<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1996
REGISTRATION NO. 333-5425
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TRI-POINT MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3841 56-1959623
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
INCORPORATION OR CODE NUMBER) NO.)
ORGANIZATION)
5265 CAPITAL BOULEVARD
RALEIGH, NC 27616
(919) 876-7800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT V. TONI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRI-POINT MEDICAL CORPORATION
5265 CAPITAL BOULEVARD
RALEIGH, NC 27616
(919) 876-7800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDINGAREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DEBRA J. POUL DAVID J. BEVERIDGE
MORGAN, LEWIS & BOCKIUS LLP SHEARMAN & STERLING
2000 ONE LOGAN SQUARE 599 LEXINGTON AVENUE
PHILADELPHIA, PA 19103 NEW YORK, NY 10022
(215) 963-5000 (212) 848-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TRI-POINT MEDICAL CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITM NUMBERE
INFORM S-
1 LOCATION IN PROSPECTUS
- ----------- ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Forepart of Registration Statement; Outside
Cover Page of Prospectus... Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of Inside Front Cover Page of Prospectus;
Prospectus................. Additional Information; Reports to Security
Holders; Outside Back Cover Page of
Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges.. Prospectus Summary; Risk Factors
4. Use of Proceeds............. Use of Proceeds
5. Determination of Offering Outside Front Cover Page of Prospectus;
Price...................... Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Principal and Selling Stockholders
8. Plan of Distribution........ Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to
be Registered.............. Description of Capital Stock
10. Interests of Named Experts
and Counsel................ Not Applicable
11. Information with Respect to
the Registrant
a. Description of Business.. Business
b. Description of Property.. Business
c. Legal Proceedings........ Business
d. Market Price of and
Dividends on the
Registrant's Common Outside Front Cover Page of Prospectus;
Equity and Related Dividend Policy; Prior Partnership Status;
Stockholder Matters...... Shares Eligible for Future Sale
e. Financial Statements..... Financial Statements
f. Selected Financial Data.. Selected Financial Data
g. Supplementary Financial
Information.............. Not Applicable
h. Management's Discussion
and Analysis of Financial
Condition and Results of Management's Discussion and Analysis of
Operations............... Financial Condition and Results of
Operations
i. Changes in and
Disagreements with
Accountants on Accounting
and Financial
Disclosure............... Not Applicable
j. Directors, Executive
Officers and Control
Persons.................. Management
k. Executive Compensation... Management
l. Security Ownership of
Certain Beneficial Owners
and Management........... Principal and Selling Stockholders
m. Certain Relationships and
Related Transactions..... Certain Transactions
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated August 15, 1996
PROSPECTUS
3,000,000 SHARES
[LOGO OF TRI-POINT MEDICAL APPEARS HERE]
TRI-POINT MEDICAL CORPORATION
COMMON STOCK
------------
Of the 3,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby, 2,400,000 shares are being offered by Tri-
Point Medical Corporation ("Tri-Point" or the "Company") and 600,000 shares are
being offered by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. Prior to this Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $10.00 and $12.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market, subject to notice of issuance, under the symbol "TPMC."
------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $725,000 payable by the Company.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 450,000 additional shares of Common Stock
on the same terms and conditions as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1996.
------------
Lehman Brothers Sands Brothers & Co., Ltd.
, 1996
<PAGE>
TRAUMASEAL(TM) TraumaSeal(TM) will not be
commercially available in the U.S.
until FDA approval is received.
There is no assurance of such
approval.
NO NEEDLES [PHOTO OF LACERATION PRIOR
[PHOTO OF CHILD AND SYRINGE] TO APPLICATION]
Actual Laceration: Prior to
TraumaSeal application.
NO TRAUMA [PHOTO OF TRAUMASEAL
APPLICATION TO LACERATION]
[PHOTO OF APPLICATOR
[PHOTO OF CHILD WITH NURSE] FOR TRAUMASEAL]
Actual Laceration: After TraumaSeal
is applied.
NO SUTURES [PHOTO OF LACERATION AFTER
[PHOTO OF SUTURES] TWO WEEKS]
Needles, sutures and various medical After Two Weeks: The laceration
supplies depicted are not products shows healing with minimal scarring.
of the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. See "Risk Factors" for a
discussion of certain risks associated with an investment in the Common Stock.
References in this Prospectus to the Company or Tri-Point also include, unless
the context requires otherwise, Tri-Point's predecessor, Tri-Point Medical L.P.
(the "Partnership"). Unless otherwise indicated, all information presented in
this Prospectus (i) is adjusted to give effect to an exchange (the "Exchange")
pursuant to which obligations of and interests in the Partnership will be
exchanged for shares of Common Stock and (ii) assumes the Underwriters have not
exercised the over-allotment option. The Exchange will occur contemporaneously
with the Offering. "Octyldent" and "Nexaband" are federally registered
trademarks of the Company. "TraumaSeal," "Nexacryl," "Nexaband S/C" and
"Nexaband QuickSeal" are trademarks of the Company. All other trade names and
trademarks appearing in this Prospectus are the property of their respective
holders.
THE COMPANY
Tri-Point develops, commercializes and manufactures medical adhesive products
based on its proprietary cyanoacrylate technology. The Company's medical
adhesives can be used to close and seal wounds and incisions rapidly and stop
leakage of blood and other body fluids from injured tissue. The Company's
nonabsorbable products can be used to replace sutures and staples for certain
topical wound closure applications, while the Company's absorbable products can
potentially be used as surgical sealants and surgical adhesives for internal
wound closure and management. Tri-Point's medical adhesive products align
injured tissue without the trauma caused by suturing or stapling and allow
natural healing to proceed. In addition, Tri-Point believes that its medical
adhesive products result in lower overall procedure costs and are easier and
quicker to prepare and use than sutures or staples. The worldwide market for
sutures and staples for topical and internal applications is currently
estimated to be $2.6 billion annually, and the Company expects that it will
compete for a portion of this market.
The Company has three products for human use and has a product line for
veterinary uses, which are described below:
TraumaSeal is a topical adhesive used to close wounds from
skin lacerations and incisions. Human clinical trials for
TraumaSeal commenced in the United States in February 1996
and are expected to be completed by late 1996. TraumaSeal may
be marketed in Canada and product launch is expected in early
1997. The Company has entered into a marketing agreement with
Ethicon, Inc. ("Ethicon"), a subsidiary of Johnson & Johnson,
for exclusive worldwide marketing and distribution of
TraumaSeal.
Octyldent is a topical sealant currently used in conjunction
with Actisite(R), a site-specific drug delivery system
manufactured by ALZA Corporation ("ALZA"), to treat adult
periodontal disease. Octyldent received 510(k) clearance
("510(k)") from the U.S. Food and Drug Administration (the
"FDA") in 1990 and is marketed with Actisite(R) in the United
States by Procter & Gamble/ALZA, Partners for Oral Health
Care (the "Procter & Gamble/ALZA Partnership") and outside
the United States by ALZA.
Nexacryl is a topical sealant to be used in the repair of
corneal ulcers and lacerations. The Company received an FDA
approvable letter for Nexacryl in January 1996. If approved,
the Company believes Nexacryl will be the first cyanoacrylate
adhesive product to receive premarket approval ("PMA") from
the FDA. The Company has entered into a marketing agreement
with Chiron Vision Corporation ("Chiron") for exclusive
worldwide marketing and distribution of Nexacryl.
Nexaband is a product line of five topical adhesives
currently used in veterinary wound closure and management.
Nexaband products have been marketed by Farnam Companies,
Inc. ("Farnam") since 1993.
Tri-Point is also developing absorbable products for internal applications.
The Company has development programs for surgical sealants to be used to
control post-surgical leakage from cardiovascular graft, cardiovascular bypass
and bowel resection procedures and for surgical adhesives to be used to close
internal surgical incisions and traumatic wounds. These future products require
further development, clinical trials and regulatory clearance or approval prior
to commercialization.
3
<PAGE>
Tri-Point's medical adhesive products are based on its proprietary
cyanoacrylate technology. Cyanoacrylates are a family of liquid monomers that
react under a variety of conditions to form polymer films with strong adhesive
properties. Using its technology, Tri-Point has overcome several obstacles to
regulatory approval, including demonstrating that cyanoacrylates are safe for
human use. The Company's ability to manufacture highly purified base material
allows Tri-Point to satisfy toxicity tests and, the Company believes, to meet
biocompatability standards. Tri-Point has also developed novel assays to
demonstrate sterility. In addition, Tri-Point has patented a "scavenger"
process that permits degradation of cyanoacrylates without a cytotoxic
reaction, enabling the Company to develop absorbable formulations for internal
applications. Tri-Point's technology allows it to customize the physical and
chemical properties of cyanoacrylates to meet specific market needs. For
example, different formulations of TraumaSeal may be developed to have varied
setting times or higher viscosity to enhance ease of use. Tri-Point's products
perform consistently and reproducibly, do not require special preparation or
refrigeration and have shelf-lives of 18 to 24 months. Tri-Point has also
developed delivery technology to enhance the utility of its products. The
Company's TraumaSeal applicator contains a catalyst that controls the
polymerization process and allows the adhesive film to be applied in multiple
layers, which enhances bond strength. The Company is building a strong
portfolio of patent and trade secret protection on its cyanoacrylate
technology, delivery technology and manufacturing processes. The Company has
seven U.S. patents with expiration dates ranging from 2004 to 2013 and has
filed applications for seven additional U.S. patents, as well as certain
corresponding patent applications outside the United States.
The Company's objective is to become the leader in the medical adhesive
market by capitalizing on its proprietary cyanoacrylate technology. The
Company's strategy is to focus initially on commercializing and launching
topical adhesive products based on its nonabsorbable formulations. Initial
target markets are topical wound closure in emergency rooms and operating rooms
and for plastic surgery procedures. The Company is also pursuing the
development and commercialization of absorbable formulations. The Company
intends to implement its strategy by (i) expanding its research and development
activities, (ii) seeking rapid regulatory approval by targeting product
applications classified as medical devices, (iii) expanding manufacturing
capacity by adding facilities, equipment and personnel and continuing to
research processes to improve manufacturing capacity and efficiency and (iv)
establishing marketing partnerships with recognized market leaders for
marketing and distribution of its products.
The Company's executive offices are located at 5265 Capital Boulevard,
Raleigh, North Carolina 27616, and its telephone number is (919) 876-7800.
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk,
including but not limited to the Company's history of operating losses and
accumulated deficit; early stage of product commercialization; dependence on
new products and technologies; uncertainty of market acceptance of its
products; uncertainty of results of clinical trials for TraumaSeal; dependence
on marketing partners; potential adverse effect of competition and
technological change; limited manufacturing experience; dependence on a sole
source supplier; dependence on patents, trade secrets and proprietary rights;
effects of FDA and other government regulation; effects of international sales;
future capital needs and uncertainty of additional financing; dependence upon
key personnel; product liability exposure and potential unavailability of
insurance; control by existing stockholders; anti-takeover provisions; broad
discretion in application of proceeds; no prior public market for the Common
Stock; volatility of the Common Stock price; substantial number of shares
eligible for future sale; substantial registration rights; potential adverse
impact on future market price from sales of shares; adverse impact from
potential release of shares subject to lock-up; absence of dividends; and
dilution to investors. See "Risk Factors" for a more complete discussion of
risk factors which should be considered by potential investors.
4
<PAGE>
- -------------------------------------------------------------------------------
THE OFFERING
Common Stock offered by:
<TABLE>
<S> <C>
The Company........... 2,400,000 shares
The Selling Stockhold-
ers.................. 600,000 shares
Common Stock to be out-
standing after the Of-
fering(1).............. 12,000,000 shares
Use of proceeds......... To fund capital expenditures, clinical trials and
research and development, and for working capital and
general corporate purposes. See "Use of Proceeds."
Nasdaq National Market
symbol................. "TPMC"
</TABLE>
- --------
(1) Excludes 550,000 shares of Common Stock issuable upon the exercise of
options to be outstanding under the Company's 1996 Equity Compensation Plan
(the "Equity Compensation Plan") after the Offering at an estimated
weighted average exercise price of $8.27 per share and (ii) 450,000 shares
reserved for future option grants under the Equity Compensation Plan. See
"Management--Equity Compensation Plan."
- -------------------------------------------------------------------------------
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales........... $ 398 $ 648 $ 1,048 $ 1,478 $ 1,380 $ 618 $ 193
License and product
development revenues... 112 230 162 25 -- -- 3,500
------- ------- ------- ------- ------- ------- ------
Total revenues........ 510 878 1,210 1,503 1,380 618 3,693
Cost of products sold... 375 386 366 528 531 261 173
------- ------- ------- ------- ------- ------- ------
Gross profit............ 135 492 844 975 849 357 3,520
Research, development
and regulatory affairs
expenses............... 819 895 863 1,231 1,637 748 1,340
Selling and
administrative
expenses............... 670 912 1,037 1,366 5,089 628 1,014
Payments to CRX Medical,
Inc.................... -- 150 150 150 250 175 288
------- ------- ------- ------- ------- ------- ------
Total operating
expenses............. 1,489 1,957 2,050 2,747 6,976 1,551 2,642
------- ------- ------- ------- ------- ------- ------
Income (loss) from
operations............. (1,354) (1,465) (1,206) (1,772) (6,127) (1,194) 878
Interest expense to
Sharpoint Development
Corporation, net....... 135 234 342 443 845 396 93
------- ------- ------- ------- ------- ------- ------
Net income (loss)....... $(1,489) $(1,699) $(1,548) $(2,215) $(6,972) $(1,590) $ 785
======= ======= ======= ======= ======= ======= ======
Pro forma net income
(loss) per common
share(1)............... $(.69) $ .08
======= ======
Shares used in
computation of pro
forma net income (loss)
per common share(1).... 10,150 10,150
======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)(3)
------ -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $2,309 $26,136
Working capital...................................... 863 24,690
Total assets......................................... 3,686 27,513
Long-term debt and capital lease obligations, less
current portion..................................... 26 26
Total partners' capital and stockholders' equity..... 1,418 25,245
</TABLE>
- --------
(1) Pro forma net income (loss) per common share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the periods assuming that the contribution of
obligations of and interests in the Partnership to the Company in exchange
for 9,600,000 shares of Common Stock in connection with the Exchange had
been consummated as of the first day of the applicable periods. Pro forma
net income (loss) does not reflect the elimination of the payments to CRX
Medical, Inc. ("CRX"), interest expense to Sharpoint Development
Corporation ("Sharpoint") or the non-cash expense ($1.92 per share)
discussed in footnote (2) below. These payments and expenses will not
continue after the Exchange. See "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Prior Partnership Status."
(2) In connection with the Exchange, Caratec, L.L.C. ("Caratec"), the successor
to CRX's limited partnership interest in the Partnership, will exchange its
right to receive various payments from the Partnership and its limited
partnership interest for 1,776,250 shares of Common Stock. This transaction
will result in a non-cash expense which should not exceed $19,500,000 and
which will equal the difference between the value of the Common Stock
issued to Caratec and its basis in the Partnership. The resulting charge to
accumulated deficit will be offset by a credit to additional paid-in
capital. See "Prior Partnership Status."
(3) Adjusted to reflect the sale by the Company of 2,400,000 shares of Common
Stock (at an assumed public offering price of $11.00 per share) and the
application of the net proceeds therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully by potential
investors before purchasing the Common Stock offered hereby.
History of Operating Losses and Accumulated Deficit. The Company has
incurred net losses in each year since its inception, including net losses of
approximately $7.0 million during the year ended December 31, 1995, and as of
June 30, 1996 had accumulated net losses of $13.9 million. These losses have
resulted primarily from expenses associated with the Company's research and
development activities, including preclinical and clinical trials and general
and administrative expenses. The Company anticipates that its expenses will
increase in the future and that it will incur additional losses for the
foreseeable future. The amount of future net losses and time required by the
Company to reach profitability are highly uncertain. The Company's ability to
generate significant revenue and become profitable is dependent in large part
on its success in obtaining regulatory approvals or clearances for its
products, commercializing the Company's lead product, TraumaSeal, expanding
its manufacturing capacity, developing new products and entering into
additional marketing agreements and the ability of its marketing partners to
commercialize successfully products incorporating the Company's technologies.
There can be no assurance that the Company will generate significant revenue
or become profitable on a sustained basis, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Early Commercialization; Dependence on New Products and Technologies;
Uncertainty of Market Acceptance. The Company is in the early stage of product
commercialization and has derived only limited revenue from sales of certain
products to its marketing partners. The Company is conducting human clinical
trials of TraumaSeal in the United States and has several potential products
in development. The Company believes that its long-term viability and growth
will depend in large part on receiving regulatory clearances or approvals for
and the successful commercialization of TraumaSeal and other new products
resulting from its research activities. The Company presently is pursuing
product opportunities that will require extensive additional capital
investment, research, development, clinical testing and regulatory clearances
or approvals prior to commercialization. There can be no assurance that the
Company's development programs will be successfully completed or that required
regulatory clearances or approvals will be obtained on a timely basis, if at
all. Moreover, commercial applications of the Company's absorbable
formulations are relatively new and evolving. The successful development and
market acceptance of the Company's proposed products are subject to inherent
developmental risks, including ineffectiveness or lack of safety,
unreliability, failure to receive necessary regulatory clearances or
approvals, high commercial cost and preclusion or obsolescence resulting from
third parties' proprietary rights or superior or equivalent products, as well
as general economic conditions affecting purchasing patterns.
There can be no assurance that the Company and its marketing partners will
be able to commercialize successfully or achieve market acceptance of the
Company's technologies or products, or that the Company's competitors will not
develop competing technologies that are less expensive or otherwise superior
to those of the Company. The failure to develop and market successfully new
products would have a material adverse effect on the Company's results of
operations and financial condition. See "Business--Products," "Business--Sales
and Marketing" and "Business--Manufacturing."
Clinical Trials for TraumaSeal. The Company is currently conducting clinical
trials in the United States for TraumaSeal to test safety and efficacy in
humans under an Investigational Device Exemption ("IDE") allowed by the FDA.
There can be no assurance that clinical testing of TraumaSeal will be
completed successfully within any specified time period, if at all, or that
the Company will not encounter problems in the clinical trials that will cause
the Company to delay or suspend clinical trials. There also can be no
assurance that such testing will ultimately show TraumaSeal to be safe or
efficacious. Without obtaining acceptable clinical results, the Company would
not be able to commercialize TraumaSeal in the United States, which would have
a material adverse effect on the Company's results of operations and financial
condition. The Company's other future products will also require clinical
trials. See "--FDA and Other Government Regulation," "Business--Products" and
"Business--Government Regulations."
7
<PAGE>
Dependence on Marketing Partners. The Company has limited experience in
sales, marketing and distribution. Therefore, the Company's strategy for
commercialization of its products includes entering into agreements with other
companies to market current and certain future products incorporating the
Company's technology. To date, the Company has entered into five such
agreements, and the Company derived all of its fiscal 1995 revenues from the
sale of products to its marketing partners. There can be no assurance that the
Company will be able to enter into additional marketing agreements on terms
favorable to the Company, if at all, or that current or future agreements will
ultimately be beneficial to the Company.
The Company is dependent for product sales revenues upon the success of such
marketing partners in performing their responsibilities. The amount and timing
of resources which may be devoted to the performance of their contractual
responsibilities by its marketing partners are not within the control of the
Company. There can be no assurance that such marketing partners will perform
their obligations as expected, pay any additional option or license fees to
the Company or market any products under the marketing agreements, or that the
Company will derive any revenue from such arrangements. Moreover, certain of
the agreements provide for termination under certain circumstances. For
example, Ethicon may terminate its agreement to purchase TraumaSeal from the
Company should the Company be unable to provide an adequate supply, and
Ethicon may itself then manufacture TraumaSeal and only pay the Company
royalties on sales. Certain agreements also permit the marketing partners to
pursue existing or alternative technologies in preference to the Company's
technology. There can be no assurance that the interests of the Company will
continue to coincide with those of its marketing partners or that the
marketing partners will not develop independently or with third parties
products which could compete with the Company's products, or that
disagreements over rights or technology or other proprietary interests will
not occur. To the extent that the Company chooses not to or is unable to enter
into future agreements, it would experience increased capital requirements to
undertake the marketing or sale of its current and future products. There can
be no assurance that the Company will be able to market or sell its current
and future products independently in the absence of such agreements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Marketing Partners."
Potential Adverse Effect of Competition and Technological Change. The
Company competes with many domestic and foreign competitors in various rapidly
evolving and technologically advanced fields in developing its technology and
products, including medical device, pharmaceutical and biopharmaceutical
companies. For example, in the worldwide wound closure market, the Company's
products will compete with the suture products of Ethicon, the world leader in
the wound closure market, and American Home Products Corporation. In addition,
the Company believes its products will compete with the staple products of
United States Surgical Corporation and Ethicon Endo-Surgery, Inc., a
subsidiary of Johnson & Johnson. The Company's products may also compete with
Histoacryl, a cyanoacrylate-based topical adhesive marketed by B. Braun GmbH,
and with a similar adhesive marketed by Loctite Corporation. In the surgical
sealants market, the Company's products will compete with the fibrin-based
sealants of Immuno AG and Behringwerke AG, and most likely with fibrin-based
sealants being developed by Baxter Healthcare Corporation and Bristol-Myers
Squibb Company. The Company's surgical sealants also may compete with
collagen-based hemostatic products of, among others, Collagen Corporation,
Fusion Medical Technologies, Inc. and MedChem Products Inc., a division of
C.R. Bard Inc.
Many of the Company's competitors and potential competitors have
substantially greater financial, technological, research and development,
marketing and personnel resources than the Company. In addition to those
mentioned above, other recently developed technologies or procedures are, or
may in the future be, the basis of competitive products. There can be no
assurance that the Company's competitors will not succeed in developing
alternative technologies and products that are more effective, easier to use
or more economical than those which have been or are being developed by the
Company or that would render the Company's technology and products obsolete
and non-competitive in these fields. These competitors may also have greater
experience in developing products, conducting clinical trials, obtaining
regulatory clearances or approvals, and manufacturing and marketing such
products. Certain of these competitors may obtain patent protection, approval
or clearance by the FDA or product commercialization earlier than the Company,
any of which could materially adversely affect the Company. Furthermore, if
the Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and marketing
capabilities, areas in
8
<PAGE>
which it currently has limited experience. Finally, under the terms of the
Company's marketing agreements, the Company's marketing partners may pursue
parallel development of other technologies or products, which may result in a
marketing partner developing additional products that will compete with the
Company's products. See "Business--Competition and Technological Change."
Limited Manufacturing Experience. The Company has limited manufacturing
capacity and has limited experience in manufacturing its products. The
Company's future success is dependent in significant part on its ability to
manufacture its products in commercial quantities, in compliance with
regulatory requirements and in a cost-effective manner. The Company intends to
expand its manufacturing capabilities by using a portion of the net proceeds
from this Offering to build or acquire large-scale manufacturing and
formulation facilities by the end of 1997. Production of commercial-scale
quantities may involve technical challenges for the Company and will require
significant scale-up expenses for additions to facilities and personnel. There
can be no assurance that the Company will be able to achieve large-scale
manufacturing capabilities or to manufacture its products in a cost-effective
manner or in quantities necessary to allow the Company to achieve
profitability. If the Company is unable to expand sufficiently its
manufacturing capacity to meet Ethicon's requirements for TraumaSeal as set
forth under their agreement, Ethicon may itself then manufacture TraumaSeal
and only pay the Company royalties on sales. The resulting loss of payments
from Ethicon for the purchase of TraumaSeal from the Company would have a
material adverse effect on the Company's results of operations and financial
condition. See "Business--Marketing Partners."
In addition, the manufacture of the Company's products will be subject to
periodic inspection by regulatory authorities and certain marketing partners,
and the Company's manufacture of its products for human use is subject to
regulation and inspection from time to time by the FDA for compliance with
Good Manufacturing Practices ("GMPs"), as well as equivalent requirements and
inspections by state and foreign regulatory authorities. There can be no
assurance that the FDA or other authorities will not, during the course of an
inspection of existing or new facilities, identify what they consider to be
deficiencies in GMPs or other requirements and request, or seek, remedial
action. Failure to comply with such regulations or delay in attaining
compliance may adversely affect the Company's manufacturing activities and
could result in, among other things, Warning Letters, injunctions, civil
penalties, FDA refusal to grant premarket approvals or clearances of future or
pending product submissions, fines, recalls or seizures of products, total or
partial suspensions of production and criminal prosecution. Additionally,
certain modifications of the Company's manufacturing facilities and processes,
such as those made in preparation for commercial-scale production of products,
will subject the Company to further FDA inspections and review prior to final
approval of its products for commercial sale. There can be no assurance that
the Company will be able to obtain necessary regulatory approvals or
clearances on a timely basis, if at all. Delays in receipt of or failure to
receive such approvals or clearances or the loss of previously received
approvals or clearances would have a material adverse effect on the Company's
results of operations and financial condition. See "--FDA and Other Government
Regulation," "Use of Proceeds" and "Business--Manufacturing."
Dependence on Sole Source Supplier. The Company currently purchases
cyanoacetate, the primary raw material used in manufacturing most of the
Company's products, from a single qualified source. Upon manufacturing scale-
up there can be no assurance that the Company will be able to obtain adequate
increased commercial quantities within a reasonable period of time or at
commercially reasonable rates. Lack of adequate commercial quantities or
inability to develop alternative sources meeting regulatory requirements at
similar prices and terms within a reasonable time or any interruptions in
supply in the future could have a material adverse effect on the Company's
ability to manufacture its products, including TraumaSeal, and, consequently,
could have a material adverse effect on the Company's results of operations
and financial condition. See "--Dependence on Marketing Partners," "Business--
Marketing Partners" and "Business--Manufacturing."
Dependence on Patents, Trade Secrets and Proprietary Rights. The Company's
success depends in large part on whether it can obtain patents, maintain trade
secret protection and operate without infringing on the proprietary rights of
third parties. The Company has seven U.S. patents with expiration dates
ranging from 2004 to 2013 and has filed applications for seven additional U.S.
patents, as well as certain corresponding patent
9
<PAGE>
applications outside the United States, relating to the Company's technology.
There can be no assurance that any of the pending patent applications will be
approved, that the Company will develop additional proprietary products that
are patentable, that any patents issued to the Company will provide the
Company with competitive advantages or will not be challenged by any third
parties or that the patents of others will not prevent the commercialization
of products incorporating the Company's technology. Furthermore, there can be
no assurance that others will not independently develop similar products,
duplicate any of the Company's products or design around the Company's
patents. Any of the foregoing results could have a material adverse effect on
the Company's results of operations and financial condition.
The commercial success of the Company also will depend, in part, on its
ability to avoid infringing patents issued to others. If the Company were
determined to be infringing any third party patent, the Company could be
required to pay damages, alter its products or processes, obtain licenses or
cease certain activities. If the Company is required to obtain any licenses,
there can be no assurance that the Company will be able to do so on
commercially favorable terms, if at all. The Company's failure to obtain a
license for any technology that it may require to commercialize its products
could have a material adverse effect on the Company's results of operations
and financial condition.
Litigation, which could result in substantial costs to and diversion of
effort by the Company, may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third party
proprietary rights. If competitors of the Company that claim technology also
claimed by the Company prepare and file patent applications in the United
States, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs to and diversion of effort
by the Company, even if the eventual outcome is favorable to the Company. Any
such litigation or interference proceeding, regardless of outcome, could be
expensive and time consuming. Litigation could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease using certain
technology and, consequently, could have a material adverse effect on the
Company's results of operations and financial condition.
In addition to patent protection, the Company relies on unpatented trade
secrets and proprietary technological expertise. There can be no assurance
that others will not independently develop or otherwise acquire substantially
equivalent techniques, or otherwise gain access to the Company's trade secrets
and proprietary technological expertise or disclose such trade secrets, or
that the Company can ultimately protect its rights to such unpatented trade
secrets and proprietary technological expertise. The Company relies, in part,
on confidentiality agreements with its marketing partners, employees,
advisors, vendors and consultants to protect its trade secrets and proprietary
technological expertise. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach
or that the Company's unpatented trade secrets and proprietary technological
expertise will not otherwise become known or be independently discovered by
competitors. Failure to obtain or maintain patent or trade secret protection,
for any reason, could have a material adverse effect on the Company's results
of operations and financial condition. See "Business--Patents, Trade Secrets
and Proprietary Rights."
Effects of FDA and Other Government Regulation. Most medical devices,
including the Company's current and future medical adhesives for humans, are
subject to stringent government regulation in the United States by the FDA
under the federal Food, Drug, and Cosmetic Act, as amended (the "FDC Act"),
and, in many instances, by foreign and state governments. The FDA regulates
the clinical testing, manufacture, safety, labeling, sale, distribution and
promotion of medical devices. Included among these regulations are premarket
clearance and premarket approval requirements and GMPs. Other statutory and
regulatory requirements govern, among other things, establishment registration
and inspection, medical device listing, prohibitions against misbranding and
adulteration, labeling and postmarket reporting. The regulatory process is
lengthy, expensive and uncertain. Before any new medical device may be
introduced to the market, the manufacturer generally must obtain FDA approval
through either the 510(k) premarket notification ("510(k)") process or the
lengthier
10
<PAGE>
premarket approval ("PMA") process. It is expected that most of the Company's
future products under development will be subject to the PMA process. Securing
FDA approvals and clearances may require the submission of extensive clinical
data and supporting information to the FDA, and there can be no guarantee of
ultimate clearance or approval. Failure to comply with applicable requirements
can result in Warning Letters, application integrity proceedings, fines,
recalls or seizures of products, injunctions, civil penalties, total or
partial suspensions of production, withdrawals of existing product approvals
or clearances, refusals to approve or clear new applications or notifications
and criminal prosecution.
Medical devices also are subject to postmarket reporting requirements for
deaths or serious injuries when the device may have caused or contributed to
the death or serious injury, and for certain device malfunctions that would be
likely to cause or contribute to a death or serious injury if the malfunction
were to recur. If safety or efficacy problems occur after the product reaches
the market, the FDA may take steps to prevent or limit further marketing of
the product. Additionally, the FDA actively enforces regulations prohibiting
marketing of devices for indications or uses that have not been cleared or
approved by the FDA.
The Company's current human medical devices are at different stages of FDA
review. There can be no assurance that the Company will be able to obtain
necessary 510(k) clearances or PMAs to market and manufacture its products in
the United States for their intended use, on a timely basis, if at all, and
delays in receipt of or failure to receive such clearances or approvals, the
loss of previously received clearances or approvals, or failure to comply with
existing or future regulatory requirements could have a material adverse
effect on the Company's results of operations and financial condition. See "--
Limited Manufacturing Experience" and "Business--Government Regulations."
Effects of International Sales. The Company's marketing partners intend to
market the Company's current and future products outside the United States as
well as domestically. A number of risks are inherent in international
transactions. In order for the Company to market its products in Europe,
Canada and certain other foreign jurisdictions, the Company must obtain
required regulatory approvals or clearances and otherwise comply with
extensive regulations regarding safety, manufacturing processes and quality.
These regulations, including the requirements for approvals or clearances to
market, may differ from the FDA regulatory scheme. There can be no assurance
that the Company will obtain regulatory approvals or clearances in such
countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals or clearances.
Delays in receipt of approvals or clearances to market the Company's products
in foreign countries, failure to receive such approvals or clearances or the
future loss of previously received approvals or clearances could have a
material adverse effect on the Company's results of operations and financial
condition. International sales also may be limited or disrupted by political
instability, price controls, trade restrictions and changes in tariffs. The
Company's royalties from international sales of TraumaSeal are based on net
sales in foreign currencies, but payable in U.S. dollars, and thus may be
adversely affected by fluctuations in currency exchange rates. Additionally,
fluctuations in currency exchange rates may adversely affect demand for the
Company's products by increasing the price of the Company's products in the
currency of the countries in which the products are sold. There can be no
assurance that the Company will be able to successfully commercialize its
current or future products in any foreign market. See "Business--Government
Regulations," "Business--Marketing Partners" and "Business--Sales and
Marketing."
Future Capital Needs and Uncertainty of Additional Financing. The Company
has expended and expects to continue to expend substantial funds to complete
the research, development and clinical testing of its products and to
establish commercial-scale manufacturing facilities. The Company believes that
existing cash and cash equivalents, which totaled $2.3 million as of June 30,
1996, together with net proceeds of approximately $23.8 million from this
Offering, will be sufficient to finance its capital requirements for at least
24 months. There can be no assurance that the Company will not be required to
seek additional capital to finance its operations following the Offering. The
Company currently has no commitments for any additional financing, and there
can be no assurance that adequate funds for the Company's operations from any
such additional financing, the Company's revenues, financial markets,
arrangements with marketing partners or from other sources will be
11
<PAGE>
available when needed or on terms attractive to the Company. The inability to
obtain sufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and product development programs,
manufacturing operations, clinical studies or regulatory activities or to
license third parties to commercialize products or technologies that the
Company would otherwise seek to develop itself, and could have a material
adverse effect on the Company's results of operations and financial condition.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Dependence Upon Key Personnel. The Company is highly dependent on the
principal members of its management and scientific staff. The Company does not
maintain key person life insurance for any of its employees. In addition, the
Company believes that its future success in developing marketable products and
achieving a competitive position will depend in large part upon whether it can
attract and retain additional qualified management and scientific personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to continue to attract and retain such personnel. The
loss of services of one or more members of the management or scientific staff
or the inability to attract and retain additional personnel and develop
expertise as needed could have a material adverse effect on the Company's
results of operations and financial condition. See "Management."
Product Liability Exposure and Potential Unavailability of Insurance. The
testing, manufacturing, marketing and sale of the products being developed by
the Company involve an inherent risk that product liability claims will be
asserted against the Company, its marketing partners or licensees. There is no
assurance that the Company's current clinical trial and commercial product
liability insurance in the amount of $3 million per claim with an annual
aggregate limit of $3 million is adequate or will continue to be available in
sufficient amounts or at an acceptable cost, if at all. A product liability
claim, product recall or other claim, as well as any claims for uninsured
liabilities or in excess of insured liabilities, could have a material adverse
effect on the Company's results of operations and financial condition.
Control by Existing Stockholders; Anti-Takeover Provisions. Upon completion
of this Offering, Rolf D. Schmidt, Chairman of the Board of Directors of the
Company and a co-founder, and F. William Schmidt, a director of the Company
and a co-founder, and their affiliates, will beneficially own approximately
43.1% of the outstanding Common Stock (approximately 41.2% of the outstanding
Common Stock assuming exercise in full of the Underwriters' over-allotment
option), and in the aggregate the Company's stockholders immediately prior to
the Offering will beneficially own a total of approximately 75.0% of the
outstanding Common Stock after the Offering (approximately 71.6% of the
outstanding Common Stock assuming exercise in full of the Underwriters' over-
allotment option). Accordingly, the Schmidts, either acting alone or together
with other existing stockholders, would be able to exert considerable
influence over the management and policies of the Company. Such a
concentration of ownership may have the effect of delaying, deferring or
preventing a change of control of the Company and consequently could adversely
affect the market price of the Common Stock. Additionally, the Company's
Restated Certificate of Incorporation and By-Laws contain certain provisions
that could prevent or delay the acquisition of the Company by means of a
tender offer, proxy contest or otherwise, or could discourage a third party
from attempting to acquire control of the Company, even if such events would
be beneficial to the interests of the stockholders. These provisions, among
other things, (i) prohibit stockholders of the Company from taking any action
required or permitted to be taken by the stockholders by written consent, (ii)
provide that special meetings of stockholders may only be called by the Board
of Directors or the Chairman of the Board, (iii) do not allow cumulative
voting for directors, (iv) divide the Board of Directors into three classes,
each of which serves for a staggered three-year term, (v) prohibit the removal
of directors without cause by the stockholders and without the approval of at
least 75% of the voting power of the then outstanding shares entitled to vote
in the election of directors, voting as a single class, (vi) provide
supermajority voting requirements with respect to the approval of certain
fundamental corporate changes and transactions, including, among others,
amendment of certain provisions of the Restated Certificate of Incorporation
and amendment of the By-Laws by the stockholders, and (vii) grant the Board of
Directors the authority, without action by the
12
<PAGE>
stockholders, to fix the rights and preferences of and issue shares of
preferred stock. The Company is also subject to Section 203 of the Delaware
General Corporation Law which contains certain anti-takeover provisions which
prohibit a "business combination" between a corporation and an "interested
stockholder" within three years of the stockholder becoming an "interested
stockholder" except in certain limited circumstances. The business combination
provisions of Section 203 of the Delaware General Corporation Law may have the
effect of deterring merger proposals, tender offers or other attempts to
effect changes in control of the Company that are not negotiated and approved
by the Board of Directors. See "Management," "Principal and Selling
Stockholders" and "Description of Capital Stock."
