapolon trademarks as well as the rights, title,
and interest in the NDA registrations of oxymetholone to Unimed.
The Company requested and was notified by the FDA that Andractim qualifies
as an Orphan Drug for treating weight loss in HIV patients. In addition, the
Company received proprietary protection from a U.S. patent that was issued
during 1997 relating to the use of Andractim in benign prostate hyperplasia.
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.
The Company owns the Marinol, Anadrol, Androgel and Andractim trademarks in
the U.S. The FDA has accepted Androgel as the Company's tradename for its
testosterone gel product.
LITIGATION INVOLVING THE CHAIRMAN
John N. Kapoor, Chairman and a stockholder, was previously the Chairman and
President of Lyphomed, Inc. ("Lyphomed"). Fujisawa Pharmaceuticals, Ltd.
("Fujisawa") was a major stockholder of Lyphomed from the mid-1980's until 1990,
at which time Fujisawa completed a tender offer for the remaining shares of
Lyphomed, including the shares held by Dr. Kapoor. Fujisawa filed suit in
federal district court in Illinois against Dr. Kapoor alleging that between 1980
and 1986 Lyphomed filed a number of allegedly fraudulent abbreviated new drug
applications with the FDA, in violation of FDA rules, and that Dr. Kapoor's
failure to disclose these violations to Fujisawa constituted a violation of
federal securities laws and the Racketeer Influenced and Corrupt Organization
Act (RICO). Fujisawa also alleged state common-law claims of constructive trust,
fraud, breach of fiduciary duties and breach of warranty against Dr. Kapoor.
Among the relief sought by Fujisawa is a constructive trust on the assets of Dr.
Kapoor, which assets may involve Dr. Kapoor's shares or rights of the Company's
common stock. If a decision is made in favor of Fujisawa, and Fujisawa is
awarded the remedy it seeks, Fujisawa may acquire the right to control Dr.
Kapoor's shares or
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rights of common stock, which comprise 24% of the Company's common stock. Such a
decision could have a material adverse affect on the Company. The matter has
been referred to a special master for mediation discussions. It is anticipated
that in the absence of resolution of the matter, a trial would be held in late
1999 or early 2000. Fujisawa's claims under state law against Dr. Kapoor are
also pending.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
TERM OF
NAME AGE POSITION BUSINESS EXPERIENCE
---- --- -------- -------------------
<S> <C> <C> <C>
Robert E. Dudley
Ph.D.................. 44 President, Chief President, Chief Executive Officer and
Executive Officer and Director of Unimed since February 1999;
Director Senior Vice President from November
1997 to February 1999, 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.
David E. Riggs.......... 47 Senior Vice Senior Vice President since October,
President, Chief 1994 and Vice President, CFO,
Financial Officer, Secretary, and Treasurer of Unimed
Treasurer and since May 1992; CFO of NeoPharm, Inc.
Secretary from October 1995 to June 1998; CFO,
Secretary and Treasurer of VideoCart,
Inc., a micro-marketing media company,
from 1990 through 1991.
</TABLE>
EMPLOYEES
As of March 19, 1999, the Company has 69 full-time employees and one
part-time employee. Unimed expects to add technical, sales and marketing and
administration staff to support development of the business. The Company
believes employee relations are satisfactory and that it will be able to attract
additional personnel as needed.
ITEM 2. PROPERTIES.
The Company leases approximately 14,000 square feet of executive office
space in Buffalo Grove, Illinois, at an annualized cost of approximately
$250,000, under a lease that expires in 2002.
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>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
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
1998 (January 1 -- December 31)
First Quarter............................................. 8 11/32 6 3/8
Second Quarter............................................ 8 1/4 4 5/8
Third Quarter............................................. 6 1/8 1 3/4
Fourth Quarter............................................ 4 1/2 2 3/8
</TABLE>
The Company had approximately 995 holders of record of Common Stock on
March 19, 1999. 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.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Net sales..................... $15,869,082 $ 8,918,424 $ 7,648,599 $ 7,320,052 $ 7,387,860
Net (loss) income............. (8,939,393) (8,209,488) 1,522,143 625,062 40,708
Total assets........ 17,914,715 24,089,724 30,746,875 16,305,181 11,804,781
Long-term obligation.......... 486,488 1,213,000 -- -- --
Per share common stock data:
Basic net (loss) income....... $ (0.99) $ (0.93) $ 0.18 $ 0.10 $ 0.01
Dividends paid................ $ -- $ -- $ -- $ -- $ --
</TABLE>
Selected financial data for all periods prior to December 31, 1996 have
been restated to conform to the 1998 and 1997 presentation. These restatements
had no effect on net income (loss).
The results for 1998 include $1,000,000 Unimed received from Romark for the
transfer of Cryptaz rights and know-how back to Romark.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The Company was founded in 1948 to develop and market novel pharmaceutical
products. The Company's overall administration, licensing, marketing activities,
quality assurance and regulatory affairs are primarily coordinated at the
Company's headquarters in Buffalo Grove, Illinois.
The Company is engaged in the research, development, and marketing of
pharmaceutical products. Through a combination of internal research and
development, acquisitions, collaborative relationships and licensing
arrangements the Company develops and markets proprietary pharmaceutical
products in specialty medical markets.
During 1998, gross profit from Anadrol, Marinol and Maxaquin, as well as
cash and short term investments, were used to fund product development programs
and expand the Company's sales and marketing infrastructure.
REVENUE
Fiscal 1998 to Fiscal 1997
Total revenue for 1998 was $15,869,000, representing 78% growth over 1997
revenue of $8,918,000. Higher Marinol and Maxaquin net sales, combined with
Anadrol net sales were responsible for the increase. Fiscal 1998 net sales of
Marinol, marketed as a refractory antiemetic in cancer chemotherapy and an
appetite stimulant in anorexia associated with weight loss in HIV increased 27%
over 1997 levels, with $10,277,000 in sales for the year. This increase is
primarily attributed to higher unit sales along with a price increase for the
year. Maxaquin sales in 1998 increased 43% over 1997 to $1,187,000 with a full
year of sales in 1998 (Maxaquin was first sold in first quarter 1997). In
February 1998, the Company began marketing Anadrol, an anabolic androgenic
steroid. Anadrol contributed $4,405,000 to net sales in 1998.
In 1996, Marinol was approved for use as an antiemetic in South Africa,
Israel and Canada and is currently under regulatory review for use as an
appetite stimulant in Canada. Marinol sales to countries outside the United
States totaled approximately $717,000 in 1998 and $124,000 in 1997.
Other income (net of other expenses) in 1998 increased approximately
$193,000 to $1,429,000 or 16% over 1997. The increase was offset in part by
imputed interest expense of approximately $70,000. The interest imputed stems
from the Maxaquin distribution agreement that includes a continuing obligation
of Unimed to remit a minimum royalty to Searle until 2006. Interest income
decreased to $481,000, a $568,000 decrease from 1997 due to lower invested cash
balances. Other income in 1998 includes $1,000,000 received from Romark for the
transfer of Cryptaz product and licensing rights. The Company retained royalty
rights upon FDA marketing approval of Cryptaz. In 1997, other income included
approximately $300,000 of clinical development milestone payments from a product
sub-license agreement.
Fiscal 1997 to Fiscal 1996
Total revenue for 1997 increased 17% over 1996 revenue to $8,918,000.
Marinol sales increased approximately 6% over 1996 levels to $8,085,000, while
Maxaquin contributed $833,000 since its acquisition in the second quarter 1997.
For the year ended December 31, 1996, 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
clinical development portfolio. The Company recognized the remaining portion of
this deferred revenue in 1997.
Other income in 1996 included $311,000 from the gain on a product
sub-license and $200,000 from a gain on the sale of a trademark.
10
<PAGE> 11
COSTS AND EXPENSES
Fiscal 1998 to Fiscal 1997
Cost of sales increased 35% to $4,056,000 in 1998 due primarily to higher
unit sales.
Net research and development expenses increased 314% from $2,675,000 in
1997 to $11,070,000 in 1998. During 1998, the Company funded the Androgel Phase
III multicenter study and the first Andractim Phase III study, along with the
alternative dosage form studies for Marinol and the clinical studies associated
with additional uses of Anadrol. The Company also incurred significant expenses
associated with the Cryptaz NDA filing.
Sales and marketing expenses increased 138% from $3,384,000 in 1997 to
$8,045,000 in 1998. During 1998, the Company expanded its specialty field sales
force in connection with the Anadrol product launch.
Operating and administrative expenses increased 12% from $2,726,000 in 1997
to $3,066,000 in 1998, primarily due to consulting and outsourcing services in
addition to administrative costs related to the Anadrol product launch in first
quarter 1998.
Fiscal 1997 to Fiscal 1996
Cost of sales for 1997 decreased 3% to $2,997,000 from 1996 cost of sales
due to lower Marinol raw material costs and higher margins on Maxaquin sales as
compared to Marinol.
Net research and development expenses increased 136% from 1996 to 1997 to
$2,675,000. The increase related to clinical trials started during 1997 as well
as the preparation of an NDA for Cryptaz and submission of it to the FDA in
December. For the year ended December 31, 1996, 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. The increase was attributed to increased personnel and
advertising expenses related to the promotion of Maxaquin.
Operating expenses increased 25% from $2,183,000 in 1996 to $2,726,000 in
1997 due to accelerated development programs, professional expenses related to
the acquisition of product rights, higher personnel-related expenses and
executive recruitment.
NET INCOME
The Company reported a net loss of $0.99 per share (basic) in 1998 compared
to a net loss of $0.93 per share (basic) in 1997 and net income of $0.18 per
share (basic) in 1996. The net loss in 1998 was due primarily to accelerated
research and development expenditures. The net loss in 1997 was primarily the
result of the write offs and write-downs of the investments and product
acquisition costs.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash, cash equivalents and short-term
investments of $7,487,000, compared with $14,787,000 at December 31, 1997.
During 1998, Unimed used cash in operations of $5,568,000. Working capital
decreased from $13,210,000 in 1997 to $3,769,000 in 1998, primarily due to the
sales and marketing expenses associated with the launch of Anadrol in March, the
expansion of the sales force and the increase in development expenditures
related to clinical trials. The Company expects a reduction in the current level
of clinical development expenditures in 1999. The Company expects to expand its
sales and marketing organization as the portfolio of products and related
markets are expanded. In addition, with further sales growth, the Company will
require a higher investment in working capital in order to fund accounts
receivable and inventories.
11
<PAGE> 12
The Company's investments in marketable securities as of December 31, 1998
are all due in one year or less and are placed with creditworthy financial
institutions. As such, the risk of significant changes in the value of these
securities resulting from a change in market interest rates is considered to be
minimal.
During 1998, the Company received approximately $228,000 from the exercise
of stock options. The Company reissued 6,453 shares of its treasury stock,
maintaining 102,047 shares in treasury as of December 31, 1998.
Inventories decreased approximately $882,000 over 1997 amounts. This
decrease is due to the 78% increase in sales in 1998, as well as a delay in
receiving certain inventories until January 1999. The Company's Marinol
distributor, Roxane, advances funds to Unimed to maintain Marinol inventories.
This current liability, Due to Roxane, is relieved on a quarterly basis through
a reduction of royalties remitted to the Company. The reduction in the quarterly
royalty received approximately 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 believes it will have adequate
resources to fund its 1999 plan.
Since the Company began distributing Anadrol in 1998, drug cost has been
reimbursed to qualified patients under the Medicaid reimbursement program. The
Department of Health and Human Services, Health Care Financing Administration
("HCFA") administers Medicaid reimbursement. Anadrol reimbursed through the
Medicaid program is subject to price breaks, referred to as rebates. Regulations
which apply to the method used by the Company to compute Anadrol Medicaid
rebates are subject to interpretation. The Company has requested HCFA
administrators to evaluate the Medicaid Drug Rebate program policy appropriately
applied to Anadrol. The Company expects clarification and resolution of this
rebate policy in 1999. In 1998 the Company established a provision to remit
higher Medicaid rebates, should HCFA conclude another rebate methodology should
be applied.
ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standard No. 130
(SFAS 130), "Reporting Comprehensive Income." For the years ended December 31,
1998, 1997, and 1996 the Company has no material components of comprehensive
income, as defined by SFAS 130, which are not contained in net income as
reported on the accompanying Consolidated Statements of Income.
YEAR 2000 PROGRAM
The Year 2000 issue concerns the inability of many computer systems and
other equipment to properly recognize and process date-sensitive information
during or after the Year 2000 because their computer chips or processors use
only two digits to represent the year. As a result, business and governmental
entities are at risk for possible miscalculations or system failures causing
disruptions in their business operations. A Year 2000 problem can arise at any
point in the Company's product development, supply, manufacturing, data
processing, distribution and financial operations. The Company uses computer
systems for internal data processing, record-keeping and inventory management,
and for the compilation and evaluation of product development data.
The Company has implemented a Year 2000 readiness program with the
objective of having all of its significant business systems functioning properly
with respect to Year 2000 issues well before January 1, 2000. The Company's Year
2000 readiness program is being addressed in steps, and to a large extent is
being implemented on a system-by-system or computer-by-computer basis. The first
step is the identification of the Company's critical business systems. The
second step is evaluation of the Company's critical business systems to
determine the need for remediation or replacement. The third step is the actual
remediation and replacement of material business systems, and the fourth step is
testing and implementation. The Company is currently operating in the fourth
step of the readiness program.
The Company has identified substantially all of its business systems that
could encounter Year 2000 problems. Because within the normal course of business
the Company has upgraded its systems, substantially all of the Company's
business systems and related software are Year 2000 compliant. The Company is
12
<PAGE> 13
primarily using internal personnel and to a lesser extent contract programmers
and vendors to complete the evaluation steps of its program, to modify codes and
software in business systems that require remediation, and to test the business
systems. The Company has identified the computer hardware and software that need
to be replaced and is in the process of cost negotiations. The Company does not
believe that it will encounter difficulties or unreasonable costs in making any
hardware or software replacements necessary to substantially achieve Year 2000
readiness. The Company currently anticipates any additional costs associated
with further Year 2000 readiness will not be a material amount. Additional costs
could be incurred if the Company finds it necessary to engage outside
consultants to complete its contingency plan or if its contingency plan is
implemented. Year 2000 program costs are being funded out of cash flow and,
except for the depreciation of capital items, are being expensed as they are
incurred.
The Company relies on third party suppliers for raw materials, contract
manufacturing, transportation, product distribution, product testing and
development, and other key services ("Key Service Providers"). The Company is in
the process of surveying its Key Service Providers to reasonably determine their
state of Year 2000 readiness. Most of the Company's Key Service Providers are
public companies or subsidiaries of public companies or are public institutions
and utilities and, accordingly, have similar responsibilities to those of the
Company regarding Year 2000 readiness. The Company is also developing
contingency plans to replace Key Service Providers that it determines will not
be Year 2000 compliant as to the Company's needs before January 1, 2000.
The Company believes that temporary interruptions to its business could be
encountered if some or all of its Key Service Providers do not timely achieve
Year 2000 readiness. There is a risk of short-term interruption in the supply of
raw materials, manufacturing of product, processing sales, and conducting and
reporting clinical studies and other product development information. Product
sales could be deferred if communications with supply warehouses and
distributors should fail. Such disruptions and delays could result in deferred
or lost revenue and increased expenses. The Company is finalizing the
contingency plan to reduce the risk of interruptions in its business. The
contingency plan is expected to include the identification of replacement Key
Service Providers, the build-up of raw material and finished product inventories
to assure product availability, and the arrangement of alternative facilities
and equipment for testing and operations, should the need arise. The Company's
contingency plan will be designed to manage, not fully eliminate, the potential
for disruptions due to Year 2000 problems.
The Company's Year 2000 readiness program is an ongoing process and the
risk assessments and estimates of costs and completion dates for various steps
and components of the program are subject to change. The cost of the Year 2000
program and the dates on which the Company believes the steps of the program
will be completed are based on management's best estimates, which were derived
using numerous assumptions of future events. Factors that could cause such
changes include, among other things, availability of qualified personnel and
consultants, the actions of third parties, primarily Key Service Providers, and
material changes in governmental regulations affecting the Company's products.
There can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
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
13
<PAGE> 14
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 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 development of potential products. There can be no
assurance that the Company's activities will lead to the development or
commercialization of any product.
Regulatory and Technology Uncertainty. The Company is engaged in the
biopharmaceuticals field, which is characterized by extensive research and rapid
technological change. There can be no assurance that research and discoveries by
others will not render some or all of the Company's products non-competitive or
obsolete.
Dependence on Others. The Company's strategy for development and
commercialization of its products is to rely, in part, on various arrangements
with licensors, licensees, exclusive manufacturers and suppliers and others and,
therefore, is dependent upon the success of these outside parties in the
performance of their duties. There can be no assurance that the Company will be
able to negotiate acceptable arrangements or product distribution arrangements.
There can be no assurance that the Company, at all times, will be in compliance
with the material terms and conditions of all its licensing arrangements, which
could lead to periodic renegotiations of terms.
Substantial Competition and Technological Change. Many companies engage in
developing pharmaceutical products for human therapeutic applications. Most of
these companies have substantially greater capital, research and development,
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.
Year 2000 Readiness. The statements concerning future impact of the Year
2000 issue involve certain risks and uncertainties, such as the inability to
receive products on a timely basis from vendors, ship products to customers and
other factors, which could have a material impact on the Company's results from
operations. Certain vendors may fail to adequately prepare their information
systems or the Company's own Year 2000 project may not correct all Year 2000
issues. Accordingly, there is no certainty that either the Company or its
vendors will complete their Year 2000 projects prior to December 31, 1999.
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,
1998.
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, 1998.
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, 1998.
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, 1998.
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-B -- Stock Purchase Agreement, dated as of February 15, 1991,
between the John N. Kapoor Trust and the Company (filed by
reference to Exhibit 4-D to Post-Effective Amendment No. 3
to Registration Statement No. 33-10975).
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).
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
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).
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) -- Supplemental Agreement between Roxane Laboratories, Inc. and the Company, dated November 26, 1990.
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(i) -- 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-K(ii) -- Amendment to 1991 Stock Option Plan adopted May 26, 1998 (filed by reference to Appendix B to the
Company's Proxy Statement for the 1998 Annual Meeting of the Stockholders filed on April 29, 1998).
**10-L -- Agreement for Manufacture and Sale of THC, dated as of January 1, 1995, by and between The NORAC
Company, Inc. and the Company (filed by reference to Exhibit 10-K to the Annual Report on Form 10-K
filed in fiscal year end December 31, 1997).
*10-N -- Employment Agreement, dated as of February 19, 1999, between the Company and Robert E. Dudley.
**10-R -- Distribution Agreement dated February 14, 1997, by and between the Company and G.D. Searle & Co.
(filed by reference to Exhibit 10-K to the Annual Report on Form 10-K filed in fiscal year end
December 31, 1997).
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-U -- Agreement between Syntex (USA) Inc. and its Mexican affiliate and the Company dated July 1, 1997
(filed by reference to Exhibit 10-K to the Annual Report on Form 10-K filed in fiscal year end
December 31, 1997).
*10-V -- Employment Agreement, dated as of February 19, 1999, between the Company and David E. Riggs.
10-W -- 1998 Long Term Incentive Plan (filed by reference to Appendix A to the Company's Proxy Statement
for the 1998 Annual Meeting of the Stockholders filed on April 29, 1998).
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
*27 -- Financial Data Schedule
</TABLE>
- -------------------------
* Filed herewith.
** Confidential portions of the documents were omitted and filed separately with
the SEC pursuant to Rule 24B-2 under the Exchange Act.