Broad Discretion in Application of Proceeds. The Company intends to use
approximately $7.8 million, or 33%, of the net proceeds to the Company from
the Offering (approximately $11.5 million, or 42%, of the net proceeds to the
Company from the Offering if the Underwriters' over-allotment option is
exercised in full) for working capital and general corporate purposes, and the
Company has not yet finally identified more specific uses for such net
proceeds. In addition, a portion of the net proceeds may be used for the
acquisition of complementary businesses or products. Accordingly, the specific
uses for the net proceeds will be at the complete discretion of management of
the Company and the Board of Directors and may be allocated based upon
circumstances arising from time to time in the future. See "Use of Proceeds."
No Prior Public Market; Volatility of Stock Price. Prior to this Offering,
there has been no public market for the Common Stock, and there can be no
assurance that an active public market will develop or be sustained after this
Offering. The initial public offering price of the Common Stock offered hereby
will be determined through negotiations between the Company and the
representatives of the Underwriters and may not be indicative of future market
prices, revenues or profitability. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. Factors
such as announcements concerning the Company or its competitors, including the
results of testing and clinical trials, technological innovations and the
attainment of (or failure to attain) milestones in the commercialization of
new products, government regulations, developments concerning proprietary
rights, including new patents, changes in existing patents or litigation
matters, a change in status of a marketing partner, investor perception of the
Company or the commercial value or safety of its products, fluctuations in the
Company's operating results and general market conditions in the industry may
cause the market price of the Common Stock to fluctuate significantly.
Furthermore, the stock market has experienced extreme price and volume
fluctuations, which recently have particularly affected the market prices of
the shares of medical technology companies and which have often been unrelated
to the operating performance of such companies. These broad market
fluctuations also may adversely affect the market price of the Common Stock.
Shares Eligible for Future Sale; Registration Rights; Potential Adverse
Impact on Market Price From Sales of Shares. Sales of substantial amounts of
Common Stock in the public market following this Offering could adversely
affect the market price of the Common Stock and adversely affect the Company's
ability to raise capital at a time and on terms favorable to the Company. In
addition to the 3,000,000 shares of Common Stock offered hereby that will be
freely tradeable, 9,000,000 shares of Common Stock to be issued to certain
stockholders in the Exchange and not sold in this Offering will become
eligible for sale in the public market two years after the Exchange, subject
to the provisions of Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). In addition, after this Offering, there will be
outstanding options to purchase 550,000 shares of Common Stock, of which
132,500 will be fully vested and exercisable. An additional 450,000 shares are
reserved for issuance under the Equity Compensation Plan. The Company intends
to register the shares of Common Stock issuable and reserved for issuance
under the Equity Compensation Plan as soon as practicable following the date
of this Prospectus.
Certain holders of 9,270,000 shares of Common Stock to be outstanding
immediately prior to the Offering, of which 600,000 shares are to be sold by
the Selling Stockholders in the Offering, will be entitled to certain
registration rights with respect to such shares, which registration rights
will become effective contemporaneously with the Offering. If such holders, by
exercising their registration rights, cause a large number of shares to be
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<PAGE>
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Common Stock. Such rights may not be
exercised prior to the expiration of 180 days from the date of this
Prospectus. See "Description of Capital Stock--Registration Rights" and
"Shares Eligible for Future Sale."
Adverse Impact from Potential Release of Shares Subject to Lock-Up. All
directors and executive officers and certain other stockholders of the Company
who will beneficially own an aggregate 8,670,000 shares of Common Stock upon
completion of this Offering, and the Company, with certain limited exceptions,
have agreed with the Underwriters not to offer for sale, sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock for a period of
180 days from the date of this Prospectus without the prior written consent of
Lehman Brothers Inc. The release of such shares from the lock-up prior to the
expiration of the 180-day period could adversely affect the market price of
the Common Stock.
Absence of Dividends. The Company has never declared or paid cash dividends
on its Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings to
fund the development and growth of its business. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and
will be dependent upon the Company's financial condition, operating results,
capital requirements and such other factors as the Board of Directors deems
relevant. See "Dividend Policy."
Dilution to Investors. Purchasers of Common Stock in this Offering will
experience immediate and substantial dilution of $8.92 per share in the net
tangible book value per share of the Common Stock (based on an assumed public
offering price of $11.00 per share and after deducting Underwriters' discounts
and commissions and other estimated offering expenses). See "Dilution."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale and issuance of the 2,400,000
shares of Common Stock offered by the Company hereby, after deducting expenses
payable by the Company in connection with this Offering (at an assumed public
offering price of $11.00 per share), are estimated to be approximately $23.8
million ($27.5 million if the Underwriters' over-allotment option is exercised
in full). The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company estimates that it will use approximately $6 million of the net
proceeds for capital expenditures related to laboratories, office space and
manufacturing facilities. The Company expects to use approximately $10 million
of the net proceeds for clinical trials, research and development and the
remaining net proceeds for working capital and general corporate purposes. A
portion of the net proceeds may also be used for the acquisition of
complementary businesses or products, although the Company has not entered
into any definitive agreements or letters of intent with respect to any such
transactions and is not in any negotiations with respect to any written or
oral agreements or understandings regarding such transactions. The Company
believes that existing cash and cash equivalents, which totaled $2.3 million
as of June 30, 1996, together with net proceeds of approximately $23.8 million
from this Offering, will be sufficient to finance its capital requirements for
at least 24 months.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds of this Offering in short-term, interest-
bearing, investment-grade securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
The Company currently intends to retain future earnings to fund the
development and growth of its business. Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, operating results, capital
requirements and such other factors as the Board of Directors deems relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company reflecting the consummation of the Exchange and (iii) the pro forma as
adjusted capitalization of the Company reflecting the consummation of the
Exchange and the sale of the 2,400,000 shares of Common Stock offered by the
Company hereby (at an assumed public offering price of $11.00 per share) and
receipt of the proceeds therefrom, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use
of Proceeds." This table should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------ ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt and capital lease
obligations, less current portion.......... $ 26 $ 26 $ 26
------ ------ --------
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000,000
shares authorized........................ -- -- --
Common Stock, $.01 par value; 35,000,000
shares authorized; 9,600,000 shares
issued and outstanding; 12,000,000 shares
as adjusted(3)........................... -- 96 120
Additional paid-in capital.................. -- 1,322 44,625
Accumulated deficit......................... -- -- (19,500)
Partners' capital........................... 1,418 -- --
------ ------ --------
Total partners' capital and stockholders'
equity................................... 1,418 1,418 25,245
------ ------ --------
Total capitalization.................... $1,444 $1,444 $ 25,271
====== ====== ========
</TABLE>
- --------
(1) Reflects the consummation of the Exchange. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Prior Partnership Status."
(2) Adjusted to reflect the consummation of the Exchange and the sale by the
Company of 2,400,000 shares of Common Stock (at an assumed public offering
price of $11.00 per share) and the application of the net proceeds
therefrom. See "Use of Proceeds." In connection with the Exchange,
Caratec, the successor to CRX's limited partnership interest in the
Partnership, will exchange its right to receive various payments from the
Partnership and its limited partnership interest for 1,776,250 shares of
Common Stock. This transaction will result in a non-cash expense which
should not exceed $19,500,000 and which will equal the difference between
the value of the Common Stock issued to Caratec and its basis in the
Partnership. The resulting charge to accumulated deficit will be offset by
a credit to additional paid-in capital. See "Prior Partnership Status."
(3) Excludes 550,000 shares of Common Stock issuable upon the exercise of
options to be outstanding after this Offering at an estimated weighted
average exercise price of $8.27 per share, of which 132,500 will be fully
vested and exercisable. See "Management--Equity Compensation Plan."
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<PAGE>
DILUTION
As of June 30, 1996, the pro forma net tangible book value of the Company,
after giving effect to the Exchange, but before the Offering, was $1,192,911
or $.12 per share of Common Stock. "Net tangible book value" per share
represents the amount of total tangible assets of the Company reduced by the
amount of its total liabilities, divided by the number of shares of Common
Stock outstanding. As of June 30, 1996, the pro forma as adjusted net tangible
book value of the Company, after giving effect to the Exchange and the
estimated net proceeds from the sale by the Company of the 2,400,000 shares of
Common Stock offered by the Company hereby (based on an assumed public
offering price of $11.00 per share and after deducting the Underwriters'
discounts and commissions and other estimated offering expenses), would have
been approximately $2.08 per share of Common Stock. This represents an
immediate increase of $1.96 per share to existing stockholders and an
immediate dilution of $8.92 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)....................... $11.00
Pro forma net tangible book value per share before Offering.... $.12
Increase per share attributable to new investors............... 1.96
----
Pro forma net tangible book value per share after Offering....... 2.08
------
Dilution to new investors........................................ $ 8.92
======
</TABLE>
- --------
(1) Before deduction of the Underwriters' discounts and commissions and other
offering expenses to be paid by the Company.
The following table summarizes on a pro forma basis as of June 30, 1996 the
differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of Common Stock purchased from the Company (based on an
assumed public offering price of $11.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 9,600,000 80.0% $32,921,651 55.5% $ 3.43
New investors........... 2,400,000 20.0 26,400,000 44.5 11.00
---------- ----- ----------- -----
Total................. 12,000,000 100.0% $59,321,651 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Total consideration includes the fair value of the Partnership interests
granted to employee limited partners and the fair value of the Common
Stock issued to Caratec in exchange for its right to receive various
payments from and its limited partnership interest in the Partnership. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview."
The above tables exclude 550,000 shares of Common Stock issuable upon the
exercise of options to be outstanding after this Offering at an estimated
weighted average exercise price of $8.27 per share, of which 132,500 will be
fully vested and exercisable. To the extent that these options are exercised,
there will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for each year in the five year
period ended December 31, 1995 have been derived from financial statements
audited by Price Waterhouse LLP, independent accountants. The balance sheets
as of December 31, 1994 and 1995 and the related statements of operations and
of cash flows for the years ended December 31, 1993, 1994 and 1995 and notes
thereto appear elsewhere in this Prospectus. The statement of operations data
for the six months ended June 30, 1995 and 1996 and the balance sheet data as
of June 30, 1996 have been derived from unaudited financial statements of the
Company included elsewhere in this Prospectus. The unaudited financial
statements include all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
its financial position and results of operations for those periods. Operating
results for the six months ended June 30, 1996 are not indicative of the
results that may be expected for the entire year. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements, including
the notes thereto, and the other financial information included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales........... $ 398 $ 648 $ 1,048 $ 1,478 $ 1,380 $ 618 $ 193
License and product
development revenues... 112 230 162 25 -- -- 3,500
------- ------- ------- ------- ------- ------- ------
Total revenues........ 510 878 1,210 1,503 1,380 618 3,693
Cost of products sold... 375 386 366 528 531 261 173
------- ------- ------- ------- ------- ------- ------
Gross profit............ 135 492 844 975 849 357 3,520
Research, development
and regulatory affairs
expenses............... 819 895 863 1,231 1,637 748 1,340
Selling and
administrative
expenses............... 670 912 1,037 1,366 5,089 628 1,014
Payments to CRX Medical,
Inc.................... -- 150 150 150 250 175 288
------- ------- ------- ------- ------- ------- ------
Total operating
expenses............. 1,489 1,957 2,050 2,747 6,976 1,551 2,642
------- ------- ------- ------- ------- ------- ------
Income (loss) from
operations............. (1,354) (1,465) (1,206) (1,772) (6,127) (1,194) 878
Interest expense to
Sharpoint Development
Corporation, net....... 135 234 342 443 845 396 93
------- ------- ------- ------- ------- ------- ------
Net income (loss)....... $(1,489) $(1,699) $(1,548) $(2,215) $(6,972) $(1,590) $ 785
======= ======= ======= ======= ======= ======= ======
Pro forma net income
(loss) per common
share(1)............... $ (.69) $ .08
======= ======
Shares used in
computation of pro
forma net income (loss)
per common share(1).... 10,150 10,150
======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, AS OF JUNE 30, JUNE 30,
-------------------------------------------- --------------- -----------
PRO FORMA
AS ADJUSTED
1991 1992 1993 1994 1995 1995 1996 1996(2)(3)
------- ------- ------- ------- -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 116 $ 26 $ 11 $ 30 $ 20 $ 22 $2,309 $26,136
Working capital......... 37 (181) (392) (10) (395) (198) 863 24,690
Total assets............ 823 750 764 784 908 242 3,686 27,513
Long-term debt and
capital lease
obligations, less
current portion........ 2,511 3,942 5,232 7,851 10,088 9,262 26 26
Total partners' capital
and stockholders'
equity................. (1,916) (3,615) (5,163) (7,378) (10,850) (8,968) 1,418 25,245
</TABLE>
DIVIDENDS:
Since its inception, the Company has not declared or paid any cash dividends
on its Common Stock.
- -------
(1) Pro forma net income (loss) per common share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the periods assuming that the contribution of
obligations of and interests in the Partnership to the Company in exchange
for 9,600,000 shares of Common Stock in connection with the Exchange had
been consummated as of the first day of the applicable periods. Pro forma
net income (loss) does not reflect the elimination of the payments to CRX,
interest expense to Sharpoint or the non-cash expense ($1.92 per share)
discussed in footnote (2) below. These payments and expenses will not
continue after the Exchange. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Prior Partnership
Status."
(2) In connection with the Exchange, Caratec, the successor to CRX's limited
partnership interest in the Partnership, will exchange its right to
receive various payments from the Partnership and its limited partnership
interest for 1,776,250 shares of Common Stock. This transaction will
result in a non-cash expense which should not exceed $19,500,000 and which
will equal the difference between the value of the Common Stock issued to
Caratec and its basis in the Partnership. The resulting charge to
accumulated deficit will be offset by a credit to additional paid-in
capital. See "Prior Partnership Status."
(3) Adjusted to reflect the sale by the Company of 2,400,000 shares of Common
Stock (at an assumed public offering price of $11.00 per share) and the
application of the net proceeds therefrom. See "Use of Proceeds."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements, including the notes thereto, included elsewhere in this
Prospectus.
OVERVIEW
Since its inception in May 1990, the Company has been developing,
commercializing and manufacturing medical adhesive products for use in wound
closure on humans and animals. The Company's products are based on its
proprietary cyanoacrylate technology, and a substantial portion of the
Company's historical expenses has consisted of research and development and
clinical trial expenses. The Company has funded its operations with cash from
borrowings from Sharpoint, sales of its Octyldent and Nexaband products and
license and product development revenues from marketing partners.
The Company has been unprofitable since its inception and has incurred net
losses in each year, including net losses of approximately $6,972,000 for the
year ended December 31, 1995. These losses have resulted in accumulated net
losses of approximately $13,916,000 as of June 30, 1996. Although the Company
had net income during the six months ended June 30, 1996 as a result of the
receipt from Ethicon of $3,500,000 in license and product development revenues
under the supply and distribution agreement for TraumaSeal, the Company
anticipates that it will incur increased losses for the next several years, as
it expects its research and development expenses to increase in order to fund
additional clinical trials and develop new products. The Company also expects
to incur additional capital expenditures to expand its manufacturing
capabilities. The amount of future net losses and time required by the Company
to reach profitability are highly uncertain. The Company's ability to generate
significant revenue and become profitable will depend on its success in
commercializing TraumaSeal, including the receipt of all regulatory clearances
or approvals, expanding its manufacturing capabilities, developing new
products and entering into additional marketing agreements and the ability of
its marketing partners to commercialize successfully products incorporating
the Company's technologies. No assurance can be given that the Company will
generate significant revenue or become profitable on a sustained basis, if at
all.
In connection with the Exchange, obligations of and interests in the
Partnership will be contributed to the Company in exchange for an aggregate of
9,600,000 shares of Common Stock. As of March 29, 1996, the long-term debt of
the Partnership held by Sharpoint, including accrued interest, was contributed
to the Partnership as $11,483,000 of partners' capital. During the period from
May 1990 to June 30, 1996, CRX, as a limited partner of the Partnership,
received payments of approximately $988,000 based on net revenues pursuant to
the Partnership agreement. As part of the Exchange, Caratec, the successor to
CRX's limited partnership interest in the Partnership, will exchange its right
to receive payments based on net revenues and its right to receive, as a
limited partner in the Partnership, a percentage of the proceeds of a sale of
all or substantially all of the assets of the Partnership for 1,776,250 shares
of Common Stock. This transaction will result in a non-cash expense which
should not exceed $19,500,000 and which will equal the difference between the
value of the Common Stock issued to Caratec and its basis in the Partnership.
The resulting charge to accumulated deficit will be offset by a credit to
additional paid-in capital.
Historically, there was no provision for federal or state income taxes in
the financial statements of the Company's predecessor, Tri-Point Medical L.P.,
because income or loss generated by the Partnership was included by the
partners in their personal income tax returns. Since the Company's
incorporation on February 20, 1996, the Company has been subject to federal
and state corporate income taxes.
The Company was formed on February 20, 1996 and the assets of the
Partnership were transferred to the Company as of March 1, 1996. The net
operating losses to March 1, 1996 will not be available to the Company to
offset any future taxable income for federal income tax purposes because it
was a partnership for that period.
The Company expects to incur compensation expense in connection with options
for Common Stock granted to employees, consultants and directors because such
options have a weighted average exercise price of
19
<PAGE>
approximately $2.73 per share below the estimated fair market value of the
Common Stock. Such expense will be approximately $323,000 upon the
consummation of the Offering, approximately $304,000 per year in the next two
years and $285,000 per year in the subsequent two years as the options vest.
Such expense could increase during a given year if the vesting of options were
to accelerate upon the occurrence of certain events. See "Management--Equity
Compensation Plan."
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total revenues for the six months ended June 30, 1996 increased to
$3,693,000 from $618,000 for the six months ended June 30, 1995. This increase
was primarily the result of the receipt of $3,500,000 in license and product
development revenues under the supply and distribution agreement for
TraumaSeal entered into with Ethicon in March 1996. This increase was
partially offset by a decrease in product sales from $618,000 for the six
months ended June 30, 1995 to $193,000 for the six months ended June 30, 1996.
This decrease was attributable to decreased sales volume of Octyldent as a
result of the inventory build-up by the Company's marketing partner during
1995. The Company is unable to predict future prospects for this product with
the current marketing partner.
Cost of products sold for the six months ended June 30, 1996 decreased 34%
to $173,000 from $261,000 for the six months ended June 30, 1995. This
decrease was primarily a result of decreased sales volume of Octyldent, as
discussed above, and was partially offset by decreased manufacturing
efficiencies and additional costs associated with the expansion of the
Company's manufacturing capabilities.
Operating expenses for the six months ended June 30, 1996 increased 70% to
$2,642,000 from $1,551,000 for the six months ended June 30, 1995. This
increase was primarily due to costs associated with the commencement and
conduct of clinical trials for TraumaSeal and increased financial advisory and
professional fees. Additionally, payments to CRX increased as a result of the
Company recording $3,500,000 of license and product development revenues from
Ethicon.
Interest expense for the six months ended June 30, 1996 decreased 76% to
$93,000 from $396,000 for the six months ended June 30, 1995. This decrease
resulted from an agreement to cease accruing interest as of March 1, 1996 in
connection with the incorporation of the Company on February 20, 1996 and the
subsequent transfer on March 1, 1996 of all assets and liabilities of the
Partnership to the Company, except for the indebtedness to Sharpoint. In
addition, the Company had interest income from cash equivalents of $47,000.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues for 1995 decreased 8% to $1,380,000 from $1,503,000 for 1994.
This decrease in total revenues was the result of a decrease in product sales
revenues, which was primarily due to decreased sales volume of Octyldent as a
result of the initial product launch and the related inventory build-up by the
Company's marketing partner during the year ended December 31, 1994.
Cost of products sold increased 1% to $531,000 for 1995 as compared to
$528,000 for 1994. This increase was primarily a result of decreased
efficiencies and related costs associated with the expansion of the Company's
manufacturing capabilities.
Operating expenses for 1995 increased 154% to $6,976,000 from $2,747,000 for
1994. This increase was primarily a result of a non-cash compensation expense
of $3,500,000 related to the grant of limited partnership interests to
employees of the Company, as well as costs for development and preparation for
clinical trials for TraumaSeal and increased financial advisory and
professional fees. Offsetting these increases were reductions in clinical
trial costs upon the completion of such trials for Octyldent and Nexacryl.
Payments to CRX increased as a result of an increase in the stipulated minimum
amount payable to CRX under the Partnership agreement.
Interest expense for 1995 increased 91% to $845,000 from $443,000 for 1994.
This increase resulted primarily from additional long-term borrowings from
Sharpoint during 1995 and 1994 to provide working capital.
20
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Total revenues increased 24% to $1,503,000 for 1994 as compared to
$1,210,000 for 1993. This increase in total revenues was the result of an
increase in product sales revenues, which increased 41% to $1,478,000 in 1994,
from $1,048,000 for 1993. This increase in product sales revenues was
primarily the result of increased sales volume of Octyldent related to the
Actisite(R) launch by the Procter & Gamble/ALZA Partnership during 1994.
License and product development revenues for 1994 decreased 85% to $25,000
from $162,000 for 1993. The 1994 and 1993 license and product development
revenues included payments of $25,000 and $112,000, respectively, from the
Procter & Gamble/ALZA Partnership in connection with the supply agreement for
Octyldent. In addition, the Company received $50,000 in 1993 in product
development fees from Farnam.
Cost of products sold for 1994 increased 44% to $528,000 from $366,000 for
1993. This increase was primarily due to increased sales volume of Octyldent.
Operating expenses for 1994 increased 34% to $2,747,000 from $2,050,000 for
1993. This increase was primarily due to development costs associated with the
Company's nonabsorbable products, increased administrative salaries and
product royalties on Octyldent paid to On-Site Therapeutics, Inc. ("On-Site").
On-Site receives a 5% royalty on net sales of Octyldent up to a cumulative
maximum royalty amount of $1,500,000. Payments to CRX were $150,000 each for
1994 and 1993 and represent stipulated minimum amounts payable to CRX under
the Partnership agreement. See "Business--Products."
Interest expense for 1994 increased 30% to $443,000 from $342,000 for 1993.
This increase was primarily due to additional long-term borrowings from
Sharpoint during 1994 and 1993 to provide working capital.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through product
sales revenues, license and product development revenues and borrowings from
Sharpoint. Through June 30, 1996, the Partnership had borrowed $9,571,000 from
Sharpoint, which excludes accrued interest of $932,000 converted to long-term
debt on December 31, 1994. As of March 29, 1996, all such long-term debt,
including accrued interest, was contributed as partners' capital to the
Partnership. The Company also has financed its operations by generating
product sales of $5,363,000 and license and product development revenues of
$4,036,000 from its inception to June 30, 1996.
The Company's cash and cash equivalents totaled $2,309,000 at June 30, 1996,
an increase of $2,289,000 from December 31, 1995. The primary sources of cash
and cash equivalents for the six months ended June 30, 1996 were the receipt
of $4,500,000, of which $3,500,000 was recorded as license and product
development revenues, in connection with the supply and distribution agreement
with Ethicon and $440,000 in proceeds from long-term borrowings from
Sharpoint. The Company expended $2,931,000 in cash and cash equivalents during
the six months ended June 30, 1996 to finance the Company's operations and for
working capital requirements.
Cash used for operating activities was $2,113,000, $1,534,000 and $1,226,000
for 1995, 1994 and 1993, respectively. The cash was used primarily to fund
research and product development programs, sales and marketing efforts,
manufacturing and clinical studies and regulatory affairs.
Cash used for investing activities was $145,000, $136,000 and $79,000 for
1995, 1994 and 1993, respectively. The cash was used to acquire capital
equipment, as well as to obtain and protect patents. Although the Company has
no material commitments for capital expenditures, the Company anticipates
using approximately $6,000,000 of the net proceeds from this Offering for
capital expenditures related to laboratories, office space and manufacturing
facilities. See "Use of Proceeds."
Cash provided by financing activities was $2,248,000, $1,689,000 and
$1,290,000 for 1995, 1994 and 1993, respectively. The Company's only financing
activities were borrowings from Sharpoint.
The Company expects to incur expenses related to the further research and
development of its technology and the development of current and additional
products, including outside testing and preclinical and clinical trials. The
Company also expects to incur additional capital expenditures to expand its
manufacturing capabilities. See "Use of Proceeds."
21
<PAGE>
The Company believes that existing cash and cash equivalents, which totaled
$2,309,000 as of June 30, 1996, together with net proceeds of approximately
$23,827,000 from this Offering, will be sufficient to finance its capital
requirements for at least 24 months. The Company's future capital
requirements, however, will depend on numerous factors, including (i) the
progress of its research and product development programs, including clinical
studies, (ii) the effectiveness of product commercialization activities and
marketing agreements, including the development and progress of sales and
marketing efforts and manufacturing operations, (iii) the ability of the
Company to maintain existing marketing agreements and establish and maintain
new marketing agreements, (iv) the costs involved in preparing, filing,
prosecuting, defending and enforcing intellectual property rights and
complying with regulatory requirements and (v) the effect of competing
technological and market developments. If the proceeds of this Offering,
together with the Company's currently available funds and internally generated
cash flow, are not sufficient to satisfy its financing needs, the Company will
be required to seek additional funding through bank borrowings and through
additional public or private sales of its securities, including equity
securities, or through other arrangements with marketing partners. The Company
has no credit facility or other committed sources of capital. There can be no
assurance that additional funds, if required, will be available to the Company
on favorable terms. See "Risk Factors--Future Capital Needs and Uncertainty of
Additional Financing" and "Use of Proceeds."
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), was issued in March 1995. SFAS 121 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 recoverable. The
Company adopted SFAS 121 effective January 1, 1996; the adoption of this
statement did not have a material impact on its results of operations or
financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), was issued in October 1995. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock-based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), with pro forma disclosures of net income and net income per share
as if the fair value method had been applied. The Company intends to continue
to apply APB 25 for future stock options and stock-based awards; consequently,
SFAS 123 will not have an impact on the Company's results of operations or
financial position.
22
<PAGE>
BUSINESS
GENERAL
Tri-Point develops, commercializes and manufactures medical adhesive
products based on its proprietary cyanoacrylate technology. The Company's
medical adhesives can be used to close and seal wounds and incisions rapidly
and stop leakage of blood and other body fluids from injured tissue. The
Company's nonabsorbable products can be used to replace sutures and staples
for certain topical wound closure applications, while the Company's absorbable
products can potentially be used as surgical sealants and surgical adhesives
for internal wound closure and management. Tri-Point's medical adhesive
products align injured tissue without the trauma caused by suturing or
stapling and allow natural healing to proceed. In addition, Tri-Point believes
that its medical adhesive products result in lower overall procedure costs and
are easier and quicker to prepare and use than sutures or staples. The
worldwide market for sutures and staples for topical and internal applications
is currently estimated to be $2.6 billion annually, and the Company expects
that it will compete for a portion of this market.
The Company has three products for human use and has a product line for
veterinary uses, which are described below:
TraumaSeal is a topical adhesive used to close wounds from skin
lacerations and incisions. Human clinical trials for TraumaSeal
commenced in the United States in February 1996 and are expected
to be completed by late 1996. TraumaSeal may be marketed in
Canada and product launch is expected in early 1997. The Company
has entered into a marketing agreement with Ethicon for
exclusive worldwide marketing and distribution of TraumaSeal.
Octyldent is a topical sealant currently used in conjunction
with Actisite(R), a site-specific drug delivery system
manufactured by ALZA, to treat adult periodontal disease.
Octyldent received 510(k) clearance from the FDA in 1990 and is
marketed with Actisite(R) in the United States by the Procter &
Gamble/ALZA Partnership and outside the United States by ALZA.
Nexacryl is a topical sealant to be used in the repair of
corneal ulcers and lacerations. The Company received an FDA
approvable letter for Nexacryl in January 1996. If approved, the
Company believes Nexacryl will be the first cyanoacrylate
adhesive product to receive a PMA from the FDA. The Company has
entered into a marketing agreement with Chiron for exclusive
worldwide marketing and distribution of Nexacryl.
Nexaband is a product line of five topical adhesives currently
used in veterinary wound closure and management. Nexaband
products have been marketed by Farnam since 1993.
Tri-Point is also developing absorbable products for internal applications.
The Company has development programs for surgical sealants to be used to
control post-surgical leakage from cardiovascular graft, cardiovascular bypass
and bowel resection procedures, and for surgical adhesives to be used to close
internal surgical incisions and traumatic wounds. These future products
require further development, clinical trials and regulatory clearance or
approval prior to commercialization.
TECHNOLOGY OVERVIEW
Tri-Point's medical adhesive products are based on its proprietary
cyanoacrylate technology. Cyanoacrylates are a family of liquid monomers that
react under a variety of conditions to form polymer films with strong adhesive
properties. Industrial adhesives based on cyanoacrylates were first introduced
in 1958 and are widely used in the aerospace and automotive industries, as
well as in consumer products such as super glue.
Medical adhesives have not been widely used because, unlike industrial
adhesives, medical adhesives must be shown to be safe for use in humans and
approved by regulatory authorities. The major obstacles to achieving
regulatory approval have been meeting biocompatibility standards and
demonstrating sterility. Using its proprietary cyanoacrylate technology, Tri-
Point believes it has demonstrated biocompatibility as defined by ISO
Toxicology Testing Standards for the Biological Evaluation of Medical Devices.
A key element in the
23
<PAGE>
Company's compliance with these standards is its ability to manufacture highly
purified base material which allows the Company to satisfy toxicity tests. In
addition, Tri-Point's products are synthetic, thereby eliminating the risk of
contamination inherent in products such as fibrin glues or collagen-based
products, which are derived from human blood or animal tissue. Tri-Point has
also developed novel assays to demonstrate sterility, which is required for
regulatory approval and enhances the safety profile of its products.
Tri-Point's technology enables it to develop nonabsorbable formulations for
topical use and absorbable formulations for internal use. Nonabsorbable
formulations close and seal skin wounds and incisions for the duration of
healing, then fall off naturally as new skin cells fill the wound bed.
Absorbable formulations can be used to close or seal internal wounds and
degrade, in a predictable manner, into small molecules that are eliminated
from the body. Tri-Point has been able to develop absorbable formulations by
controlling biodegradability of cyanoacrylates.
The key obstacle in developing an absorbable formulation has been that
certain byproducts of the degradation process are toxic. In particular,
degradation of cyanoacrylates produces formaldehyde, which is toxic at
relatively low concentrations in the body. Tri-Point has patented a
"scavenger" process that permits degradation without a cytotoxic reaction. In
this process, the Company adds agents to its formulations that reduce
formaldehyde to biologically acceptable levels.
The Company's proprietary technology allows it to customize the physical and
chemical properties of cyanoacrylates to meet specific market needs. These
properties include viscosity, flexibility, bond strength, stability, setting
time, porosity and biodegradation. For example, TraumaSeal has been formulated
with the high bond strength of cyanoacrylates, yet has enough flexibility to
adhere and adjust as needed to the tension of the skin on different areas of
the body. Additional formulations of TraumaSeal with higher viscosity and
varied setting times may be developed to enhance ease of use. The Company's
products for the treatment of moist areas, such as the eyes, mouth and
internal tissue, may be formulated to have faster setting times to control the
flow of fluids. The Company's absorbable products may be formulated with
controlled biodegradation rates to match the healing rates of various tissues.
In addition, the Company's products perform consistently and reproducibly, do
not require special preparation or refrigeration and have shelf-lives of 18 to
24 months.
Tri-Point has also developed delivery technology to deliver TraumaSeal and
other products to wound sites in order to enhance the utility of its products.
The current TraumaSeal applicator is a small, pen-like instrument that is easy
to use and facilitates the application of the product. This applicator
contains a catalyst that controls the polymerization process and allows the
adhesive film to be applied in multiple layers, which enhances bond strength.
The Company has also developed a spray applicator for equine wound management,
which permits fast delivery of the Nexaband adhesive to a large surface area
of the animal. Tri-Point intends to continue investigating and developing
delivery technologies as various needs arise.
The Company is building a strong portfolio of patent and trade secret
protection on the basic properties, formulations and medical uses of its
proprietary adhesive and delivery technologies. The Company has been issued
three U.S. patents relating to the Company's scavenger process for its
absorbable formulations. In addition, the Company has four patents directed to
other areas of adhesive and delivery technology. The Company has filed seven
U.S. patent applications covering other aspects of the scavenger process,
delivery technology, biodegradation rate control processes and high strength
wound closure adhesives. Counterparts of certain of these patents and patent
applications have been filed in other countries. The Company also relies on
its trade secrets and technological expertise in order to protect its
proprietary technology.
During the years ended December 31, 1993, 1994 and 1995, the Company spent
$391,000, $546,000 and $652,000, respectively, on Company-sponsored research
and development activities.
BUSINESS STRATEGY
The Company's objective is to become the leader in the medical adhesive
market by capitalizing on its proprietary cyanoacrylate technology. The
Company's strategy is to focus initially on commercializing and
24
<PAGE>
launching topical adhesive products based on its nonabsorbable formulations.
Initial target markets are topical wound closure in emergency rooms and
operating rooms and for plastic surgery procedures. The Company is also
pursuing the development and commercialization of absorbable formulations.
Implementing the Company's strategy involves the following activities:
Continue and expand research and development. Tri-Point's
initial products are all nonabsorbable, and its research and
development efforts are primarily focused on developing
absorbable adhesives, as well as product line extensions of its
nonabsorbable adhesives. The Company intends to increase its
research and development staff, significantly expand its
research facilities and acquire additional laboratory and
analytical equipment.
Seek rapid regulatory approval. The Company targets product
applications classified as medical devices that are eligible for
regulatory approval under a less time-consuming process than
that required for pharmaceuticals. The Company's laboratory,
animal and human studies have generated an extensive database
which the Company believes will facilitate the regulatory
approval process of current and future products. The Company
engages clinical research organizations to utilize the extensive
experience and technical expertise of such organizations in
planning and managing clinical trials.
Expand manufacturing capacity. The Company believes its ability
to manufacture highly purified cyanoacrylate-based medical
adhesives is a key competitive advantage. Tri-Point intends to
retain manufacturing rights to all its products and will expand
its manufacturing capacity by adding facilities, equipment and
personnel. In addition, the Company is researching other
processes to improve manufacturing capacity and efficiency.
Establish marketing partnerships. The Company seeks to market
and distribute its products through recognized market leaders to
take advantage of their resources and distribution channels. In
addition, in the future, as the Company's surgical sealant
products progress toward commercialization, the Company intends
to establish a highly focused sales force to market those
products.
25
<PAGE>
PRODUCTS
The Company's medical adhesive products are an alternative to the
traditional method of closing topical and internal wounds and incisions.
Suturing and stapling involve puncturing healthy tissue in order to align and
close the wound, may cause leakage or additional scarring at the small
puncture sites, may require anesthetics, are time-consuming to apply, and
often require return patient visits and physician time to remove the sutures
or staples. Medical adhesives may be applied quickly, do not require
anesthetics, do not induce trauma to surrounding tissues and do not require
return visits to the physician.
<TABLE>
<CAPTION>
PRODUCT MARKET STATUS MARKETING PARTNER
------------------------ ------------------------ ------------------------ ---------------------
<C> <S> <C> <C>
NONABSORBABLE
TraumaSeal Topical wound closure U.S. clinicals ongoing; Ethicon
marketable in Canada
Octyldent Periodontal sealant Marketed in U.S. and Procter & Gamble/ALZA
European Union countries Partnership; ALZA
in conjunction with
Actisite(R)
Nexacryl Corneal repair PMA pending Chiron
Nexaband (5 products) Veterinary Marketed in U.S. Farnam
ABSORBABLE
Surgical Sealants Cardiovascular graft and Preclinicals None
bypass and
bowel resection
Surgical Adhesives Internal wound closure Preclinicals None
</TABLE>
TraumaSeal
The Company's lead product, TraumaSeal, is a topical adhesive used to close
wounds from skin lacerations and incisions, minimally invasive surgery and
plastic surgery. The Company believes, based on market research, that there
are approximately five million skin lacerations and incisions annually in the
United States for which TraumaSeal could be used. In addition, there were an
estimated 7.6 million minimally invasive surgical procedures in 1995 and
approximately 1.4 million plastic surgery procedures in 1994. The Company
believes, based on industry sources, that approximately 25 million other
surgical procedures are performed annually in the United States. The Company
expects that TraumaSeal will compete for a portion of these markets as a
replacement for, or in conjunction with, sutures or staples. TraumaSeal is
intended to be used for wound closure where a 5.0 or smaller diameter suture
would normally be used and is not intended for use on the hands, feet or
crossing joints. TraumaSeal can also be used topically for lacerations or
incisions requiring subcutaneous sutures or staples. Although the purchase
cost of TraumaSeal will be greater than sutures or staples, the Company
believes that the use of TraumaSeal will result in lower overall procedure
costs because of reduced treatment time, elimination of the need for
anesthetics, simplification of post-closure wound care and elimination of
suture removal.
The Company received an IDE approval from the FDA for TraumaSeal in December
1995 and commenced controlled, randomized clinical trials in February 1996.
The clinical trials compare wound closure utilizing TraumaSeal with wound
closure utilizing sutures or staples and are being performed at ten sites
throughout the United States. At August 2, 1996, patient enrollment was
completed with a total of 818 patients enrolled. The Company anticipates that
clinical trials will be completed by late 1996. Tri-Point has engaged a
clinical research organization to administer the human trials.