18
<PAGE> 19
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, 1998 and
December 31, 1997...................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996....................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... F-6
Notes to Consolidated Financial Statements................ F-7
Report of Independent Accountants on Financial Statement
Schedule.................................................. F-18
Financial Statement Schedule:
Valuation and Qualifying Accounts (Schedule II)........... F-19
</TABLE>
F-1
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Unimed Pharmaceuticals, Inc. and Subsidiary
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Unimed
Pharmaceuticals, Inc. and Subsidiary (the "Company") at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Chicago, Illinois
February 10, 1999
F-2
<PAGE> 21
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 621,910 $ 1,068,279
Short-term investments.................................... 6,865,467 13,718,834
Receivables:
Trade, less allowances of $162,479 in 1998 and $21,398
in 1997.............................................. 3,756,622 1,661,042
Other.................................................. 138,152 116,978
------------ ------------
Total receivables.................................... 3,894,774 1,778,020
Inventories, less reserves of $263,261 in 1998 and
$302,020 in 1997....................................... 3,504,772 4,386,904
Prepaid expenses and other current assets................. 243,842 407,698
------------ ------------
Total current assets................................. 15,130,765 21,359,735
------------ ------------
Equipment and leasehold improvements, at cost............... 3,045,449 2,555,857
Less accumulated depreciation and amortization............ 1,757,232 1,452,217
------------ ------------
Net....................................................... 1,288,217 1,103,640
------------ ------------
Product rights, net of amortization......................... 1,495,733 1,626,349
------------ ------------
Total assets......................................... $ 17,914,715 $ 24,089,724
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,786,878 $ 1,812,030
Accrued and other liabilities............................. 3,080,887 1,692,180
Rebate and chargeback reserve............................. 2,763,863 1,084,919
Due to Roxane Laboratories, Inc........................... 2,610,590 2,646,253
Current portion of long-term obligation................... 120,000 914,836
------------ ------------
Total current liabilities............................ 11,362,218 8,150,218
------------ ------------
Long-term obligation........................................ 486,488 1,213,000
------------ ------------
Total liabilities.................................... 11,848,706 9,363,218
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.25 par value; authorized 30,000,000
shares; issued
9,105,362 and 9,040,942, respectively.................. 2,276,341 2,260,236
Additional paid-in capital................................ 28,432,125 28,201,420
Accumulated deficit....................................... (24,154,607) (15,215,214)
Accumulated foreign currency translation adjustment....... 42,150 41,522
------------ ------------
6,596,009 15,287,964
Less: treasury stock at cost (102,047 shares in 1998 and
108,500 shares in 1997)................................... (530,000) (561,458)
------------ ------------
Total stockholders' equity........................... 6,066,009 14,726,506
------------ ------------
Total liabilities and stockholders' equity........... $ 17,914,715 $ 24,089,724
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 22
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales............................................. $ 15,869,082 $ 8,918,424 $7,648,599
Cost of sales......................................... 4,055,759 2,997,030 3,086,713
------------ ----------- ----------
Gross profit.......................................... 11,813,323 5,921,394 4,561,886
------------ ----------- ----------
Operating and administrative.......................... 3,065,837 2,726,452 2,183,229
Sales and marketing................................... 8,045,445 3,384,213 1,271,566
Research and development, net......................... 11,070,117 2,675,467 1,134,977
Product rights writedown.............................. -- 4,080,189 --
Investment revaluation................................ -- 2,500,000 --
------------ ----------- ----------
Total expenses.............................. 22,181,399 15,366,321 4,589,772
------------ ----------- ----------
(Loss) from operations................................ (10,368,076) (9,444,927) (27,886)
Interest income, net.................................. 410,853 935,439 1,067,975
Other, net............................................ 1,017,830 300,000 482,054
------------ ----------- ----------
(Loss) Income before income taxes..................... (8,939,393) (8,209,488) 1,522,143
Income tax provision.................................. -- -- --
------------ ----------- ----------
Net (loss) income..................................... $ (8,939,393) $(8,209,488) $1,522,143
============ =========== ==========
Net (loss) income per share:
Basic............................................... $(.99) $(0.93) $0.18
============ =========== ==========
Diluted............................................. $(.99) $(0.93) $0.17
============ =========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic............................................... 8,985,150 8,862,000 8,365,785
============ =========== ==========
Diluted............................................. 8,985,150 8,862,000 8,898,430
============ =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 23
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<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,
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)
Exercise of common
stock options........ 265,443 66,361 860,755 -- -- -- 927,116
Treasury stock
acquired............. -- -- -- -- -- $(561,458) (561,458)
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
--------- ---------- ----------- ------------ ------- --------- -----------
Net loss............... -- -- -- (8,939,393) -- -- (8,939,393)
Exercise of common
stock options........ 64,420 16,105 212,152 -- -- -- 228,257
Treasury stock
reissued............. 18,553 -- -- 31,458 50,011
Foreign currency
translation gain..... -- -- -- -- 628 -- 628
--------- ---------- ----------- ------------ ------- --------- -----------
Balance at December 31,
1998................. 9,105,362 $2,276,341 $28,432,125 $(24,154,607) $42,150 $(530,000) $ 6,066,009
========= ========== =========== ============ ======= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 24
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows (used in) provided by operations:
Net (loss) income.................................. $ (8,939,393) $ (8,209,488) $ 1,522,143
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization.................... 435,631 450,251 176,924
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) --
Provision for losses on accounts receivable...... 141,081 (17,992) (3,610)
Provision for losses on inventory................ (38,759) 290,740 (43,422)
Change in operating assets and liabilities:
(Increase) decrease in receivables............... (2,257,835) 194,888 131,946
Decrease (increase) in inventories............... 920,891 (492,789) (813,494)
Decrease (increase) in prepaid expenses and
other......................................... 164,939 (298,718) 205,930
Increase in accounts payable and accrued
liabilities................................... 2,264,238 1,916,785 639,274
Increase (decrease) in rebate reserve............ 1,678,944 (286,456) 664,558
(Decrease) increase in due to Roxane
Laboratories, Inc............................. (35,663) (928,173) 564,610
------------ ------------ ------------
Net cash flows (used in) provided by operating
activities....................................... (5,665,926) (601,813) 3,044,859
Cash flows provided by (used in) investing
activities:
Proceeds on disposition of equipment............. -- 1,880 6,124
Purchases of equipment........................... (489,592) (564,272) (129,039)
Purchase of product rights....................... -- (3,376,000) --
Purchase of short-term investments............... (24,255,859) (31,794,726) (48,736,422)
Sale of short-term investments................... 31,109,226 34,446,789 33,754,281
Investment in and subordinated debenture from
Romark Laboratories, L.C......................... -- (224,090) (1,675,910)
------------ ------------ ------------
Net cash provided by (used in) investing
activities....................................... 6,363,775 (1,510,419) (16,780,966)
Cash flows (used in) provided by financing
activities:
Cash overdraft................................... 99,317 -- --
Reissuance (purchase) of treasury stock.......... 50,011 (561,458) --
Proceeds from exercise of stock options.......... 228,257 927,116 710,820
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
Repayment of debt................................ (1,521,348)
Deferred research and development, net........... -- (1,643,888) 643,888
------------ ------------ ------------
Net cash flows (used in) provided by financing
activities....................................... (1,143,763) (1,278,230) 11,183,097
Effect of exchange rate changes on cash............ (455) (148) 56
------------ ------------ ------------
Net change in cash and cash equivalents............ (446,369) (3,390,610) (2,552,954)
Cash and cash equivalents at beginning of year..... 1,068,279 4,458,889 7,011,843
------------ ------------ ------------
Cash and cash equivalents at end of year........... $ 621,910 $ 1,068,279 $ 4,458,889
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for taxes.............. $ 1,697 $ 11,805 $ 11,700
Obligation incurred due to product rights
acquisitions (including imputed interest)........ $ -- $ 2,127,836 --
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 25
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unimed Pharmaceuticals, Inc. (the "Company" or "Unimed") and its subsidiary
conduct business as a single segment to develop and market proprietary ethical
pharmaceutical products in specialty 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 the
respective distribution, royalty and licensing agreement.
F-7
<PAGE> 26
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- 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 is 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 is then added to the
weighted-average number of common shares outstanding. The incremental shares
from assumed conversions of stock options of 794,641 in 1998 are not included in
the diluted earnings per share calculation, as they would be anti-dilutive due
to the net loss from operations. In addition, options to purchase 1,000,140
shares of common stock, outstanding at December 31, 1998, were not included in
the computation of diluted earnings per share since the options' exercise prices
were greater than the average market price of the common shares, and they also
would be 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 8 -- Stock Options" in
Notes to Consolidated Financial Statements).
(K) RECLASSIFICATIONS
Certain amounts for 1997 and 1996 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
F-8
<PAGE> 27
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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.
(M) INTANGIBLE ASSETS
Intangible assets consist of various 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.
(N) RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." For the year ended December 31, 1998, the Company had no
material comprehensive income components.
(2) INVENTORIES
A summary of inventory components at December 31 follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Finished products..................................... $1,058,802 $ 847,709
Work in process....................................... 597,050 986,406
Raw materials......................................... 2,112,181 2,854,809
Reserve for obsolescence.............................. (263,261) (302,020)
---------- ----------
$3,504,772 $4,386,904
========== ==========
</TABLE>
(3) EQUIPMENT, LEASEHOLD IMPROVEMENTS AND INTANGIBLE ASSETS
A summary of equipment and leasehold improvements at December 31 follows:
<TABLE>
<CAPTION>
ESTIMATED
1998 1997 USEFUL LIFE
---- ---- -----------
<S> <C> <C> <C>
Equipment, furniture and fixtures.......... $2,735,451 $2,347,782 3-10 years
Leasehold improvements..................... 309,998 208,075 10 years
---------- ----------
$3,045,449 $2,555,857
========== ==========
</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, 1998 and 1997, the equipment had a net book
value of $333,306 and $327,519, respectively. Depreciation expense for 1998 and
1997 was $305,015 and $266,770, respectively.
At December 31, 1998 and 1997, intangible assets consisted of product
rights ($1,633,694) and the accumulated amortization related to those product
rights ($137,961 and $7,345, respectively).
(4) PRODUCT DEVELOPMENT, LICENSING AND OTHER AGREEMENTS
Solvay Duphar
The Company entered into an agreement in January 1996 with Solvay Duphar of
The Netherlands. Unimed licensed the rights to proprietary know-how and
manufacturing for the drug SERC (betahistine hydrochloride) in the United
States. As part of the agreement, the Company received a $1.4 million payment to
help fund product development and for Unimed's product and trademark rights to
SERC in Canada,
F-9
<PAGE> 28
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) PRODUCT DEVELOPMENT, LICENSING AND OTHER AGREEMENTS -- CONTINUED
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. (subsequently assigned to BioChem Pharma Inc.),
under which the Company sublicensed product rights in Canada to Androgel,
Andractim, and Cryptaz(TM). During 1998, BioChem Pharma Inc. forfeited its
rights to Cryptaz directly to Romark Laboratories, L.C. Successful development
of Androgel and/or Andractim may result in additional equity investment and
milestone payments from BioChem Pharma Inc. The sublicense fee was $311,000.
Concurrently, BioChem Pharma Inc. purchased 50,771 shares of the Company's
Common Stock at a cost of $489,000.
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. In addition, Unimed held equity in Romark, which was previously
valued at $1,000,000.
During the fourth quarter of 1997, the Company recorded a provision for
$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.
During the fourth quarter of 1998, the Company transferred its rights to
Cryptaz back to Romark for $1,000,000, included in other income. The Company
will receive royalty payments on sales of Cryptaz upon FDA approval.
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. As of December 31, 1998, the Company
fulfilled its long and short-term obligations, with payments of $1,000,000 made
during the year.
During the fourth quarter of 1997, the Company wrote down the previously
capitalized acquisition costs of Maxaquin by $4.1 million.
Royalties and distribution fees of $226,865 and $3,058,148 were paid to
Searle during 1998 and 1997, respectively.
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 (oxymetholone) an orally active anabolic androgenic steroid used to
treat anemias, for the U.S., Canada and Mexico. The Company paid Syntex a
licensing fee, in three installments: the first installment of $376,000 was paid
in 1997 and the remaining two payments totaling $514,471 during 1998. The
purchase agreement also calls for Unimed to pay Syntex a 6% royalty on sales of
Anadrol.
F-10
<PAGE> 29
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(5) INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
CURRENT 1998 1997 1996
------- ---- ---- ----
<S> <C> <C> <C>
Federal..................................................... $-- $-- $--
State....................................................... -- -- --
Foreign..................................................... -- -- --
-- -- --
Total..................................................... $-- $-- $--
== == ==
</TABLE>
Income tax provisions differed from the taxes calculated at the statutory
federal rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Taxes (benefit) at the statutory rate...... $(4,216,560) $(233,000) $ 517,400
Utilization of tax loss carryforward....... -- -- (518,000)
State income taxes......................... -- -- --
Foreign loss............................... -- -- 600
Valuation allowance........................ 4,216,560 233,000 --
----------- --------- ---------
Totals................................... $ -- $ -- $ --
=========== ========= =========
</TABLE>
At December 31, 1998, the Company has tax loss carryforwards of
approximately $20,292,000 for federal income tax purposes, which expire in the
years 2001 through 2012. The Company has available research and development
credit carryforwards at December 31, 1998, of approximately $844,000, which
expire in the years 2003 through 2012. Management has recorded a 100% valuation
allowance against deferred tax assets since future taxable income is not more
likely than not.