26
<PAGE>
TraumaSeal may be marketed in Canada and is expected to be launched in
Canada in early 1997. A controlled, randomized 300-patient clinical study of
TraumaSeal conducted in Canada in late 1995 and early 1996 successfully
demonstrated TraumaSeal to be at least equivalent to nonabsorbable 5.0 or
smaller diameter sutures in wound closure and cosmetic outcome. There were no
reports of unanticipated adverse effects.
In March 1996, the Company entered into an agreement with Ethicon, a
subsidiary of Johnson & Johnson and a world leader in wound closure products,
to market and distribute TraumaSeal.
Octyldent
Octyldent, the Company's first human product introduction, is a topical
sealant used in conjunction with site-specific sustained release antibacterial
drug therapy to treat adult periodontal disease. The American Dental
Association estimated that approximately 14 million scaling and planing
procedures were performed in 1990 (the most recent year for which data are
available) in the United States to help prevent the progression of periodontal
disease. Octyldent is currently used to seal the pocket of a diseased gum
where Actisite(R), a therapeutic drug delivery system manufactured by ALZA,
has been inserted, thereby allowing the system to remain in place over a ten-
day period.
Octyldent received FDA marketing clearance in August 1990, and the FDA
issued approval to market Actisite(R) in March 1994. The Company entered into
supply agreements in 1991 and 1993 with the Procter & Gamble/ALZA Partnership
and ALZA to market Octyldent with Actisite(R) in the United States and outside
the United States, respectively. The U.S. product launch of Octyldent, sold in
combination with Actisite(R), commenced in July 1994. The
Actisite(R)/Octyldent product is marketed in several European countries, where
the first launch occurred in May 1993, and ALZA is pursuing registration and
distribution arrangements for Actisite(R) in a number of other European
markets. The Company received authorization to display the CE mark for
Octyldent in the European Union in August 1995, which will allow Octyldent to
be marketed throughout the European Union.
The Company entered into an agreement in March 1994 with On-Site pursuant to
which On-Site provides exclusive services to identify potential purchasers of
Octyldent for use in conjunction with site-specific sustained release
antibacterial drug therapy for adult periodontal disease. Under the agreement,
On-Site receives royalties on sales of Octyldent.
Nexacryl
Nexacryl is a topical sealant to be used in the repair of corneal ulcers and
lacerations. Nexacryl received orphan device status to treat a condition known
as "melting cornea" for which no FDA-approved product is presently available.
Nexacryl is applied directly to the cornea to seal fluids and allow the
corneal tissue to heal.
A clinical study of Nexacryl has been completed in which 262 patients were
treated at 23 clinical study sites with no reports of leakage or infections
attributable to Nexacryl. Based on this study, the Company filed a PMA
application with the FDA and received an approvable letter from the FDA in
January 1996 for the product. A PMA is anticipated following sterilization
validation studies, FDA inspection of the manufacturing site and FDA labeling
review. If approved, the Company believes Nexacryl will be the first
cyanoacrylate adhesive to obtain a PMA from the FDA.
The Company is developing an additional formulation of Nexacryl for use in
cataract and other related corneal procedures. There are approximately two
million cataract procedures performed in the United States each year. If
Nexacryl receives marketing approval from the FDA, the Company intends to
broaden the indication for Nexacryl to cover such procedures. The Company
believes this can be accomplished by submitting a PMA Supplement to the FDA,
which may include clinical data to be generated from a limited clinical study.
There can be no assurance that a limited clinical study will be acceptable to
the FDA or that the Company will be able to obtain a PMA Supplement for this
or any additional indication.
The Company's marketing partner for Nexacryl is Chiron.
27
<PAGE>
Nexaband Veterinary Products
The Company has five topical adhesive products sold under the Nexaband trade
name used in veterinary wound closure and management procedures. There were an
estimated 11 million surgical procedures performed on animals annually in the
United States in 1990 and for which the Company believes Nexaband products
could have been used. The Company estimates that Nexaband products were used
in approximately 1.3 million veterinary procedures in the United States in
1995.
Nexaband products seal the wound and provide a flexible, waterproof barrier
against dirt, fluids and contaminants. The adhesive falls off as the wound is
healed. The products are differentiated by type of applicator, setting time,
viscosity and packaging. Nexaband S/C is used for the topical closure of
lacerations and spay and neuter incisions. Nexaband QuickSeal is used as a
sealant for minor grooming cuts. Nexaband Pump Spray is used as a sealant for
large surface area wounds, particularly equine abrasion wounds. Nexaband
Liquid is used for wound closure in cat declawing procedures. Nexaband
Ophthalmic is used as a hemostatic agent and for the protection of damaged
corneas. The Nexaband products are distributed through Farnam, a leader in
large animal over-the-counter products and small and large animal ethical
product markets.
DEVELOPMENTAL PROGRAMS
The Company has several absorbable products under development which will
require further development, clinical trials and regulatory clearance or
approval prior to commercialization. See "--Government Regulations."
Surgical Sealants
The Company is developing an absorbable adhesive to be used as a sealant to
control post-surgical leakage at suture closure sites, a problem that is not
effectively addressed by current medical technology. Tri-Point's surgical
sealant is being developed initially for use in cardiovascular graft,
cardiovascular bypass and bowel resection surgery, of which approximately 1.2
million procedures were performed in the United States in 1992. The Company
believes its absorbable formulations could also serve as effective sealants
for repairing bladder or spleen defects, diffusing bleeding from the liver,
sealing air leakage from lung defects, repairing skin graft sites and managing
chronic skin ulcers.
The Company has initiated preliminary animal studies to test the feasibility
of absorbable formulations to prevent leakage.
A number of major medical firms are seeking to develop blood-based fibrin
products to prevent leakage at suture closure sites. The Company believes that
its surgical sealant has advantages over such products in that it will be
significantly easier to manufacture, control and manipulate than human blood,
which must be harvested, processed and screened for contaminants, and
eliminates the risk of contamination inherent in blood-derived products. In
addition, several companies are seeking to develop collagen-based products,
which are derived from animal tissue, to act as an internal sealant for human
tissue. The Company believes that its surgical sealants have similar
advantages over collagen-based products and that such products will pose many
of the same contamination risks described above. In addition, the Company
believes that its cyanoacrylate-based adhesives have greater bond strength
than either fibrin-based or collagen-based products.
Surgical Adhesives
The Company is developing absorbable adhesives for the closure of internal
surgical incisions and traumatic wounds. There were approximately 50 million
surgical procedures performed globally in 1995, with an estimated growth rate
of 2% to 3% annually. The Company believes that its absorbable adhesive for
surgical closure of soft tissue would be fast, safe and easy to use, and would
provide advantages over sutures and staples such as cost effectiveness,
enhanced wound sealing and closing, maintenance of the healing environment,
reduced trauma, pain and patient discomfort and superior tissue adherence. In
addition, the Company believes that its absorbable surgical adhesives would be
well-suited for internal closure in laparoscopic procedures.
28
<PAGE>
The Company has initiated preliminary animal studies to test the feasibility
of absorbable formulations to close internal wounds, including soft tissue
wounds.
Additional Product Opportunities
The Company believes that there are other potential medical applications for
its proprietary cyanoacrylate technology. The Company has not yet developed
any programs or committed any funds for research and development of these
potential applications. Moreover, any potential products will be subject to
extensive and rigorous regulatory review. There can be no assurance that any
funds will be available for research programs for such potential products or
that any potential products will be successfully developed, be proven to be
safe and efficacious in clinical trials, meet applicable regulatory standards,
be capable of being produced in commercial quantities at acceptable costs or
be successfully marketed.
The Company believes that many consumers of over-the-counter ("OTC") wound
closure products would prefer the sealing and wound protection characteristics
of an adhesive as compared to the wound covering capabilities of a topical
bandage. The Company believes that incorporating its topical wound closure
product, TraumaSeal, into an OTC product could provide a fundamental
differentiating characteristic and marketing advantage over products currently
offered in the OTC market.
The Company also believes that its adhesive technology could be used as a
site-specific drug delivery system to deliver growth factors to stimulate
tissue regeneration, various hormones or pharmaceuticals to promote healing,
antibiotics and antivirals to inhibit infection or chemotherapeutic agents to
slow or stop tumor growth. Based on preliminary analyses, the Company believes
that encapsulations, matrix vehicles, liquids and other formed products may be
developed from its adhesive material.
In addition, the Company believes its technology could be useful for certain
orthopedic repair procedures.
MARKETING PARTNERS
An important element of the Company's strategy is to enter into marketing
agreements to enable it to take advantage of the wide range of opportunities
created by its technology. To exploit these opportunities, the Company has
entered into the agreements described below for the supply and distribution of
certain products. The Company is dependent on its marketing partners to market
and distribute its products. Although the Company believes that its marketing
partners have an economic motivation to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted
to these activities are not within the control of the Company. See "Risk
Factors--Dependence on Marketing Partners."
Ethicon, Inc.
In March 1996, the Company entered into a renewable, eight-year supply and
distribution agreement with Ethicon, a subsidiary of Johnson & Johnson, which
provides Ethicon with exclusive worldwide rights to market, distribute and
sell TraumaSeal, the Company's nonabsorbable wound closure adhesive. The
agreement provides for certain up-front and milestone payments to the Company,
provides for the reimbursement of certain expenses associated with clinical
trials, requires Ethicon to make minimum purchases that escalate annually
after receipt of FDA or European Community approval and requires Ethicon to
pay royalties based upon net sales.
Ethicon may renew the agreement for additional one-year periods. The
agreement is terminable upon specified events, including (i) material breach
by either party, (ii) insolvency of either party and (iii) failure to obtain
regulatory approval for TraumaSeal in the United States within two years from
the date of submission of the Company's 510(k) notification or PMA. The
Company commenced human clinical trials of TraumaSeal in February 1996 and
anticipates that the trials will be completed by late 1996 and a PMA
application submitted shortly thereafter. Upon certain events of default,
including failure to provide an adequate supply of product, Ethicon may
terminate its arrangement to purchase TraumaSeal from the Company, and Ethicon
may itself then manufacture TraumaSeal and only pay the Company royalties
based on sales. See "Risk Factors--Dependence on Marketing Partners," "Risk
Factors--Limited Manufacturing Experience" and "--Manufacturing."
29
<PAGE>
Procter & Gamble/ALZA, Partners for Oral Health Care and ALZA Corporation
The Company entered into a supply agreement with the Procter & Gamble/ALZA
Partnership in March 1991, which was subsequently amended in April 1992. The
agreement grants the Procter & Gamble/ALZA Partnership the non-exclusive
worldwide rights to market and distribute Octyldent with Actisite(R), a
product manufactured by ALZA. The first shipment under this agreement was in
May 1994. In March 1993, the Company entered into a supply agreement with
ALZA, which grants ALZA non-exclusive rights to market Octyldent worldwide,
except in the United States, Canada, Mexico and Venezuela, where the Procter &
Gamble/ALZA Partnership has marketing rights. The first shipment under this
agreement was in May 1993. The agreements guarantee the Company minimum
purchases annually and provide for specified prices per unit for Octyldent,
which may be increased annually subject to certain limitations.
The agreements each have a term of three years from the first shipment date,
with automatic renewal for additional one-year periods, and each agreement is
terminable upon specified events, including (i) material breach by either
party, (ii) the publication of a scientific study, undertaken or reported by a
nationally recognized health research agency or government body, that links
any component of Octyldent to any health or safety hazard and (iii) any
revocation or suspension of the Company's 510(k) clearance for Octyldent.
Chiron Vision Corporation
The Company entered into a supply and distribution agreement with Chiron
effective July 1992, and amended in April 1995, which provides Chiron with the
exclusive rights to market, sell and distribute certain human ophthalmic
products on a worldwide basis. The agreement provides Chiron with an option to
expand its coverage to include new products. The Company received a payment
upon the execution of the agreement, and will receive a milestone payment upon
FDA marketing approval of its first ophthalmic product, Nexacryl. The
agreement guarantees the Company minimum purchases that escalate annually.
Pursuant to the agreement, pricing may be adjusted annually to reflect
increases in the U.S. Department of Labor Producer's Price Index. The
agreement has a term of 10 years from the effective date of U.S. regulatory
approval of the last-approved product. The agreement is terminable upon
specified events, including (i) material breach by either party, (ii) Chiron's
providing 30 days' notice as to any product for which FDA clearance or
approval is then pending, or (iii) Chiron's providing 180 days' notice for
products for which FDA clearance or approval is obtained. In certain
circumstances, Chiron may terminate its arrangement to purchase products from
the Company, and may itself then manufacture such products and only pay the
Company royalties based on sales.
Farnam Companies, Inc.
In December 1992, the Company entered into a renewable, seven-year
development and distribution agreement with Farnam. The Company granted Farnam
the exclusive rights to market, sell and distribute its Nexaband line of
veterinary products to the ethical veterinary market in North America. In
addition to the existing nonabsorbable Nexaband products covered by this
agreement, Farnam has exclusive rights in North America to any absorbable
veterinary adhesive products developed by the Company. Prices and minimum
sales volumes for new products will be negotiated upon product development
completion. Pursuant to the agreement, the Company received a nonrefundable
research, testing and development fee. The agreement also provides for minimum
purchases, which increase annually, and allows the Company to adjust prices
annually, but not in excess of increases in the U.S. Department of Labor
Wholesale Price Index. The agreement is terminable upon specified events,
including material breach by either party. The agreement will automatically
renew for successive one-year periods contingent on Farnam meeting required
levels of purchases.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
The Company's success depends in large part on its ability to obtain
patents, maintain trade secret protection and operate without infringing on
the proprietary rights of third parties. The Company has seven U.S. patents
with expiration dates ranging from 2004 to 2013 and has filed applications for
seven additional U.S. patents, as well as certain patent applications outside
the United States, relating to the Company's technology. Three of the
30
<PAGE>
issued U.S. patents relate to the Company's scavenger process for its
absorbable formulations and pending U.S. patent applications relate to other
aspects of the scavenger process. In addition, the Company has four patents
directed to other areas of adhesive and delivery technology. Other U.S. patent
applications relate to the Company's delivery technology, biodegradation rate
control processes and high strength wound closure adhesives.
There can be no assurance that any of the pending patent applications will
be approved, that the Company will develop additional proprietary products
that are patentable, that any patents issued to the Company will provide the
Company with competitive advantages or will not be challenged by any third
parties or that the patents of others will not prevent the commercialization
of products incorporating the Company's technology. Furthermore, there can be
no assurance that others will not independently develop similar products,
duplicate any of the Company's products or design around the Company's
patents. Any of the foregoing results could have a material adverse effect on
the Company's results of operations and financial condition.
The commercial success of the Company also will depend, in part, on its
ability to avoid infringing patents issued to others. If the Company were
determined to be infringing any third party patent, the Company could be
required to pay damages, alter its products or processes, obtain licenses or
cease certain activities. If the Company is required to obtain any licenses,
there can be no assurance that the Company will be able to do so on
commercially favorable terms, if at all. The Company's failure to obtain a
license for any technology that it may require to commercialize its products
could have a material adverse impact on the Company's results of operations
and financial condition.
Litigation, which could result in substantial costs to and diversion of
effort by the Company, may also be necessary to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third party
proprietary rights. If competitors of the Company that claim technology also
claimed by the Company prepare and file patent applications in the United
States, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs to and diversion of effort
by the Company, even if the eventual outcome is favorable to the Company. Any
such litigation or interference proceeding, regardless of outcome, could be
expensive and time consuming. Litigation could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from third parties or require the Company to cease using such
technology and, consequently, could have a material adverse effect on the
Company's results of operations and financial condition.
In addition to patent protection, the Company relies on unpatented trade
secrets and proprietary technological expertise. There can be no assurance
that others will not independently develop or otherwise acquire substantially
equivalent techniques, or otherwise gain access to the Company's trade secrets
and proprietary technological expertise or disclose such trade secrets, or
that the Company can ultimately protect its rights to such unpatented trade
secrets and proprietary technological expertise. The Company relies, in part,
on confidentiality agreements with its marketing partners, employees,
advisors, vendors and consultants to protect its trade secrets and proprietary
technological expertise. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach
or that the Company's unpatented trade secrets and proprietary technological
expertise will not otherwise become known or be independently discovered by
competitors. Failure to obtain or maintain patent and trade secret protection,
for any reason, could have a material adverse effect on the Company's results
of operations and financial condition.
GOVERNMENT REGULATIONS
The Company's products and operations are subject to substantial government
regulation in the United States and foreign countries.
31
<PAGE>
FDA Regulation
Most medical devices, including the Company's medical adhesives for humans,
are subject to stringent government regulation in the United States by the FDA
under the FDC Act, and, in many instances, by foreign and state governments.
The FDA regulates the clinical testing, manufacture, safety, labeling, sale,
distribution and promotion of medical devices. Included among these
regulations are premarket clearance and premarket approval requirements and
GMPs. Other statutory and regulatory requirements govern, among other things,
establishment registration and inspection, medical device listing,
prohibitions against misbranding and adulteration, labeling and postmarket
reporting. The regulatory process is lengthy, expensive and uncertain.
Securing FDA approvals and clearances may require the submission of extensive
clinical data and supporting information to the FDA. Failure to comply with
applicable requirements can result in Warning Letters, application integrity
proceedings, fines, recalls or seizures of products, injunctions, civil
penalties, total or partial suspensions of production, withdrawals of existing
product approvals or clearances, refusal to approve or clear new applications
or notifications and criminal prosecution. See "Risk Factors--FDA and Other
Government Regulation."
Under the FDC Act, medical devices are classified into one of three classes
(Class I, II or III) on the basis of the controls necessary to reasonably
ensure their safety and effectiveness. Class I devices are subject to general
controls (e.g., labeling, premarket notification and adherence to GMPs). Class
II devices are subject to general and special controls (e.g., performance
standards, postmarket surveillance and patient registries). Generally, Class
III devices must receive premarket approval from the FDA (e.g., certain life-
sustaining, life-supporting and implantable devices or new devices which have
been found not to be substantially equivalent to certain legally marketed
devices). Octyldent is a Class II medical device and TraumaSeal and Nexacryl
are Class III medical devices.
Before any new medical device may be introduced to the market, the
manufacturer generally must obtain either premarket clearance through the
510(k) premarket notification process or premarket approval through the
lengthier PMA process. A 510(k) premarket notification will be granted if the
submitted data establish that the proposed device is "substantially
equivalent" to a legally marketed Class I or Class II medical device, or to a
Class III medical device for which the FDA has not called for PMAs. The FDA
may request extensive data, including clinical studies of the device's safety
and effectiveness, before a substantial equivalence determination can be made.
It generally takes from four to 12 months from submission to obtain 510(k)
premarket clearance, although it may take longer. A PMA application must be
filed if a product is found to be not substantially equivalent to a legally
marketed Class I or II device or if it is a Class III device for which the FDA
has called for PMAs. A PMA application must be supported by extensive data,
including laboratory, preclinical and clinical trial data, to demonstrate the
safety and efficacy of the device, as well as extensive manufacturing
information. Before initiating human clinical trials, the manufacturer often
must first obtain an IDE for the proposed medical device. Toward the end of
the PMA review process, after issuing a preliminary approvable letter, the FDA
will generally conduct an inspection of the manufacturer's facilities to
ensure compliance with GMPs. Additionally, the FDA requires sterility
validation and that final labeling be reviewed by the FDA prior to granting a
PMA. Approval of a PMA could take two or more years from the date of
submission of the application. The PMA process can be expensive, uncertain and
lengthy, and there is no guarantee of ultimate approval.
Modifications or enhancements to products that are either cleared through
the 510(k) process or approved through the PMA process that could affect
safety or effectiveness or effect a major change in the intended use of the
device may require further FDA review through new 510(k) or PMA submissions.
Additionally, certain modifications of the Company's manufacturing facilities
and processes, such as those made in preparation for commercial-scale
production of its products, will subject the Company to further FDA
inspections and review prior to final approval of such products for commercial
sale.
Medical devices also are subject to postmarket reporting requirements for
deaths or serious injuries when the device may have caused or contributed to
the death or serious injury, and for certain device malfunctions that would be
likely to cause or contribute to a death or serious injury if the malfunction
were to recur. If safety
32
<PAGE>
or efficacy problems occur after the product reaches the market, the FDA may
take steps to prevent or limit further marketing of the product. Additionally,
the FDA actively enforces regulations prohibiting marketing of devices for
indications or uses that have not been cleared or approved by the FDA.
The Company's current human medical devices are at different stages of FDA
review. Octyldent, the Company's product sold to the Proctor & Gamble/ALZA
Partnership and ALZA for use as an adhesive in conjunction with Actisite(R),
received 510(k) clearance in 1990, and is subject to GMP, postmarket reporting
and other FDA requirements. Nexacryl, the Company's ophthalmic product, has
received an approvable letter from the FDA and is pending FDA review of
sterilization validation studies, FDA inspection of the manufacturing site and
FDA labeling review before the product can receive final FDA approval for
commercialization. TraumaSeal has been in clinical trials at 10 sites around
the country since February 1996 under an IDE granted by the FDA. The Company
expects clinical trials to be completed by late 1996 and to submit a PMA
application for TraumaSeal shortly thereafter. The Company expects that it
will need to make significant modifications to its manufacturing facilities
and processes in order to manufacture TraumaSeal on a commercial scale, which
will subject the Company to an additional FDA inspection of its manufacturing
facility prior to final approval for commercial sales of this product.
There can be no assurance that the Company will be able to obtain necessary
510(k) clearances or PMAs to market its products in the United States for
their intended use, on a timely basis, if at all, and delays in receipt of or
failure to receive such clearances or approvals, the loss of previously
received clearances or approvals, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on the Company's
results of operations and financial condition. See "Risk Factors--Limited
Manufacturing Experience" and "Risk Factors--FDA and Other Government
Regulation."
Foreign Regulatory Matters
In order for the Company to market its products in Europe, Canada and
certain other foreign jurisdictions, the Company must obtain required
regulatory approvals or clearances and otherwise comply with extensive
regulations regarding safety and manufacturing processes and quality. These
regulations, including the requirements for approvals or clearances to market,
may differ from the FDA regulatory scheme. The time required to obtain
approval or clearance for sale of the Company's products in foreign countries
may be longer or shorter than that required for FDA clearance or approval, and
the requirements may differ. In addition, there may be foreign regulatory
barriers other than premarket approval or clearance. There can be no assurance
that the Company will obtain regulatory approvals in such countries or that it
will not be required to incur significant costs in obtaining or maintaining
its foreign regulatory approvals. Delays in receipt of approvals to market the
Company's products in foreign countries, failure to receive such approvals or
the future loss of previously received approvals could have a material adverse
effect on the Company's results of operations and financial condition.
Previous FDA requirements for device exports provided that the FDA must
first give export approval for an unapproved device. In April 1996, the United
States Congress passed and the President signed new FDA legislation that
provides that a non-FDA approved medical device can be exported to any
country, provided that the device (i) complies with the laws of that country
and (ii) has valid marketing authorization or the equivalent from the
appropriate authority in a "listed country." The listed countries are
Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa and
countries in the European Union and the European Economic Area. Export of
devices that do not have marketing authorization in a listed country will
continue to require FDA export approval.
Medical devices that are marketed or put into service within the European
Union are required to comply with Council Directive 93/42/EEC, the medical
devices directive ("MDD"). Compliance with the MDD entitles a device to make
use of the CE mark and allows the device to be marketed, put into service and
circulated freely within the European Union. Medical devices that have not
obtained the right to affix the CE mark but which conform with the
requirements in force in an individual Member State on December 31, 1994, may
nonetheless be marketed and put into service in that Member State during a
five-year transition period, expiring June 13,
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1998. After the expiration of this transition period, the Company's medical
devices will not be able to be marketed or put into service anywhere in the
European Union without having complied with the MDD and obtained the right to
affix the CE mark.
The Company received authorization to display the CE mark for Octyldent in
the European Union in August 1995. The Company plans to pursue the right to
affix the CE mark on TraumaSeal, as well as on future human products that the
Company may develop. There can be no assurance that the Company will be
successful in obtaining the right to affix the CE mark on any additional
medical devices. Failure to obtain the right to affix the CE mark on its
medical devices could have a material adverse effect on the Company's results
of operations and financial condition. See "Risk Factors--FDA and Other
Government Regulation."
Environmental Regulations
The Company's activities involve the controlled use of hazardous materials
and chemicals. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such material and certain waste products. Although the Company believes that
its safety procedures for handling and disposing of such materials comply in
all material respects with the standards prescribed by such laws and
regulations, risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and such liability could have
a material adverse effect on the Company's results of operations and financial
condition and potentially could exceed the resources of the Company.
Environmental protection has been an area of substantial concern in recent
years, and regulation of activities involving the use and disposal of
potentially hazardous materials has increased. There can be no assurance that
such regulation will not increase in the future or that the Company will not
be required to incur significant costs to comply with environmental laws and
regulations in the future.
SALES AND MARKETING
Currently, the Company's nonabsorbable adhesive products are marketed and
sold by its marketing partners. The Company has entered into marketing
agreements with Ethicon for worldwide distribution of TraumaSeal, the topical
adhesive that seals wounds from skin lacerations and incisions, plastic
surgery and skin puncture sites from minimally invasive surgery such as
laparoscopy; with the Procter & Gamble/ALZA Partnership and ALZA for worldwide
distribution of Octyldent, the topical sealant which is sold in conjunction
with Actisite(R), a site-specific sustained release product for adult
periodontal disease; with Chiron for worldwide distribution of Nexacryl, the
topical sealant for use in repair of corneal ulcers and abrasions; and with
Farnam for distribution in North America of Nexaband, the Company's veterinary
line of products.
The Company's future products, which will primarily be absorbable
formulations, will be sold through additional marketing partners or a direct
sales force in the United States and other distributors outside the United
States. The Company intends to develop its own internal sales capacity as its
absorbable products progress toward commercialization.
MANUFACTURING
The Company has devoted considerable resources to the development of
manufacturing processes and technologies capable of providing its products
with clinical efficacy, ease of use and suitable shelf life. The Company has
developed a manufacturing process designed to produce a highly purified base
material which is not achievable by other existing methodologies. The Company
relies heavily on internal trade secrets and technological expertise and
expects to keep aspects of its manufacturing process in-house and, where
applicable, seek patent protection for specific manufacturing applications.
The Company currently manufactures all of its products in a 15,000 square
foot facility located adjacent to its corporate offices in Raleigh, North
Carolina. This facility integrates production, bottling, labeling and
packaging capabilities for products currently being marketed.
34
<PAGE>
As production requirements increase with the receipt of additional product
approvals and clearances and the initiation of new clinical trials, additional
personnel, equipment and space will be necessary in virtually all phases of
the production process. The Company is formulating plans for a significant
expansion of its manufacturing capabilities in conjunction with the
anticipated future launch of TraumaSeal in Canada and, eventually, the United
States and Europe, as well as for the manufacture of additional products which
may be commercialized in the future by the Company. Such expansion and scale-
up is expected to occur over the next two years. The Company expects to invest
resources in chemical manufacturing equipment and packaging machinery.
Production of commercial-scale quantities may involve technical challenges for
the Company and will require significant scale-up expenses for additions to
facilities and personnel. There can be no assurance that the Company will be
able to achieve large-scale manufacturing capabilities or to manufacture its
products in a cost-effective manner or in quantities necessary to allow the
Company to achieve profitability. If the Company is unable to expand
sufficiently its manufacturing capacity to meet Ethicon's requirements for
TraumaSeal as set forth under their agreement, Ethicon may itself then
manufacture TraumaSeal and only pay the Company royalties on sales. See "--
Marketing Partners."
The Company presently purchases cyanoacetate, the primary raw material used
in the manufacture of the Company's medical adhesives, from one source. The
Company has the capability of manufacturing cyanoacetate if necessary, and
cyanoacetate may be available from a second supplier. The Company would be
required to qualify the quality assurance systems of an additional supplier
prior to its use as a source of supply. The other raw materials used in
manufacturing and packaging the Company's products are readily available from
multiple sources, as are its process equipment and controls.
The Company presently hires filling and packaging employees on a temporary
basis, and the Company expects that a significant portion of the Company's
future packaging requirements will be completed by outside providers.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company competes with many domestic and foreign competitors in various
rapidly evolving and technologically advanced fields in developing its
technology and products, including medical device, pharmaceutical and
biopharmaceutical companies. In the worldwide wound closure market, the
Company's products will compete with the suture products of Ethicon, the world
leader in the wound closure market, and American Home Products Corporation.
The Company also believes its products will compete with the staple products
of United States Surgical Corporation and Ethicon Endo-Surgery, Inc., a
subsidiary of Johnson & Johnson. In addition, there are two other
cyanoacrylate-based topical adhesives with which the Company's products may
compete, neither of which is approved for sale in the United States. B. Braun
GmbH markets Histoacryl(R) as a topical closure adhesive for small lacerations
and incisions in low skin tension areas of the body. Loctite Corporation has
recently test marketed a similar adhesive in the United Kingdom. In the
surgical sealants market, the Company's products will compete with the fibrin-
based sealants of Immuno AG and Behringwerke AG, and most likely with fibrin-
based sealants being developed by Baxter Healthcare Corporation and Bristol-
Myers Squibb Company. The Company's surgical sealants also may compete with
collagen-based hemostatic products of, among others, Collagen Corporation,
Fusion Medical Technologies, Inc. and MedChem Products Inc., a division of
C.R. Bard Inc. In addition, the Company's surgical sealants may compete with
protein-based products being developed by such biotechnology companies as
Protein Polymer Technologies, Inc. Many of the Company's competitors and
potential competitors have substantially greater financial, technological,
research and development, marketing and personnel resources than the Company.
In addition to those mentioned above, other recently developed technologies or
procedures are, or may in the future be, the basis of competitive products.
There can be no assurance that the Company's competitors will not succeed in
developing alternative technologies and products that are more effective,
easier to use or more economical than those which have been or are being
developed by the Company or that would render the Company's technology and
products obsolete and noncompetitive in these fields. These competitors may
also have greater experience in developing products, conducting clinical
trials, obtaining regulatory approvals, and manufacturing and marketing such
products.
35
<PAGE>
Certain of these competitors may obtain patent protection, approval or
clearance by the FDA or product commercialization earlier than the Company,
any of which could materially adversely affect the Company. Furthermore, if
the Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which it currently has limited experience. Finally,
under the terms of the Company's marketing agreements, the Company's marketing
partners may pursue parallel development of other technologies or products,
which may result in a marketing partner developing additional products that
will compete with the Company's products.
SCIENTIFIC ADVISORS
The Company has established a team of scientific advisors (the "Scientific
Advisors") who provide consulting services to the Company. The Scientific
Advisors consist of independent professionals who meet on an individual basis
with management when so requested. The Scientific Advisors have recognized
expertise in relevant sciences or clinical medicine and advise the Company
about present and long-term scientific planning, research and development.
There is no fixed term of service for the Scientific Advisors. Current
members may resign or be removed at any time, and additional members may be
appointed. Members do not serve on an exclusive basis with the Company, are
not under contract (other than with respect to confidentiality obligations)
and are not obligated to present corporate opportunities to the Company. To
management's knowledge, none of the members is working on the development of
competitive products. Inventions or products developed by a Scientific Advisor
who is not otherwise affiliated with the Company will not become the Company's
property, but will remain the Scientific Advisor's property.
Scientific Advisors who are not affiliated with the Company receive up to
$5,000 per year for their services. All members receive reimbursement for
expenses incurred in traveling to and attending meetings on behalf of the
Company. One of the Scientific Advisors, Anthony V. Seaber, previously
purchased an interest in the Partnership that will be exchanged for shares of
Common Stock in connection with the Exchange. The current Scientific Advisors
and their professional affiliations are as follows:
<TABLE>
<CAPTION>
NAME AFFILIATION
- ------------------------------------------- ---------------------------------------------
<S> <C>
Robert E. Clark, M.D., Ph.D................ Director of the Dermatologic Surgical Unit
Duke University Medical Center
Gary N. Foulks, M.D........................ Director of the Ophthalmology Unit
Duke University Medical Center
James V. Quinn, M.D., CCCFP................ Department of Emergency Medicine
University of Ottawa, Canada
Frederick Reno, Ph.D....................... Toxicology Consultant
Anthony V. Seaber.......................... Director of Orthopedic Research Laboratories
Duke University Medical Center
Dean M. Toriumi, M.D....................... Associate Professor Plastic and
Reconstructive Surgery College of Medicine at
University of Illinois-Chicago
</TABLE>
36
<PAGE>
EMPLOYEES
As of July 31, 1996, the Company had 36 full-time employees, of whom 25 were
dedicated to research, development, manufacturing, quality control and
regulatory affairs and nine were dedicated to administrative activities. Four
members of the Company's research and development staff have doctoral or
advanced degrees. The Company intends to recruit additional personnel in
connection with the research, development and manufacturing of its products.
None of the Company's employees is represented by a union, and the Company
believes relationships with its employees are good.
FACILITIES
The Company leases and occupies approximately 15,000 square feet of office,
laboratory and manufacturing space in Raleigh, North Carolina. These facilities
are leased through August 1998. The Company believes that it will require
additional space in late 1997 for, among other things, expanded manufacturing
capacity, and is beginning site selection for nearby rental property.
LEGAL PROCEEDINGS
The Company is currently not a party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth the names, ages and titles of the persons who are
the executive officers and directors of the Company as of July 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Rolf D. Schmidt.................... 63 Chairman of the Board of Directors
Robert V. Toni..................... 56 President and Chief Executive Officer and Director
J. Blount Swain.................... 39 Vice President of Finance and Chief Financial Officer
Jeffrey G. Clark................... 42 Vice President of Research and Development
Joe B. Barefoot.................... 46 Vice President of Regulatory Affairs and Quality Assurance
Dennis C. Carey, Ph.D.(1)(2)....... 46 Director
Michael K. Lorelli(2).............. 45 Director
F. William Schmidt(2).............. 56 Director
Randy H. Thurman(1)................ 47 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Rolf D. Schmidt, a co-founder of the Company, has served as Chairman of the
Board of Directors of the Company since February 1996. Mr. Schmidt has served
as Chief Executive Officer and Chairman of Performance Sports Apparel, Inc.
since 1995. In 1986, a significant portion of the business of Sharpoint, Inc.,
a developer and manufacturer of surgical needles and sutures co-founded by Mr.
Schmidt and his brother, F. William Schmidt, was sold to its primary
distributor, Alcon Laboratories, Inc. In 1991, the remainder of Sharpoint,
Inc.'s business was sold to a management group. Since 1990, Mr. Schmidt has
invested primarily in and devoted substantial time and attention to
healthcare-related entities, including the Company. Mr. Schmidt is a senior
level executive who brings over 30 years of engineering and management
experience to the Company.
Robert V. Toni has served as President and Chief Executive Officer of the
Company since June 1994 and as a director of the Company since February 1996.
From 1989 to 1994, Mr. Toni was General Manager and Vice President of Sales
and Marketing for IOLAB Corporation, a Johnson & Johnson company that marketed
and manufactured surgical devices, equipment and pharmaceuticals for the
ophthalmic market. From 1987 to 1989, he served as President of Cooper Vision-
CILCO, and also served as its Executive Vice President of Operations and Chief
Financial Officer from 1984 to 1987. Mr. Toni holds a B.S. degree in Finance
from Iona College.
J. Blount Swain has served as Vice President of Finance and Chief Financial
Officer of the Company since September 1992. From 1983 until 1992, Mr. Swain
was Chief Financial Officer and Treasurer of The Record Bar, Inc., a national
music retailing entity. Prior to 1983, Mr. Swain served as a Senior Accountant
with Price Waterhouse in Raleigh, North Carolina. Mr. Swain holds a B.S.
degree from the University of North Carolina at Chapel Hill and is a certified
public accountant.
Jeffrey G. Clark has served as Vice President of Research and Development of
the Company since 1990. Prior to that time, Mr. Clark spent seven years at
Sharpoint, Inc., where he developed bioabsorbable and polypropylene suture
technology. From 1977 to 1983, Mr. Clark worked at Extracorporeal Inc., a
division of Johnson & Johnson. Mr. Clark holds a M.S. degree in Organic
Chemistry from Drexel University.
Joe B. Barefoot has served as Vice President of Regulatory Affairs and
Quality Assurance of the Company since 1990. From 1986 to 1990, Mr. Barefoot
managed the quality assurance program and regulatory submissions for
Sharpoint, Inc. From 1982 to 1986, he was a member of the quality assurance
staff at C.R. Bard Inc. Prior to that time, he was a member of the quality
assurance staff at Becton, Dickinson & Co. Mr. Barefoot holds a B.S. degree in
Microbiology from Emporia State University.