The components of deferred taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................. $ 8,117,000 $ 3,900,000
Research tax credit carryforward................. 844,000 430,000
Orphan drug credit carryforward.................. 1,478,000 1,441,000
Sales returns and allowances..................... 64,000 8,000
Inventory reserve................................ 105,000 150,000
Accrued liabilities.............................. 402,000 67,000
Other............................................ 9,000 5,000
Maxaquin write down.............................. 1,526,000 1,590,000
Provision for Romark investment.................. 0 1,000,000
Valuation allowance.............................. (12,357,000) (8,364,000)
------------ -----------
Total......................................... $ 188,000 $ 227,000
------------ -----------
Deferred tax liabilities:
Depreciation..................................... 167,000 168,000
Other............................................ 21,000 59,000
------------ -----------
Total......................................... $ 188,000 $ 227,000
============ ===========
Net........................................... $ 0 $ 0
------------ -----------
</TABLE>
F-11
<PAGE> 30
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(6) 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 Roxane Marinol agreement sets
forth a formula for the royalties paid on net sales of Marinol on an equal
basis. Marinol net sales were $10,277,000 (1998), $8,085,000 (1997) and
$7,649,000 (1996). As of December 31, 1998 and 1997, trade receivables included
$2,457,910 and $1,537,223, respectively, due from Roxane. Under a separate
contract, Roxane agreed to reimburse the Company for half of the external
research costs incurred in further clinical development of Marinol. Roxane paid
$208,732 (1998), $64,328 (1997) and $27,746 (1996) 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.
In March 1993, Sanofi Winthrop started to distribute Marinol in Canada. The
Sanofi agreement pays a royalty-based commission on net sales of 55% to Sanofi
Winthrop and 45% to Unimed.
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.
(7) 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 August 1995, the Company granted warrants to purchase 72,550 shares of
Common Stock to Besins Iscovesco of Paris, France. The warrants were issued at
an exercise price of $8.00 per share, with an expiration date of August 11,
2005. As of December 31, 1998, the warrant to purchase 72,550 shares had not
been exercised.
In February 1996, the Company granted warrants to purchase 140,000 shares
of Common Stock to Sunrise Securities Corp. The warrants were issued at an
exercise price of $7.20 per share, with an expiration date of February 28, 2001.
As of December 31, 1998, the warrant to purchase 140,000 shares had not been
exercised.
(8) 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 periods of 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, 1998 and
1997, the 1998 Long Term Incentive Plan and the 1991 Stock Option Plan were the
only plans that granted options.
(A) 1998 LONG-TERM INCENTIVE PLAN
The 1998 Long-Term Incentive Plan (the 1998 Plan) was adopted by the Board
of Directors and approved by the shareholders in May 1998. An aggregate of
1,000,000 shares of common stock has been
F-12
<PAGE> 31
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) STOCK OPTIONS -- CONTINUED
reserved for issuance under the 1998 Plan. All employees, including employees
who are members of the board of directors, all directors and consultants are
eligible to participate in the 1998 Plan. No participant may receive options,
restricted stock or performance shares in excess of one-half of the total share
reserved for issuance under the 1998 Plan. In no event may any grant or award
under the 1998 Plan have a term of more than 10 years from the date of grant.
(B) 1991 STOCK OPTION PLAN
The 1991 Stock Option Plan (the 1991 Plan) was amended by the Board of
Directors 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 1991 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.
Option activity for the 1998 Plan and the 1991 Plan for the years ended
December 31, 1996, 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE OPTIONS
SHARES PRICE EXERCISABLE
------ --------- -----------
<S> <C> <C> <C>
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
--------- ----- -------
Options granted*............................................ 751,500 5.60 --
Options exercised........................................... (31,250) 2.90 --
Options forfeited*.......................................... (692,250) 7.14 --
--------- ----- -------
Balance at December 31, 1998................................ 1,516,269 $5.25 632,177
========= ===== =======
</TABLE>
- -------------------------
* Includes the forfeiture of 531,500 options granted in November 1997 and the
regrant of such options in May 1998.
F-13
<PAGE> 32
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) STOCK OPTIONS -- CONTINUED
The following table summarizes the status of outstanding stock options as
of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- -----------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
EXERCISE OPTIONS LIFE EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
2.75 -- 4.88.............................. 340,004 7.0 3.20 230,379 3.14
5.13 -- 6.75.............................. 1,065,765 8.7 5.64 342,923 5.64
7.25 -- 8.25.............................. 110,500 9.3 7.79 58,875 7.98
--------- --- ---- ------- ----
-- .............................. 1,516,269 8.3 5.25 632,177 4.95
========= === ==== ======= ====
</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 1998 and 1997, reported net
loss and loss per share would have been reduced as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net loss, as reported............................... $(8,939,393) $(8,209,488)
Pro forma net loss.................................. $(9,041,040) $(8,562,962)
Basic loss per share, as reported................... $ (.99) $(.93)
Pro forma basic loss per share, as reported......... $(1.01) $(.99)
Dilutive loss per share, as reported................ $ (.99) $(.93)
Pro forma dilutive loss per share................... $(1.01) $(.99)
</TABLE>
For purposes of the SFAS 123 pro forma net income and earnings per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option-pricing model. The weighted-average
assumptions used in determining fair value as disclosed for SFAS 123 are shown
in the following table:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk-free interest rate..................................... 5.39% 6.20%
Dividend yield.............................................. 0.00% 0.00%
Option life (years)......................................... 4.6 4.2
Stock price volatility...................................... 56.32% 55.82%
</TABLE>
(C) 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, 1998, 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.
F-14
<PAGE> 33
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) STOCK OPTIONS -- CONTINUED
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 1996, 1997 or 1998.
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 1996, 1997 or 1998.
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, 1998,
options to purchase 68,000 shares of Common Stock had been exercised, 51,000 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, 1998, 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, 1998, options to purchase 5,000 shares of Common Stock
had been exercised, none had been canceled and options to purchase 15,000 shares
of Common Stock were outstanding.
In addition, during April, May and October 1991, the Company granted to
employees nonqualified options to purchase 26,000 shares of Common Stock with
exercise prices ranging from $4.25 to $7.75. As of December 31, 1998, 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 1996, 1997 or 1998.
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.
F-15
<PAGE> 34
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) STOCK OPTIONS -- CONTINUED
There are 273,512 shares of the Company's Common Stock reserved for these
arrangements as of December 31, 1998.
(9) 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 1998 and 1997 totaled $138,328 and $78,668,
respectively.
(10) 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 $368,000 in 1998, $291,000 in 1997 and $143,000
in 1996. At December 31, 1998, approximate amounts committed for future fiscal
years are as follows:
<TABLE>
<S> <C>
1999........................................................ $379,000
2000........................................................ 387,000
2001........................................................ 395,000
2002 and beyond............................................. 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 has an 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.
Accrued and other liabilities include commitments of $1,252,500 and $0 as
of December 31, 1998 and 1997, respectively, for amounts owed in conjunction
with clinical development programs initiated, in progress, and/or completed.
(11) CONTINGENCIES
The pharmaceutical industry has traditionally experienced difficulty in
maintaining product liability insurance coverage at desired levels. To date, no
significant product liability suit has ever been filed against the Company.
However, if a suit were filed and a judgment entered against the Company that
significantly exceeded the policy limits, it could have a material adverse
effect upon the Company's operations and financial condition.
John N. Kapoor, Unimed's Chairman and a stockholder, is involved in
litigation with Fujisawa Pharmaceuticals, Ltd. for failure to disclose FDA
violations and breach of fiduciary duties and warranties. If a decision is made
in favor of Fujisawa and Fujisawa is awarded the remedy it seeks, Fujisawa may
acquire the right to control Dr. Kapoor's shares or rights of Unimed's common
stock, which comprise 24% of the Company's common stock. It is anticipated that
in the absence of resolution of the matter, a trial would be held in late 1999
or early 2000.
The Company reimburses the cost of its drugs to qualified patients under
the Medicaid reimbursement program. Currently, the Company has requested the
administrators of Medicaid reimbursement to evaluate its Medicaid rebate policy
as it applies to Anadrol. The Company expects clarification and resolution of
this
F-16
<PAGE> 35
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) CONTINGENCIES -- CONTINUED
rebate policy in 1999. In 1998 the Company established a provision for the
remittance of higher Medicaid rebates for Anadrol, should the rebate policy
require the increase.
(12) RELATED PARTIES
EJ Financial Enterprises, Inc. (EJ) is a healthcare investment and
consulting company owned by the Company's chairman, John N. Kapoor, an indirect
majority stockholder. 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 1998, 1997, and 1996, respectively.
(13) SUBSEQUENT EVENT
In February 1999, Ronald L. Goode, Ph.D. resigned as President/CEO to
pursue other business interests. Dr. Robert E. Dudley, the then Senior Vice
President, was appointed President/CEO and elected as a director of the Company.
F-17
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors of
Unimed Pharmaceuticals, Inc. and Subsidiary
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/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 10, 1999
F-18
<PAGE> 37
SCHEDULE II
UNIMED PHARMACEUTICALS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and returns:
1996.............................................. $ 43,000 $ 9,436 $ 13,046 $ 39,390
======== ======== ======== ========
1997.............................................. $ 39,390 $ 0 $ 17,992 $ 21,398
======== ======== ======== ========
1998.............................................. $ 21,398 $448,253 $307,172 $162,479
======== ======== ======== ========
Reserve for inventory obsolescence:
1996.............................................. $ 54,702 $241,107 $284,529 $ 11,280
======== ======== ======== ========
1997.............................................. $ 11,280 $290,740 $ 0 $302,020
======== ======== ======== ========
1998.............................................. $302,020 $151,193 $189,952 $263,261
======== ======== ======== ========
</TABLE>
F-19
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the Undersigned, thereunder duly authorized.
UNIMED PHARMACEUTICALS, INC.
By: /s/ ROBERT E. DUDLEY
------------------------------------
Robert E. Dudley
President and Chief
Executive Officer
March 26, 1999
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 29, 1999
- ------------------------------------------
Dr. John N. Kapoor
/s/ DR. ROBERT E. DUDLEY President and Chief Executive Officer March 29, 1999
- ------------------------------------------ and Director
Robert E. Dudley
/s/ DAVID E. RIGGS Senior Vice President, Chief Financial March 29, 1999
- ------------------------------------------ Officer, Secretary and Treasurer
David E. Riggs
/s/ GILBERT L. DWYER Director March 29, 1999
- ------------------------------------------
Gilbert L. Dwyer
/s/ JAMES J. LEMPENAU Director March 29, 1999
- ------------------------------------------
James J. Lempenau
/s/ ROLAND WEISER Director March 29, 1999
- ------------------------------------------
Roland Weiser
/s/ DR. RONALD L. GOODE Director March 29, 1999
- ------------------------------------------
Ronald L. Goode
/s/ DR. MAHENDRA G. SHAH Director March 29, 1999
- ------------------------------------------
Mahendra Shah
</TABLE>
<PAGE> 1
EXHIBIT 10-N
EMPLOYMENT AGREEMENT
This Agreement is made as of February 4, 1999, between Unimed
Pharmaceuticals, Inc., a Delaware corporation with offices located at 2150 E.
Lake Cook Road, Buffalo Grove, Illinois 60089 (the "Company") and Robert E.
Dudley, Ph.D., residing at 160 W. Austin Avenue, Libertyville, IL 60048 (the
"Employee").
WHEREAS, the Company desires to employ the Employee and retain his
services, experience and abilities which it regards as important to its
corporate growth and success; and
WHEREAS, the Employee desires to accept such employment upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, it is agreed as follows:
1. Employment. The Company hereby employs the Employee and the Employee
hereby accepts such employment under all of the terms and conditions of this
Agreement. The Employee shall be an officer of the Company, and shall hold the
office of President and Chief Executive Officer, reporting to the Board of
Directors of the Company. The Employee also shall serve as a member of the Board
of Directors of the Company, and agrees to resign from the Board if his
employment terminates for any reason.
1. Term. The Employee's employment under this Agreement shall commence
February 4, 1999 (the "Employment Date") and shall continue until termination in
accordance with the terms of this Agreement.
2. Duties. During the term of this Agreement, the Employee shall
perform diligently the duties of President and Chief Executive Officer as may be
directed by the Board of Directors and commensurate with such position and in
accordance with the Company's By-laws.
The Employee shall devote all of his time and attention to the
business of the Company during business hours normal for the position. The
Employee agrees not to be directly or indirectly engaged in or concerned with
any other duties or pursuits which interfere with performance of his duties
except those duties or pursuits specifically authorized by the Board of
Directors.
3. Compensation. In consideration of the services to be rendered by the
Employee, the Company agrees to compensate and to provide benefits to the
Employee as follows:
A. Base Salary. The Employee shall be paid a base salary of $225,000
per year, payable semi-monthly. The Board of Directors shall review
Employee's base salary annually to consider whether an increase is
warranted.
B. Bonus. Employee shall receive an annual bonus in an amount up to
forty percent (40%) of his base salary (the "Bonus Amount") based upon
his attainment of goals established for each calendar year by the Board
of Directors. The Board of Directors agrees to consider the suggestions
of the Employee in establishing each year's goals. For the period
commencing on January 1, 1999, and ending on December 31, 1999, the
Employee shall be
<PAGE> 2
awarded all or a portion of the Bonus Amount as specified below, for
attaining the following goals:
(1) The Employee shall receive thirty percent (30%) of the Bonus
Amount if the Company achieves a net profit for such period, as
reported in the Company's audited annual financial statement
prepared by its auditors in accordance with generally accepted
accounting principles.
(2) The Employee shall receive thirty percent (30%) of the Bonus
Amount if the Company achieves net sales in excess of $26 million
for such period, also as reported in the Company's audited annual
financial statement prepared by its auditors in accordance with
generally accepted accounting principles.
(3) The Employee shall receive forty percent (40%) of the Bonus
Amount if the Company enters into significant licensing agreements
during such period for t-gel [trademark ((R)(TM)) or full name?],
i.e., licensing agreements that provide up-front payments, in the
aggregate, of at least $3 million plus royalty payments.
(4) The Employee shall receive the full Bonus Amount, regardless
of his success in achieving the goals set forth above, if the
Company successfully completes a merger, acquisition or business
consolidation during such period.
(5) The Board retains the discretion to award the Employee a
bonus in excess of the Bonus Amount.
C. Automobile Allowance. The Employee shall be paid an automobile
allowance equal to $12,000 per year, payable monthly.
D. Benefits. The Employee shall be entitled to participate in and
receive any other benefits customarily provided by the Company to
senior management personnel, including, without limitation, profit
sharing, pension, 401(k), short and long term disability insurance,
hospital, major medical and dental insurance plans, all in accordance
with the terms of such benefit plans.
E. Life Insurance. The Company will provide to the Employee a term
life insurance policy with coverage of at least $1.5 million in the
event of death, payable to the Employee's estate.
F. Vacation. The Employee shall earn four (4) weeks of vacation per
year; provided, however, that the accrual of unused vacation time shall
be capped at six (6) weeks.
4. Stock Options. The Employee shall be granted, at the next regular
meeting of the Board of Directors following the Employment Date, an option
contract to purchase 100,000 shares of Company common stock subject to the terms
and conditions of the Company's 1991 Stock Option Plan. Such options shall vest
and become exercisable evenly over three years, 33_% per year on each of the
first three anniversaries of the Employee's employment, and shall be exercisable
at an exercise price equal to the closing price of the Company's shares on the
date of grant.
2
<PAGE> 3
5. Expenses. The Company shall reimburse the Employee for all
reasonable expenses incurred in the performance of his duties on behalf of the
Company.
6. Termination by the Company. Notwithstanding any other provision of
this Agreement, the Company may terminate this Agreement as follows:
A. Cause. For Cause, as defined below, upon written notice to the
Employee setting forth in reasonable detail the facts and circumstances
upon which the Board of Directors shall have determined, following
reasonable inquiry, that the Employee: (1) has been guilty of gross
misconduct or dishonesty in the performance of his duties to the
Company; (2) has willfully committed a material breach of any provision
of this Agreement, specifically including the non-competition and
confidentiality provisions set forth in Paragraph 9 of this Agreement,
and the Employee fails to cure said breach, if curable, within thirty
(30) days following written notice; or (3) has willfully committed any
other material act or omission which significantly impairs his ability
to perform substantially his essential job duties or which
significantly impairs the Company's ability to conduct its business,
and the Employee fails to cure such act or omission, if curable, within
thirty (30) days following written notice; provided that in the event
of a termination for Cause, the Company shall not be obligated to
provide the Employee with any compensation or benefits after the
effective date of such termination except as required by law.
B. Without Cause. Without Cause, at any time upon thirty (30) days
written notice to the Employee from the Board of Directors of the
Company; provided that in the event of a termination without Cause, the
Employee shall be entitled to receive, without any duty to mitigate, a
severance package consisting of (1) a lump-sum payment equal to the
Employee's then current annual base salary; (2) a pro rata bonus, based
upon the amount of bonus awarded to the Employee the prior year,
multiplied by the ratio of the number of days employed in the then
current calendar year divided by 365; (3) continuation (until the end
of the COBRA coverage period) of the Company's payment of health
insurance benefits, provided the Employee elects and is eligible for
continued insurance coverage pursuant to COBRA; (4) outplacement
assistance for one (1) year at a cost of no more than $25,000; and (5)
immediate vesting and exercisability of all outstanding stock options.
As a condition to receipt of the above severance package, the Employee
agrees to execute a general release satisfactory to the Board of
Directors.
C. Incapacity. For incapacity, upon written notice to the Employee
if the Board of Directors shall have determined following reasonable
inquiry, that the Employee has been unable due to illness, disability
or incapacity to perform the essential functions of his job, with or
without reasonable accommodation, for a continuous period exceeding six
(6) months; provided that the Employee shall be paid his then current
annual base salary during at least the first three (3) months of any
such incapacity and shall be entitled to receive short-term and
long-term disability benefits in accordance with the Company's plans.
The death of the Employee shall automatically terminate this Agreement,
in which event, the Company shall pay to the Employee's estate all
accrued unpaid salary, pro rata bonus and other amounts and benefits
required by law.
3
<PAGE> 4
D. Termination Without Cause Following Change of Control. In the
event the Employee is terminated without Cause, upon thirty (30) days
written notice from the Board of Directors, within twelve (12) months
following a Change of Control, as defined in Paragraph 10.E of the
Company's 1991 Stock Option Plan (as amended through May 2, 1994), the
Employee shall be entitled to receive, without any duty to mitigate, a
severance package consisting of: (1) a lump-sum payment equal to two
times the Employee's then current annual base salary; (2) a bonus equal
to the amount of bonus awarded to the Employee the prior year; and (3)
continuation (until the end of the COBRA coverage period) of the
company's payment of health insurance benefits, provided the Employee
elects and is eligible for continued insurance coverage pursuant to
COBRA. As a condition to receipt of the above severance package, the
Employee agrees to execute a general release satisfactory to the Board
of Directors.
7. Termination by the Employee. Notwithstanding any other provision of
this Agreement, the Employee may terminate this Agreement as follows:
A. Without Reason. Without reason, at any time upon providing thirty
(30) days prior written notice to the Company, in which event the
Company shall not be obligated to provide to the Employee any
compensation or benefits after the effective date of such termination
except as required by law.
B. Good Reason. For Good Reason, defined as the Company's material
breach of the terms of this Agreement and the Company's failure to cure
said breach, if curable, following thirty (30) days written notice by
the Employee describing in reasonable detail the facts and
circumstances of said breach; provided that in the event the Employee
terminates this agreement for Good Reason, he shall be entitled to
receive the severance package described in Paragraph 7.B of this
Agreement under the same terms and conditions as described therein.
8. Covenant Not to Compete/Confidentiality/Inventions/Discoveries.
A. During the term hereof, Employee agrees that he shall not,
without written authorization of the Board of Directors of the Company,
directly or indirectly, engage, individually or as an officer,
director, employee, consultant, advisor, partner, or as a controlling
stockholder or proprietor of any entity, in the business of
development, production, distribution or sale of any products or
services competitive with those manufactured or sold by the Company.
B. During the term hereof and after termination of this Agreement,
Employee shall not, without written authorization by the Board of
Directors of the Company, publish or disclose any confidential
information or trade secrets relating to the business of the Company.
C. In the event of a breach or threatened breach of either of the
foregoing subsections, the Company shall be entitled to an injunction
restraining the Employee from
4
<PAGE> 5
such breach. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedy for such breach.
D. The Employee 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 Employee (whether or not at the request
or upon the suggestion of the Company) during the period of his
employment with, or rendering of advisory or consulting services to,
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 or the rendering of
advisory and consulting services hereunder (collectively the "Subject
Matter").
E. The Employee 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 Employee 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.
F. The Employee 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 time, and
the Employee agrees to testify in any prosecution or litigation
involving any of the Subject Matter; provided, however, that the
Employee shall be compensated in a timely manner at the rate of $75.00
per hour, 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 hereunder.
9. Indemnification of the Employee. The Company agrees to fully
indemnify on a current basis the Employee for claims arising out of the
Employee's performance of his duties under this Agreement to the full extent
permitted by law and as permitted by the Company's articles of incorporation and
by-laws and further agrees to pay all fees and costs associated with the
Executive's defense of any indemnifiable claim hereunder as such fees and costs
are incurred.