38
<PAGE>
Dennis C. Carey, Ph.D has served as a director of the Company since May
1996. Mr. Carey has served as a Managing Director of Spencer Stuart, an
executive search firm, since 1988, and oversees the firm's board consulting
practice. Prior to joining Spencer Stuart, he served as a National Practice
Director for The Hay Group, a global compensation firm, and was Secretary of
Labor to former Governor Pierre S. duPont, IV of Delaware. Mr. Carey holds a
Ph.D. in finance and administration from the University of Maryland. He was a
co-founder of The Director's Institute at The Wharton School of the University
of Pennsylvania and serves on its board of directors.
Michael K. Lorelli has served as a director of the Company since May 1996.
Effective September 1, 1996, Mr. Lorelli will be the Chief Executive Officer
and a director of MobileMedia Corporation, the second largest provider of
paging and personal communications services in the United States. From
September 1994 through August 1996, Mr. Lorelli served as President-
North/Latin Americas Division for Tambrands, Inc., a feminine protection
products company. From 1986 to 1994, Mr. Lorelli held a number of executive
positions with Pepsi-Cola U.S.A., most recently as President, Pizza Hut
International Division. Mr. Lorelli is a director of Trident International. He
also serves as a trustee of Sarah Lawrence College. Mr. Lorelli received his
M.B.A. from New York University.
F. William Schmidt, a co-founder of the Company, has served as a director of
the Company since February 1996. Mr. Schmidt co-founded Sharpoint, Inc. with
his brother, Rolf D. Schmidt, and completed the design work on production and
manufacturing equipment that led to product development within that company.
In 1986, a significant portion of the business of Sharpoint, Inc. was sold to
its primary distributor, Alcon Laboratories, Inc. In 1991, the remainder of
Sharpoint, Inc.'s business was sold to a management group. Since 1990, Mr
Schmidt has primarily invested in and devoted substantial time and attention
to healthcare-related entities, including the Company. Mr. Schmidt brings 25
years of management and business experience to the Company.
Randy H. Thurman has served as a director of the Company since May 1996. Mr.
Thurman also serves as Chief Executive Officer of Health Care Strategies 2000,
a health care consulting firm that he founded in 1995. From 1993 to 1995, Mr.
Thurman held a number of executive positions with Corning Incorporated, most
recently as Chairman and Chief Executive Officer of Corning Life Sciences,
Inc., a company engaged in providing clinical testing and pharmaceutical
services, laboratory products and research software. From 1985 to 1993, he
held a number of executive positions with Rhone-Poulenc Rorer, Inc., most
recently as President of Rhone-Poulenc Rorer Pharmaceuticals, Inc. Mr. Thurman
received his M.A. from Webster University. Mr. Thurman is also a director of
Enzon, Inc.
The Company's Board of Directors is divided into three classes. Members of
one class are elected each year to serve a three-year term and until their
successors have been elected and qualified or until their earlier resignation
or removal. The terms of Dennis C. Carey and F. William Schmidt will expire at
the 1997 annual meeting of stockholders, the terms of Michael K. Lorelli and
Rolf D. Schmidt will expire at the 1998 annual meeting and the terms of Randy
H. Thurman and Robert V. Toni will expire at the 1999 annual meeting.
The Board of Directors has recently established the Audit Committee and the
Compensation Committee. Mr. Thurman serves as Chair of the Audit Committee and
Mr. Carey serves as Chair of the Compensation Committee. The Audit Committee
will be responsible for recommending to the Board of Directors the engagement
of the independent auditors of the Company, reviewing with the independent
auditors the scope and results of the audits, reviewing the accounting
controls, operating, capital and research and development budgets and other
financial matters of the Company and reviewing the audit practices of the
internal auditors. The Compensation Committee will be responsible for
reviewing and approving compensation arrangements for the officers of the
Company, for recommending to the Board of Directors the compensation of the
Company's chief executive officer and non-employee directors, for recommending
stock option plans in which officers of the Company are eligible to
participate and for determining grants under and administering the Company's
Equity Compensation Plan.
The executive officers are currently elected annually by the Board of
Directors and hold office until their successors have been chosen and
qualified, or until death, resignation or removal by the Board of Directors.
See "--Employment Agreements."
39
<PAGE>
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors of the Company
receive annual compensation of $24,000 and $1,500 for each meeting of the
Board of Directors attended in person or participated in telephonically. In
addition, each non-employee director who becomes a director after the adoption
of the Company's Equity Compensation Plan will receive a one-time grant of
options to purchase 25,000 shares of Common Stock and each non-employee
director in office immediately before and after the annual election of
directors will receive options to purchase 5,000 shares of Common Stock. See
"--Equity Compensation Plan."
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and long-term
compensation of the Company's Chief Executive Officer and the three most
highly compensated executive officers other than the Chief Executive Officer
who were executive officers as of December 31, 1995 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDED ($)(3)
- --------------------------- ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert V. Toni.......... 1995 198,000 50,000 64,473(2) -- 1,273
President and Chief
Executive Officer
J. Blount Swain......... 1995 130,000 -- 14,481 -- 805
Vice President of
Finance and Chief
Financial Officer
Jeffrey G. Clark........ 1995 120,000 -- 14,481 -- 719
Vice President of
Research and
Development
Joe B. Barefoot......... 1995 90,000 -- 10,861 -- 463
Vice President of
Regulatory Affairs and
Quality Assurance
</TABLE>
- --------
(1) Includes the tax value of interests in the Partnership (the "Partnership
Interests") granted on December 31, 1995 to the Chief Executive Officer
and the Named Officers. The aggregate tax value of the Partnership
Interests on the date of grant to the Chief Executive Officer and the
Named Officers totaled $61,545. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations."
(2) Includes payment for relocation expenses and a payment to cover the
related income tax liability in the aggregate amount of $42,751.
(3) Represents Company-paid life insurance premiums and 401(k) retirement plan
matching contributions.
The Chief Executive Officer and the Named Officers have not received from
the Company or exercised any stock options or stock appreciation rights during
the fiscal year ended December 31, 1995 or any prior fiscal years. See "--
Equity Compensation Plan."
EMPLOYMENT AGREEMENTS
Messrs. Toni, Swain, Clark and Barefoot each entered into an employment
agreement with the Company in May 1996. The term of each agreement is from May
1, 1996 to May 31, 1999, with automatic one-year extensions unless 60 days'
prior notice is given by either party. The agreements provide for base
salaries of not
40
<PAGE>
less than $215,000, $138,450, $127,200 and $95,850, respectively, which
salaries may be increased as determined by the Compensation Committee or the
Board of Directors. Each agreement also provides for an annual bonus of 20% of
base salary and a maximum of 60% of base salary to be awarded based on
performance milestones to be established for each calendar year by the
Compensation Committee based on the recommendation of the Chief Executive
Officer. In connection with their employment agreements, the Company has
granted to Messrs. Toni, Swain, Clark and Barefoot, respectively, options to
purchase 66,600, 43,050, 40,100 and 30,458 shares of Common Stock under the
Equity Compensation Plan at an exercise price equal to the price per share to
the public in the Offering less $3.00. The option grants will be effective
only upon the consummation of the Exchange. The options have a term of ten
years and, provided their employment has not been terminated for "cause" (as
defined in the employment agreements), will vest in five equal annual
installments, commencing as of the date of grant. See "--Equity Compensation
Plan."
If, following a "change in control" (as defined in each agreement), any of
Messrs. Toni, Swain, Clark or Barefoot is terminated other than for "cause"
(as defined in each agreement) or terminates his employment for "good reason"
(as defined in each agreement), he will be entitled to receive all accrued and
any pro rata incentive compensation to the date of termination and a
continuation of his then current annual salary, incentive compensation and
benefits for three years after such termination. In the event of termination
for "cause," Messrs. Toni, Swain, Clark and Barefoot are entitled to a
continuation of base salary, incentive compensation and benefits for a period
of eighteen months in the case of Mr. Toni and one year for the others. The
Company has agreed to indemnify Messrs. Toni, Swain, Clark and Barefoot to the
maximum extent permitted by applicable law against all costs, charges and
expenses incurred by each in connection with any action, suit or proceeding to
which he may be a party or in which he may be a witness by reason of his being
an officer, director or employee of the Company or any subsidiary or affiliate
of the Company. Messrs. Toni, Swain, Clark and Barefoot have each agreed not
to compete with the Company for two years after termination of their
employment with the Company.
CONSULTING AGREEMENT
In May 1996, the Company entered into a consulting agreement with Steven A.
Kriegsman to provide consulting services to the Company for an annual
compensation of $120,000, payable monthly. Under the agreement, the Company
has granted to Mr. Kriegsman a nonqualified stock option to purchase 50,000
shares of Common Stock under the Company's Equity Compensation Plan at an
exercise price equal to the price per share to the public in the Offering less
$3.00. The option shall be effective only upon the consummation of the
Exchange, have a term of ten years and, provided that the agreement has not
been terminated for "cause" (as defined in the agreement), will vest in five
equal annual installments commencing as of the date of grant. Mr. Kriegsman
has agreed to provide consultation at the times requested by the Company in
relation to new business development, strategic planning and assistance with
strategic alliances. The consulting term shall be for five years, unless
terminated earlier for "cause," or on the event of Mr. Kriegsman's death or
disability. In the event that Mr. Kriegsman dies or becomes disabled during
the term, the Company must continue to pay his compensation to his executors,
legal representatives or administrators or to him, as applicable, as if the
consulting term were not terminated. The Company is permitted to obtain life
insurance on Mr. Kriegsman's life to fund such obligation.
EQUITY COMPENSATION PLAN
The Company maintains the 1996 Equity Compensation Plan (the "Plan"),
adopted by the Board of Directors on May 28, 1996 (the "effective date"). The
Plan provides for grants of stock options to selected officers (including
officers who are also directors) of the Company or its subsidiaries, other
employees of the Company or its subsidiaries and independent contractors and
consultants who perform valuable services for the Company or its subsidiaries.
Non-employee directors of the Company are entitled to receive formula stock
option grants under the Plan. In addition, the Plan provides for grants of
restricted stock and stock appreciation rights ("SARs") (herein, together with
grants of stock options, collectively, "Grants") to participants other than
non-employee directors of the Company. By encouraging stock ownership, the
Company seeks to attract, retain and motivate such participants and to
encourage such participants to devote their best efforts to the business and
financial success of the Company.
41
<PAGE>
General. Subject to adjustment in certain circumstances as discussed below,
the Plan authorizes up to 1,000,000 shares of Common Stock for issuance
pursuant to the terms of the Plan. If and to the extent Grants under the Plan
expire or are terminated for any reason without being exercised, or the shares
subject to a Grant are forfeited, the shares of Common Stock subject to such
Grant will again be available for grant under the Plan.
Administration of the Plan. The Plan is administered and interpreted by a
committee (the "Committee") of the Board of Directors consisting of not fewer
than two persons appointed by the Board of Directors from among its members,
each of whom must be a "disinterested person" as defined in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" as defined by section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Committee has the sole authority to
determine (i) persons to whom Grants may be made under the Plan, (ii) the
type, size and other terms and conditions of each Grant, (iii) the time when
the Grants will be made and the duration of any applicable exercise or
restriction period, including the criteria for vesting and the acceleration of
vesting, and (iv) any other matters arising under the Plan. The Committee has
full power and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan, and for conduct of its business as it
deems necessary or advisable, in its sole discretion. The Board of Directors
has appointed the Compensation Committee to serve as this Committee.
Grants. Grants under the Plan may consist of (i) options intended to qualify
as incentive stock options ("ISOs") within the meaning of section 422 of the
Code or (ii) so-called "nonqualified stock options" that are not intended to
so qualify ("NQSOs"). In addition, Grants under the Plan may also consist of
grants of (i) restricted stock or (ii) SARs.
Eligibility for Participation. Grants may be made to any employee (including
officers and directors) of, or independent contractors and consultants to, the
Company or its subsidiaries. Non-employee directors of the Company are
entitled only to formula grants of NQSOs. Consultants to the Company are not
eligible to receive ISOs under the Plan. As of July 31, 1996, 36 employees
were eligible for Grants under the Plan. During any calendar year, no
participant may receive Grants under the Plan for more than 75,000 shares of
Common Stock. After the Offering, 550,000 options will be outstanding under
the Plan and held by all participants as a group, at an estimated weighted
average exercise price of $8.27 per share, of which 132,500 will be fully
vested and exercisable.
Options. The option price of any ISO granted under the Plan will not be less
than the fair market value of the underlying shares of Common Stock on the
date of grant, except that the option price of an ISO granted to an employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company or its subsidiaries may not be less than 110% of the fair
market value of the underlying shares of Common Stock on the date of grant.
The option price of a NQSO may be greater than, equal to or less than the fair
market value of the underlying shares of Common Stock on the date of grant.
The Committee will determine the term of each option; provided, however, that
the exercise period may not exceed ten years from the date of grant, and the
exercise period of an ISO granted to an employee who owns more than 10% of the
total combined voting power of all classes of stock of the Company or its
subsidiaries may not exceed five years from the date of grant. A participant
may pay the option price (i) in cash, (ii) with the approval of the Committee,
by delivering shares of Common Stock owned by the participant and having a
fair market value on the date of exercise equal to the option price or (iii)
by a combination of the foregoing. The participant may instruct the Company to
deliver the shares of Common Stock due upon the exercise to a designated
broker instead of to the participant.
Formula Option Grants to Non-Employee Directors. Non-employee directors are
entitled to receive NQSOs pursuant to the formula grants under the Plan.
According to the formula grants, each non-employee director who first becomes
a member of the Board of Directors on or after the effective date of the Plan
and before the consummation of the Offering of Common Stock contemplated
hereby (a "pre-IPO initial grant") will receive a grant of a NQSO to purchase
25,000 shares of Common Stock as of the date the non-employee director first
becomes a member of the Board of Directors (which is the date of grant);
provided that such NQSO will become effective as of the consummation of the
Exchange, and, if the Exchange does not occur on or prior to
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<PAGE>
September 30, 1996, any pre-IPO initial grants shall be null and void. Each
non-employee director who first becomes a member of the Board of Directors
after the consummation of the Offering will receive a grant of a NQSO to
purchase 25,000 shares of Common Stock as of the date the non-employee
director first becomes a member of the Board of Directors. Thereafter, on each
date on which the Company holds its annual meeting of stockholders, each non-
employee director in office immediately before and after the annual election
of directors will receive a grant of a NQSO to purchase 5,000 shares of Common
Stock. The option price of a NQSO granted pursuant to a formula grant under
the Plan will be the fair market value of a share of Common Stock on the date
of grant. The term of each such option shall be ten years, and each such
option shall be exercisable with respect to 50% of the shares on the date of
grant and an additional 25% on each of the next two anniversaries of the date
of the grant.
Restricted Stock. The Committee may issue shares of Common Stock to
participants other than non-employee directors of the Company pursuant to the
Plan. Shares may be issued for cash consideration or for no cash
consideration, as the Committee determines. The number of shares of Common
Stock granted to each participant shall be determined by the Committee,
subject to the maximum limit described above. Grants of restricted stock will
be made subject to such performance requirements, vesting provisions, transfer
restrictions or other restrictions and conditions as the Committee may
determine in its sole discretion.
Stock Appreciation Rights. The Committee may grant SARs to participants
other than non-employee directors of the Company in tandem with any stock
option pursuant to the Plan. Unless the Committee determines otherwise, the
exercise price of a SAR will be the greater of (i) the exercise price of the
related stock option or (ii) the fair market value of a share of Common Stock
on the date of grant of the SAR. When the participant exercises a SAR, the
participant will receive the amount by which the fair market value of the
Common Stock on the date of exercise exceeds the exercise price of the SAR.
The participant may elect to have such amount paid in cash or in shares of
Common Stock, subject to Committee approval. To the extent a participant
exercises a SAR, the related option shall terminate. Similarly, upon exercise
of a stock option, the related SAR, if any, shall terminate.
Amendment and Termination of the Plan. The Board of Directors may amend or
terminate the Plan at any time; provided, however, that, the Board of
Directors may not amend the Plan, without stockholder approval, to (i)
increase (except for increases due to the adjustments discussed below) the
aggregate number of shares of Common Stock for which Grants may be made
thereunder, or the individual limit of shares of Common Stock for which Grants
may be made to any single individual under the Plan, (ii) modify the
requirements as to eligibility to participate in the Plan or (iii) make any
amendment that requires stockholder approval pursuant to Rule 16b-3 of the
Exchange Act or Section 162(m) of the Code. The Plan will terminate on the day
immediately preceding the tenth anniversary of its effective date, unless
terminated earlier by the Board of Directors or extended by the Board of
Directors with approval of the stockholders.
Adjustment Provisions. Subject to the change of control provisions below, in
the event of certain transactions identified in the Plan, the Committee may
appropriately adjust (i) the number of shares of Common Stock (and the option
price per share) subject to the unexercised portion of any outstanding options
or SARs, (ii) the number of shares of Common Stock covered by outstanding
Grants, (iii) the number of shares of Common Stock for which Grants may be
made under the Plan and (iv) the individual limit of shares for which Grants
may be made to any individual under the Plan, and such adjustments shall be
effective and binding for all purposes of the Plan.
Change of Control of the Company. In the event of a change of control,
unless the Committee determines otherwise, all options, restricted stock and
SARs will become fully vested. Unless the Committee determines otherwise, each
participant will be provided with advance written notice by the Company prior
to the change of control (to the extent possible) and will have the right,
within a designated period after such notice, to exercise the options and SARs
in full or to surrender the options and SARs in exchange for a payment by the
Company, in cash or Common Stock as determined by the Committee, in an amount
equal to the excess of the then fair market value of the shares of Common
Stock over the option exercise price. Any options or SARs not timely exercised
or surrendered will terminate unless exchanged or substituted with options or
SARs of the successor corporation.
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A change of control is defined as (i) a tender offer, merger or other
transaction as a result of which any person or group (other than Rolf D.
Schmidt, F. William Schmidt or any entity controlled by either or both of
them) becomes the owner, directly or indirectly, of more than 50.1% of the
Common Stock or the combined voting power of the Company's then outstanding
securities, (ii) a liquidation or a sale of substantially all of the Company's
assets, or (iii) if, during any period of two consecutive years, the
individuals who, at the beginning of such period, constituted the Board of
Directors cease to constitute a majority of the Board of Directors, except as
otherwise provided in the Plan.
Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration
in excess of $1,000,000 paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total
remuneration includes amounts received upon the exercise of stock options
granted under the Plan and the value of shares received when shares of
restricted stock become vested (or such other time when income is recognized).
An exception does exist, however, for "performance-based compensation,"
including amounts received upon the exercise of stock options pursuant to a
plan approved by stockholders that meets certain requirements. The Plan has
been approved by the stockholders and is intended to allow grants of options
thereunder to meet the requirements of "performance-based compensation."
Grants of restricted stock generally will not qualify as "performance-based
compensation."
CERTAIN TRANSACTIONS
The Partnership is currently the sole stockholder of the Company.
Simultaneously with the execution and delivery by the Company of the
Underwriting Agreement, in the Exchange, obligations of and interests in the
Partnership will be contributed to the Company in exchange for an aggregate of
9,600,000 shares of Common Stock pursuant to the Contribution and Exchange
Agreement and the Partnership will cease to exist. See "Prior Partnership
Status."
Rolf D. Schmidt and F. William Schmidt, directors and founders of the
Company, and three partnerships controlled by one or both of them, will
receive, as successors to Sharpoint's economic interest in the Partnership,
5,453,750 shares of Common Stock in the Exchange. From the inception of the
Partnership until March 29, 1996, Sharpoint, the general partner of the
Partnership, provided the Company with loans in an aggregate principal amount
of $10,502,000, which accrued interest at rates ranging from 9.5% to 9.75%. On
March 29, 1996, in contemplation of the Exchange, Sharpoint contributed this
debt, together with the accrued interest thereon, in the aggregate amount of
$11,483,000, to the Partnership as partners' capital. The Schmidts are the
only stockholders of Sharpoint.
Caratec, the successor to the limited partnership interest of CRX, will
receive in the Exchange 1,776,250 shares of Common Stock in exchange for
certain rights to payments it had under the Partnership agreement and for its
limited partnership interest. Under the Partnership agreement, CRX and Caratec
were entitled to receive payments based on net revenues, subject to annual
minimum payments of $150,000 in 1992, 1993 and 1994 and $250,000 thereafter.
These payments aggregated approximately $988,000 as of June 30, 1996. CRX and
Caratec also were entitled as a limited partner in the Partnership to payment
of a percentage of the proceeds of a sale of all or substantially all of the
assets of the Partnership. See "Prior Partnership Status" and "Principal and
Selling Stockholders."
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<PAGE>
PRIOR PARTNERSHIP STATUS
The Company was incorporated in Delaware on February 20, 1996. From May 10,
1990 to February 29, 1996, the business of the Company was conducted by the
Partnership. As of March 1, 1996, all of the assets and liabilities of the
Partnership, except for the indebtedness to Sharpoint, were transferred to the
Company in exchange for one share of Common Stock. The Partnership is
currently the sole stockholder of the Company. Simultaneously with the
execution and delivery by the Company of the Underwriting Agreement, in the
Exchange, obligations of and interests in the Partnership will be contributed
to the Company in exchange for an aggregate of 9,600,000 shares of Common
Stock to be issued to 13 individuals and entities. Upon consummation of the
Exchange, the Partnership will cease to exist. As of March 29, 1996, the long-
term debt, including accrued interest, of the Partnership held by Sharpoint,
the general partner of the Partnership and a corporation controlled by Rolf D.
Schmidt and F. William Schmidt, was contributed to the Partnership as
$11,483,000 of partners' capital. All obligations of and interests in the
Partnership held by Sharpoint and its successors will be contributed to the
Company in exchange for shares of Common Stock in connection with the
Exchange. Under the Partnership agreement, CRX and Caratec were entitled to
receive payments based on net revenues, subject to annual minimum payments of
$150,000 in 1992, 1993 and 1994 and $250,000 thereafter. These payments
aggregated approximately $988,000 as of June 30, 1996. CRX and Caratec also
were entitled as a limited partner in the Partnership to payment of a
percentage of the proceeds of a sale of all or substantially all of the assets
of the Partnership. In connection with the Exchange, Caratec, the successor to
CRX's limited partnership interest in the Partnership, will exchange its right
to receive various payments from the Partnership and its limited partnership
interest for 1,776,250 shares of Common Stock. This transaction will result in
a non-cash expense which should not exceed $19,500,000 and which will equal
the difference between the value of the Common Stock issued to Caratec and its
basis in the Partnership. The resulting charge to accumulated deficit will be
offset by a credit to additional paid-in capital. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Certain
Transactions" and "Principal and Selling Stockholders."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of July 31, 1996, assuming the
consummation of the Exchange as of that date, by (i) each person known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each of the Selling Stockholders, (iii) each of the Named Officers, (iv) each
of the Company's directors and (v) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED BENEFICIALLY
PRIOR TO OWNED
OFFERING(1) AFTER OFFERING
----------------- SHARES -----------------
AME OF BENEFICIAL OWNERN NUMBER PERCENT NUMBER PERCENTTO BE SOLD
- ------------------------ --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Rolf D. Schmidt(2)(3)........... 3,026,831 31.5% 138,710 2,888,121 24.1%
F. William Schmidt(3)(4)........ 3,026,831 31.5% 138,710 2,888,121 24.1%
Caratec, L.L.C.(5).............. 1,776,250 18.5% 322,580 1,453,670 12.1%
Robert V. Toni(6)............... 733,320 7.6% -- 733,320 6.1%
J. Blount Swain(6).............. 488,610 5.1% -- 488,610 4.1%
Jeffrey G. Clark(6)............. 488,020 5.1% -- 488,020 4.1%
Joe B. Barefoot(6)(7)........... 367,247 3.8% -- 367,247 3.1%
Dennis C. Carey(6).............. 12,500 * -- 12,500 *
Michael K. Lorelli(6)........... 12,500 * -- 12,500 *
Randy H. Thurman(6)............. 12,500 * -- 12,500 *
All directors and executive
officers as a group
(9 persons)(8)................. 7,568,447 78.2% 277,420 7,291,027 60.4%
</TABLE>
- --------
* Less than 1%.
(1) Nature of ownership consists of sole voting and investment power unless
otherwise indicated. The number of shares of Common Stock indicated
assumes the Exchange has been consummated as of July 31, 1996 and
includes shares of Common Stock issuable upon the exercise of stock
options to be outstanding upon the Exchange or exercisable within 60 days
after the Exchange.
(2) The address of the stockholder is 205 Sweltzer Road, Sinking Springs, PA
19608. Includes 2,246,945 shares held by Cacoosing Partners, L.P., a
limited partnership of which Mr. Rolf D. Schmidt is the sole general
partner, and for which shares he is deemed to have sole voting and
investing power. Also includes 599,912 shares held by OMI Partners, L.P.,
a limited partnership of which Rolf D. Schmidt and F. William Schmidt are
the sole general partners, and for which shares they are deemed to share
voting and investment power.
(3) Assumes the Underwriters' over-allotment option is not exercised. In the
event that the Underwriters' over-allotment option is exercised in full,
Rolf D. Schmidt will sell 41,264 shares of Common Stock, F. William
Schmidt will sell 41,264 shares of Common Stock and OMI Partners, L.P.
will sell 7,472 shares of Common Stock. See footnotes (2) and (4) as to
the Schmidts' beneficial ownership of the shares held by OMI Partners,
L.P.
(4) The address of the stockholder is 534 Ridge Avenue, Ephrata, PA 17522.
Includes 2,246,945 shares held by Triangle Partners, L.P., a limited
partnership of which Mr. F. William Schmidt is the sole general partner,
and for which shares he is deemed to have sole voting and investing
power. Also includes 599,912 shares held by OMI Partners, L.P., a limited
partnership of which Rolf D. Schmidt and F. William Schmidt are the sole
general partners, and for which shares they are deemed to share voting
and investment power.
(5) The address of the stockholder is 206 Erskine Court, Cary, NC 27511.
Caratec is a limited liability company which held a limited partnership
interest in Tri-Point Medical L.P. prior to the Exchange. CRX and the
stockholders of CRX are stockholders of Caratec.
(6) Includes the following shares of Common Stock issuable upon the exercise
of stock options to be outstanding upon the Exchange or exercisable
within 60 days after the Exchange: Mr. Robert V. Toni--
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<PAGE>
13,320; Mr. J. Blount Swain--8,610; Mr. Jeffrey G. Clark--8,020; Mr. Joe B.
Barefoot--6,092; Mr. Dennis C. Carey--12,500; Mr. Michael K. Lorelli--
12,500; and Mr. Randy H. Thurman--12,500.
(7) Includes 1,155 shares of Common Stock issuable upon the exercise of stock
options to be outstanding upon the Exchange or exercisable within 60 days
after the Exchange by Ms. Debra Genovese-Barefoot. Ms. Genovese-Barefoot
is the spouse of Mr. Joe B. Barefoot. Mr. Barefoot disclaims beneficial
ownership of such shares.
(8) Includes 74,697 shares of Common Stock issuable upon the exercise of
stock options to be outstanding upon the Exchange or exercisable within
60 days after the Exchange.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 37,000,000 shares,
including 35,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). Immediately after the sale of the 3,000,000 shares of Common Stock
offered hereby, there will be issued and outstanding 12,000,000 shares of
Common Stock and no shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. The election of directors is determined by a
plurality of the votes cast, with the Board of Directors being divided into
three classes, as nearly equal in number as possible, initially of two
directors each, each class of which, after a transitional period, will serve
for a term of three years and until their successors have been elected and
qualified. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election and may exert considerable influence over the management
and policies of the Company. The Company's Restated Certificate of
Incorporation (the "Certificate") may generally be amended as permitted by
law. However, certain fundamental transactions, including the amendment of
certain anti-takeover provisions in the Certificate, amendment of the By-Laws
by the stockholders, the sale, lease, exchange or other disposition of all or
substantially all of the assets of the Company, or the merger, consolidation,
division, reorganization, recapitalization, dissolution, liquidation or
winding up of the Company, require either: (i) the affirmative vote of 75% of
the directors then in office and the minimum affirmative vote of the
stockholders entitled to vote thereon required by law and the express terms of
any class or series of shares or (ii) the affirmative vote of the holders of
75% of the voting power of all then outstanding shares entitled to vote in the
election of directors, voting as a single class, and, in addition, the
affirmative vote of the number of shares of any class or series, if any, as
shall at the time of such approval be required by law or the express terms of
any such class or series of shares. Except as otherwise required by law, all
other matters are determined by a majority of the votes cast. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock
(none of which is currently outstanding). Upon the liquidation, dissolution or
winding up of the Company, subject to any preferential liquidation rights of
outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably the net assets of the Company available after the payment of
all debts and other liabilities. Holders of the Common Stock have no
preemptive, subscription, redemption or conversion rights. The shares of
Common Stock which will be outstanding upon the consummation of the Exchange
and the shares offered by the Company in the Offering will be, when issued and
paid for, fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. See "Risk Factors--Control by
Existing Stockholders; Anti-Takeover Provisions" and""--Preferred Stock."
PREFERRED STOCK
The Company also has authorized 2,000,000 shares of Preferred Stock which
the Board of Directors has discretion to issue in such series and with such
preferences and rights as it may designate without the approval of the holders
of Common Stock. Such preferences and rights may be superior to those of the
holders of Common Stock. For example, the holders of Preferred Stock may be
given a preference in payment upon liquidation of the Company, or for the
payment or accumulation of dividends before any distributions are made to the
holders of Common Stock. As of the date of this Prospectus, no Preferred Stock
has been designated or issued by the Company, and the Company has no plans,
agreements or understandings for the issuance of any shares of Preferred
Stock. For a description of the possible anti-takeover effects of the
Preferred Stock, see "Risk Factors--Control by Existing Stockholders; Anti-
Takeover Provisions" and "--Certain Anti-Takeover Provisions."
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<PAGE>
LIMITATION OF LIABILITY
The Company's Certificate provides that a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for a breach of fiduciary duty as a director, except for liability (i) for any
breach of such person's duty of loyalty, (ii) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(iii) for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law and (iv) for any transaction resulting in
receipt by such person of an improper personal benefit.
The Company has applied for directors' and officers' liability insurance to
provide directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts to
be effective contemporaneously with this Offering. At present, there is no
pending litigation or proceeding, and the Company is not aware of any
threatened litigation or proceeding, involving any director, officer, employee
or agent where indemnification will be required or permitted under the
Certificate or By-Laws.
CERTAIN ANTI-TAKEOVER PROVISIONS
Classified Board and Other Matters
The Company's Board of Directors is divided into three classes, each of
which, after a transitional period, will serve for three years, with one class
being elected each year. Under the Delaware General Corporation Law and the
provisions of the Certificate, stockholders may remove a director only for
cause and, in accordance with the Certificate, only with the approval of 75%
of the voting power of the then outstanding shares entitled to vote in the
election of directors, voting as a single class. Vacancies on the Board of
Directors may be filled only by a vote of the majority of the directors then
in office, though less than a quorum, or by a sole remaining director. The
Certificate and the By-Laws provide that special meetings of stockholders of
the Company may be called only by the Board of Directors or the Chairman of
the Board. The Certificate and By-Laws also provide that no action required or
permitted to be taken by the stockholders at any annual or special meeting of
the stockholders of the Company may be taken without a meeting. The
classification of the Board of Directors, the limitations on the removal of
directors and the filling of vacancies, and the prohibitions against calling
of special meetings by stockholders and stockholder action without a meeting
could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from acquiring, control of the Company.
In addition, the Company's supermajority voting provisions for certain
fundamental corporate transactions, including, among others, amendment of
certain anti-takeover provisions in the Certificate and amendment of the By-
Laws by the stockholders, and the ability of the Board of Directors to
establish the rights of, and to issue, substantial amounts of Preferred Stock
without the need for stockholder approval, which Preferred Stock, among other
things, may be used to create voting impediments with respect to changes in
control of the Company or to dilute the stock ownership of holders of Common
Stock seeking to obtain control of the Company, may have the effect of
discouraging, delaying or preventing a change in control of the Company. See
"Risk Factors--Control by Existing Stockholders; Anti-Takeover Provisions,"
"--Common Stock" and "--Preferred Stock."
Section 203 of Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates
of such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate
value in excess of 10% of the consolidated assets of the corporation, and
certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation) between an interested
stockholder and a corporation. The prohibition is for a period of three years
commencing on the date the interested stockholder becomes an interested
stockholder, unless (i) the business combination is approved by the
corporation's board of directors prior to the date the interested stockholder
becomes an interested stockholder; (ii) the interested stockholder
49
<PAGE>
acquired at least 85% of the voting stock of the corporation (other than stock
held by directors who are also officers or by certain employee stock plans) in
the transaction in which it becomes an interested stockholder; or (iii) the
business combination is approved by a majority of the board of directors and
by the affirmative vote of 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. See "Risk Factors--Control by Existing
Stockholders; Anti-Takeover Provisions."
REGISTRATION RIGHTS
Pursuant to two registration rights agreements that will become effective
upon the consummation of the Exchange, the Company has granted to the holders
of 9,270,000 shares of Common Stock (the "Registrable Securities") certain
rights with respect to the registration of the Registrable Securities under
the Securities Act. Of the 9,270,000 shares subject to such registration
rights, 600,000 shares of Common Stock (690,000 shares if the Underwriters'
over-allotment option is exercised in full) are to be sold by the Selling
Stockholders in the Offering. See "Principal and Selling Stockholders."
Pursuant to a registration rights agreement, Caratec, which will be, upon
the consummation of the Exchange, the holder of 1,776,250 shares of Common
Stock (the "Caratec Registrable Securities"), may require, on two occasions
during the five-year period commencing six months after the consummation of
this Offering, that the Company register all or a portion of the Caratec
Registrable Securities for public resale under the Securities Act, provided,
among other limitations, that the anticipated aggregate gross proceeds will
not be less than $100,000. Of the 1,776,250 shares subject to such
registration rights, 322,580 shares are to be sold by Caratec in the Offering.
Pursuant to a registration rights agreement with Rolf D. Schmidt, F. William
Schmidt and three partnerships controlled by one or both of them, who will
hold, upon the consummation of the Exchange, 179,974, 179,974, 2,246,945,
2,246,945 and 599,912 shares of Common Stock, respectively (the "Schmidt
Registrable Securities"), and four employees of the Company who will hold,
upon the consummation of the Exchange, 720,000, 480,000, 480,000 and 360,000
shares of Common Stock, respectively (the "Employee Registrable Securities"),
each of the holders of the Schmidt Registrable Securities may require, on two
occasions during the five-year period commencing six months after the
consummation of this Offering, that the Company use its best efforts to
register all or a portion of the Schmidt Registrable Securities held by such
holder for public resale under the Securities Act, and each of the holders of
the Employee Registrable Securities, subject to certain exceptions and
limitations, may require, on one occasion after the later of (i) the
expiration of six months after the consummation of this Offering or (ii) the
termination of such employee's employment, that the Company use its best
efforts to register all or a portion of such holder's Employee Registrable
Securities for public resale under the Securities Act. Of the 7,493,750 shares
subject to such registration rights, 277,420 shares are to be sold by the
Schmidts in the Offering (367,420 shares, including 7,472 shares to be sold by
a partnership controlled by the Schmidts, if the Underwriters' over-allotment
option is exercised in full).
In addition, in the event the Company elects to register any Common Stock
under the Securities Act, either for its own account or for the account of any
other stockholders, the Company, during the five-year period commencing six
months after the consummation of the Offering, is required to notify the
holders of the Caratec Registrable Securities, the Schmidt Registrable
Securities and the Employee Registrable Securities (collectively, the
"Registrable Securities") of the proposed registration and, subject to certain
marketing and other limitations, is required, upon request, to use its best
efforts to include in such registration any Registrable Securities requested
to be included.
All registration expenses under the registration rights agreements are to be
borne by the Company and all selling expenses are to be borne by the holders
of the securities being registered.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been any public market for the Common
Stock. Except as described below, no shares of Common Stock outstanding prior
to the Offering will be available for sale immediately after the Offering due
to certain legal and contractual restrictions on resale. Sales of substantial
amounts of Common Stock in the public market following this Offering could
adversely affect the market price of the Common Stock and adversely affect the
Company's ability to raise capital at a time and on terms favorable to the
Company.
Of the 12,000,000 shares to be outstanding after this Offering (assuming
that the Underwriters' over-allotment option is not exercised), 9,000,000
shares of Common Stock to be issued to certain stockholders in the Exchange
and not sold in this Offering will constitute "restricted securities," as
defined in Rule 144 under the Securities Act. Such securities may be sold only
if registered under the Securities Act or sold in accordance with an available
exemption from registration. These shares will be eligible for sale in the
public market beginning two years after the Exchange, subject to the volume
limitations and other requirements of Rule 144. Of the 9,000,000 shares,
7,216,330 shares of Common Stock will be held by "affiliates" of the Company,
as defined in Rule 144(a). For purposes of Rule 144, an "affiliate" of an
issuer is a person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
such issuer.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years, including an "affiliate," is
entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock (approximately 120,000 shares after giving effect to this Offering), or
the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person who is not an affiliate
at any time during the 90 days preceding a sale, and who has beneficially
owned shares for at least three years, is entitled to sell such shares under
Rule 144(k) without regard to the volume limitations, manner of sale
provisions or public information requirements.