10. Mitigation of Excise Tax. Except as otherwise provided in option
agreement or plan, if any payment or right accruing to the Employee under this
Agreement (without the application of this Section 11), either alone or together
with other payments or rights accruing to the Employee from the Company would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under this Agreement being subject to an excise tax under Section
4999 of the Code or being disallowed as a deduction under Section 280G of the
Code. The determination of the amount of any potential reduction in the rights
or payments shall be made by the Company in good faith after consultation with
the Employee. The
5
<PAGE> 6
Employee shall cooperate in good faith with the Company in making such
determination and providing the necessary information for this purpose.
11. Successors. This Agreement shall be binding upon the successors and
assigns of the Company.
12. Miscellaneous.
A. All notices, requests, demands and other communications which are
required or permitted hereunder shall be in writing and shall be deemed
to have been duly given when delivered personally or when mailed by
registered or certified mail, postage prepaid, return receipt
requested, sent to the address. Given the uncertain nature of
litigation, we cannot predict the outcome of this matter above or to
such address as either party may hereafter designate by written notice
to the other party in accordance herewith.
B. This Agreement shall be governed and construed in accordance with
the laws of the State of Illinois without regard to principles of
choice of law.
C. This Agreement supersedes any and all oral or written agreements
heretofore made relating to the subject matter hereof and constitutes
the entire agreement of the parties relating to the subject matter
hereof.
D. The invalidity, illegality or unenforceability of any provision
of this Agreement shall not in any way affect, impair or render
unenforceable any other provision hereof, all of which shall remain in
full force and effect.
E. This Agreement may not be amended or modified in any manner
except by an instrument in writing signed by each of the parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Agreement to be executed on its behalf as of the day and year first above
written.
Unimed Pharmaceuticals, Inc. EMPLOYEE
By:
----------------------------------
Name/Title Robert E. Dudley, Ph.D.
Date: Date:
-----------------------------
6
<PAGE> 1
EXHIBIT 10-V
EMPLOYMENT AGREEMENT
This Agreement is made as of February 4, 1999, between Unimed
Pharmaceuticals, Inc., a Delaware corporation with offices located at 2150 E.
Lake Cook Road, Buffalo Grove, Illinois 60089 (the "Company") and David E.
Riggs, residing at 3809 R.F.D., Long Grove, IL 60047 (the "Employee").
WHEREAS, the Company desires to employ the Employee and retain his
services, experience and abilities which it regards as important to its
corporate growth and success; and
WHEREAS, the Employee desires to accept such employment upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, it is agreed as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts such employment under all of the terms and conditions of this Agreement.
The Employee shall be an officer of the Company, and shall hold the office of
Senior Vice President, Secretary, Treasurer, and Chief Financial Officer
("CFO"), reporting to the President of the Company.
1. Term. The Employee's employment under this Agreement shall commence
February 4, 1999 (the "Employment Date") and shall continue until termination in
accordance with the terms of this Agreement.
2. Duties. During the term of this Agreement, the Employee shall perform
diligently the duties of CFO as may be directed by the Board of Directors and
commensurate with such position and in accordance with the Company's By-laws.
The Employee shall devote all of his time and attention to the
business of the Company during business hours normal for the position. The
Employee agrees not to be directly or indirectly engaged in or concerned with
any other duties or pursuits which interfere with performance of his duties
except those duties or pursuits specifically authorized by the Board of
Directors.
3. Compensation. In consideration of the services to be rendered by the
Employee, the Company agrees to compensate and to provide benefits to the
Employee as follows:
A. Base Salary. The Employee shall be paid a base salary of $175,000
per year, payable semi-monthly. The Board of Directors shall review
Employee's base salary annually to consider whether an increase is
warranted.
B. Bonus. Employee shall receive an annual bonus in an amount up to
thirty percent (30%) of his base salary (the "Bonus Amount") based upon
his attainment of goals established for each calendar year by the Board
of Directors. The Board of Directors agrees to consider the suggestions
of the Employee in establishing each year's goals. For
<PAGE> 2
the period commencing on January 1, 1999, and ending on December 31,
1999, the Employee shall be awarded all or a portion of the Bonus
Amount as specified below, for attaining the following goals:
(1) The Employee shall receive fifty percent (50%) of the Bonus
Amount if the Company achieves a net profit for such period, as
reported in the Company's year-end financial statements, subject to
adjustment based upon the Company's audited annual financial
statement prepared by its outside auditors in accordance with
generally accepted accounting principles.
(2) The Employee shall receive fifty percent (50%) of the Bonus
Amount if the Company achieves a year-end cash balance in excess of
$8 million for such period, also as reported in the Company's
year-end financial statements, subject to adjustment based upon the
Company's audited annual financial statement prepared by its outside
auditors in accordance with generally accepted accounting
principles.
(3) The Employee shall receive the full Bonus Amount, regardless
of his success in achieving the goals set forth above, if the
Company successfully completes a merger, acquisition or business
consolidation during such period.
(4) The Board retains the discretion to award the Employee a
bonus in excess of the Bonus Amount.
C. Automobile Allowance. The Employee shall be paid an automobile
allowance equal to $10,800 per year, payable monthly.
D. Benefits. The Employee shall be entitled to participate in and
receive any other benefits customarily provided by the Company to
senior management personnel, including, without limitation, profit
sharing, pension, 401(k), short and long term disability insurance,
hospital, major medical and dental insurance plans, all in accordance
with the terms of such benefit plans.
E. Life Insurance. The Company will provide to the Employee a term
life insurance policy with coverage of at least $1 million in the event
of death, payable to the Employee's estate.
F. Vacation. The Employee shall earn four (4) weeks of vacation per
year; provided, however, that the accrual of unused vacation time shall
be capped at six (6) weeks.
4. Stock Options. The Employee shall be granted, at the next meeting of
the Board of Directors following the Employment Date (i.e., February 19, 1999),
an option contract to purchase 35,000 shares of Company common stock subject to
the terms and conditions of the Company's 1991 Stock Option Plan. Such options
shall vest and become exercisable evenly over
2
<PAGE> 3
three years, 33 1/3% per year on each of the first three anniversaries of the
Employee's employment as CFO, and shall be exercisable at an exercise price
equal to the fair market value of the Company's shares on the date of grant.
5. Expenses. The Company shall reimburse the Employee for all
reasonable expenses incurred in the performance of his duties on behalf of the
Company.
6. Termination by the Company. Notwithstanding any other provision of
this Agreement, the Company may terminate this Agreement as follows:
A. Cause. For Cause, as defined herein, upon written notice to the
Employee setting forth in reasonable detail the facts and circumstances
upon which the Board of Directors shall have determined, following
reasonable inquiry, that the Employee: (1) has been convicted of (or
plead guilty or nolo contendere to) a felony; or (2) has engaged in
embezzlement; provided that in the event of a termination for Cause,
the Company shall not be obligated to provide the Employee any
compensation or benefits after the effective date of such termination
except as required by law.
B. Without Cause. Without Cause, at any time upon thirty (30) days
written notice to the Employee from the Board of Directors of the
Company; provided that in the event of a termination without Cause, the
Employee shall be entitled to receive, without any duty to mitigate, a
severance package consisting of (1) a lump-sum payment equal to 12
months of severance based upon the Employee's then current annual base
salary; (2) a pro rata bonus, based upon the amount of bonus awarded to
the Employee the prior year, multiplied by the ratio of the number of
days employed in the then current calendar year divided by 365; (3)
continuation (until the end of the COBRA coverage period) of the
Company's payment of health insurance benefits, provided the Employee
elects and is eligible for continued insurance coverage pursuant to
COBRA; (4) outplacement assistance for one (1) year at a cost of no
more than $25,000; and (5) an extended nine-month period, in addition
to the 90-day period provided in the Company's 1991 Stock Option Plan
(as amended through May 2, 1994), within which to exercise all vested
stock options. As a condition to receipt of the above severance
package, the Employee agrees to execute a general release satisfactory
to the Board of Directors.
C. Incapacity. For incapacity, upon written notice to the Employee
if the Board of Directors shall have determined following reasonable
inquiry, that the Employee has been unable due to illness, disability
or incapacity to perform the essential functions of his job, with or
without reasonable accommodation, for a continuous period exceeding six
(6) months; provided that the Employee shall be paid his then current
annual base salary during at least the first three (3) months of any
such incapacity and shall be entitled to receive short-term and
long-term disability benefits in accordance with the Company's plans.
The death of the Employee shall automatically terminate this Agreement,
in which event, the Company shall pay to the Employee's estate all
accrued unpaid salary, pro rata bonus and other amounts and benefits
required by law.
3
<PAGE> 4
D. Termination Without Cause Following Change of Control. In the
event the Employee is terminated without Cause, upon thirty (30) days
written notice from the Board of Directors, within twelve (12) months
following a Change of Control, as defined in Paragraph 10.E of the
Company's 1991 Stock Option Plan (as amended through May 2, 1994), the
Employee shall be entitled to receive, without any duty to mitigate, a
severance package consisting of: (1) a lump-sum payment equal to two
times the Employee's then current annual base salary; (2) a bonus equal
to the amount of bonus awarded to the Employee the prior year; and (3)
continuation (until the end of the COBRA coverage period) of the
company's payment of health insurance benefits, provided the Employee
elects and is eligible for continued insurance coverage pursuant to
COBRA. As a condition to receipt of the above severance package, the
Employee agrees to execute a general release satisfactory to the Board
of Directors.
7. Termination by the Employee. Notwithstanding any other provision of
this Agreement, the Employee may terminate this Agreement as follows:
A. Without Reason. Without reason, at any time upon providing thirty
(30) days prior written notice to the Company, in which event the
Company shall not be obligated to provide to the Employee any
compensation or benefits after the effective date of such termination
except as required by law.
B. Good Reason. For Good Reason, defined as the Company's material
breach of the terms of this Agreement and the Company's failure to cure
said breach, if curable, following thirty (30) days written notice by
the Employee describing in reasonable detail the facts and
circumstances of said breach; provided that in the event the Employee
terminates this agreement for Good Reason, he shall be entitled to
receive the severance package described in Paragraph 7.B of this
Agreement under the same terms and conditions as described therein.
8. Covenant Not to Compete/Confidentiality/Inventions/Discoveries.
A. During the term hereof, Employee agrees that he shall not,
without written authorization of the Board of Directors of the Company,
directly or indirectly, engage, individually or as an officer,
director, employee, consultant, advisor, partner, or as a controlling
stockholder or proprietor of any entity, in the business of
development, production, distribution or sale of any products or
services competitive with those manufactured or sold by the Company.
B. During the term hereof and after termination of this Agreement,
Employee shall not, without written authorization by the Board of
Directors of the Company, publish or disclose any confidential
information or trade secrets relating to the business of the Company.