In addition, after the Offering, there will be outstanding options to
purchase 550,000 shares of Common Stock, of which 132,500 will be fully vested
and exercisable. An additional 450,000 shares are reserved for issuance under
the Equity Compensation Plan. The Company intends to register the shares of
Common Stock issuable and reserved for issuance under the Equity Compensation
Plan as soon as practicable following the date of this Prospectus.
All directors and executive officers and certain other stockholders of the
Company who will beneficially own an aggregate 8,670,000 shares of Common
Stock upon completion of this Offering, and the Company, with certain limited
exceptions, have agreed, as described below under "Underwriting," with the
Underwriters not to offer for sale, sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock for a period of 180 days from the date
of this Prospectus without the prior written consent of Lehman Brothers Inc.
Certain holders of 9,270,000 shares of Common Stock to be outstanding
immediately prior to the Offering, of which 600,000 shares are to be sold by
the Selling Stockholders in the Offering, will be entitled to certain
registration rights with respect to such shares, which registration rights
will become effective contemporaneously with the Offering. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Common Stock. Such rights may not be
exercised prior to the expiration of 180 days from the date of this
Prospectus. See "Description of Capital Stock--Registration Rights."
51
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement, of which this Prospectus is a part, the Underwriters named below
(the "Underwriters"), for whom Lehman Brothers Inc. and Sands Brothers & Co.,
Ltd. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to each Underwriter,
the aggregate number of shares of Common Stock set forth opposite the name of
each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc...............................................
Sands Brothers & Co., Ltd.........................................
---------
Total......................................................... 3,000,000
=========
</TABLE>
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the
cover page hereof, and to certain dealers at such initial public offering
price less a selling concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other Underwriters or to certain other
brokers or dealers. After the initial offering to the public, the offering
price and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby
are subject to approval of certain legal matters by counsel and to certain
other conditions, including the condition that no stop order suspending the
effectiveness of the Registration Statement is in effect and no proceedings
for such purpose are pending or threatened by the Securities and Exchange
Commission (the "Commission") and that there has been no material adverse
change or any development involving a prospective material adverse change in
the condition of the Company from that set forth in the Registration Statement
otherwise than as set forth or contemplated in this Prospectus, and that
certain certificates, opinions and letters have been received from the Company
and its counsel, the Selling Stockholders and their counsel and independent
auditors. The Underwriters are obligated to take and pay for all of the above
shares of Common Stock if any such shares are taken.
The Company, the Selling Stockholders and the Underwriters have agreed in
the Underwriting Agreement to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
The Company and the Selling Stockholders have granted to the Underwriters an
option to purchase up to an additional 450,000 shares of Common Stock, 90,000
of which shares will be sold by the Selling Stockholders, exercisable solely
to cover over-allotments, at the initial public offering price, less the
underwriting discounts and commissions shown on the cover page of this
Prospectus. Such option may be exercised at any time until 30 days after the
date of the Underwriting Agreement. To the extent that the option is
exercised, each Underwriter will be committed to purchase a number of the
additional shares of Common Stock proportionate to each Underwriter's initial
commitment as indicated in the preceding table.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
52
<PAGE>
All directors and executive officers and certain other stockholders of the
Company who will beneficially own an aggregate 8,670,000 shares of Common
Stock upon completion of this Offering have agreed not to offer for sale, sell
or otherwise dispose of (or enter into any transaction that is designed to
result in the disposition of), directly or indirectly, other than to the
Underwriters pursuant to the Underwriting Agreement, shares of Common Stock or
any securities convertible into or exchangeable or exercisable for Common
Stock, for a period of 180 days from the date of this Prospectus without the
prior written consent of Lehman Brothers Inc. Except for the Common Stock to
be sold in the Offering, the Company has agreed, with certain limited
exceptions relating to the grant of options and issuance of Common Stock
pursuant to the Equity Compensation Plan, not to offer for sale, sell or
otherwise dispose of (or enter into any transaction or device which is
designed to, or expected to, result in the disposition at any time in the
future of), directly or indirectly, any shares of Common Stock or other
capital stock or any securities convertible into or exchangeable or
exercisable for, or any rights to acquire, Common Stock or other capital
stock, prior to the expiration of 180 days from the date of this Prospectus
without the prior written consent of Lehman Brothers Inc.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representatives. The material factors to be
considered in determining the initial public offering price of the Common
Stock, in addition to the prevailing market conditions, will be the Company's
historical performance, capital structure, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's
management and consideration of the above factors in relation to market values
of companies in related businesses.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are summaries of the material provisions thereof. For
further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Copies of each contract or document referred to
herein are filed as exhibits to the Registration Statement. Copies of the
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C. or obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
REPORTS TO SECURITY HOLDERS
The Company intends to distribute to its stockholders annual reports
containing audited financial statements and will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
53
<PAGE>
TRI-POINT MEDICAL L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Financial Statements:
Balance Sheet as of December 31, 1994 and 1995 and as of June 30, 1996
(unaudited) and Pro Forma Balance Sheet as of June 30, 1996
(unaudited)............................................................ F-3
Statement of Operations for the years ended December 31, 1993, 1994 and
1995 and for the six month periods ended June 30, 1995 and 1996
(unaudited)............................................................ F-4
Statement of Partners' Capital (Deficit) for the years ended December
31, 1993, 1994 and 1995 and for the six month period ended June 30,
1996 (unaudited)....................................................... F-5
Statement of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the six month periods ended June 30, 1995 and 1996
(unaudited)............................................................ F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Tri-Point Medical L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of partners' capital (deficit) and of cash flows present fairly,
in all material respects, the financial position of Tri-Point Medical L.P.
(the Partnership) at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership'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.
Price Waterhouse LLP
Raleigh, North Carolina
June 3, 1996
F-2
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- JUNE 30, 1996
1994 1995 1996 PRO FORMA
----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTE 6)
Current assets:
Cash...................... $ 30,038 $ 19,698 $2,308,807 $2,308,807
Accounts receivable (Note
8)....................... 129,710 266,253 15,607 15,607
Inventories (Note 4)...... 119,319 119,158 141,075 141,075
Prepaid expenses.......... 22,625 26,918 639,548 639,548
----------- ------------ ---------- ----------
Total current assets.... 301,692 432,027 3,105,037 3,105,037
----------- ------------ ---------- ----------
Furniture, fixtures and
equipment (Note 3)......... 433,123 417,887 510,817 510,817
Less--accumulated
depreciation and
amortization............... (148,724) (142,083) (155,241) (155,241)
----------- ------------ ---------- ----------
284,399 275,804 355,576 355,576
----------- ------------ ---------- ----------
Intangible assets, net of
accumulated amortization of
$295,063 and $326,441 at
December 31, 1994 and 1995,
respectively, and $331,678
at June 30, 1996 (Note 5).. 198,001 200,164 225,248 225,248
----------- ------------ ---------- ----------
Total assets............ $ 784,092 $ 907,995 $3,685,861 $3,685,861
=========== ============ ========== ==========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Current liabilities:
Accounts payable.......... $ 184,886 $ 513,717 $1,096,556 $1,096,556
Accrued payroll and
vacation................. 54,353 28,023 69,280 69,280
Deferred revenue (Note
10)...................... -- 77,794 1,069,358 1,069,358
Payable to CRX Medical,
Inc. (Note 2)............ 70,263 195,275 454 454
Capital lease obligations
(Note 7)................. 2,012 11,956 6,155 6,155
----------- ------------ ---------- ----------
Total current
liabilities............ 311,514 826,765 2,241,803 2,241,803
Notes payable to Sharpoint
Development Corporation
(Notes 6 and 10)........... 7,846,800 10,062,300 -- --
Accrued interest payable to
Sharpoint Development
Corporation (Notes 6 and
10)........................ -- 842,857 -- --
Capital lease obligations
(Note 7)................... 3,563 25,899 25,899 25,899
----------- ------------ ---------- ----------
Total liabilities....... 8,161,877 11,757,821 2,267,702 2,267,702
----------- ------------ ---------- ----------
Partners' capital
(deficit).................. (7,377,785) (10,849,826) 1,418,159 --
Common stock, $.01 par
value, 35,000,000 shares
authorized, 9,600,000
shares issued and
outstanding................ -- -- -- 96,000
Additional paid-in capital.. -- -- -- 1,322,159
----------- ------------ ---------- ----------
Total partners' capital
(deficit) and
stockholders' equity... (7,377,785) (10,849,826) 1,418,159 1,418,159
----------- ------------ ---------- ----------
Total liabilities and
partners' capital
(deficit) and
stockholders' equity... $ 784,092 $ 907,995 $3,685,861 $3,685,861
=========== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Product sales (Note 8).. $ 1,047,868 $ 1,478,109 $ 1,380,081 $ 617,635 $ 192,703
License and product
development revenues
(Notes 8 and 10)....... 161,551 25,000 -- -- 3,500,000
----------- ----------- ----------- ----------- ----------
Total revenues........ 1,209,419 1,503,109 1,380,081 617,635 3,692,703
----------- ----------- ----------- ----------- ----------
Cost of products sold... 366,239 527,644 530,546 260,788 173,291
----------- ----------- ----------- ----------- ----------
Gross profit.......... 843,180 975,465 849,535 356,847 3,519,412
----------- ----------- ----------- ----------- ----------
Research, development
and regulatory affairs
expenses............... 862,758 1,230,771 1,637,241 747,906 1,339,308
Selling and
administrative expenses
(Note 1)............... 1,036,900 1,366,603 5,088,979 628,085 1,014,091
Payments to CRX Medical,
Inc.................... 150,000 150,000 250,000 175,000 287,908
----------- ----------- ----------- ----------- ----------
Total operating
expenses............. 2,049,658 2,747,374 6,976,220 1,550,991 2,641,307
----------- ----------- ----------- ----------- ----------
Income (loss) from
operations............. (1,206,478) (1,771,909) (6,126,685) (1,194,144) 878,105
Interest expense to
Sharpoint Development
Corporation, net of
$46,543 interest income
for the six month
period ended June 30,
1996................... 341,559 442,783 845,356 396,194 93,336
----------- ----------- ----------- ----------- ----------
Net income (loss)....... $(1,548,037) $(2,214,692) $(6,972,041) $(1,590,338) $ 784,769
=========== =========== =========== =========== ==========
Unaudited pro forma data
(Note 9):
Net income (loss) per
common share........... $ (.69) $ .08
=========== ==========
Weighted average common
shares outstanding..... 10,150,000 10,150,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE SIX MONTH PERIOD ENDED
JUNE 30, 1996 (UNAUDITED) (NOTE 1)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL (DEFICIT)
---------------------------------------------
GENERAL PARTNER LIMITED PARTNERS
--------------- -----------------------------
SHARPOINT
DEVELOPMENT
CORPORATION EMPLOYEES CRX MEDICAL, INC. TOTAL
--------------- ----------- ----------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1993................... $ (3,616,056) -- $1,000 $ (3,615,056)
Net loss................ (1,548,037) -- -- (1,548,037)
------------ ----------- ------ ------------
BALANCE AT DECEMBER 31,
1993................... (5,164,093) -- 1,000 (5,163,093)
Net loss................ (2,214,692) -- -- (2,214,692)
------------ ----------- ------ ------------
BALANCE AT DECEMBER 31,
1994................... (7,378,785) -- 1,000 (7,377,785)
Capital contribution.... -- $ 3,500,000 -- 3,500,000
Net loss................ (6,972,041) -- -- (6,972,041)
------------ ----------- ------ ------------
BALANCE AT DECEMBER 31,
1995................... (14,350,826) 3,500,000 1,000 (10,849,826)
Conversion of debt and
accrued interest to
partners' capital (Note
9) (unaudited)......... 11,483,216 -- -- 11,483,216
Net income (unaudited).. 557,185 227,584 -- 784,769
------------ ----------- ------ ------------
BALANCE AT JUNE 30, 1996
(UNAUDITED)............ $ (2,310,425) $ 3,727,584 $1,000 $ 1,418,159
============ =========== ====== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:--
Net income (loss)...... ($1,548,037) ($2,214,692) ($6,972,041) $(1,590,338) $ 784,769
Adjustments to
reconcile net income
(loss) to net cash
provided (used) by
operating activities:
Amortization expense.. 65,438 66,555 31,378 33,547 5,237
Depreciation expense.. 41,984 43,817 51,208 23,474 24,696
Employee Limited
Partnership
interest............. -- -- 3,500,000 -- --
Net loss on disposals
of fixed assets...... 18,302 4,129 55,161 -- 12,051
Net loss on disposals
of intangibles....... -- -- 13,559 -- --
Change in accounts
receivable........... (30,434) 57,659 (136,543) 110,850 250,646
Change in
inventories.......... (53,326) (23,223) 161 25,515 (21,917)
Change in prepaid
expenses............. 7,745 (13,736) (4,293) 7,786 (612,630)
Change in accounts
payable and accrued
expenses............. (32,813) 126,648 302,501 (41,912) 624,096
Change in deferred
revenue.............. -- -- 77,794 -- 991,564
Change in accrued
payable to CRX
Medical, Inc. ....... (36,512) (24,026) 125,012 74,904 (194,820)
Change in accrued
interest due to
Sharpoint Development
Corporation.......... 341,693 442,775 842,857 395,169 138,058
----------- ----------- ----------- ----------- ----------
Net cash provided (used)
by operating
activities............. (1,225,960) (1,534,094) (2,113,246) (961,005) 2,001,750
----------- ----------- ----------- ----------- ----------
Cash flows from
investing activities:
Additions to furniture,
fixtures and
equipment............. (60,186) (69,771) (97,774) (53,559) (116,519)
Additions to intangible
assets................ (18,583) (66,424) (47,100) (13,109) (30,321)
----------- ----------- ----------- ----------- ----------
Net cash used by
investing activities... (78,769) (136,195) (144,874) (66,668) (146,840)
----------- ----------- ----------- ----------- ----------
Cash flows from
financing activities:
Proceeds from notes
payable to Sharpoint
Development
Corporation........... 1,290,000 1,683,500 2,215,500 1,020,001 440,000
Change in capital lease
obligation............ -- 5,575 32,280 -- (5,801)
----------- ----------- ----------- ----------- ----------
Net cash provided by
financing activities... 1,290,000 1,689,075 2,247,780 1,020,001 434,199
----------- ----------- ----------- ----------- ----------
Increase (decrease) in
cash................... (14,729) 18,786 (10,340) (7,672) 2,289,109
Cash at beginning of
period................. 25,981 11,252 30,038 30,038 19,698
----------- ----------- ----------- ----------- ----------
Cash at end of period... $ 11,252 $ 30,038 $ 19,698 $ 22,366 $2,308,807
=========== =========== =========== =========== ==========
</TABLE>
Non-Cash Transactions:
On December 31, 1994, accrued interest of $931,641 was converted to long-
term debt.
On December 31, 1995, the partnership agreement was amended to admit a
new class of limited partners. The fair value of the partnership
interest was reflected as a contribution to partners' capital.
On March 29, 1996, notes payable of $10,502,301 and related accrued
interest of $980,915 was converted to partners' capital.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Tri-Point Medical L.P. (the Partnership) was organized on May 10, 1990 to
develop, commercialize and manufacture, principally in the U.S., a line of
medical adhesives (cyanoacrylates) used primarily for human and veterinary
wound closure. Sharpoint Development Corporation (SDC), the general partner,
contributed $350,000 in cash for its general partner interest. SDC has
provided financing for the Partnership through various notes payable (Note 6).
The Partnership purchased the assets and product technology of CRX Medical,
Inc. (CRX) in 1990 for $700,000 and a limited partnership interest. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Inventories...................................................... $ 37,351
Property and equipment........................................... 248,637
Patents and trademarks........................................... 281,500
Non-compete agreements........................................... 100,000
Organization costs............................................... 10,000
Goodwill......................................................... 15,000
Prepaid expense.................................................. 7,512
--------
$700,000
========
</TABLE>
CRX contributed $1,000 for its limited partnership interest. The partnership
agreement requires that a percentage of the proceeds received by the
Partnership or its successors upon the sale of all or substantially all of the
net assets of the Partnership or its successors be paid to CRX (see unaudited
pro forma information in Note 9). The partnership agreement also stipulates
that CRX will receive payments based on net sales volume and gross margin,
subject to annual minimum amounts (see related parties section in Note 2).
On December 31, 1995, the partnership agreement was amended to admit certain
employee limited partners as a new class of limited partners who are entitled
to receive 28.5% of partnership income after payments to CRX. The general
partner receives the remainder of the income and all losses of the
Partnership. For financial statement purposes, compensation expense classified
as selling and administrative expenses and contributed capital in the amount
of $3,500,000 were recognized as of December 31, 1995 representing the
estimated fair value of the partnership interest granted to the employee
limited partners.
During 1995, approximately ninety-five percent of the Partnership's revenues
were from domestic sales; the remaining five percent was earned from the
western European market. Human products generated approximately seventy-five
percent of revenues while veterinary products comprised the remaining twenty-
five percent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are stated at cost. Depreciation expense
is computed using the straight-line method over estimated useful lives ranging
between four and ten years. Expenditures for repairs and maintenance are
charged to expense as incurred.
F-7
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Intangible assets
Amounts incurred to secure patents and the estimated fair value of
registered patents acquired from CRX are capitalized and amortized over the
remaining life of the patent on a straight-line basis. Costs are capitalized
until either the related patent is accepted, in which case it is amortized, or
it is rejected and written off. Other intangible assets acquired from CRX were
amortized over a five year life on a straight-line basis.
Costs associated with the organization and formation of the Partnership,
primarily legal costs, were capitalized and amortized over a five year period.
Income taxes
No provision for federal or state income taxes is necessary in the financial
statements of the Partnership for the years ended December 31, 1993, 1994 or
1995 because, as a partnership, it is not subject to federal or state income
taxes and the tax effect of its activities accrues to the partners. A
provision for federal or state income tax for the six months ended June 30,
1996 is not considered necessary since Tri-Point Medical Corporation (Note 10)
does not expect to have a tax liability for the full year ending December 31,
1996. The Partnership's results of operations for the years ended December 31,
1993, 1994 and 1995 reflect a net loss for each period. However, if the
Partnership presented a pro forma tax provision or benefit as if it had been a
taxable entity since January 1, 1993 with the losses reported in those
periods, the deferred tax asset that might be recorded as a result of net
operating losses under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," would be offset by a related valuation
allowance because realization of the asset is not probable. Accordingly, no
pro forma tax provision or benefit would be recognized for these periods.
The tax returns of the Partnership are subject to examination by federal and
state tax authorities. If such examinations occur and result in changes with
respect to the Partnership's qualification or to distributable Partnership
income or loss, the tax liability of the respective partners would be changed
accordingly.
Significant differences between the Partnership's financial statement basis
and the tax basis are as follows:
The financial statement basis loss exceeds the tax basis loss by
approximately $3,900,000 for the year ended December 31, 1995, which is
primarily due to the non-deductibility of certain expenses for tax
purposes.
The Partnership's net assets on a tax basis exceed those reported under
the financial statement basis by approximately $200,000 at December 31,
1995. The difference can be attributed to temporary tax deduction
differences.
The partners' capital account in total is the same for both financial
statement and tax reporting.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Related parties
The Partnership had notes payable to its general partner, SDC, until March
29, 1996. Details of the debt agreements are summarized in Note 6.
Beginning in 1992, CRX, a limited partner, received payments of 4% of
adjusted net sales of veterinary products. CRX also received a minimum of 2%
and a maximum of 8% of adjusted net sales of human products depending on the
gross margin on those sales. At the end of 1992, 1993 and 1994, such
percentage-based payments to CRX were less than $150,000, the stipulated
minimum, and the difference was paid at that time.
F-8
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For each year thereafter, such payments to CRX were required to be no less
than $250,000 until the Partnership terminates in 2020 (see unaudited pro
forma information in Note 9). These payments were expensed in the period
earned.
For tax purposes, CRX was allocated net income up to the amount of payments
received as described above. The general partner and employee limited partners
were allocated the remainder of any net income after allocation to CRX. The
general partner is allocated 100% of all losses.
During 1993, 1994 and 1995, the Partnership paid a consulting fee to an
individual who is also a shareholder of CRX amounting to $108,660, $116,390
and $20,510, respectively.
Fair value of financial instruments
As required by Statement of Financial Accounting Standards No. 107,
"Disclosure About Fair Value of Financial Instruments," the estimated fair
value of current assets and current liabilities approximates the financial
statement carrying value at December 31, 1995.
The estimated fair value of the notes payable to SDC cannot be readily
determined since the notes are payable to a related party who is also the
general partner. See Note 6 for the carrying amount, interest rate and
maturity dates of the notes payable.
Interim financial information
Interim financial information for the six month periods ended June 30, 1995
and 1996 included herein is unaudited; however, in the opinion of the
Partnership, the interim financial information includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods. The results of operations
for the six months ended June 30, 1996 are not indicative of the results to be
expected for the year.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), was issued in March 1995. SFAS 121 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 recoverable. The
Partnership adopted SFAS 121 effective January 1, 1996; the adoption of this
statement did not have a material impact on its results of operations or
financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), was issued in October 1995. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock-based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), with pro forma disclosures of net income and net income per share
as if the fair value method had been applied. Tri-Point Medical Corporation
intends to continue to apply APB 25 for future stock options and stock-based
awards; consequently, SFAS 123 will not have an impact on the Company's
results of operations or financial positions.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
F-9
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment..................... $ 129,406 $ 134,327 $ 168,073
Machinery and equipment..................... 269,442 208,273 259,649
Leasehold improvements...................... 27,609 27,405 35,213
Machinery and equipment under capital leases
(Note 7)................................... 6,666 47,882 47,882
--------- --------- ---------
433,123 417,887 510,817
Accumulated depreciation and amortization... (148,724) (142,083) (155,241)
--------- --------- ---------
$ 284,399 $ 275,804 $ 355,576
========= ========= =========
</TABLE>
4. INVENTORY
Inventory includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Packaging......................................... $ 42,205 $ 34,574 $ 41,386
Raw materials..................................... 22,624 22,840 25,564
Work-in-process................................... 32,103 45,408 46,895
Finished goods.................................... 22,387 16,336 27,230
-------- -------- --------
$119,319 $119,158 $141,075
======== ======== ========
</TABLE>
5. INTANGIBLES
Intangible assets include the following:
<TABLE>
<CAPTION>
NON-COMPETE ORGANIZATION
PATENTS TRADEMARKS AGREEMENTS COSTS GOODWILL TOTAL
-------- ---------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net book value at
January 1, 1994........ $134,688 $10,889 $ 26,667 $ 21,805 $ 4,083 $198,132
1994 additions.......... 66,424 -- -- -- -- 66,424
1994 amortization....... (19,244) (8,000) (20,000) (16,311) (3,000) (66,555)
-------- ------- -------- -------- ------- --------
Net book value at
December 31, 1994...... 181,868 2,889 6,667 5,494 1,083 198,001
1995 additions.......... 47,100 -- -- -- -- 47,100
1995 disposals.......... (13,559) -- -- -- -- (13,559)
1995 amortization....... (15,245) (2,889) (6,667) (5,494) (1,083) (31,378)
-------- ------- -------- -------- ------- --------
Net book value at
December 31, 1995...... 200,164 -- -- -- -- 200,164
1996 additions (unau-
dited)................. 30,321 -- -- -- -- 30,321
1996 amortization (unau-
dited)................. (5,237) -- -- -- -- (5,237)
-------- ------- -------- -------- ------- --------
Net book value at June
30, 1996 (unaudited)... $225,248 -- -- -- -- $225,248
======== ======= ======== ======== ======= ========
Amortization period in
years.................. 5-17 5 5 5 5
</TABLE>
F-10
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE AND RELATED ACCRUED INTEREST
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Sharpoint Development
Corporation; interest payable
annually on December 31 at 9.5%,
principal payable on December 31,
1997; secured by substantially all
Partnership assets.................. $ 7,846,800 $ 7,846,800 --
Various notes payable to Sharpoint
Development Corporation; interest
payable annually on December 31 at
various rates ranging from 9.5% to
9.75%, principal payable on various
dates between January 1998 and
December 1998; secured by
substantially all Partnership
assets.............................. -- 2,215,500 --
----------- ----------- ------
$ 7,846,800 $10,062,300 --
=========== =========== ======
</TABLE>
As of December 31, 1995, the Partnership had not paid any of the accrued
interest; however, SDC has provided a waiver of this requirement until March
15, 1997. On March 29, 1996, notes payable of $10,502,301 and accrued interest
of $980,915 were converted to partners' capital by SDC.
7. LEASES
The Partnership leases office and manufacturing space and equipment under
operating leases which expire at various dates through 1998. Rent expense
related to these leases was approximately $88,000, $98,000 and $93,000 for
1993, 1994 and 1995, respectively. Rent expense for the six months ended June
30, 1995 and 1996 was approximately $52,442 and $59,513, respectively.
The Partnership leases equipment under capital leases. The lease terms are
four years and the Partnership has the option to purchase the equipment at the
end of the leases.
Future minimum lease payments under noncancellable capital leases and
operating leases with initial or remaining terms of one year or more are as
follows at December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996...................................................... $15,246 $119,302
1997...................................................... 14,078 125,271
1998...................................................... 12,436 80,953
1999...................................................... 2,206 2,569
------- --------
Total minimum lease payments.............................. 43,966 $328,095
========
Less amount representing interest......................... (6,111)
-------
Present value of future minimum lease payments............ $37,855
=======
</TABLE>
F-11
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. MAJOR CUSTOMERS AND COMMITMENTS
A seven year marketing agreement with Farnam Companies, Inc. (Farnam) was
signed in December 1992. This agreement gives Farnam exclusive rights to
market, sell and distribute the Partnership's veterinary products in North
America.
Revenues from Farnam aggregated approximately $402,000 or 33%, $400,000 or
27% and $370,000 or 27% of total revenue for the years ended December 31,
1993, 1994 and 1995, respectively, and approximately $202,000 or 33% and
$188,000 or 5% of total revenue for the six months ended June 30, 1995 and
1996, respectively.
The Partnership has a non-exclusive supply agreement with Procter &
Gamble/ALZA, Partners for Oral Health Care (Procter & Gamble/ALZA) for
Octyldent, an adhesive used in conjunction with a periodontal drug delivery
product. Net revenues under this agreement amounted to approximately $-0-,
$1,110,000 or 73% and $1,010,000 or 73% of total revenues during 1993, 1994
and 1995, respectively, and approximately $416,000 or 67% and $5,000 or .1% of
total revenues for the six months ended June 30, 1995 and 1996, respectively.
Accounts receivable related to these revenues were approximately $45,000 and
$243,500 at December 31, 1994 and 1995, respectively. In March 1994, the
Partnership entered into an agreement with On-Site Therapeutics, Inc. (On-
Site) for exclusive services to identify purchasers of Octyldent. Under this
agreement, On-Site receives a 5% royalty on net sales of Octyldent up to a
cumulative maximum royalty amount of $1,500,000. Amounts paid during 1993,
1994 and 1995 were $375, $55,675 and $50,686, respectively, and $21,049 and
$50 for the six months ended June 30, 1995 and 1996, respectively.
Two customers other than Farnam or Procter & Gamble/ALZA accounted for
approximately $250,000 or 20% of total revenues during 1993.
9. UNAUDITED PRO FORMA INFORMATION
On May 31, 1996, a contribution and exchange agreement was executed among
SDC, assignees of SDC's economic interest in the Partnership, Caratec LLC, the
successor to CRX's limited partnership interest and the employee limited
partners whereby each of these parties exchanged their Partnership interests
for shares of Common Stock of the Company (see Note 10), subject to the
completion of an initial public offering by the Company. Under this agreement,
individuals and entities representing SDC, CRX and the employee limited
partners will receive 5,453,750, 1,776,250 and 2,370,000 shares of Common
Stock of the Company, respectively. In conjunction with the issuance to CRX of
Common Stock in the Company, CRX has agreed to surrender its rights to receive
a percentage of sales-based payments (Note 2) and a percentage of capital
transaction proceeds (Note 1). The Company will record a non-cash expense
related to this issuance which should not exceed $19,500,000 and which will be
offset by a credit to additional paid-in capital.
Pro forma net income (loss) per share includes the effect of the exchange
and Common Stock equivalents for stock options granted at prices below the
anticipated initial public offering price per share in the twelve months
preceding the offering as if outstanding for all periods presented.
A tax provision related to the unaudited pro forma results of operations for
the six month period ended June 30, 1996 is not considered necessary because
Tri-Point Medical Corporation does not expect to have a tax liability for the
full year ending December 31, 1996.
10. SUBSEQUENT EVENTS
Tri-Point Medical Corporation (the Company) was incorporated on February 20,
1996 as a wholly-owned subsidiary of Tri-Point Medical L.P. and all of the
assets of Tri-Point Medical L.P. were transferred at net book value to the
Company on March 1, 1996. The Company also assumed all liabilities of Tri-
Point Medical L.P. except for the indebtedness to SDC and accrued interest
thereon.
F-12
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On March 20, 1996, the Company entered into an eight-year exclusive supply
and distribution rights agreement with Ethicon, Inc. (Ethicon), a subsidiary
of Johnson & Johnson, whereby the Company will supply Ethicon with a product
for human topical wound closure. In consideration, Ethicon paid the Company
$4,500,000 and agreed to pay additional amounts upon written notification of
U.S. regulatory approval for the product. Of the $4,500,000, $3,500,000 is a
non-refundable licensing fee and $1,000,000 will be offset against either
future product purchases or royalties to be paid by Ethicon on product sales
and has been classified as deferred revenue on the accompanying balance sheet.
Ethicon also agreed to advance the Company additional amounts for direct costs
incurred in connection with clinical studies of the product, which amounts
will be credited against future royalties to be paid by Ethicon. Upon U.S. or
European Community approval of the product, Ethicon is obligated to purchase
certain minimum quantities annually at a predetermined price based on average
selling prices.
On March 29, 1996, notes payable and related accrued interest to SDC in the
amounts of $10,502,301 and $980,915, respectively, were contributed to
partners' capital.
The Company entered into employment agreements with four officers in May
1996 which provide for aggregate annual base compensation of approximately
$580,000 plus performance-based bonuses. The term of each agreement is from
May 1, 1996 to May 31, 1999, with automatic one-year extensions unless 60
days' prior notice is given by either party.
In May 1996 the Company entered into a five-year agreement with a consultant
which provides for annual compensation of $120,000 and includes a grant of
options for 50,000 shares of Common Stock under the Equity Compensation Plan.
On May 28, 1996, the Company adopted an Equity Compensation Plan which
provides for grants of stock options to selected officers, directors,
employees and consultants. The Company expects to grant options for 550,000
shares of Common Stock in connection with a planned 1996 initial public
offering of Common Stock which will result in compensation expense because
such options will have exercise prices below market value. Based upon the
expected vesting schedules, such expense will aggregate approximately
$1,500,000 with $323,000 recognized upon consummation of the offering,
$304,000 per year over the first two years and $285,000 per year over the next
two years.
F-13
<PAGE>
TraumaSeal and Nexacryl will not be
commercially available in the U.S. until
FDA approvals are received. There is no [TRI-POINT MEDICAL
assurance of such approvals. CORPORATION LOGO]
EMERGENCY ROOM
TRAUMASEAL
[PHOTO OF CHILD [PHOTO OF TraumaSeal closes wounds with
WITH PARENT AT APPLICATION OF an easily-applied liquid ad-
EMERGENCY ROOM] TRAUMASEAL] hesive. TraumaSeal does not
require injections of anes-
thetics, suturing procedures,
adhesive tape or antibiotic
ointment. Patients do not
have to make return visits to
have stitches removed.
TRAUMASEAL
The Company is in-
vestigating the use
of TraumaSeal for
the closure of sur-
gical wounds. The
Company believes
that an adhesive
surgical closure
can reduce pain and
discomfort for pa-
tients--and trans-
late into less time
spent in the oper-
ating room for pa-
tients and medical
staff.
OPERATING ROOM
[PHOTO OF
OPERATING ROOM]
[PHOTO OF
APPLICATION OF
TRAUMASEAL]
[PHOTO OF DOCTOR]
PERIODONTAL
OCTYLDENT
Tri-Point's
Octyldent periodon-
tal adhesive is a
topical sealant
used in conjunction
with a site spe-
cific sustained re-
lease anti-bacte-
rial drug therapy
to treat adult
periodontal dis-
ease.
[PHOTO OF
PERIODONTIST WITH
PATIENT]
[PHOTO OF
APPLICATION OF
OCTYLDENT]
OPHTHALMOLOGY
NEXACRYL
Nexacryl is a topi-
cal sealant to be
used in the repair
of corneal ulcers
and abrasions.
[PHOTO OF [PHOTO OF
APPLICATION OF OPHTHALMOLOGIST
NEXACRYL] WITH PATIENT]
Various medical supplies depicted are not products of the Company.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Management............................................................... 38
Certain Transactions..................................................... 44
Prior Partnership Status................................................. 45
Principal and Selling Stockholders....................................... 46
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 51
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Reports to Security Holders.............................................. 53
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO OF TRI-POINT MEDICAL APPEARS HERE]
TRI-POINT MEDICAL
CORPORATION
COMMON STOCK
-----------------
PROSPECTUS
, 1996
-----------------
LEHMAN BROTHERS
SANDS BROTHERS & CO., LTD.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of Common Stock being registered, all of which are
being borne by the Company:
<TABLE>
<S> <C>
Registration fee............................................. $ 15,465.00
NASD filing fee.............................................. 4,985.00
Transfer agent and registrar fees............................ 10,000.00
Printing and engraving....................................... 100,000.00
Legal fees................................................... 345,000.00
Blue Sky fees and expenses................................... 25,000.00
Nasdaq National Market listing fee........................... 48,625.00
Accounting fees.............................................. 160,000.00
Miscellaneous................................................ 15,925.00
-----------
Total.................................................... $725,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, agents and controlling persons
of a corporation under certain conditions and subject to certain limitations.
Section 145 empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner the person reasonably believed
to be in or not opposed to, the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. In the case of an action by or in
the right of the corporation, no indemnification may be made with respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the court of
chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually or reasonably incurred by such person in connection
therewith.
B. As permitted by the Delaware General Corporation Law, the Company has
included a provision in its Restated Certificate of Incorporation (Exhibit 3.1
hereto) that, subject to certain limitations, eliminates the ability of the
Company and its stockholders to recover monetary damages from a director of
the Company for breach of fiduciary duty as a director. Article VI of the
Company's By-Laws (Exhibit 3.2 hereto) provides for indemnification of the
Company's directors and officers and advancement of expenses to the extent
otherwise permitted by Section 145. In addition, the Company has agreed to
indemnify certain executive officers of the Company pursuant to the terms of
their employment agreements to the maximum extent permitted by applicable law
against all costs, charges and expenses incurred by each in connection with
any action, suit or proceeding to which he may be party or in which he may be
a witness by reason of his being an officer, director or employee of the
Company or any subsidiary or affiliate of the Company.
C. Reference is made to Section 10 of the Underwriting Agreement (Exhibit 1
hereto) which provides for indemnification among the Company, the Selling
Stockholders and the Underwriters.
II-1
<PAGE>
D. As authorized by Section 145 of the Delaware General Corporation Law and
Article VI of the Company's By-Laws, the Company has applied for, on behalf of
its directors and officers, insurance protection against certain liabilities
arising out of the discharge of their duties, as well as insurance covering
the Company for indemnification payments made to its directors and officers
for certain liabilities, to be effective contemporaneously with this offering.
The premiums for such insurance are to be paid by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Described below are the only transactions within the past three years in
which the Company issued securities which were not registered under the
Securities Act.
On February 29, 1996, all of the assets and liabilities of the Partnership,
except for the indebtedness to Sharpoint, were transferred to the Company in
exchange for one share of Common Stock issued to the Partnership, which is
currently the sole stockholder of the Company. As of the Exchange, obligations
of and interests in the Partnership will be contributed to the Company in
exchange for an aggregate of 9,600,000 shares of Common Stock. In addition, on
May 30, 1996, options to purchase an aggregate of 550,000 shares of Common
Stock were granted to employees, non-employee directors and three consultants.
These options will become effective only upon the consummation of the
Exchange, will expire on May 30, 2006, will vest in five equal annual
installments in the case of employees and consultants, and 50% on the date of
grant and 25% on each successive anniversary of the date of grant in the case
of non-employee directors, and, except for the non-employee director options,
have an exercise price equal to the per share price to the public in the
Offering less $3.00. The non-employee director options have an exercise price
of $10.00.
The Company believes that the issuance of shares and grants of options
described above did not and will not involve a public offering and were or
will be exempt from registration under Section 4(2) of the Securities Act
because such issuances and grants were made to a limited group of persons,
each of whom was believed to have been a sophisticated investor or had a pre-
existing business or personal relationship with the Company or its management
and because each such person was purchasing for investment without a view to
further distribution. Restrictive legends were and will be placed on stock
certificates and are contained in stock option agreements evidencing the
securities described above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1** Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** By-Laws.
5* Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.
10.1** Office-Warehouse Lease Agreement, dated as of November 7, 1995,
between AP Southeast Portfolio Partners, L.P. and Tri-Point Medical
Corporation.
10.2+* Adhesive Supply Agreement, dated as of March 14, 1991, between Procter
& Gamble/ALZA, Partners for Oral Health Care and Tri-Point Medical
Corporation.
10.3+* Amendment No. 1, dated as of April 13, 1992, to Adhesive Supply
Agreement, dated as of March 14, 1991, between Procter & Gamble/ALZA,
Partners for Oral Health Care and Tri-Point Medical Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4+* Adhesive Supply Agreement, dated as of March 26, 1993, between ALZA
Corporation and Tri-Point Medical Corporation.
10.5+* Supply and Distribution Agreement, dated as of July 14, 1992,
between Chiron Vision Corporation and Tri-Point Medical
Corporation.
10.6+* First Amendment, dated as of April 25, 1995, to Supply and
Distribution Agreement, dated as of July 14, 1992, between Chiron
Vision Corporation and Tri-Point Medical Corporation.
10.7+* Licensing and Distribution Agreement, dated as of December 7, 1992,
between Farnam Companies, Inc. and Tri-Point Medical Corporation.
10.8+* Supply and Distribution Rights Agreement, dated as of March 20,
1996, between Ethicon, Inc. and Tri-Point Medical Corporation.
10.9++** 1996 Equity Compensation Plan.
10.10++** Employment Agreement, dated as of May 31, 1996, between Robert V.
Toni and Tri-Point Medical Corporation.
10.11++** Employment Agreement, dated as of May 31, 1996, between J. Blount
Swain and Tri-Point Medical Corporation.
10.12++** Employment Agreement, dated as of May 31, 1996, between Jeffrey G.
Clark and Tri-Point Medical Corporation.
10.13++** Employment Agreement, dated as of May 31, 1996, between Joe B.
Barefoot and Tri-Point Medical Corporation.
10.14++** Consulting Agreement, dated as of May 31, 1996, between Steven A.
Kriegsman and Tri-Point Medical Corporation.
10.15** Registration Rights Agreement, dated as of May 31, 1996, between
Caratec, L.L.C. and Tri-Point Medical Corporation.
10.16** Registration Rights Agreement, dated as of May 31, 1996, among
Cacoosing Partners, L.P., OMI Partners, L.P., Triangle Partners,
L.P., F. William Schmidt, Rolf D. Schmidt, Robert V. Toni, J.
Blount Swain, Jeffrey G. Clark, Joe B. Barefoot and Tri-Point
Medical Corporation.
10.17** Contribution and Exchange Agreement, dated as of May 31, 1996, among
Cacoosing Partners, L.P., OMI Partners, L.P., Triangle Partners,
L.P., F. William Schmidt, Rolf D. Schmidt, Caratec, L.L.C., Robert
V. Toni, J. Blount Swain, Jeffrey G. Clark, Joe B. Barefoot,
Jeffery C. Basham, Jeffrey C. Leung, Anthony V. Seaber and Tri-
Point Medical Corporation.
10.18** Amendment, dated June 18, 1996, to Office-Warehouse Lease Agreement,
dated as of November 7, 1995, between AP Southeast Portfolio
Partners, L.P. and Tri-Point Medical Corporation.
11* Statement re: Computation of Per Share Earnings.
23.1* Consent of Price Waterhouse LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in its opinion
filed as Exhibit 5 hereto).
24.1** Power of Attorney (included on signature page to the Registration
Statement No. 333-5425).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Securities and Exchange Commission (the "Commission")
pursuant to an application for confidential treatment filed with the
Commission pursuant to Rule 406 under the Securities Act.
++ Compensation plans and arrangements for executives and others.
(b) Financial Statement Schedules.
None.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
RALEIGH, NORTH CAROLINA, ON AUGUST 15, 1996.
TRI-POINT MEDICAL CORPORATION
/s/ Robert V. Toni
By: _________________________________
ROBERT V. TONI
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS AND BY ROBERT V. TONI AS ATTORNEY-IN-FACT FOR THE SPECIFIC
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
<S> <C> <C>
/s/ Robert V. Toni President and Chief August 15, 1996
- ------------------------------------- Executive Officer
ROBERT V. TONI (principal
executive officer)
and Director
* Vice President and August 15, 1996
- ------------------------------------- Chief Financial
J. BLOUNT SWAIN Officer (principal
financial and
accounting officer)
* Chairman of the August 15, 1996
- ------------------------------------- Board and Director
ROLF D. SCHMIDT
* Director August 15, 1996
- -------------------------------------
F. WILLIAM SCHMIDT
* Director August 15, 1996
- -------------------------------------
DENNIS C. CAREY
* Director August 15, 1996
- -------------------------------------
MICHAEL K. LORELLI
* Director August 15, 1996
- -------------------------------------
RANDY H. THURMAN
/s/ Robert V. Toni
* By: _______________________________
ROBERT V. TONI
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
---------- ----------- -----------
<S> <C> <C>
1** Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** By-Laws.
5* Opinion of Morgan, Lewis & Bockius LLP regarding
legality of the shares of Common Stock being
registered.
10.1** Office-Warehouse Lease Agreement, dated as of
November 7, 1995, between AP Southeast Portfolio
Partners, L.P. and Tri-Point Medical Corporation.
10.2+* Adhesive Supply Agreement, dated as of March 14,
1991, between Procter & Gamble/ALZA, Partners for
Oral Health Care and Tri-Point Medical Corporation.
10.3+* Amendment No. 1, dated as of April 13, 1992, to
Adhesive Supply Agreement, dated as of March 14,
1991, between Procter & Gamble/ALZA, Partners for
Oral Health Care and Tri-Point Medical Corporation.
10.4+* Adhesive Supply Agreement, dated as of March 26,
1993, between ALZA Corporation and Tri-Point Medical
Corporation.
10.5+* Supply and Distribution Agreement, dated as of July
14, 1992, between Chiron Vision Corporation and Tri-
Point Medical Corporation.
10.6+* First Amendment, dated as of April 25, 1995, to
Supply and Distribution Agreement, dated as of July
14, 1992, between Chiron Vision Corporation and Tri-
Point Medical Corporation.
10.7+* Licensing and Distribution Agreement, dated as of
December 7, 1992, between Farnam Companies, Inc. and
Tri-Point Medical Corporation.
10.8+* Supply and Distribution Rights Agreement, dated as of
March 20, 1996, between Ethicon, Inc. and Tri-Point
Medical Corporation.
10.9++** 1996 Equity Compensation Plan.
10.10++** Employment Agreement, dated as of May 31, 1996,
between Robert V. Toni and
Tri-Point Medical Corporation.
10.11++** Employment Agreement, dated as of May 31, 1996,
between J. Blount Swain and
Tri-Point Medical Corporation.
10.12++** Employment Agreement, dated as of May 31, 1996,
between Jeffrey G. Clark and
Tri-Point Medical Corporation.
10.13++** Employment Agreement, dated as of May 31, 1996,
between Joe B. Barefoot and
Tri-Point Medical Corporation.
10.14++** Consulting Agreement, dated as of May 31, 1996,
between Steven A. Kriegsman and Tri-Point Medical
Corporation.
10.15** Registration Rights Agreement, dated as of May 31,
1996, between Caratec, L.L.C. and Tri-Point Medical
Corporation.
10.16** Registration Rights Agreement, dated as of May 31,
1996, among Cacoosing Partners, L.P., OMI Partners,
L.P., Triangle Partners, L.P., F. William Schmidt,
Rolf D. Schmidt, Robert V. Toni, J. Blount Swain,
Jeffrey G. Clark, Joe B. Barefoot and Tri-Point
Medical Corporation.
10.17** Contribution and Exchange Agreement, dated as of May 31,
1996, among Cacoosing Partners, L.P., OMI Partners, L.P.,
Triangle Partners, L.P., F. William Schmidt, Rolf D.
Schmidt, Caratec, L.L.C., Robert V. Toni, J. Blount
Swain, Jeffrey G. Clark, Joe B. Barefoot, Jeffery C.
Basham, Jeffrey C. Leung, Anthony V. Seaber and Tripoint
Medical Corporation.
10.18** Amendment, dated June 18, 1996, to Office-Warehouse Lease
Agreement, dated as of November 7, 1995, between AP
Southeast Portfolio Partners, L.P. and Tri-Point Medical
Corporation.
11* Statement re: Computation of Per Share Earnings.
23.1* Consent of Price Waterhouse LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibit 5 hereto).
24.1** Power of Attorney (included on signature page to the
Registration Statement No. 333-5425).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
+ Portions of this exhibit were omitted and filed separately with
the Secretary of the Securities and Exchange Commission (the
"Commission") pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under
the Securities Act.
++ Compensation plans and arrangements for executives and others.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
---------- ----------- -----------
<C> <S> <C>
10.17** Contribution and Exchange Agreement, dated as of May
31, 1996, among Cacoosing Partners, L.P., OMI
Partners, L.P., Triangle Partners, L.P., F. William
Schmidt, Rolf D. Schmidt, Caratec, L.L.C., Robert
V. Toni, J. Blount Swain, Jeffrey G. Clark, Joe
Barefoot, Jeffery C. Basham, Jeffrey C. Leung,
Anthony V. Seaber and Tri-Point Medical
Corporation.
10.18** Amendment, dated June 18, 1996, to Office-Warehouse
Lease Agreement, dated as of November 7, 1995,
between AP Southeast Portfolio Partners, L.P. and
Tri-Point Medical Corporation.
11* Statement re: Computation of Per Share Earnings.
23.1* Consent of Price Waterhouse LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in
its opinion filed as Exhibit 5 hereto).
24.1** Power of Attorney (included on signature page to the
Registration Statement No. 333-5425).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under the
Securities Act.
++Compensation plans and arrangements for executives and others.
<PAGE>
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
August 14, 1996
Tri-Point Medical Corporation
5265 Capital Boulevard
Raleigh, North Carolina 27616
Re: Registration Statement on Form S-1 (Reg. No. 333-5425)
------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Tri-Point Medical Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the subject
Registration Statement on Form S-1, as amended (the "Registration Statement"),
relating to the offering of up to 3,450,000 shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), of which up to 2,760,000
shares of Common Stock (the "Company Shares"), including 360,000 shares
purchasable by the underwriters upon exercise of their over-allotment option,
are to be newly issued and sold by the Company, and of which up to 690,000
shares of Common Stock (the "Selling Stockholder Shares"), including 90,000
shares purchasable by the underwriters upon exercise of their over-allotment
option, are to be sold by the selling stockholders (the "Selling Stockholders")
listed in the Registration Statement under "Principal and Selling Stockholders."
This opinion is being furnished pursuant to Item 601(b)(5) of Regulation S-K
under the Securities Act of 1933, as amended.
In rendering the opinion set forth below, we have reviewed (a) the Registration
Statement and the exhibits thereto; (b) the Company's Restated Certificate of
Incorporation; (c) the Company's By-Laws; (d) certain records of the Company's
corporate proceedings as reflected in its minute book; and (e) such other
documents as we have deemed relevant. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, and conformity with the originals of all documents submitted to us
as copies thereof. In addition, we have made such other examinations of law and
fact as we have deemed relevant in order to form a basis for the opinion
hereinafter expressed. Our opinion set forth below is limited to the General
Corporation Law of the State of Delaware.
Based upon the foregoing, we are of the opinion that (i) the Company Shares will
be validly issued, fully paid and nonassessable shares of Common Stock when and
to the extent issued
<PAGE>
Tri-Point Medical Corporation
August 14, 1996
Page 2
by the Company in the manner and for the consideration contemplated in the
Registration Statement and (ii) the Selling Stockholder Shares will be validly
issued, fully paid and nonassessable shares of Common Stock when and to the
extent sold by the Selling Stockholders in the manner and for the consideration
contemplated in the Registration Statement.
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to the reference to this Firm under the caption "Legal Matters."
In giving such consent, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
ADHESIVE SUPPLY AGREEMENT*
This Adhesive Supply Agreement (the "Agreement") is entered into as of the
14th day of March, 1991 by and between Procter & Gamble/ALZA, Partners for Oral
Health Care (the "Partnership"), and Tri-Point Medical L. P. ("Tri-Point").
RECITALS
--------
A. The Partnership is a distributor of the Actisite(R) (tetracycline
hydrochloride) Periodontal Fiber ("Actisite").
B. Tri-Point has developed and has proprietary rights to a 2-octyl
cyanoacrylate adhesive product known as Octyldent (the "Product") more
particularly described on Exhibit B hereto.
C. The Partnership desires to market Actisite with the Product, and may
desire to market other Periodontal Products (as defined below) with the Product.
D. On the terms and conditions set forth in this Agreement, the
Partnership desires to have manufactured by Tri-Point and to purchase from Tri-
Point, and Tri-Point desires to manufacture for and to sell to the Partnership,
commercial supplies of the Product for use with Actisite and other Periodontal
Products.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Definitions.
-----------
1.1 "Act" shall mean the United States Food, Drug and Cosmetic Act, as
amended from time to time, and the regulations promulgated thereunder.
1.2 "Affiliates" shall mean corporations or business entities which,
directly or indirectly, control, are controlled by or are under common control
with the Partnership. For purposes of this definition, the word "control" shall
mean (i) ownership of at least fifty percent (50%) of the voting power entitled
to vote for the election of directors, in the case of
* Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the commission pursuant to Rule 406 under the
Securities Act of 1933. Such portions are marked by "X" or the word
"Redacted."
<PAGE>
a corporation; or (ii) ownership of at least fifty percent (50%) of the interest
in profits, in the case of a business entity other than a corporation; or (iii)
in either case, the maximum ownership effectively allowed, if less than 50%, on
a country-by-country basis, of the voting stock or percentage interest in
profits. For purposes of this Agreement, each of the partners of the Partnership
shall be deemed an Affiliate of the Partnership.
1.3 "Application" shall mean Tri-Point's 510-k notification #K902078
filed with the FDA on May 3, 1990, with respect to the Product.
1.4 "FDA" shall mean the United States Food and Drug Administration.
1.5 "Firm Forecast" shall mean, for any calendar quarter, the forecast in
effect for such quarter as of the first day of the immediately preceding
calendar quarter.
1.6 "First Shipment Year" shall mean the twelve month period beginning on
the date of the first shipment by Tri-Point of commercial supplies of the
Product hereunder, and "Shipment Year" shall mean any successive twelve month
period thereafter.
1.7 "GMPs" shall mean current Good Manufacturing Practices as defined
from time to time by the Act and as related to regulations or any successor laws
or regulations governing the manufacture of the Product in the United States.
1.8 "Initial Orders" shall mean orders of Product for commercial sale
placed by the Partnership with Tri-Point prior to the first day of the second
calendar quarter following FDA approval of Actisite.
1.9 "Lot" shall mean each production run of Product having the same lot
number.
1.10 "Periodontal Product" shall mean a product marketed by the
Partnership for the localized treatment of oral diseases or conditions by
application of such products within the periodontal pocket.
<PAGE>
1.11 "Product" shall mean the 2-octyl cyanoacrylate adhesive known as
Octyldent meeting the Product Specifications.
1.12 "Product Specifications" shall mean the specifications for the
Product and testing methods and specifications attached hereto as Exhibit A.
1.13 "Unit" shall mean 1.5 milliliters of Product in a single labeled
vial with a resealable stopper meeting the Product Specifications, packaged with
each Unit in a labeled box with a package insert, such boxes, inserts and labels
having been reviewed by the Partnership in accordance with Section 4.5.
2. Purchase and Sale; Quantities and Orders.
----------------------------------------
2.1 Purchase and Sale of Product. Subject to the remainder of this
----------------------------
Agreement, Tri-Point agrees to sell to the Partnership, directly or through an
Affiliate, and the Partnership agrees to purchase from Tri-Point, F.O.B. Tri-
Point's shipping point, the Partnership's requirements of Product for use with
Actisite and other Periodontal Products, and ordered in accordance with this
Agreement. This Agreement shall not preclude Tri-Point from selling Product to
third parties, so long as Tri-Point shall continue to meet its obligations to
supply Product hereunder. The Partnership shall have the nonexclusive, worldwide
right to market and distribute the Product with Actisite (and any other
Periodontal Product). The Partnership shall not otherwise market the Product
without Tri-Point's consent.
2.2 Form. Product supplied hereunder shall be supplied in the ordered
----
quantities (plus or minus 10%) and shall meet the Product Specifications. Each
shipment shall be accompanied by a Certificate of Compliance in the form
attached hereto as Exhibit B. Product shall be manufactured in accordance with
GMPs and the Act and all other applicable
<PAGE>
laws and regulations and any procedures set forth in the Application and the FDA
Device Master File for the Product.
2.3 Firm Orders. The Partnership shall order Product from Tri-Point by
-----------
firm purchase order specifying a delivery date not less than 90 days from the
date of the order. The parties will cooperate to place (on the part of the
Partnership) and fill (on the part of Tri-Point) the Initial Orders in order to
(i) assure adequate supply of Product for commercial launch of Actisite and (ii)
provide Tri-Point with sufficient time to fill the Initial Orders. After the
Initial Orders, each firm order will be for a minimum of XXXXXXX Units of
Product, and the firm orders for any quarter shall be for at least 75% of the
Firm Forecast for such quarter. Tri-Point shall deliver the quantities ordered
pursuant to firm purchase orders for each calendar quarter; provided, however,
that to the extent that firm orders for any calendar quarter exceed by more than
25% the Firm Forecast for such quarter, Tri-Point will use its commercially
reasonable efforts to accommodate any such excess, but will not be in breach of
its obligations under this Agreement if, despite such efforts, Tri-Point is
unable to deliver all or a portion of such excess. For each Shipment Year, firm
orders shall equal or exceed XXXXXXXXXX.
2.4 Acceptance. Firm orders placed with Tri-Point by the Partnership
----------
pursuant to the provisions of Section 2.3 may be rejected in writing by Tri-
Point within ten days after receipt. The sole basis for rejection of an order
shall be that the order is not in accordance with the terms of this Agreement.
Tri-Point will use commercially reasonable efforts to ensure that Product
ordered by the Partnership in accordance with this Agreement is shipped in
accordance with the delivery dates specified in the Partnership's purchase order
accepted by Tri-Point, and Tri-Point will notify the Partnership promptly of any
significant anticipated
<PAGE>
delay.
2.5 Forecasts. On or before the first day of each calendar quarter
---------
beginning after FDA approval of Actisite, the Partnership shall provide Tri-
Point with rolling four calendar quarter forecasts of the quantities of Product
that the Partnership expects to order for delivery during the four subsequent
calendar quarters.
3. Price and Payment Terms.
-----------------------
3.1 Initial Commercial Price. Subject to the remainder of this Section
------------------------
3, the price to be paid by the Partnership for a Unit of Product (including the
Initial Orders) shall be XXXXXXX per Unit for the first XXXXXXXX Units ordered
by the Partnership and accepted by Tri-Point in accordance with Section 2.3, and
XXXXXXXX per Unit for each additional Unit ordered by the Partnership and
accepted by Tri-Point in accordance with Section 2.3, in both cases for Units so
ordered and accepted during the period ending December 31, 1991.
3.2 Subsequent Price. The price described in Section 3.1 may be increased
----------------
by Tri-Point no more frequently than once in any rolling 12 month period
beginning 12 months after the date of the first of the Initial Orders; provided,
however, that no such increase shall exceed the greater of (i) 5% or (ii) the
increase in the Producer's Price Index, Manufactured Products, for the period
beginning on the date of the first of the Initial Orders or the date of the last
increase under this Section 3.2, as applicable, and ending on the date of
Tri-Point's notice of such price increase. Any increase will be effective as to
orders placed more than 90 days after written notice from Tri-Point of the
increase.
3.3 Most Favored Nation. Notwithstanding the provisions of Sections 3.1
-------------------
and 3.2, if Tri-Point sells the Product commercially to an unrelated third party
for periodontal use at a price lower than that provided under Section 3.1 or
Section 3.2, as
<PAGE>
applicable, the Partnership may elect the lower price if it also accepts the
same quantity, delivery terms and other material terms accepted by the third
party.
3.4 General Price Terms. All prices determined hereunder are F.O.B. Tri-
-------------------
Point. Risk of loss shall pass to the Partnership upon delivery of Product to a
common carrier by Tri-Point.
3.5 Payment. Payment by the Partnership for Product supplied by Tri-Point
-------
hereunder shall be in United States dollars and made within 30 days after the
date of Tri-Point's invoice. Product shall be invoiced no sooner then the date
of shipment by Tri-Point. Any amount that is not paid when due shall accrue
interest at a rate equal to the lesser of XXXXXX per month or the maximum
interest rate permitted by applicable law, beginning five days after written
notice from Tri-Point to the Partnership that the payment is overdue. The
Partnership shall not reduce any payments to Tri-Point by set-off, counterclaim
or otherwise, without the consent of Tri-Point.
3.6 Resale Price. The Partnership shall unilaterally establish the
------------
resale price for the Product.
4. Quality Assurance; Testing.
--------------------------
4.1 Testing. Tri-Point shall test or cause to be tested each Lot to be
-------
supplied pursuant to this Agreement before delivery of such Lot to the
Partnership for compliance with the Product Specifications. Tri-Point shall
retain sufficient samples of each Lot tested for at least the shelf life of the
Lot plus one year, or such longer period as may be required by GMPs, the Act or
the Product Specifications in order to comply with applicable GMP requirements.
4.2 Recalls. If either party believes that a recall of the Product is
-------
necessary or
<PAGE>
appropriate, such party will notify the other party and the parties will
immediately confer as to the appropriateness of a recall. If one party believes
that it must initiate a recall prior to such conference, or if, after such
conference, the parties are not in agreement as to the appropriateness of a
recall, then either party may undertake the recall at its own expense, but any
such expenses shall be subject to indemnification and reimbursement in
accordance with the provisions of Article 5 hereof.
4.3 Compliance with Laws. Each party agrees to comply with all laws and
--------------------
regulations applicable to it and affecting the formulation, manufacture,
packaging, labeling, promotion, use or sale of Product. Because the Product may
be provided by the Partnership under a contract with the federal government of
the United States to which the provisions of Section 202 of Executive Order
11246, Section 402 of The Vietnam Era Veterans Readjustment Assistance Act of
1974, and Section 503 of the Rehabilitation Act of 1973 apply, the
aforementioned sections are incorporated herein by specific reference, to the
extent applicable to Tri-Point by the terms thereof. Tri-Point acknowledges that
Regulations under the Executive Order, the Vietnam Era Veterans Readjustment Act
and the Rehabilitation Act may require Tri-Point to develop an Affirmative
Action Compliance Program and file an Employee Information Report EEO-1 or other
reports as prescribed. (See 41 CFR 60.) Tri-Point warrants that the prices for
the Product set forth in this Agreement for the period ending December 31, 1991
are valid under the provisions of the Robinson-Patman (Price Discrimination)
Act. Tri-Point warrants and agrees that it has complied, and will comply, with
(i) the Fair Labor Standards Act, as amended, (ii) Social Security and Workman's
Compensation Laws, as amended, as to work done on Tri-Point's premises, and
(iii) all other applicable laws, codes, regulations, rules and orders. Each
<PAGE>
invoice delivered by Tri-Point hereunder shall bear the following certification:
"Materials or work covered by this invoice were produced in conformity with the
Fair Labor Standards Act, as amended." Tri-Point will indemnify and hold
harmless the Partnership for any failure by Tri-Point to comply with any of the
foregoing.
4.4 Quality Control. Tri-Point shall produce Product in accordance with
---------------
the Product Specifications, GMPs and the Act. Tri-Point agrees to authorize the
FDA, upon the FDA's request, to inspect its facilities, batch records and all
Product records required under GMPs (i.e. device master records, device history
records and complaint files) in connection with such production. Tri-Point shall
also permit quality assurance and regulatory representatives of the Partnership
to inspect its manufacturing facilities and its testing procedures for Product
and the related batch records, upon reasonable notice and during normal business
hours. The Partnership shall have the right to conduct an annual audit of Tri-
Point's laboratories and other facilities to verify the accuracy of Tri-Point's
testing under Section 4.1, and Tri-Point shall provide the information necessary
for the Partnership to undertake these activities so long as such information is
(i) reasonably available to Tri-Point and (ii) similar in type and level of
detail provided by Tri-Point at the Partnership's inspection at Tri-Point's
facilities on February 7, 1991. If, in the reasonable judgment of the
Partnership, any annual audit indicates the possibility of any deficiencies in
the manufacturing, storage, testing, labelling or packaging of the Product, the
Partnership may undertake follow-up inspections and audits until such
deficiencies are corrected. The Partnership acknowledges that the inspection
rights granted to the Partnership hereunder may give the Partnership access to
trade secrets and other technical information that Tri-Point considers to be
valuable and proprietary. All such inspection rights permitted under this
<PAGE>
Section 4.4 shall be conducted by the Partnership subject to the confidentiality
obligations of Section 10 hereof. The Partnership shall not make any copies of
the batch records or other materials reviewed in the course of such inspections.
4.5 Labeling. Tri-Point, in consultation with the Partnership, shall
--------
determine the Product labeling and package inserts for use of the Product with
Actisite and any other Periodontal Products. Each party shall provide the other
party with copies of all product labels, labeling, package inserts and promotion
materials to be used by it or its Affiliates, licensees or distributors with the
Product (or with Actisite or any other Periodontal Product when used with the
Product) prior to any use thereof.
4.6 Complaints. Each party shall report to the other, in writing and as
----------
promptly as practicable, any customer or regulatory complaints (as defined in
applicable GMPs) and any other statements or notifications that could reasonably
be deemed "complaints" it receives concerning the Product. The Partnership shall
be primarily responsible for handling such complaints with respect to Product
purchased hereunder, and Tri-Point shall cooperate, at its own expense, to the
extent reasonably requested by the Partnership. Each party shall promptly
disclose to the other any information which becomes available to it relating to
the efficacy, side effects or other physiological effects caused through use of
the Product.
4.7 Adverse Experience Reporting. Each party agrees to report to the
----------------------------
other any adverse experience information associated with the use of the Product,
which relates to side effects, injuries or death, toxicity associated with
clinical use studies, investigations, tests or commercial marketing of the
Product. Each party agrees to make any such information of which it becomes
aware, available to the other as quickly as possible (and in the case of serious
injury or death, within 24 hours after such party becomes aware thereof) after
such
<PAGE>
information is obtained. In addition, each party agrees to immediately inform
the other of any information described in this Section 4.7 received from any
governmental agency or authority.
5. Warranties and Indemnifications.
-------------------------------
5.1 Tri-Point Warranties. Tri-Point warrants that, at the time of
--------------------
shipment hereunder, any Product supplied by it hereunder (i) shall meet the
Product Specifications; (ii) shall not be adulterated or misbranded within the
meaning of the Act, or any applicable laws in which the definitions of
adulteration and misbranding are substantially the same as those contained in
the Act, as the Act and laws are constituted and effective at the time of
shipment of Product to the Partnership; and (iii) shall be manufactured in
accordance with GMPs; provided, however, that Tri-Point shall not be liable for
misbranding with respect to any product, labels and labeling or package insert
text provided by the Partnership or its Affiliates or subdistributors. Tri-Point
warrants that the Product and all components thereof comply in all respects with
all applicable requirements, if any, of the Toxic Substances Control Act and the
regulations thereunder.
TRI-POINT'S WARRANTIES SET FORTH IN THIS SECTION 5.1 ARE ITS EXCLUSIVE
WARRANTIES TO THE PARTNERSHIP WITH RESPECT TO THE PRODUCT, AND ARE GIVEN AND
ACCEPTED IN LIEU OF ANY AND ALL OTHER WARRANTIES, GUARANTEES, CONDITIONS AND
REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE
PARTNERSHIP SHALL NOT BE ENTITLED TO INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR
DAMAGES FOR LOSS OF PROFITS, LOSS OF USE, OR LOSS OF
<PAGE>
GOODWILL AS A RESULT OF ANY BREACH OF WARRANTY.
5.2 Tri-Point Indemnity. Tri-Point shall indemnify and hold harmless the
-------------------
Partnership from and against any and all costs, expenses, damages, judgments and
liabilities (including attorneys' fees and the cost of any recalls) incurred by
or rendered against the Partnership or its Affiliates and arising from any claim
or suit resulting from any breach by Tri-Point of its warranties under Section
5.1. The Partnership shall give prompt written notice of any such claim or suit,
and shall permit Tri-Point to undertake the defense thereof, at Tri-Point's
expense. The Partnership shall cooperate in such defense, to the extent
reasonably requested by Tri-Point, at Tri-Point's expense. The Partnership shall
have the right to participate in such defense, at its own expense, to the extent
that in its judgment, the Partnership may be prejudiced thereby. In any claim
made or suit brought for which the Partnership seeks indemnification under this
Section 5.2, the Partnership shall not settle, offer to settle, or admit
liability or damages without the prior written consent of Tri-Point, such
consent not to be unreasonably withheld.
5.3 Partnership Indemnity. The Partnership shall indemnify and hold
---------------------
harmless Tri-Point and its Affiliates of and from any and all costs, expenses,
damages, judgments, and liabilities (including attorneys' fees) incurred by or
rendered against Tri-Point or its Affiliates and arising from any claims made or
suits brought against Tri-Point resulting from or arising in connection with (i)
the testing, marketing, advertisement, sale or distribution of the Product or
Actisite (or any other Periodontal Product) by the Partnership; or (ii) any
contamination of or defect in the Product arising after shipment thereof by Tri-
Point; or (iii) the use of the Product with Actisite or any other Periodontal
Product by any person. Notwithstanding the foregoing, the Partnership shall not
be required to indemnify Tri-Point
<PAGE>
for any liability arising, in whole or in part, out of Tri-Point's non-
compliance with the Product Specifications or any other liability related to the
Product for which Tri-Point has assumed an indemnification obligation under
Section 5.2 hereof. Tri-Point shall give the Partnership prompt written notice
of any such claim or suit, and shall permit the Partnership to undertake the
defense thereof, at the Partnership's expense. Tri-Point shall cooperate in such
defense to the extent reasonably requested by the Partnership, at the
Partnership's expense. Tri-Point shall have the right to participate in such
defense, at its own expense, to the extent that in its judgment, Tri-Point may
be prejudiced thereby. In any claim made or suit brought for which Tri-Point
seeks indemnification under this Section 5.3, Tri-Point shall not settle, offer
to settle, or admit liability or damages without the prior written consent of
the Partnership, such consent not to be unreasonably withheld.
6. Manufacturing Changes.
---------------------
Tri-Point shall not file with the FDA any amendments to the Application (or
any other 510k notification with respect to the Product or which would affect
the Application) without the Partnership's prior written consent. Tri-Point
shall not make any change in the Product Specifications or labeling or in any
manufacturing methods or processes for the Product without first giving the
Partnership at least ten business days' written notice explaining the proposed
change. Tri-Point shall consider any objections made by the Partnership within
such ten day period, and if the Partnership reasonably objects to the proposed
change within such ten day period on the basis that the Product may not be
equally satisfactory for the Partnership's use after the proposed change as it
was before such change, Tri-Point will not initiate the change without the
Partnership's prior written consent. (See reverse side of page 15 for
continuation of Section 6.)
<PAGE>
6. (Continuation) Manufacturing Changes.
---------------------
It is understood that Tri-Point shall not be obligated to change the
Product Specifications or any manufacturing methods or processes if the
Partnership elects to market other Periodontal Products with the Product.
7. Regulatory and Technical Support.
--------------------------------
The rights of the Partnership to Tri-Point's FDA Device Master File and
Tri-Point's obligations to provide data with respect to the Product shall be
governed by the terms of a letter agreement dated July 11, 1990 among Tri-Point,
Procter & Gamble and ALZA (the "Letter Agreement"), and the Letter Agreement is
incorporated by reference herein. Tri-Point shall provide to the Partnership
such ongoing technical and regulatory support, information and assistance (to
the extent available to Tri-Point without undue expense) with respect to the
Product, and in connection with the marketing and use of the Product with
Actisite or another Periodontal Product may be reasonably requested from time to
time by the Partnership, including obtaining approval or endorsements of the
Product by the American Dental Association and other similar bodies. Tri-Point
shall notify the Partnership in writing of any FDA or state inspections of its
manufacturing facilities related to the Product (in advance, if Tri-Point knows
in advance) and shall provide the Partnership with any written report or other
communication with respect to such inspection. Tri-Point shall provide the
Partnership with copies of all documents filed with or otherwise provided to or
received from the FDA with respect to the Product within three business days
after providing, filing or receiving such documents, and shall provide oral
notification to the Partnership, followed by a written summary, of any material
oral contacts with the FDA with respect to the Product. Tri-Point shall continue
during the term of this Agreement to
<PAGE>
monitor the stability of the Product to support the expiration dating of the
Product, and to make the testing results with respect thereto available to the
Partnership upon request. Tri-Point shall, at no cost to the Partnership, use
its commercially reasonable efforts to obtain appropriate regulatory approvals
to market the Product in such foreign jurisdictions as may be mutually agreed
upon by the parties, and Tri-Point shall comply with the requirements of the
regulatory agencies of such jurisdictions applicable to the Product. The
Partnership shall provide such advice and nonmonetary assistance with respect to
Tri-Point's applications for such regulatory approvals as may be reasonably
requested by Tri-Point. All such regulatory approvals for the Product shall be
owned by Tri-Point.
8. Alternate Supply. If, at any time during the term of this Agreement,
----------------
Tri-Point is unable to supply in a timely manner quantities of Product duly and
properly ordered by the Partnership in accordance with this Agreement, Tri-Point
may appoint an alternate supplier (which may be the Partnership, if the
Partnership and Tri-Point so agree), to manufacture the Product consistent with
the Product Specifications and the terms of this Agreement during the applicable
period. Prior to appointing any such supplier, Tri-Point shall notify the
Partnership in writing, and Tri-Point shall not appoint any supplier to which
the Partnership shall reasonably object in writing within ten business days
after Tri-Point's notice (such objection shall state the Partnership's
reasonable commercial objections to such proposed alternate supplier). Tri-Point
shall remain responsible for all of its obligations under this Agreement,
notwithstanding any supply subcontract with a person other than the Partnership,
and the rights of the Partnership hereunder (including the right of inspection
and audit) shall be equally applicable with respect to any alternate supplier.
9. Patents and Proprietary Information. Tri-Point is not aware that the
-----------------------------------
manufacture, use
<PAGE>
or sale of the Product in the manner contemplated by this Agreement will
infringe any patents or violate any proprietary rights of any third parties.
Tri-Point will indemnify and hold harmless the Partnership from and against any
and all costs, expenses, damages, judgments and liabilities (including any
attorneys' fees) incurred by or rendered against the Partnership as a result of
any claim, finding or adjudication to the effect that the manufacture, use or
sale of the Product by the Partnership in the form supplied by Tri-Point
infringes or violates any patent or proprietary rights of any third parties. The
Partnership will give Tri-Point prompt written notice of any such claim or suit
and will permit Tri-Point to undertake the defense thereof, at Tri-Point's
expense. The Partnership shall cooperate in such defense to the extent
reasonably requested by Tri-Point, at Tri-Point's expense. The Partnership shall
have the right to participate in such defense, at its own expense, to the extent
that, in its judgment, the Partnership may be prejudiced thereby.
10. Confidentiality. Each party shall maintain in confidence and shall
---------------
not disclose any information of the other party that has been marked by the
furnishing party as confidential or proprietary ("Confidential Information"),
other than to its own Affiliates, employees, consultants and agents having the
need to know, and who are bound to hold such information in confidence. Without
limiting the foregoing, "Confidential Information" includes, among other things,
the Product Specifications and the contents of batch records and other materials
related to the Product that are reviewed by the Partnership in connection with
its inspections and audits under Section 4.4. hereof. The Partnership shall use
the Product Specifications and other Confidential Information of Tri-Point only
for the purposes authorized under this Agreement, and each party shall treat the
other's Confidential Information in a manner consistent with the procedures the
receiving party uses to protect its
<PAGE>
own proprietary information. The foregoing obligations of confidentiality shall
not apply to:
(i) information in the public domain through no fault of the
disclosing party or any agent, representative or employee thereof;
(ii) information known to the receiving party at the time of
disclosure or independently developed by the receiving party, in each case,
to the extent evidenced by written records promptly disclosed upon receipt
of such information;
(iii) information which is received from a third party who is
rightfully in possession of such information and who has not violated any
obligation of confidentiality concerning use or disclosure of such
information; or
(iv) information which is required to be disclosed by order of a
regulatory agency or a court of competent jurisdiction; provided that in
either case the disclosing party shall use its best efforts to obtain
confidential treatment of such disclosure.
Notwithstanding the foregoing, information may be disclosed to
the extent reasonably necessary in order to obtain government approvals to
market the Product with Actisite or another Periodontal Product and to
bodies such as the American Dental Association (to the extent such
disclosure is authorized under the Letter Agreement, and otherwise with
Tri-Point's prior written consent, such consent not to be unreasonably
withheld) in order to obtain their approvals of the use of the Product with
Actisite or another Periodontal Product.