C. In the event of a breach or threatened breach of either of the
foregoing subsections, the Company shall be entitled to an injunction
restraining the Employee from
4
<PAGE> 5
such breach. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedy for such breach.
D. The Employee 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 Employee (whether or not at the request
or upon the suggestion of the Company) during the period of his
employment with, or rendering of advisory or consulting services to,
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 or the rendering of
advisory and consulting services hereunder (collectively the "Subject
Matter").
E. The Employee 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 Employee 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.
F. The Employee 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 time, and
the Employee agrees to testify in any prosecution or litigation
involving any of the Subject Matter; provided, however, that the
Employee shall be compensated in a timely manner at the rate of $75.00
per hour, 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 hereunder.
9. Indemnification of the Employee. The Company agrees to fully
indemnify on a current basis the Employee for claims arising out of the
Employee's performance of his duties under this Agreement to the full
extent permitted by law and as permitted by the Company's articles of
incorporation and by-laws and further agrees to pay all fees and costs
associated with the Executive's defense of any indemnifiable claim
hereunder as such fees and costs are incurred.
10. Mitigation of Excise Tax. Except as otherwise provided in option
agreement or plan, if any payment or right accruing to the Employee
under this Agreement (without the application of this Section 11),
either alone or together with other payments or rights accruing to the
Employee from the Company would constitute a "parachute payment" (as
defined in Section 280G of the Code and regulations thereunder), such
payment or right shall be reduced to the largest amount or greatest
right that will result in no portion of the amount payable or right
accruing under this Agreement being subject to an excise tax under
Section 4999 of the Code or being disallowed as
5
<PAGE> 6
a deduction under Section 280G of the Code. The determination of the
amount of any potential reduction in the rights or payments shall be
made by the Company in good faith after consultation with the Employee.
The Employee shall cooperate in good faith with the Company in making
such determination and providing the necessary information for this
purpose.
11. Successors. This Agreement shall be binding upon the successors and
assigns of the Company.
12. Miscellaneous.
A. All notices, requests, demands and other communications which are
required or permitted hereunder shall be in writing and shall be deemed
to have been duly given when delivered personally or when mailed by
registered or certified mail, postage prepaid, return receipt
requested, sent to the address Given the uncertain nature of
litigation, we cannot predict the outcome of this matter above or to
such address as either party may hereafter designate by written notice
to the other party in accordance herewith.
B. This Agreement shall be governed and construed in accordance with
the laws of the State of Illinois without regard to principles of
choice of law.
C. This Agreement supersedes any and all oral or written agreements
heretofore made relating to the subject matter hereof and constitutes
the entire agreement of the parties relating to the subject matter
hereof.
D. The invalidity, illegality or unenforceability of any
provision of this Agreement shall not in any way affect, impair or
render unenforceable any other provision hereof, all of which shall
remain in full force and effect.
E. This Agreement may not be amended or modified in any manner
except by an instrument in writing signed by each of the parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Agreement to be executed on its behalf as of the day and year
first above written.
Unimed Pharmaceuticals, Inc. EMPLOYEE
For the Board of Directors
By: --------------------------------
James J. Lempenau David E. Riggs
Director and Chairman,
Compensation Committee
Date: Date:
--------------------------------
6
<PAGE> 1
EXHIBIT 10-B (ii)
SUPPLEMENTAL CO-PROMOTION AGREEMENT
This Agreement is made as of the 13TH day of February, 1991, by and between
Roxane Laboratories, Inc., a Delaware corporation having its principal place of
business at 1809 North Wilson Road, P.O. Box 16532, Columbus, Ohio 43216
(hereinafter "ROXANE") and UNIMED, INC., a Delaware corporation having its
principal place of business at 35 Columbia Road, Somerville, New Jersey 08876
(hereinafter "UNIMED").
WITNESSETH:
WHEREAS, UNIMED is currently the holder of an approved New Drug Application
("NDA") for dronabinol;
WHEREAS, an agreement between the parties dated February 12, 1986, as
supplemented by an agreement between the parties dated November 26, 1990,
appointed ROXANE the exclusive distributor in the United States and Canada of
dronabinol which it markets under the trade name MARINOL(R); and
WHEREAS, the parties desire to supplement the aforesaid agreements to provide
for the cc-promotion of dronabinol in the United States but maintain ROXANE as
the exclusive distributor of dronabinol;
NOW, THEREFORE, in consideration of the representations and mutual undertakings
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE I - DEFINITIONS
The following terms shall have the following meanings for all purposes of this
Agreement:
1.1 "Affiliate" shall mean any person, firm, or corporation which controls, is
controlled by or is under common control with ROXANE or UNIMED. Control shall
mean either the direct or indirect ownership of fifty (50%) percent or more of
the voting stock of the subject entity.
1.2 "Agreement" shall mean this Go-Promotion Agreement, as executed or as it may
hereinafter be supplemented or amended, from time to time, in accordance with
the terms hereof.
1.3 "Product" shall mean Marinol(R) (dronabinol), and any improvements by UNIMED
thereto.
1.4 "FDA" shall mean the United States Food and Drug Administration.
1.5 "DEA" shall mean the United States Drug Enforcement Agency.
1.6 "NDA" shall mean the new drug application.
1.7 "Co-promote" or "Co-Promotion" shall mean the act of making sales calls to
promote the Product to physicians, pharmacists, nurses or other members of the
health care community in the United States during the term of this Agreement.
<PAGE> 2
ARTICLE II -- AMENDMENT OF PRIOR AGREEMENTS
2.1 The prior agreements between the parties dated February 12, 1986 and
November 26, 1990 are hereby amended far the sole purpose of permitting UNIMED
to be a non-affiliated co-promoter with ROXANE of the Product in the United
States for the term of this Agreement.
2.2 ROXANE shall remain the exclusive distributor of the Product, with sole
responsibility for establishing the marketing plan and promotional strategy for
the Product as well as Product pricing, sales terms and conditions of sale. All
provisions of the prior agreements which are not superseded by this Agreement
shall remain in full force and effect.
2.3 ROXANE hereby grants to UNIMED the right to Co-promote the Product jointly
with ROXANE in the United States; said right shall extend to all indications,
dosage-forms, formulations, and combinations containing dronabinol which are
approved by the FDA to which UNIMED or its affiliates have rights during the
term of this Agreement.
ARTICLE III - PROMOTION AND TRAINING
3.1 UNIMED agrees that it shall have a field sales force consisting of ten (10)
sales representatives to Co-promote the PRODUCT. UNIMED shall at its own
expense, and not later than ninety (90) days from the date of this Agreement,
hire no less than six (6) sales representatives to Co-promote the PRODUCT.
UNIMED agrees to commence promoting the Product as soon as its first six (6)
sales representatives have been trained by ROXANE as hereinafter provided.
UNIMED's sales representatives shall be full-time employees, who devote all of
their efforts to the promotion of the Product and/or other UNIMED
pharmaceuticals, including any other pharmaceuticals co-promoted by UNINED. Any
expenses incurred by UNIMED's sales representatives during its Co-promotional
activities shall be paid by UNIMED. In the event that UNIMED's sales force
detailing this Product shall number less than six (6) for a period exceeding
sixty (60) days, ROXANE shall have the option of terminating this Agreement.
UNIMED agrees to submit its sales representatives to ROXANE for training and
education with respect to the Product, which training shall not exceed two (2)
consecutive days; the training will not be unlike the training ROXANE provides
to its own sales representatives. The costs to develop the training materials
and of the actual training shall be paid by ROXANE. Any incidental expense,
including the costs for the transportation, food and lodging incurred in
training UNIMED's personnel shall be paid by UNIMED. The parties shall mutually
agree as to the time of training and education, including continuing education;
it being recognized that training will be provided in Columbus, Ohio, unless
otherwise agreed, as soon as ROXANE can reasonably schedule such training after
notification from UNIMED that it has a sufficient number of personnel to fill a
training class. The initial training class to consist of not less than six (6)
persons and all subsequent classes to consist of not less than two(2) persons.
3.2 ROXANE will not later than twenty-one (21) days after the execution of the
Agreement provide to UNIMED a list of those physicians, pharmacists, nurses,
hospitals, hospices, and other members of the health care community it does not
wish UNIMED's sales representatives to call upon for the purpose of making sales
calls on the Product. Thereafter, from time to time a supplemental list of those
persons and places not to be called upon by UNIMED for the purpose of making
sales calls on the Product shall be prepared by ROXANE and provided to UNIMED.
While ROXANE shall have the right to identify any person and/or place not to be
called upon, such supplemental list(s) shall not be so extensive so as to
substantially interfere with UNIMED's sales representatives ability to
Co-promote the PRODUCT. UNIMED agrees to not call upon any of the persons and
places so identified by ROXANE. UNIMED agrees to keep for a two(2) year period,
a record of each sales call made by its sales representatives; such record shall
identify the date of the sales call and the name and professional status, (i.e.
MD, DO, RPH, RN, etc.) of the person called upon. UNIMED agrees to average no
fewer than seventy (70) sales calls to physicians per sales representative per
month during the term of this Agreement, for the PRODUCT. ROXANE shall have the
right to periodically audit UNIMED's call records to
<PAGE> 3
determine that the minimum monthly number of sales calls have been made and
that no persons identified on the aforementioned lists have been called upon.
The audits shall be conducted at ROXANE's expense, upon written request during
normal business hours.
3.3 ROXANE shall not less than three (3) times per year, and more frequently at
the reasonable request of either party, meet with representatives of UNIMED to
discuss the current marketing plan and promotional strategy and the marketing
plan and promotional strategy for the prior four (4) month period. During these
meetings UNI~ED shall advise ROXANE of any ideas or strategies it believes will
enhance the sale of the PRODUCT. The parties agree that ROXANE shall have the
final decision making authority with respect to the marketing plan and
promotional strategy. It is understood that each party shall bear all its own
costs for personnel attending such periodic meetings. It is also agreed that the
aforementioned meetings shall be the only forum for the personnel of both
parties to meet to discuss the PRODUCT's marketing plan and strategy.
3.4 UNIMED agrees to strictly follow ROXANE's marketing plan and promotional
strategy for the Product as ROXANE may from time to time determine. The
marketing plan shall, among other things, identify which seminars, conventions
and conferences shall be part of the promotional strategy for the Product and
the role of each co-promoter in such seminars, conventions and conferences.
UNIMED shall not be forced to expend any monies to participate in such seminars,
conventions and conferences without its prior approval. The marketing plan will
be provided to UNIMED sufficiently in advance of implementation so that UNIMED
can strictly adhere to any and all of ROXANE's marketing instructions in areas
which shall include, but not be limited to, all sales calls to physicians,
pharmacists, nurses or any other members of the health care community.
ROXANE shall be solely responsible for direct mail, telephone sales calls,
seminars, meetings and conferences, company-sponsored speakers programs, visual
aids, journal than the FDA and/or DEA, as well as all contacts with hospital and
retail buying groups, and the selection of, calls on, distributors for the
Product, Under no circumstances shall UNIMED's sales force discuss with any
customer or potential customer, any existing or potential contract concerning
the Product.