11. Term and Termination.
--------------------
11.1 Term. Unless terminated earlier under the provisions of this
----
Section 11, this Agreement shall continue in effect for three years from the
beginning of the First Shipment Year. Thereafter, this Agreement shall be
renewed automatically for successive one year
<PAGE>
terms until one party shall give the other written notice, at least 120 days
prior to the beginning of the next successive one year term, that the Agreement
will not be renewed beyond the then current term.
11.2 Termination for Breach. If either the Partnership or Tri-Point
----------------------
breaches or defaults in the performance or observance of any material provisions
of this Agreement and such breach or default is not cured within 60 days after
written notice by the other party specifying such breach or default (or if such
breach or default is not of a type which can reasonably be cured in 60 days,
then such longer period as is reasonable), the nonbreaching party shall have the
right to terminate this Agreement upon a further 30 days' written notice.
11.3 Termination Due to Safety or Regulatory Issues. If (i) a published
----------------------------------------------
scientific study, undertaken or reported by a nationally recognized health
research agency or government body such as the National Toxicology Program,
links any component of the Product to any health or safety hazard, or (ii) the
Application is revoked or suspended or the Product cannot be legally sold in the
United States, the Partnership may terminate the Agreement upon 90 days' prior
written notice to Tri-Point.
11.4 Rights on Termination. Termination of this Agreement for any reason
---------------------
shall be without prejudice to (i) either party's rights under Section 5 of this
Agreement with respect to claims arising out of events occurring prior to such
termination; (ii) Tri-Point's right to receive all payments provided under
Section 3 hereof with respect to Product shipped to the Partnership prior to the
effective date of such termination; and (iii) any other remedies which either
party may otherwise have under this Agreement.
11.5 No Liability. Neither party shall incur any liability to the other
------------
by reason of the expiration or termination of this Agreement as provided herein,
whether for loss of
<PAGE>
goodwill, anticipated profits or otherwise, and the parties shall accept all
rights granted and all obligations assumed hereunder, including those in
connection with such expiration or termination, in full satisfaction of any
claims resulting from such expiration or termination.
12. Notices.
-------
Any notice required under this Agreement shall be in writing and addressed
as follows:
If to Tri-Point: Tri-Point Medical, L.P.
5265 Capital Boulevard
Raleigh, N.C. 31995
If to the Procter & Gamble/ALZA
Partnership: Partners for Oral Healthcare
c/o ALZA Corporation
950 Page Mill Road
Palo Alto, CA 94303
Attention: Vice President, Legal
All notices given in accordance with this Section 12 shall be deemed to be
effective five days after the date of mailing, if mailed by registered or
certified mail, postage prepaid and return receipt requested, or upon delivery,
if delivered by hand. Any party may change its address at which notice is to be
received by written notice provided pursuant to this Section 12.
13. Force Majeure.
-------------
13.1 Event of Force Majeure. Neither party shall be responsible or liable
----------------------
to the other hereunder for the failure or delay in the performance of this
Agreement due to any war, fire, accident or other casualty, or any labor
disturbance or act of God or the public enemy, or any other contingency beyond
the party's reasonable control. In the event of the applicability of this
Section 13.1, the party failing or delaying performance shall use its
commercially reasonable efforts to eliminate, cure and overcome any of such
causes and
<PAGE>
resume the performance of its obligations.
13.2 Notification. Upon the occurrence of an event of force majeure, the
------------
party failing or delaying performance, shall promptly notify the other party, in
writing, setting forth the nature of the occurrence, its expected duration and
how such party's performance is affected. The failing or delaying party shall
resume performance of its obligations hereunder as soon as practicable after the
force majeure event ceases.
13.3 Allocations. If an event of force majeure prevents Tri-Point from
-----------
delivering all Product duly ordered hereunder, Tri-Point shall allocate its
available supply of Product, component raw materials, and related manufacturing
facilities among Tri-Point purchasers on such basis that the Partnership's
percentage reduction will not be greater than the overall percentage reduction
in the total quantity of Product, component raw materials, and related
manufacturing facilities Tri-Point has available for supply. In the event
nonavailability of raw materials causes Tri-Point to reduce shipments to the
Partnership, Tri-Point agrees to give the Partnership the option to provide such
raw materials to Tri-Point at a price not to exceed market price. If the
Partnership provides such raw materials to Tri-Point at such price, Tri-Point
will increase deliveries of Product to the Partnership by the amount produced
with the raw materials supplied by the Partnership, up to the quantities duly
ordered pursuant to this Agreement.
14. Arbitration. All disputes arising under this Agreement shall be
-----------
settled by arbitration conducted in accordance with the Commercial Rules of the
American Arbitration Association, before a panel of three arbitrators, one of
whom is selected by the Partnership, one of whom is selected by Tri-Point, and
one of whom is selected by the Partnership and Tri-Point (or by the other two
arbitrators, if the parties cannot agree). The parties will
<PAGE>
request an expedited hearing for any dispute related to a nonpayment hereunder,
and will otherwise cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable. Any arbitration
proceeding instituted by the Partnership hereunder shall be brought in Raleigh,
North Carolina, and any arbitration proceeding instituted by Tri-Point hereunder
shall be brought in Palo Alto, California. Service of process in connection
therewith shall be deemed sufficient if made pursuant to the provisions of
Section 12 of this Agreement.
Any award rendered by the arbitrators shall be binding upon the parties
hereto and shall be final, subject to review by a court of competent
jurisdiction under the statutory standard of review applicable to arbitrations.
Judgment upon the award may be entered in any court of record of competent
jurisdiction. Each party shall pay its own expenses of arbitration, and the
expenses of the arbitrators shall be equally shared except that if, in the
opinion of the arbitrators, any claim by a party hereto or any defense or
objection thereto by the other party was unreasonable, the arbitrators may in
their discretion assess, as part of their award, all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and expenses of the arbitrators against the party raising such unreasonable
claim defense, or objection. Nothing herein shall prevent the parties from
settling any dispute by mutual agreement at any time.
15. Miscellaneous.
-------------
15.1 Trademarks. Each party agrees and acknowledges that it will not
----------
acquire by virtue of this Agreement any interest in or to any trademarks or
trade names of the other party. The Partnership shall advertise, market and
promote the Product in a manner that is consistent with good trademark practice
and that does not adversely affect the value of the
<PAGE>
Octyldent trademark and the goodwill associated therewith. The Partnership's use
of the Octyldent trademark shall enure to the benefit of Tri-Point for purposes
of Section 5 of the Lanham Act and for all other purposes.
15.2 Publicity. Each party agrees not to issue any press release or other
---------
public statement disclosing the existence of, or relating to this Agreement,
without the prior written consent of the other party; provided, however, that
neither party shall be prevented from complying with any duty of disclosure it
may have pursuant to applicable laws or governmental orders or regulations.
15.3 Waiver and Amendment. A waiver by either party of any term or
--------------------
condition of this Agreement in any one instance shall not be deemed or construed
to be a waiver of such term or condition for any other time. All rights,
remedies, undertakings, obligations and agreements contained in this Agreement
shall be cumulative and none of them shall be a limitation of any other remedy,
right, undertaking, obligation or agreement of either party. This Agreement may
not be amended or modified, except in a writing signed by an officer of each
party hereto.
15.4 Severability. If any one or more of the provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable, in any respect, the
validity, legality or enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby. In the event any provisions
shall be held invalid, illegal or unenforceable, the parties shall negotiate in
good faith to substitute a valid, legal and enforceable provision which, insofar
as practical, implements the purposes hereof.
15.5 Headings. The headings contained in this Agreement are included
--------
herein for reference and convenience and shall not effect the meaning of the
provisions of this
<PAGE>
Agreement.
15.6 Assignment. This Agreement and all rights and obligations hereunder
----------
are personal to the parties hereto and may not be assigned by either party
without the express written consent of the other party, which consent shall not
be unreasonably withheld, except that either party shall be free to assign its
rights and/or obligations to its Affiliates, provided such Affiliates are in the
same or similar business as the assigning party and provided further that the
Partnership may assign this Agreement to either of its partners. Any assignment
except to such Affiliates or partner, or any attempted assignment in the absence
of the prior written consent of the nonassigning party, shall be void and
without effect at the option of the non-assigning party. This Agreement shall be
binding upon any permitted assignee of either party.
15.7 Governing Law. This Agreement shall be construed, and the rights of
-------------
the parties determined, in accordance with the laws of the United States of
America and the state of Delaware.
15.8 Survival of Provisions. The provisions of Sections 3.5, 4.1, 4.2,
----------------------
4.6, 4.7, 5.1, 5.2, 5.3, 9, 10, 11.4, 11.5, 14, 15.3, 15.4, 15.7 and this
Section 15.8 shall survive the termination for any reason of this Agreement.
15.9 Entire Agreement. This Agreement, together with the exhibits hereto,
----------------
sets forth the entire agreement and understanding between the parties hereto and
supersedes all documents, agreements, verbal consents or understandings made
between Tri-Point and the Partnership with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the date first above written, by their duly authorized
representatives.
<PAGE>
Tri-Point Medical, L. P.
By /s/ Jeffrey C. Basham
-------------------------
Title President
----------------------
Procter & Gamble/ALZA Partners
for Oral Healthcare
By ALZA Corporation, Partner
By /s/ Jane E. Shaw
-------------------------
Jane E. Shaw, Ph.D.
President
CAG:njr
<PAGE>
EXHIBITS
--------
EXHIBIT A
PRODUCT SPECIFICATIONS
EXHIBIT B
CERTIFICATE OF COMPLIANCE
<PAGE>
[REDACTED]
EXHIBIT A
<PAGE>
[REDACTED]
EXHIBIT B
<PAGE>
AMENDMENT NO. 1 TO
ADHESIVE SUPPLY AGREEMENT*
This AMENDMENT NO. 1 (the "Amendment") is made as of April 13, 1992, by and
between Procter & Gamble/ALZA, Partners for Oral Health Care (the "Partnership")
and Tri-Point Medical L.P. ("Tri-Point"), to amend that certain Adhesive Supply
Agreement between the Partnership and Tri-Point dated as of March 14, 1991 (the
"Supply Agreement"), with reference to the following background.
BACKGROUND
----------
A. Under the Supply Agreement, Tri-Point supplies Product to the
Partnership to distribute in conjunction with the Partnership's product known as
Actisite(R). The Supply Agreement requires the Partnership to place firm orders
for the Product which equal or exceed XXXXXXXXXX during each Shipment Year.
B. The parties wish to adjust the minimum purchase amounts required under
the Supply Agreement to be in effect as provided below.
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions. All terms not otherwise defined herein are used as
-----------
defined in the Supply Agreement.
2. Waiver of Initial Minimum Purchase Requirement. For the Shipment Year
----------------------------------------------
beginning February 1, 1991 and ending January 31, 1992, Tri-Point acknowledges
receipt from the Partnership of XXXXXX in firm orders for the Product as of the
date of this Amendment and hereby waives the requirement under Section 2.3 of
the Supply Agreement as to the remaining XXXXXXX of firm orders required under
the Supply Agreement. In consideration of such waiver, the Partnership agrees to
pay Tri-Point the sum of XXXXXX within 15 days of execution of this Amendment.
Tri-Point will apply the XXXXXX payment to defray the costs of preparing and
filing applications for product approvals in Europe and other activities
required to secure such approvals. Tri-Point shall provide ALZA with quarterly
status reports related to European product approvals.
3. Alternative Payments. The minimum purchase requirement specified in
--------------------
the last sentence of Section 2.3 of the Supply Agreement shall be adjusted as
follows. From the Shipment Year commencing February 1, 1992, through and
including the end of the Shipment Year in which the Partnership receives
approval by the U.S. Food and Drug Administration (FDA) to market Actisite, the
maximum firm order payment obligation on the part of the Partnership shall be
XXXXXXXXXX for each such Shipment Year, against which all firm orders placed
during such Shipment Year shall be fully credited. The adjustment described in
the immediately preceding sentence shall not apply to Shipment Years following
* Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under the
Securities Act of 1933. Such portions are marked by "X" or the word
"Redacted."
<PAGE>
the Shipment Year in which such FDA approval is received, to which Shipment
Years the minimum purchase requirement specified in the last sentence of Section
2.3 of the Supply Agreement shall apply.
4. Effect of Amendment. Except as expressly amended or modified herein,
-------------------
all of the terms and conditions of the Supply Agreement shall continue in full
force and effect.
5. Counterparts. This Agreement shall become binding when any one or
------------
more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears thereon, but all of which together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
PROCTER & GAMBLE/ALZA PARTNERS TRI-POINT MEDICAL, L.P.
FOR ORAL HEALTHCARE
By ALZA Corporation, Partner By: /s/ Jeffrey C. Basham
--------------------------
By: /s/ Jane E. Shaw
----------------------------
<PAGE>
ADHESIVE SUPPLY AGREEMENT *
This Adhesive Supply Agreement (the "Agreement") is entered into as of the
26th day of March, 1993 by and between ALZA Corporation ("ALZA") and Tri-Point
Medical L. P. ("Tri-Point")
RECITALS
--------
A. ALZA manufactures the Actisite(R) (tetracycline hydrochloride)
Periodontal Fiber ("Actisite") and has the right to market Actisite in all
countries of the world except the United States, Canada, Mexico and Venezuela
(the "Territory").
B. Tri-Point has developed and has proprietary rights to a 2-octyl
cyanoacrylate adhesive product known as Octyldent (the "Product") more
particularly described on Exhibit B hereto.
C. ALZA desires to market Actisite with the Product in the Territory, and
may desire to market other Periodontal Products (as defined below) with the
Product in the Territory.
D. On the terms and conditions set forth in this Agreement, ALZA desires
to have manufactured by Tri-Point and to purchase from Tri-Point, and Tri-Point
desires to manufacture for and to sell to ALZA, commercial supplies of the
Product for use in the Territory with Actisite and other Periodontal Products.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Definitions.
-----------
1.1 "Act or Acts" shall mean, individually or collectively, the
United States Food, Drug and Cosmetic Act, as amended from time to time, and the
regulations promulgated thereunder, and all other applicable laws and
regulations of any foreign jurisdiction relating to the manufacture and sale of
* Portions of this exhibit were omitted and filed separately with the Secretary
of the Commission pursuant to an application for confidential treatment filed
with the Commission pursuant to Rule 406 under the Securities Act of 1933.
Such portions are marked by "X" or the word "Redacted."
<PAGE>
pharmaceutical products or medical devices in the Territory.
1.2 "Affiliate" shall mean any corporation or other business entity
which, directly or indirectly, controls, is controlled by or is under common
control with ALZA or Tri-Point. For purposes of this definition, the word
"control" shall mean (i) ownership of at least fifty percent (50%) of the voting
power entitled to vote for the election of directors, in the case of a
corporation; or (ii) ownership of at least fifty percent (50%) of the interest
in profits, in the case of a business entity other than a corporation; or (iii)
in either case, the maximum ownership effectively allowed, if less than 50%, on
a country-by-country basis, of the voting stock or percentage interest in
profits.
1.3 "Application or Applications" shall mean, individually or
collectively, Tri-Point's 510-k notification #K902078 filed with the FDA on May
3, 1990 with respect to the Product, and all other documents filed with the FDA
and any Foreign Regulatory Agency relating to the manufacture and sale of the
Product in the Territory.
1.4 "FDA" shall mean the United States Food and Drug Administration.
1.5 "Firm Forecast" shall mean, for any calendar quarter, the
forecast in effect for such quarter as of the first day of the immediately
preceding calendar quarter.
1.6 "First Shipment Year" shall mean the twelve month period
beginning on the date of the first shipment by Tri-Point
2
<PAGE>
of commercial supplies of the Product hereunder, and "Shipment Year" shall mean
any successive twelve month period thereafter.
1.7 "Foreign Regulatory Agency" shall mean any foreign governmental
or regulatory agency having jurisdiction over the manufacture and sale of
pharmaceutical products and medical devices.
1.8 "GMPs" shall mean current Good Manufacturing Practices as defined
from time to time by the Acts and as related to regulations or any successor
laws or regulations governing the manufacture and sale of the Product in the
Territory.
1.9 "Lot" shall mean each production run of Product having the same
lot number.
1.10 "Periodontal Product" shall mean a product marketed by ALZA for
the localized treatment of oral diseases or conditions by application of such
products within the periodontal pocket.
1.11 "Product" shall mean the 2-octyl cyanoacrylate adhesive known as
Octyldent meeting the Product Specifications.
1.12 "Product Specifications" shall mean the specifications for the
Product and testing methods and specifications attached hereto as Exhibit A, as
may be amended from time to time by mutual written agreement of the parties.
1.13 "Unit" shall mean 1.5 milliliters of Product in a single labeled
vial with a resealable stopper meeting the Product Specifications, packaged with
each Unit in a labeled box with a package insert, such boxes, inserts and labels
having been
3
<PAGE>
reviewed by ALZA in accordance with Section 4.5 and meeting the requirements as
defined from time to time by the Acts and all other applicable laws and
regulations.
2. Purchase and Sale; Quantities and Orders.
----------------------------------------
2.1 Purchase and Sale of Product. Subject to the remainder of this
----------------------------
Agreement, Tri-Point agrees to sell to ALZA and ALZA agrees to purchase from
Tri-Point, F.O.B. Tri-Point's shipping point, ALZA's requirements of Product for
use with Actisite and other Periodontal Products, and ordered in accordance with
this Agreement. This Agreement shall not preclude Tri-Point from selling
Product to third parties, so long as Tri-Point shall continue to meet its
obligations to supply Product hereunder. ALZA shall have the nonexclusive,
right to market and distribute the Product with Actisite (and any other
Periodontal Product) in the Territory. Except as otherwise provided herein or
in the Adhesive Supply Agreement between Procter & Gamble/ALZA, Partners for
Oral Health Care and Tri-Point, ALZA shall not otherwise market the Product
without Tri-Point's consent.
2.2 Form. Product supplied hereunder shall be supplied in the
----
ordered quantities (plus or minus 10%) and shall meet the Product
Specifications. Each shipment shall be accompanied by a Certificate of
Compliance in the form attached hereto as Exhibit B. Product shall be
manufactured in accordance with (i) the FDA Device Master File for the Product,
(ii) the GMPs and the Acts and all other applicable laws and regulations
4
<PAGE>
and (iii) any procedures set forth in the Applications.
2.3 Firm Orders. ALZA shall order Product from Tri-Point by firm
-----------
purchase order specifying a delivery date not less than 60 days from the date of
the order. Each firm order will be for a minimum of XXX Units of Product, and
the firm orders for any quarter shall be for at least 75% of the Firm Forecast
for such quarter. Tri-Point shall deliver the quantities ordered pursuant to
firm purchase orders for each calendar quarter; provided, however, that to the
extent that firm orders for any calendar quarter exceed by more than 25% the
Firm Forecast for such quarter, Tri-Point will use its commercially reasonable
efforts to accommodate any such excess, but will not be in breach of its
obligations under this Agreement if, despite such efforts, Tri-Point is unable
to deliver all or a portion of such excess.
2.4 Acceptance. Firm orders placed with Tri-Point by ALZA pursuant
----------
to the provisions of section 2.3 may be rejected in writing by Tri-Point within
ten days after receipt. The sole basis for rejection of an order shall be that
the order is not in accordance with the terms of this Agreement. Tri-Point will
use commercially reasonable efforts to ensure that Product ordered by ALZA in
accordance with this Agreement is shipped in accordance with the delivery dates
specified in ALZA's purchase order accepted by Tri-Point, and Tri-Point will
notify ALZA promptly of any significant anticipated delay.
2.5 Forecasts. On or before the first day of each calendar quarter,
---------
ALZA shall provide Tri-Point with rolling four
5
<PAGE>
calendar quarter forecasts of the quantities of Product that ALZA expects to
order for delivery during the four subsequent calendar quarters.
3. Price and Payment Terms.
-----------------------
3.1 Initial Commercial Price. Subject to the remainder of this
------------------------
Section 3, the price to be paid by ALZA for a Unit of Product shall be XXXXXXXX
per Unit for the first XXXXXXXX Units ordered by ALZA and accepted by Tri-Point
in accordance with Section 2.3, and XXXXXXXX per Unit for each additional Unit
ordered by ALZA and accepted by Tri-Point in accordance with Section 2.3, in
both cases for Units so ordered and accepted during the period ending December
31, 1993.
3.2 Subsequent Price. The price described in Section 3.1 may be
----------------
increased by Tri-Point no more frequently than once in any rolling 12 month
period beginning 12 months after the date of the first order hereunder;
provided, however, that no such increase shall exceed the greater of (i) 5% or
(ii) the increase in the Producer's Price Index, Manufactured Products, for the
period beginning on the date of the first order or ther date of the last
increase under this Section 3.2, as applicable, and ending on the date of
Tri-Point's notice of such price increase. Any increase will be effective as to
orders placed more than 90 days after written notice from Tri-Point of the
increase.
3.3 Most Favored Nation. Notwithstanding the provisions of Sections
-------------------
3.1 and 3.2, if Tri-Point sells the Product commercially to an unrelated third
party for periodontal
6
<PAGE>
use at a price lower than that provided under Section 3.1 or Section 3.2, as
applicable, ALZA may elect the lower price if it also accepts the same quantity,
delivery terms and other material terms accepted by the third party.
3.4 General Price Terms. All prices determined hereunder are F.O.B.
-------------------
Tri-Point. Risk of loss shall pass to ALZA upon delivery of Product to a common
carrier by Tri-Point.
3.5 Payment. Payment by ALZA for Product supplied by Tri-Point
-------
hereunder shall be in United States dollars and made within 30 days after the
date of Tri-Point's invoice. Product shall be invoiced no sooner then the date
of shipment by Tri-Point. Any amount that is not paid when due shall accrue
interest at a rate equal to the lesser of XXXXXX per month or the maximum
interest rate permitted by applicable law, beginning five days after written
notice from Tri-Point to ALZA that the payment is overdue. ALZA shall not reduce
any payments to Tri-Point by set-off, counterclaim or otherwise, without the
consent of Tri-Point.
3.6 Resale Price. ALZA shall unilaterally establish the resale
------------
price for the Product.
4. Quality Assurance; Testing.
--------------------------
4.1 Testing. Tri-Point shall test or cause to be tested each Lot to
-------
be supplied pursuant to this Agreement, before delivery of such Lot, for
compliance with the Product Specifications. Tri-Point shall retain sufficient
samples of each Lot tested for at least the shelf life of the Lot plus one
7
<PAGE>
year, or such longer period as may be required by the GMPS, the Acts or the
Product Specifications in order to comply with applicable GMP requirements.
4.2 Recalls. If either party believes that a recall of the Product
-------
is necessary or appropriate, such party will notify the other party and the
parties will immediately confer as to the appropriateness of a recall. If one
party believes that it must initiate a recall prior to such conference, or if,
after such conference, the parties are not in agreement as to the
appropriateness of a recall, then either party may undertake the recall at its
own expense, but any such expenses shall be subject to indemnification and
reimbursement in accordance with the provisions of Article 5 hereof.
4.3 Compliance with Laws. Each party agrees to comply with all
--------------------
laws and regulations applicable to it and affecting the formulation,
manufacture, packaging, labeling, promotion, use or sale of Product. Because the
Product may be provided by ALZA under a contract with the federal government of
the United States to which the provisions of Section 202 of Executive Order
11246, Section 402 of The Vietnam Era Veterans Readjustment Assistance Act of
1974, and Section 503 of the Rehabilitation Act of 1973 apply, the
aforementioned sections are incorporated herein by specific reference, to the
extent applicable to Tri-Point by the terms thereof. Tri-Point acknowledges that
Regulations under the Executive Order, the Vietnam Era Veterans Readjustment Act
and the Rehabilitation Act may require Tri-Point to develop an
8
<PAGE>
Affirmative Action Compliance Program and file an Employee Information Report
EEO-1 or other reports as prescribed. (See 41 CFR 60.) Tri-Point warrants that
the prices for the Product set forth in this Agreement for the period ending
December 31, 1993 are valid under the provisions of the Robinson-Patman (Price
Discrimination) Act. Tri-Point warrants and agrees that it has complied, and
will comply, with (i) the Fair Labor Standards Act, as amended, (ii) Social
Security and Workman's Compensation Laws, as amended, as to work done on Tri-
Point's premises, and (iii) all other applicable laws, codes, regulations, rules
and orders. Each invoice delivered by Tri-Point hereunder shall bear the
following certification: "Materials or work covered by this invoice were
produced in conformity with the Fair Labor Standards Act, as amended." Tri-Point
will indemnify ALZA and hold ALZA harmless for any failure by Tri-Point to
comply with any of the foregoing.
4.4 Quality Control. Tri-Point shall produce Product in accordance
---------------
with the Product Specifications, GMPs the Acts and all other applicable laws and
regulations. Tri-Point agrees to authorize the FDA and any other Foreign
Regulatory Agency in the Territory, upon the request of the FDA or any such
Foreign Regulatory Agency, to inspect its facilities, batch records and all
Product records required under GMPs and the Acts (i.e. device master records,
device history records and complaint files) in connection with such production.
Tri-Point shall also permit quality assurance and regulatory representatives of
ALZA to
9
<PAGE>
inspect its manufacturing facilities and its testing procedures for Product and
the related batch records, upon reasonable notice and during normal business
hours. ALZA shall have the right to conduct an annual audit of Tri-Point's
laboratories and other facilities to verify the accuracy of Tri-Point's testing
under Section 4.1, and Tri-Point shall provide the information necessary for
ALZA to undertake these activities so long as such information is (i) reasonably
available to Tri-Point and (ii) similar in type and level of detail provided by
Tri-Point at the February 7, 1991 inspection at Tri-Point's facilities conducted
by ALZA on behalf of Procter & Gamble/ALZA, Partners for Oral Health Care. If,
in the reasonable judgment of ALZA, any annual audit indicates the possibility
of any deficiencies in the manufacturing, storage, testing, labelling or
packaging of the Product, ALZA may undertake follow-up inspections and audits
until such deficiencies are corrected. ALZA acknowledges that the inspection
rights granted to ALZA hereunder may give ALZA access to trade secrets and other
technical information that Tri-Point considers to be valuable and proprietary.
All such inspection rights permitted under this Section 4.4 shall be conducted
by ALZA subject to the confidentiality obligations of Section 10 hereof. ALZA
shall not make any copies of the batch records or other materials reviewed in
the course of such inspections.
4.5 Labeling. Tri-Point, in consultation with ALZA, shall determine
--------
the Product labeling and package inserts for use
10
<PAGE>
of the Product with Actisite and any other Periodontal Products. All such
Product labeling and packaging inserts shall meet the requirements defined from
time to time by the Acts and all other applicable laws and regulations. Each
party shall provide the other party with copies of all product labels, labeling,
package inserts and promotion materials to be used by it or its Affiliates,
licensees or distributors with the Product (or with Actisite or any other
Periodontal Product when used with the Product) prior to any use thereof.
4.6 Complaints. Each party shall report to the other, in writing
----------
and as promptly as practicable, any customer or regulatory complaints (as
defined in applicable GMPs) and any other statements or notifications that could
reasonably be deemed "complaints" it receives concerning the Product. ALZA shall
be primarily responsible for handling such complaints with respect to Product
purchased hereunder, and Tri-Point shall cooperate, at its own expense, to the
extent reasonably requested by ALZA. Each party shall promptly disclose to the
other any information which becomes available to it relating to the efficacy,
side effects or other physiological effects caused through use of the Product.
4.7 Adverse Experience Reporting. Each party agrees to report to the
----------------------------
other any adverse experience information associated with the use of the Product,
which relates to side effects, injuries or death, toxicity associated with
clinical use studies, investigations, tests or commercial marketing of the
11
<PAGE>
Product. Each party agrees to make any such information of which it becomes
aware available to the other as quickly as possible (and in the case of serious
injury or death, within 24 hours after such party becomes aware thereof) after
such information is obtained. In addition, each party agrees to immediately
inform the other of any information described in this Section 4.7 received from
any governmental agency or authority.
Tri-Point shall report to the FDA all information described in this Section
4.7. All information described in this Section 4.7 that is required to be
reported to any Foreign Regulatory Agency from time to time shall be reported by
such party as shall be mutually agreed by the parties from time to time.
5. Warranties and Indemnifications.
-------------------------------
5.1 Tri-Point Warranties. Tri-Point warrants that, at the time of
--------------------
shipment hereunder, any Product supplied by it hereunder (i) shall meet the
Product Specifications; (ii) shall not be adulterated or misbranded within the
meaning of the Acts, as the Acts are constituted and effective at the time of
shipment of Product to ALZA; and (iii) shall be manufactured in accordance with
GMPs; provided, however, that Tri-Point shall not be liable for misbranding with
respect to any product, labels and labeling or package insert text provided by
ALZA or its Affiliates or distributors. Tri-Point warrants that the Product and
all components thereof comply in all respects with all applicable requirements,
if any, of the United States Toxic Substances Control Act and the regulations
thereunder. Each of ALZA's
12
<PAGE>
distributors of the Product in the Territory shall be third party beneficiaries
of the representations set forth in this Section 5.1 and shall be entitled to
rely thereon.
TRI-POINT'S WARRANTIES SET FORTH IN THIS SECTION 5.1 ARE ITS EXCLUSIVE
WARRANTIES TO ALZA WITH RESPECT TO THE PRODUCT, AND ARE GIVEN AND ACCEPTED IN
LIEU OF ANY AND ALL OTHER WARRANTIES, GUARANTEES, CONDITIONS AND
REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ALZA SHALL
NOT BE ENTITLED TO INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF
PROFITS, LOSS OF USE, OR LOSS OF GOODWILL AS A RESULT OF ANY BREACH OF WARRANTY.
5.2 Tri-Point Indemnity. Tri-Point shall indemnify and hold harmless
-------------------
ALZA from and against any and all costs, expenses, damages, judgments and
liabilities including attorneys' fees and the cost of any recalls) incurred by
or rendered against ALZA or its Affiliates and arising from any claim or suit
resulting from any breach by Tri-Point of its warranties under Section 5.1.
ALZA shall give prompt written notice of any such claim or suit, and shall
permit Tri-Point to undertake the defense thereof, at Tri-Point's expense. ALZA
shall cooperate in such defense, to the extent reasonably requested by Tri-
Point, at Tri-Point's expense. ALZA shall have the right to participate in such
defense, at its own expense, to the extent that in its judgment, ALZA may be
prejudiced thereby. In any claim made or suit brought for which ALZA seeks
13
<PAGE>
indemnification under this Section 5.2, ALZA shall not settle, offer to settle,
or admit liability or damages without the prior written consent of Tri-Point,
such consent not to be unreasonably withheld. Each of ALZA's distributors for
the Product in the Territory shall be third party beneficiaries of the right to
indemnification set forth in this Section 5.2 and shall be entitled to rely
thereon in accordance with the terms thereof.
5.3 ALZA Indemnity. ALZA shall indemnify and hold harmless Tri-
--------------
Point and its Affiliates of and from any and all costs, expenses, damages,
judgments, and liabilities (including attorneys' fees) incurred by or rendered
against Tri-Point or its Affiliates and arising from any claims made or suits
brought against Tri-Point resulting from or arising in connection with (i) the
testing, marketing, advertisement, sale or distribution of the Product or
Actisite (or any other Periodontal Product) by ALZA; or (ii) any contamination
of or defect in the Product arising after shipment thereof by Tri-Point; or
(iii) the use of the Product with Actisite or any other Periodontal Product by
any person. Notwithstanding the foregoing, ALZA shall not be required to
indemnify Tri-Point for any liability arising, in whole or in part, out of Tri-
Point's non-compliance with the Product Specifications or any other liability
related to the Product for which Tri-Point has assumed an indemnification
obligation under Section 5.2 hereof. Tri-Point shall give ALZA prompt written
notice of any such claim or suit, and shall permit ALZA to undertake the defense
thereof, at ALZA's expense. Tri-
14
<PAGE>
Point shall cooperate in such defense to the extent reasonably requested by
ALZA, at ALZA's expense. Tri-Point shall have the right to participate in such
defense, at its own expense, to the extent that in its judgment, Tri-Point may
be prejudiced thereby. In any claim made or suit brought for which Tri-Point
seeks indemnification under this Section 5.3, Tri-Point shall not settle, offer
to settle, or admit liability or damages without the prior written consent of
ALZA, such consent not to be unreasonably withheld.
6. Manufacturing Changes.
---------------------
Tri-Point shall not file with the FDA or any Foreign Regulatory Agency
in the Territory any Application or amendments thereto (or any notification or
other documentation with respect to the Product or which would affect any
Application) without ALZA's prior written consent. Tri-Point shall not make any
change in the Product Specifications or labeling or in any manufacturing methods
or processes for the Product without first giving ALZA at least ten business
days' written notice explaining the proposed change. Tri-Point shall consider
any objections made by ALZA within such ten day period, and if ALZA reasonably
objects to the proposed change within such ten day period on the basis that the
Product may not be equally satisfactory for ALZA's use after the proposed change
as it was before such change, Tri-Point will not initiate the change without
ALZA's prior written consent. It is understood that Tri-Point shall not be
obligated to change the Product Specifications or any manufacturing methods
15
<PAGE>
or processes if ALZA elects to market other Periodontal Products with the
Product.
7. Regulatory and Technical Support.
--------------------------------
The rights of ALZA to Tri-Point's FDA Device Master File and Tri-
Point's obligations to provide data with respect to the Product shall be
governed by the terms of a letter agreement dated July 11, 1990 among Tri-Point,
Procter & Gamble and ALZA (the "Letter Agreement"), and the Letter Agreement is
incorporated by reference herein. Tri-Point shall provide to ALZA such ongoing
technical and regulatory support, information and assistance (to the extent
available to Tri-Point without undue expense) with respect to the Product, and
in connection with the marketing and use of the Product with Actisite or another
Periodontal Product, as may be reasonably requested from time to time by ALZA,
including obtaining approval or endorsements of the Product by associations of
dental or periodontal professionals and other similar bodies. Tri-Point shall
notify ALZA in writing of any inspections of its manufacturing facilities
related to the Product (in advance, if Tri-Point knows in advance) by the FDA or
any other Foreign Regulatory Agency in the Territory and shall provide ALZA with
any written report or other communication with respect to such inspection. Tri-
Point shall provide ALZA with copies of all documents filed with or otherwise
provided to or received from the FDA or any other such Foreign Regulatory Agency
with respect to the Product within three business days after providing, filing,
16
<PAGE>
or receiving such documents, and shall provide oral notification to ALZA,
followed by a written summary, of any material oral contacts with the FDA or any
other Foreign Regulatory Agency with respect to the Product. Tri-Point shall
continue during the term of this Agreement to monitor the stability of the
Product to support the expiration dating of the Product, and to make the testing
results with respect thereto available to ALZA upon request. Tri-Point shall, at
no cost to ALZA, use its commercially reasonable efforts to obtain appropriate
regulatory approvals to market the Product in the jurisdictions set forth on
Exhibit C and in such other jurisdictions in the Territory as may be mutually
agreed upon by the parties, and Tri-Point shall comply with the requirements of
the FDA and Foreign Regulatory Agencies applicable to the Product. ALZA shall
provide such advice and nonmonetary assistance with respect to Tri-Point's
applications for such governmental and regulatory approvals as may be reasonably
requested by Tri-Point. All such governmental and regulatory approvals for the
Product shall be owned by Tri-Point.
8. Alternate Supply.
----------------
If, at any time during the term of this Agreement, Tri-Point is unable
to supply in a timely manner quantities of Product duly and properly ordered by
ALZA in accordance with this Agreement, Tri-Point may appoint an alternate
supplier (which may be ALZA, if ALZA and Tri-Point so agree), to manufacture the
Product consistent with the Product Specifications and the terms
17
<PAGE>
of this Agreement during the applicable period. Prior to appointing any such
supplier, Tri-Point shall notify ALZA in writing, and Tri-Point shall not
appoint any supplier to which ALZA shall reasonably object in writing within ten
business days after Tri-Point's notice (such objection shall state ALZA's
reasonable commercial objections to such proposed alternate supplier). Tri-Point
shall remain responsible for all of its obligations under this Agreement,
notwithstanding any supply subcontract with a person other than ALZA, and the
rights of ALZA hereunder (including the right of inspection and audit) shall be
equally applicable with respect to any alternate supplier.
9. Patents and Proprietary Information. Tri-Point is not aware that the
-----------------------------------
manufacture, use or sale of the Product in the manner contemplated by this
Agreement will infringe any patents or violate any proprietary rights of any
third parties. Tri-Point will indemnify ALZA and hold ALZA harmless from and
against any and all costs, expenses, damages, judgments and liabilities
(including any attorneys' fees) incurred by or rendered against ALZA as a result
of any claim, finding or adjudication to the effect that the manufacture, use or
sale of the Product by ALZA in the form supplied by Tri-Point infringes or
violates any patent or proprietary rights of any third parties. ALZA will give
Tri-Point prompt written notice of any such claim or suit and will permit Tri-
Point to undertake the defense thereof, at Tri-Point's expense. ALZA shall
cooperate in such defense to the extent reasonably requested by Tri-Point, at
Tri-Point's expense.