3.5 UNIMED agrees that it will not use in its promotion any promotional
materials, sales aids, educational materials, scientific reprints or any audio,
visual or written matter which has not been prepared and furnished by ROXANE nor
shall UNIMED in any manner alter the promotional or advertising materials which
have been provided by ROXANE. ROXANE agrees to provide UNIMED with all of the
materials prepared by it to Co-promote the Product. Quantities of the
aforementioned materials shall be provided to UNIMED, sufficiently in advance of
the planned implementation dates, so that UNIMED's sales representatives can
properly incorporate such materials into their sales presentations. From time to
time after a marketing plan and promotional strategy has been implemented ROXANE
may find it necessary to offer its sales representatives clarification,
reinforcement, or additional information. Such communications will be sent to
UNINED's home office for transmittal to their sales representatives.
3.6 All questions, inquiries and information regarding the Product received by
UNIMED or its sales representatives shall be forwarded by UNIMED to ROXANE as
soon as possible after receipt. Questions and inquiries concerning scientific or
medical issues, including adverse event reports Shall be forwarded to ROXANE's
Vice President of Medical Affairs. Questions and inquiries concerning sales,
marketing and potential new distributors shall be forwarded to ROXANE's Vice
President of Sales and Marketing. UNIMED's sales representatives shall not take
orders for the Product, but shall instead refer such customers or potential
customers to a ROXANE distributor nor shall they contact a ROXANE distributor
for any reason concerning the Product. ROXANE shall provide UNIMED, from time to
time, with a current list of its distributors, including their addresses.
3.7 ROXANE agrees to provide to UNIMED a monthly sales report that is mutually
acceptable to both parties.
<PAGE> 4
3.8 UNIMED will forward to ROXANE, any request for formal or informal clinical
studies.
3.9 Each party shall in its sole discretion be free to hire sales
representatives and to determine the qualifications, salaries, and duties of
those sales representatives.
3.10 Each party will furnish to the other the names and addresses of the sales
representatives. This information will be updated as sales representatives are
hired or terminated. Each party agrees to instruct its respective sales forces
that they shall not meet to discuss the promotion of the PRODUCT, provided that
inadvertent contacts shall not constitute a breach of this Agreement.
All communications to the ROXANE or UNIMED sales representatives will be made
only by their respective managements.
ARTICLE IV - INDEMNIFICATION
4.1 Notwithstanding anything in this Agreement or the agreements dated February
12, 1986 and dated November 26, 1990 to the contrary, UNIMED represents and
warrants to ROXANE that it will limit its promotional activities to the
materials provided by ROXANE and that it will follow ROXANE'S marketing plan and
promotional strategy.
4.2 UNIMED agrees to indemnify ROXANE and hold it harmless from and against any
claims, damages, liabilities, harm, loss, costs, penalties, lawsuits, threats of
lawsuit, recalls or other governmental action including reasonable attorneys'
fees, arising out of UNIMED's breach of the warranties set forth in Paragraphs
4.1 and 7.2 or which results from the negligent acts or willful malfeasance of
UNIMED in promoting the Product in a manner inconsistent with the Products
labeling or promotional or other materials supplied by ROXANE.
4.3 ROXANE agrees to indemnify UNIMED and hold it harmless from and against any
claims, damages, liability, harm, loss, costs, penalties, lawsuits, threats of
lawsuit, recalls or other governmental action, including reasonable attorney's
fees which arises as the result of UNIMED's use of promotional materials,
provided by ROXANE, which fails to conform to applicable law.
4.4 Notwithstanding the above provisions of this Article, in the event of a
breach of this Agreement by UNIMED, other than a breach of Paragraph 3.4 or 3.5,
which breach UNIMED shall have failed to remedy within thirty (30) days after
notice thereof, this Agreement shall be considered null and void. In addition,
in such event, the February 12, 1986 agreement shall be fully reinstated in full
force and effect including Paragraph 2.1 thereof which appoints ROXANE as
exclusive distributor of Product in the Territory.
4.5 The indemnification obligations herein shall apply on a first dollar basis
without limitation or reduction due to any deductible or self-insured retention
which either party may have under their respective insurance coverages.
ARTICLE V TERMINATION
5.1 Because in its performance of this Agreement UNIMED will be making sales
calls on physicians and others bearing sales materials of ROXANE with ROXANE's
name and logo, in the event UNIMED wishes to detail, market or promote any
narcotic analgesic and/or narcotic topical anesthetic product, identified on
Schedule A, a copy of which is attached hereto and made a part hereof. UNIMED
will inform ROXANE in writing of its intent to do so no earlier than six (6)
months prior thereto. In such event ROXANE shall have the option, at its sole
discretion, within 120 days of being so informed, to terminate this Agreement.
5.2 UNIMED may terminate this Agreement upon thirty (30) days prior notice.
<PAGE> 5
5.3 In the event of termination of this Agreement by either party for any
reason, the February 12, 1986 agreement shall be fully reinstated in full force
and effect however the continuing obligations set forth under Articles IV and VI
shall survive.
5.4 Termination of this Agreement shall be without prejudice to any remedies
which either party may then or thereafter have hereunder at law or in equity.
The act of termination, however, shall not create liability on either party.
ARTTCLE VI - CONFIDENTIALITY
6.1 Except for the proper exercise of any rights granted or reserved under other
provisions of this Agreement, each party agrees that it will take such
precautions as it normally takes with its own confidential or proprietary
information to keep confidential and not to publish or otherwise disclose to a
third party except as permitted or anticipated herein, any information of a
confidential or proprietary nature furnished by the other party to it in
connection with this Agreement, including, without limitation, technology,
marketing strategy, specifications, product information, pre-clinical and
clinical data, inventions, processes, know-how, sales force information, sales
data, plans, trade secrets, call lists, business information, and adverse
reaction reports (together called "Confidential Information") without the prior
written consent of the other party, except to the extent that such Confidential
Information is required to be disclosed for the purpose of complying with law or
government regulations. Nothing in this Paragraph shall prevent disclosure or
use by the receiving party of the Confidential Information of the other party
that:
(i) was known or used by the receiving party, as evidenced by its
written records made prior to the time of receipt hereunder;
(ii) either before or after the time of disclosure becomes known to the
public other than by an unauthorized act or omission of the receiving
party or its Affiliates, employees or agents;
(iii) lawfully is disclosed to a third party having the right
Confidential Information; or
(iv) that may be developed by the receiving party independently from the
Confidential Information provided by the other party hereto as evidenced
by the receiving party's written records.
Notwithstanding the restrictions set forth in this paragraph, each party shall
be entitled at all times to use all Confidential Information provided by the
other party in order to perform its obligations or exercise its rights under
this Agreement.
ARTICLE VII -- REASONABLE EFFORTS AND ADHERENCE TO LAWS
7.1 UNIMED warrants that it shall use reasonable efforts to co-promote the
Product in the United States.
7.2 Each party warrants that it will conform to all applicable law in its
activities pursuant to this Agreement.
ARTICLE VIII - FORCE MAJEURE
8.1 Neither party shall be considered in default or be liable to the other for
any delay in performance or non-performance caused by circumstances beyond the
control of the party, including but not limited to Acts of God, fire, flood,
war, order of any court, or other causes which cannot be controlled by the party
who failed to perform.
<PAGE> 6
ARTICLE IX - ASSIGNMENT
9.1 This Agreement, may not be assigned by either party without the prior
written consent of the other.
ARTICLE X - MISCELLANEOUS
10.1 The provisions of this Agreement shall be deemed separable. If any part of
this Agreement is rendered invalid or unenforceable, such rendering shall not
affect the validity or enforceability of the remainder of this Agreement unless
the part or parts which are invalid or unenforceable shall substantially impair
the value of the whole Agreement to either party.
10.2 Neither ROXANE nor UNIMED shall publicly disclose the specific terms of
this Agreement other than what may be required by the Securities Exchange
Commission (SEC). Except as required by SEC filings the transactions
contemplated hereby or performance hereunder, shall not be disclosed without:
first obtaining the written consent of the other party hereto unless there has
been a prior public disclosure of the information being disclosed by the other
party or with the other party's consent.
10.3 It is understood and agreed that neither party shall attempt to employ or
employ any person then currently on the other's staff who is currently or has
been involved within the preceding twenty-four (24) months in the marketing,
sale or promotion of the Product during the term of this Agreement and for a
period of twenty-four (24) months after the termination of this Agreement or any
renewal thereof.
10.4 UNIMED sales representatives are to be instructed not to discuss their
compensation plan with any ROXANE sales representative in the event there is
coincidental contact in the normal course of business.
10.5 This Agreement sets forth the entire Agreement of the parties respecting
its subject matter and supersedes all previous oral or written agreements
between the parties on such subject matter. No provision of this Agreement may
be modified or waived except in a writing duly executed by both parties.
10.6 Any and all communications required as provided for in this Agreement shall
be in writing and sent to the last known address of the headquarter offices of
the respective parties. Any notice to ROXANE shall be addressed to
Roxane Laboratories, Inc.
1809 North Wilson Road
P.O. Box 16532
Columbus, Ohio 43216
Attention: President
with a copy to
General Counsel
Roxane Laboratories, Inc,
c/o 90 East Ridge Road
P.O. Box 368
Ridgefield, Connecticut 06877
Any notice to UNIMED shall be addressed to:
Unimed, Inc.
35 Columbia Road
Somerville, New Jersey 08876
Attention: President
10.7 The parties are each acting hereto as independent contractors and not as an
agent or employee of the other.
<PAGE> 7
10.8 This Agreement shall be interpreted under and governed by the law of the
State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the date and year first above written.
UNIMED, INC.
BY: /s/ Charles P. Harrison
TITLE: President
ROXANE LABORATORIES, INC.
BY: /s/ Gerald C. Wjota
TITLE: President
<PAGE> 8
SCHEDULE "A"
As single entities or in any combination product.
Codeine
Morphine
Methadone
Oxycodone
Meperidine
Hydromorphone
Levorphanol
Hydrocodone
Fentanyl
Oxymorphone
Buprenorphine
Cocaine Hydrochloride
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 622
<SECURITIES> 6,865
<RECEIVABLES> 3,895
<ALLOWANCES> 162
<INVENTORY> 3,505
<CURRENT-ASSETS> 15,131
<PP&E> 3,045
<DEPRECIATION> 1,757
<TOTAL-ASSETS> 17,915
<CURRENT-LIABILITIES> 11,362
<BONDS> 0
0
0
<COMMON> 2,276
<OTHER-SE> 3,790
<TOTAL-LIABILITY-AND-EQUITY> 17,915
<SALES> 15,869
<TOTAL-REVENUES> 15,869
<CGS> 4,056
<TOTAL-COSTS> 4,056
<OTHER-EXPENSES> 22,181
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (411)
<INCOME-PRETAX> (8,939)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,939)
<EPS-PRIMARY> (0.99)
<EPS-DILUTED> (0.99)
</TABLE>