18
<PAGE>
ALZA shall have the right to participate in such defense, at its own expense, to
the extent that, in its judgment, ALZA may be prejudiced thereby.
10. Confidentiality. Each party shall maintain in confidence and shall
---------------
not disclose any information of the other party that has been marked by the
furnishing party as confidential or proprietary ("Confidential Information") ,
other than to its own Affiliates, employees, consultants and agents having the
need to know, and who are bound to hold such information in confidence. Without
limiting the foregoing, "Confidential Information" includes, among other things,
the Product Specifications and the contents of batch records and other materials
related to the Product that are reviewed by ALZA in connection with its
inspections and audits under Section 4.4. hereof. ALZA shall use the Product
Specifications and other Confidential Information of Tri-Point only for the
purposes authorized under this Agreement, and each party shall treat the other's
Confidential Information in a manner consistent with the procedures the
receiving party uses to protect its own proprietary information. The foregoing
obligations of confidentiality shall not apply to:
(i) information in the public domain through no fault of the
disclosing party or any agent, representative or employee thereof;
(ii) information known to the receiving party at the time of
disclosure or independently developed by the
19
<PAGE>
receiving party, in each case, to the extent evidenced by written records
promptly disclosed upon receipt of such information ;
(iii) information which is received from a third party who is
rightfully in possession of such information and who has not violated any
obligation of confidentiality concerning use or disclosure of such
information; or
(iv) information which is required to be disclosed by order of a
regulatory agency or a court of competent jurisdiction; provided that in
either case the disclosing party shall use its best efforts to obtain
confidential treatment of such disclosure.
Notwithstanding the foregoing, information may be disclosed to the extent
reasonably necessary in order to obtain governmental and regulatory approvals to
market the Product with Actisite or another Periodontal Product and to bodies of
dental or periodontal professionals (to the extent such disclosure is authorized
under the Letter Agreement, and otherwise with Tri-Point's prior written
consent, such consent not to be unreasonably withheld) in order to obtain their
approvals of the use of the Product with Actisite or another Periodontal
Product.
11. Term and Termination.
--------------------
11.1 Term. Unless terminated earlier under the provisions of this
----
Section 11, this Agreement shall continue in effect for three years from the
beginning of the First Shipment Year. Thereafter, this Agreement shall be
renewed automatically
20
<PAGE>
for successive one year terms until one party shall give the other written
notice, at least 120 days prior to the beginning of the next successive one year
term, that the Agreement will not be renewed beyond the then current term.
11.2 Termination for Breach. If either ALZA or Tri-Point breaches or
----------------------
defaults in the performance or observance of any material provisions of this
Agreement and such breach or default is not cured within 60 days after written
notice by the other party specifying such breach or default (or if such breach
or default is not of a type which can reasonably be cured in 60 days, then such
longer period as is reasonable), the nonbreaching party shall have the right to
terminate this Agreement upon a further 30 days' written notice.
11.3 Termination Due to Safety or Regulatory Issues. If (i) a
----------------------------------------------
published scientific study, undertaken or reported by a nationally recognized
health research agency or government body such as the National Toxicology
Program, links any component of the Product to any health or safety hazard, or
(ii) any Application is revoked or suspended or the Product cannot be legally
sold in any jurisdiction in the Territory, ALZA may terminate the Agreement upon
90 days' prior written notice to Tri-Point.
11.4 Rights on Termination. Termination of this Agreement for any
---------------------
reason shall be without prejudice to (i) either party's rights under Section 5
of this Agreement with respect to claims arising out of events occurring prior
to such termination;
21
<PAGE>
(ii) Tri-Point's right to receive all payments provided under Section 3 hereof
with respect to Product shipped to ALZA prior to the effective date of such
termination; and (iii) any other remedies which either party may otherwise have
under this Agreement.
11.5 No Liability. Neither party shall incur any liability to the
------------
other by reason of the expiration or termination of this Agreement as provided
herein, whether for loss of goodwill, anticipated profits or otherwise, and the
parties shall accept all rights granted and all obligations assumed hereunder,
including those in connection with such expiration or termination, in full
satisfaction of any claims resulting from such expiration or termination.
12. Notices.
-------
Any notice required under this Agreement shall be in writing and
addressed as follows:
If to Tri-Point: Tri-Point Medical, L.P.
5265 Capital Boulevard
Raleigh, N.C. 31995
If to ALZA: ALZA Corporation
950 Page Mill Road
P.O. Box 10950
Palo Alto, CA 94303
Attention: Vice President, Legal
All notices given in accordance with this Section 12 shall be deemed to be
effective five days after the date of mailing, if mailed by registered or
certified mail, postage prepaid and return receipt requested, or upon delivery,
if delivered by hand. Any party may change its address at which notice is to be
22
<PAGE>
received by written notice provided pursuant to this Section 12.
13. Force Majeure.
-------------
13.1 Event of Force Majeure. Neither party shall be responsible or
----------------------
liable to the other hereunder for the failure or delay in the performance of
this Agreement due to any war, fire, accident or other casualty, or any labor
disturbance or act of God or the public enemy, or any other contingency beyond
the party's reasonable control. In the event of the applicability of this
Section 13.1, the party failing or delaying performance shall use its
commercially reasonable efforts to eliminate, cure and overcome any of such
causes and resume the performance of its obligations.
13.2 Notification. Upon the occurrence of an event of force majeure,
------------
the party failing or delaying performance, shall promptly notify the other
party, in writing, setting forth the nature of the occurrence, its expected
duration and how such party's performance is affected. The failing or delaying
party shall resume performance of its obligations hereunder as soon as
practicable after the force majeure event ceases.
13.3 Allocations. If an event of force majeure prevents Tri-Point
-----------
from delivering all Product duly ordered hereunder, Tri-Point shall allocate its
available supply of Product, component raw materials, and related manufacturing
facilities among Tri-Point purchasers on such basis that ALZA's percentage
reduction will not be greater than the overall percentage reduction in the total
quantity of Product, component
23
<PAGE>
raw materials, and related manufacturing facilities Tri-Point has available for
supply. In the event non-availability of raw materials causes Tri-Point to
reduce shipments to ALZA or ALZA's distributors, Tri-Point agrees to give ALZA
the option to provide such raw materials to Tri-Point at a price not to exceed
market price. If ALZA provides such raw materials to Tri-Point at such price,
Tri-Point will increase deliveries of Product hereunder to ALZA by the amount
produced with the raw materials supplied by ALZA, up to the quantities duly
ordered pursuant to this Agreement.
14. Arbitration. All disputes arising under this Agreement shall be
-----------
settled by arbitration conducted in accordance with the Commercial Rules of the
American Arbitration Association, before a panel of three arbitrators, one of
whom is selected by ALZA, one of whom is selected by Tri-Point, and one of whom
is selected by ALZA and Tri-Point (or by the other two arbitrators, if the
parties cannot agree). The parties will request an expedited hearing for any
dispute related to a nonpayment hereunder, and will otherwise cooperate with
each other in causing the arbitration to be held in as efficient and expeditious
a manner as practicable. Any arbitration proceeding instituted by ALZA hereunder
shall be brought in Raleigh, North Carolina, and any arbitration proceeding
instituted by Tri-Point hereunder shall be brought in Palo Alto, California.
Service of process in connection therewith shall be deemed sufficient if made
pursuant to the provisions of Section 12 of this Agreement.
24
<PAGE>
Any award rendered by the arbitrators shall be binding upon the parties
hereto and shall be final, subject to review by a court of competent
jurisdiction under the statutory standard of review applicable to arbitrations.
Judgment upon the award may be entered in any court of record of competent
jurisdiction. Each party shall pay its own expenses of arbitration, and the
expenses of the arbitrators shall be equally shared except that if, in the
opinion of the arbitrators, any claim by a party hereto or any defense or
objection thereto by the other party was unreasonable, the arbitrators may in
their discretion assess, as part of their award, all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and expenses of the arbitrators against the party raising such unreasonable
claim defense, or objection. Nothing herein shall prevent the parties from
settling any dispute by mutual agreement at any time.
15. Miscellaneous.
-------------
15.1 Trademarks. Each party agrees and acknowledges that it will not
----------
acquire by virtue of this Agreement any interest in or to any trademarks or
trade names of the other party. ALZA shall advertise, market and promote the
Product in a manner that is consistent with good trademark practice and that
does not adversely affect the value of the Octyldent trademark and the goodwill
associated therewith. ALZA's use of the Octyldent trademark shall enure to the
benefit of Tri-Point for purposes of Section 5 of the Lanham Act and for all
other purposes.
25
<PAGE>
15.2 Publicity. Each party agrees not to issue any press release or
---------
other public statement disclosing the existence of, or relating to this
Agreement, without the prior written consent of the other party; provided,
however, that neither party shall be prevented from complying with any duty of
disclosure it may have pursuant to applicable laws or governmental orders or
regulations.
15.3 Waiver and Amendment. A waiver by either party of any term or
--------------------
condition of this Agreement in any one instance shall not be deemed or construed
to be a waiver of such term or condition for any other time. All rights,
remedies, undertakings, obligations and agreements contained in this Agreement
shall be cumulative and none of them shall be a limitation of any other remedy,
right, undertaking, obligation or agreement of either party. This Agreement may
not be amended or modified, except in a writing signed by an officer of each
party hereto.
15.4 Severability. If any one or more of the provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable, in any respect,
the validity, legality or enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. In the event any
provisions shall be held invalid, illegal or unenforceable, the parties shall
negotiate in good faith to substitute a valid, legal and enforceable provision
which, insofar as practical, implements the purposes hereof.
26
<PAGE>
15.5 Headings. The headings contained in this Agreement are included
--------
herein for reference and convenience and shall not effect the meaning of the
provisions of this Agreement.
15.6 Assignment. This Agreement and all rights and obligations
----------
hereunder are personal to the parties hereto and may not be assigned by either
party without the express written consent of the other party, which consent
shall not be unreasonably withheld, except that either party shall be free to
assign its rights and/or obligations to its Affiliates, provided such Affiliates
are in the same or similar business as the assigning party. Any assignment
except to such Affiliates, or any attempted assignment in the absence of the
prior written consent of the nonassigning party, shall be void and without
effect at the option of the non-assigning party. This Agreement shall be binding
upon any permitted assignee of either party.
15.7 Governing Law. This Agreement shall be construed, and the
-------------
rights of the parties determined, in accordance with the laws of the United
States of America and the state of Delaware.
15.8 Survival of Provisions. The provisions of Sections 3.5, 4.1,
----------------------
4.2, 4.6, 4.7, 5.1, 5.2, 5.3, 9, 10, 11.4, 11.5, 14, 15.3, 15.4, 15.7 and this
Section 15.8 shall survive the termination for any reason of this Agreement.
15.9 Entire Agreement. This Agreement, together with the exhibits
----------------
hereto, sets forth the entire agreement and understanding between the parties
hereto and supersedes all
27
<PAGE>
documents, agreements, verbal consents or understandings made between Tri-Point
and ALZA with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the date first above written, by their duly authorized
representatives.
Tri-Point Medical, L. P.
By /s/ Jeffrey C. Basham
------------------------------
Title President
---------------------------
ALZA Corporation
By /s/ Adrian M. Gerber
------------------------------
Adrian M. Gerber
Executive Vice President
28
<PAGE>
EXHIBIT A
---------
[REDACTED]
<PAGE>
EXHIBIT B
---------
[REDACTED]
<PAGE>
EXHIBIT C
Regulatory Approvals
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Italy
Luxembourg
Netherlands
Norway
Spain
Sweden
Switzerland
United Kingdom
<PAGE>
SUPPLY AND DISTRIBUTION AGREEMENT*
---------------------------------
This Agreement, effective as of July 14, 1992, is by and between Chiron
Ophthalmics, Inc., a corporation organized under the laws of the State of
California, with its principal place of business at 9342 Jeronimo Road, Irvine,
California 92718 ("CHIRON") and Tri-Point Medical L.P., a Limited Partnership
organized and existing under the laws of the State of Delaware, with its
principal place of business at 5265 Capital Boulevard, Raleigh, N.C. 27609
("TRI-POINT").
W I T N E S S E T H:
WHEREAS, TRI-POINT is engaged in the research, development and manufacture
of products for various applications, including ophthalmic applications, and,
WHEREAS, CHIRON is engaged in the business of distributing, promoting,
and/or selling ophthalmic products; and,
WHEREAS, since TRI-POINT desires, and CHIRON is willing to provide,
assistance in connection with obtaining necessary approvals by the United States
Food and Drug Administration ("FDA") for ophthalmic products; and,
WHEREAS, TRI-POINT and CHIRON have formed NEWGLUECO, INC.
("NEWGLUECO") pursuant to that certain Shareholders Agreement of even date
herewith between TRI-POINT and CHIRON (the "Shareholders Agreement") for the
purpose of holding all regulatory approvals granted by the FDA in respect of
TRI-POINT ophthalmic products;
WHEREAS, TRI-POINT desires that CHIRON be its exclusive, worldwide,
distributor for certain ophthalmic products under the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual premises and agreements
contained herein, the parties hereto agree as follows:
* Portions of this exhibit were omitted and filed separately with the Secretary
of the Commission pursuant to an application for confidential treatment filed
with the Commission pursuant to Rule 406 under the Securities Act of 1933.
Such portions are marked by "X" or the word "Redacted."
-1-
<PAGE>
ARTICLE 1
DEFINITIONS
-----------
1.1 "Affiliate" shall mean any company or entity directly or indirectly
controlling, controlled by or under common control with a party hereto, and
shall include without limitation, any company or entity fifty percent (50%) or
more of whose voting stock or participating profit interest is owned or
controlled, directly or indirectly, by such party and any company or entity
which owns fifty percent (50%) or more of the voting stock or participating
profit interest of either party.
1.2 "Effective Date" shall mean the date first written above.
1.3 "Master File" shall mean the Master File with respect to each Product
submitted to the FDA, as it may be amended, modified and updated from time to
time, including all Technology and Technical Information to which reference is
made therein.
1.4 "Net Sales Price" shall mean CHIRON's gross price of Product charged
to unrelated third parties less bona fide trade and cash discounts, returns
actually allowed, give-aways, promotions, replacements, sales and other taxes
and governmental charges applicable to sales, import and customer duties,
freight, carriage, handling packaging, insurance and other transportation
charges to the extent included in the gross price.
1.5 "Product" shall mean the ophthalmic use in humans of those products
set forth in Exhibit A hereto, as it shall be amended from time to time in
writing by mutual agreement of the parties.
1.6 "Purchase Price" with respect to a Product shall mean the amount set
forth in Exhibit D.
1.7 "Specifications" shall mean those manufacturing and quality control
release specifications set forth for each product in Exhibit C hereto.
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<PAGE>
1.8 "Technical Information" shall mean the manufacturing process and
related technical protocols, drawings, diagrams, formulae, patterns, processes,
manufacturing and test procedures, and schematics utilized by TRI-POINT in the
manufacturing and production of the Product, as described in Exhibit F hereto.
1.9 "Technology" shall mean all patents, trade secrets, information, know-
how, methods and techniques now owned, licensed, or controlled by TRI-POINT or
its Affiliates, which is used by TRI-POINT in the manufacture and production of
the Product. The Technology shall include, without limitation, the Technical
Information.
1.10 "Unit of Product" shall mean an individual dosage vial, containing a
specified amount of Product, with approved labeling and ready for sale. As each
Unit of Product is agreed upon by the parties, it shall be added to Exhibit E
hereto.
ARTICLE 2
APPOINTMENT AND ACCEPTANCE
--------------------------
2.1 Appointment. Subject to the specific provisions and conditions
-----------
herein, TRI-POINT hereby appoints CHIRON as its exclusive, worldwide distributor
for the advertising, promotion, sale, and distribution of Products for
ophthalmic use in humans.
2.2 CHIRON Obligation. CHIRON hereby accepts the appointment granted in
-----------------
Paragraph 2.1 above, and agrees to make reasonable commercial efforts to sell,
advertise, and promote the sale of Products.
2.3 Exclusivity of the Appointment. Except as provided in Section 3.4,
------------------------------
TRI-POINT agrees that it will not, during the term of this Agreement, sell or
deliver for or to any person, firm, or corporation other than CHIRON any Product
or any other product for ophthalmic use in humans that may be substantially
similar in composition or formulation to a Product without prior written
approval of CHIRON. CHIRON's appointment as to each Product shall terminate ten
(10) years from the date of FDA regulatory approval to market such Product
unless the appointment is renewed by the parties.
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<PAGE>
ARTICLE 3
SUPPLY
------
3.1 Supply Obligation. TRI-POINT agrees to supply CHIRON with such
-----------------
amounts of Product as CHIRON shall order in accordance with Section 3.2 for the
purpose of distribution and sales under this Agreement.
3.2 Forecast. Within thirty (30) days following the later of receipt by
--------
NEWGLUECO of the PMA by the FDA with respect to the sale of a Product in the
United States or receipt by TRI-POINT of site approval by the FDA for
manufacture of such Product, CHIRON shall provide TRI-POINT with a forecast of
CHIRON's estimated purchase requirements of the Product during the six (6) month
period to follow ("the Forecast"). Thereafter, the Forecast shall be updated on
a monthly basis, thereby providing a six-month rolling estimate of purchase
requirements. Products required during the first three (3) months of each
Forecast will be included in corresponding monthly purchase orders from CHIRON,
which purchase order shall specify a delivery date not to exceed ninety (90)
days from the date of such purchase order. CHIRON and TRI-POINT acknowledge and
agree that the first three (3) months of each Forecast represent a firm
commitment to purchase the Product specified in the Forecast, and that the
amount of Product specified in any month during such period may not be changed
in any subsequent Forecast by more than 10% without TRI-POINT's prior approval
provided, however, that in the event TRI-POINT has failed to supply the full
amount ordered in previous orders, such unfilled amount may be added at CHIRON's
option to the then current purchase order. The remaining three (3) months of
each Forecast may be adjusted by CHIRON in a subsequent Forecast; provided that
no such adjustment of Product shall reduce the Product required to less than
seventy-five percent (75%) or increase the Product required to more than one
hundred twenty-five percent (125%) of the amount forecasted for such month in
the Forecast in which such month first appeared unless mutually agreed to by the
parties.
3.3 Minimums. The minimum number of Units of Product to be purchased by
--------
CHIRON is set forth in Exhibit B hereto. In the event CHIRON orders the minimum
number of Units of Product but TRI-POINT fails to supply such minimum number,
the minimum
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<PAGE>
number required to maintain this exclusive license shall be reduced by the
amount not supplied by TRI-POINT. The minimums shall be suspended in the event
of Product recall by the FDA until such time as the FDA permits reintroduction
of Product.
3.4 Co-Exclusivity. In the event CHIRON fails to purchase the minimum
--------------
amount specified in Exhibit B with respect to any Product or fails to pay TRI-
POINT the equivalent amount in cash, then TRI-POINT may, after sixty (60) days
written notice to CHIRON during which time CHIRON may cure its failure to pay,
at its option convert the exclusive appointment hereunder with respect to such
Product to a co-exclusive appointment so that TRI-POINT may also distribute or
TRI-POINT may appoint any other party or parties to co-distribute such Product
with CHIRON. TRI-POINT's rights under this Section 3.4 shall be TRI-POINT'S sole
remedy for CHIRON's failure to purchase the minimums specified in Section 3.3
and Exhibit B.
3.5 Good Manufacturing Practices. TRI-POINT shall manufacture Product
----------------------------
under FDA Good Manufacturing Practices requirements established by the FDA. The
compliance of TRI-POINT with Good Manufacturing Practices shall be the sole
responsibility of TRI-POINT. CHIRON shall not relabel, repackage or otherwise
alter any Product supplied by TRI-POINT, without TRI-POINT's prior approval.
3.6 Shipments. All shipments shall be F.O.B. TRI-POINT's manufacturing
---------
facility or such other destination point as CHIRON and TRI-POINT shall mutually
designate from time to time. Title to and risk of loss in the Product shall pass
to CHIRON upon delivery to a common carrier at the TRI-POINT facility. Subject
to Section 3.3 above, shipments by TRI-POINT of plus or minus ten percent (10%)
of the amount stated in the corresponding purchase order shall be deemed
compliance with the purchase order.
3.7 Audit Right. In order to determine and ensure compliance with FDA and
-----------
Quality Assurance standards, TRI-POINT, upon reasonable advance notice, shall
permit CHIRON to audit TRI-POINT's manufacturing process for Product, subject to
CHIRON'S confidentiality obligations under Article 11 hereof.
-5-
<PAGE>
3.8 Certificate of Compliance. All shipments of Product shall be
-------------------------
manufactured in accordance with the Specifications and shall be accompanied by a
certificate which states that the Product meets the Specifications.
3.9 Rejection of Product. CHIRON may reject and return Product because
--------------------
of: (a) failure to meet Specifications; (b) manufacturing defects; (c) market
withdrawal by TRI-POINT because of acts or failure to act by TRI-POINT. Upon
such proper rejection or return, TRI-POINT shall provide CHIRON with replacement
Product at its own expense, or a credit, at CHIRON's option, within thirty (30)
days.
3.10 EXCEPT AS PROVIDED IN SECTIONS 3.5 AND 3.8, TRI-POINT MAKES NO
REPRESENTATION OR WARRANTY AS TO THE PRODUCTS, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OF
FITNESS FOR A PARTICULAR PURPOSE. TRI-POINT SHALL NOT BE LIABLE TO ANY PERSON
FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES (INCLUDING,
WITHOUT LIMITATION, LOST PROFITS OR BUSINESS INTERRUPTION LOSSES) AS A RESULT OF
ANY BREACH UNDER THIS AGREEMENT.
ARTICLE 4
APPROVALS
---------
4.1 New Substances.
--------------
(a) If TRI-POINT develops any new glue, fixative or similar substance
useful in human ophthalmic indications which TRI-POINT owns and in good faith
believes to be ready for pre-clinical testing in animals, TRI-POINT shall notify
CHIRON in writing of the availability of such substance and provide CHIRON with
all preclinical data and test results which CHIRON may reasonably require to
evaluate the substance.
(b) If CHIRON, in its sole discretion concludes that such substance
has sufficient commercial potential, CHIRON shall notify TRI-POINT in writing of
its election and CHIRON and TRI-POINT shall proceed as follows:
-6-
<PAGE>
(1) CHIRON and TRI-POINT shall negotiate a mutually acceptable
minimum annual purchase requirement, Unit size, Specifications, Purchase Price
and other terms applicable to such substance and Exhibits B, C, D and E shall be
amended accordingly.
(2) Upon agreement by the parties under clause (1), the
substance shall be designated a Product and added to Exhibit A hereto.
(3) The parties shall assume their respective responsibilities
for such Product according to Paragraph 4.2 herein.
(c) If CHIRON fails to make such election within ninety (90) days
after receiving TRI-POINT's notice of the new substance, or if the parties can
not agree on the terms applicable to such substance within one hundred eighty
(180) days after CHIRON's election the substance shall not be a Product under
this Agreement and TRI-POINT shall be free to develop and market such substance
directly or through third parties, without liability or obligation to CHIRON;
provided, however, that TRI-POINT may not offer any such new substance to any
third party on terms more favorable than those offered to CHIRON first.
(d) Each party shall consult with and cooperate with the other in
carrying out its responsibilities under this Agreement.
4.2 Responsibilities of the parties.
-------------------------------
(a) TRI-POINT shall be primarily responsible for, and shall bear any
and all costs in connection with, chemistry, manufacturing, animal (non-human)
systemic safety studies, packaging, stability and quality assurance and quality
control for validation of the Products. In the event TRI-POINT elects not to
undertake the systemic safety studies required for a given indication, CHIRON
shall have no obligation to pursue development of such indication. TRI-POINT
shall promptly provide CHIRON with all copies of any and all documents, reports,
data records or other information it has obtained relating to any
-7-
<PAGE>
Product that CHIRON may reasonably require to comply with FDA requirements for
the Product. TRI-POINT shall not be required to provide to CHIRON any such
materials relating to TRI-POINT's Master File or the Technology except as
otherwise provided herein.
(b) CHIRON shall be primarily responsible for, and shall bear any and
all costs in connection with, studies directly relating to safety and efficiency
in the eye including development work for ophthalmic indications, corresponding
clinical trials, and the required regulatory filings. CHIRON shall promptly
provide TRI-POINT with copies of all applications to the FDA related to Products
and all studies, protocols and test results related thereto.
(c) The prosecution of all applications before the FDA and the
maintenance of each PMA shall be performed in accordance with the Shareholders'
Agreement between TRI-POINT and CHIRON.
(d) Each party shall provide the other promptly with any
correspondence to or from regulatory agencies that relates to Products and shall
summarize in writing any telephone discussions with such agencies and deliver
such summaries to the other party.
4.3 Regulatory Approvals. All FDA IDEs and PMAs and other analogous
--------------------
approvals received after the date hereof with respect to Products shall be the
property of NEWGLUECO, in accordance with the Shareholders Agreement, except
that TRI-POINT, and CHIRON to the extent it assumes manufacture of any Product
pursuant to this Agreement, shall be solely responsible, at its expense, for
obtaining site approval for its own manufacturing facilities for Products.
4.4 Distribution Permits. CHIRON shall be solely responsible, at its
--------------------
expense, for obtaining import and export licenses, foreign regulatory approval
and the like necessary for CHIRON to market and distribute the Products. On
request of CHIRON, TRI-POINT shall provide such information, assistance and
cooperation, and execute such documents as may be reasonably necessary to enable
CHIRON to obtain such licenses and approvals,
-8-
<PAGE>
except that TRI-POINT shall not be required to conduct any tests or studies or
otherwise collect information that it does not have available.
4.5 Records. CHIRON shall maintain all records regarding sale of the
-------
Products as required by the FDA for approved products.
4.6 Product Defect Claims. In the event that CHIRON receives any
---------------------
complaint, claims, or adverse reaction reports which relate directly to the
manufacture of Products by TRI-POINT, CHIRON shall, as soon as is reasonably
feasible, but in any event in sufficient time for TRI-POINT to comply with
applicable law (including adverse reaction reporting requirements), provide TRI-
POINT with all information contained in the complaint and such additional
information regarding the Product as TRI-POINT may reasonably require. CHIRON
shall be responsible for evaluating all complaints, claims, or adverse reaction
reports. TRI-POINT shall provide information and data as reasonably required by
CHIRON during any such evaluation and TRI-POINT shall cooperate fully with
CHIRON in order to permit CHIRON to meet its reporting requirements hereunder.
4.7 New Reporting Requirements. Any new reports or modifications of
--------------------------
current reports required of TRI-POINT and/or CHIRON by the FDA or other
regulatory authorities in the Territory will become an obligation of such party
under this Agreement.
ARTICLE 5
PRICE AND TERMS OF PAYMENT
--------------------------
5.1 Initial Payments. Concurrently with the execution of this Agreement,
----------------
CHIRON shall pay TRI-POINT the non-refundable sum of XXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXX In addition, within thirty (30) days of NEWGLUECO's receipt of FDA
approval for the sales of the first Product in the United States, CHIRON agrees
to pay to TRI-POINT an additional, non-refundable, lump sum of XXXXXXXXXXXXXX
XXXXXXXXXXXX
-9-
<PAGE>
5.2 Purchase Price. Subject to Section 5.3 below, the Purchase Price of
--------------
Products purchased by CHIRON from TRI-POINT shall be equal to the amounts set
forth on Exhibit D hereto.
5.3 Annual Price Adjustment. On each annual anniversary date of this
-----------------------
Agreement, the Purchase Price of Product set forth in Exhibit E may be adjusted
by multiplying (a) the Purchase Price then in effect by (b) the percentage by
which the "Producer's Price Index, Manufactured Products" published by the U.S.
Department of Labor, Bureau of Labor Statistics (or its successor), shall have
increased, if any, during the prior year.
5.4 Payment Due Date. Amounts payable under this Agreement shall become
----------------
due and payable thirty (30) days from the date of receipt of the invoice by
CHIRON.
ARTICLE 6
CONTINGENT MANUFACTURING
------------------------
6.1 License. Subject to Section 6.2 below, TRI-POINT hereby grants to
-------
CHIRON upon the terms and conditions set forth in this Agreement, a worldwide,
exclusive license, with the limited right to sublicense as set forth in Section
6.4, under the Technology solely to manufacture Products. CHIRON shall also have
the right to use the Technical Information solely to execute under the license
herein. In the event that CHIRON'S license under Article 3 has become
nonexclusive in accordance with Section 3.4 hereof, the license in this Section
6.1 shall be nonexclusive.
6.2 Manufacturing License. CHIRON agrees that it will not exercise its
---------------------
rights to manufacture Products under Section 6.1 until and unless TRI-POINT's
obligations to supply CHIRON the quantities of the Product required by CHIRON
have terminated pursuant to Article 8. Upon any such termination CHIRON shall
immediately have the right to assume manufacture of the Product pursuant to
Section 6.1.
-10-
<PAGE>
6.3 Escrow. In order to enable CHIRON to exercise its licenses granted
------
herein to the extent permitted by Section 6.2, TRI-POINT shall place the
Technical Information in escrow with a person acceptable to both parties under
instructions to release such information to CHIRON at such time as CHIRON
assumes manufacture of Products. TRI-POINT shall update the Technical
Information held in escrow as necessary to assure that the escrow holder at all
times has the most current Technical Information, including all changes, as
defined in Section 6.5.
6.4 Sublicenses. CHIRON's license, manufacturing, distribution and other
-----------
rights received hereunder from TRI-POINT are not assignable, nor may CHIRON
sublicense such rights, in whole or in part, directly or indirectly, except as
set forth below:
(a) CHIRON shall have the right to issue sublicenses to third parties
to facilitate foreign product registration, and distribution of Products and to
utilize the Technology connected therewith.
(b) CHIRON shall have the right to assign or sublicense any of its
rights hereunder to any CHIRON Affiliate, or to any entity which acquires all or
substantially all of CHIRON's business.
6.5 New Technology Developments. In the event TRI-POINT makes any
---------------------------
changes, improvements, enhancements, modifications and updates to the Technology
(the "Changes") such Changes shall automatically become part of the Technology
(including, without limitation, for purposes of determining the scope of the
Licenses).
ARTICLE 7
PACKAGING AND LABELING
----------------------
7.1 Ownership. Brand names, trademarks, and/or trade names adopted by
---------
CHIRON for use in connection with the sale and promotion of Product will be and
will remain the exclusive property of CHIRON.
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<PAGE>
7.2 Advertising. CHIRON shall have the right to prepare all
-----------
advertising and promotional material relating to Product. TRI-POINT shall have
the right to review and comment on all advertising and promotional material
relating to Products prior to use of such material.
ARTICLE 8
TERMINATION OF SUPPLY AGREEMENT
-------------------------------
8.1 Termination. CHIRON may terminate its obligation hereunder to
-----------
purchase any Product from TRI-POINT, and may exercise its rights hereunder to
manufacture any Product upon thirty (30) days written notice to TRI-POINT,
(a) In the event that TRI-POINT fails to supply any Product for two
consecutive months; or
(b) TRI-POINT fails to supply on a cumulative basis at least fifty
percent (50%) of the aggregate amount of Product specified by CHIRON in its
purchase orders during any six month period; or
(c) TRI-POINT fails to meet the specified Quantities (excluding the
ten percent (10%) deficiency described in Section 3.6) for five consecutive
shipments; or
(d) TRI-POINT fails to meet the Specifications for two consecutive
months; or
(e) In the event that TRI-POINT files or has filed against it a
petition for relief under any bankruptcy or insolvency laws, makes an assignment
for the benefit of creditors, has a receiver appointed for it or any of its
assets, or otherwise takes advantage of any statute or law designed for relief
of debtors; or
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<PAGE>
(f) In the event of the issuance of a final order or decree by any
competent judicial authority or governmental agency which restrains or enjoins
the manufacture of such Product by TRI-POINT; or
(g) If the parties mutually agree to such termination.
8.2 Acts on Termination. In the event of any such termination of TRI-
-------------------
POINT's supply obligations, CHIRON shall immediately have the right, subject to
obtaining necessary regulatory approval, to manufacture the Product in question,
and shall have full reference rights to the Master File, and full and complete
access to the Technical Information with respect thereto. TRI-POINT shall
promptly provide the FDA with a letter in the form attached here as Exhibit G
and shall deliver and shall take all steps necessary to cause the escrow holder
to deliver such Technical Information to CHIRON. TRI-POINT shall also provide
technical assistance to CHIRON, at CHIRON's cost as required in order to
facilitate the technology transfer.
8.3 Survival. In the event of any such termination of TRI-POINT's supply
--------
obligation, the provisions of Article 3, 4 and 6 of this Agreement shall
terminate, except that CHIRON shall remain liable for payment of the Purchase
Price of Product ordered by CHIRON prior to such termination. In lieu of
Purchase Price payments, CHIRON shall pay TRI-POINT a royalty of XXXXXXXXXXXXX
XXXX per Unit of Product for Products manufactured and sold by CHIRON using TRI-
POINT Technical Information, payable within thirty (30) days after the end of
each calendar quarter.
Except as expressly provided in this Section 8.3, the provisions of
this Agreement shall survive any termination of TRI-POINT's supply obligation
pursuant to this Article 8.
ARTICLE 9
WARRANTIES AND COVENANTS
------------------------
9.1 TRI-POINT Warranties. TRI-POINT represents, warrants and covenants to
CHIRON that:
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<PAGE>
(a) TRI-POINT has good right, title and interest to and in all
copyrights, trade secrets, and all other intellectual property rights used by
TRI-POINT and included in the Technology, and TRI-POINT has not received any
notice that the Technology infringes any patent, patent right, copyright, trade
secret or any other intellectual property right of any third party;
(b) Subject to receipt of approval from the FDA for each Product,
TRI-POINT has the unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement and to grant the licenses and other
rights granted hereunder; and
(c) TRI-POINT has not granted nor is it obligated to grant nor will
it grant any licenses or other rights to any other party with respect to the
Technology that are inconsistent with the provisions of this Agreement; and
(d) TRI-POINT has and will have full legal title to the Products
manufactured and delivered by TRI-POINT pursuant to the terms of this Agreement.
(e) Said Products will be manufactured in conformance with the
Specifications and Good Manufacturing Practices.
9.2 CHIRON Warranties and Covenants. CHIRON represents, warrants and
covenant to TRI-POINT that:
(a) Subject to receipt of approval from the FDA, CHIRON has the
unrestricted right, power and authority to enter into and perform its
obligations under this Agreement;
(b) CHIRON will not enter into any agreements, oral or written, that
are inconsistent with its obligations under this Agreement;
-14-
<PAGE>
(c) CHIRON hereby covenants that during the term of this Agreement,
it shall comply with all applicable laws and regulations governing clinical
studies of the Product and the shipment, exportation, importation, or sale of
Products and shall distribute all Products as received from TRI-POINT without
modification, unless such has been approved in writing in advance by TRI-POINT.
9.3 TRI-POINT Indemnification. TRI-POINT agrees to defend, indemnify and
--------------------------
hold CHIRON harmless against any and all liabilities, damages, losses, costs and
expenses, including reasonable attorneys' fees and costs of litigation
regardless of outcome (collectively referred to as "Liabilities") which arise
out of (i) breach of this Agreement by TRI-POINT; or (ii) any product liability
or other claims by third parties which are caused or alleged to be caused by
reason of an alleged defect in such Product resulting from the manufacture of
Product by TRI-POINT; provided that CHIRON shall give TRI-POINT prompt notice of
--------
any such third-party claims. CHIRON may, at its option, and its cost, be
represented by counsel in any such proceeding.
9.4 CHIRON Indemnification. CHIRON agrees to defend, indemnify and hold
----------------------
TRI-POINT harmless against any and all Liabilities which arise out: of (i)
breach of this Agreement by CHIRON; or (ii) any product liability claims by
third parties with respect to Products which are distributed by CHIRON, and
which are caused or alleged to be caused by reason of an alleged defect in Such
Product resulting from the distribution of Product by CHIRON or resulting from
the development by CHIRON of the particular indication; provided that TRI-POINT
--------
shall give CHIRON prompt notice of any such third party claims. TRI-POINT may,
at its option and cost, be represented by counsel in any such proceeding.
9.5 Inherent Defects. Any Liabilities ultimately determined by judgment
----------------
or settlement to which both parties have consented, which have resulted from
product liability claims by third parties, including specifically claims which
are caused by an inherent defect in the Product or other liability not subject
to Sections 9.3 or 9.5 hereof shall be shared equally by the parties. The party
sued shall promptly give notice to the other party. The party sued shall have
the duty to defend; provided, however, the other party shall have the right to
be represented by counsel in the proceeding or, if the parties
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<PAGE>
shall be shared equally by the parties. The party sued shall promptly give
notice to the other party. The party sued shall have the duty to defend;
provided, however, the other party shall have the right to be represented by
counsel in the proceeding or, if the parties agree, by joint counsel. Within
sixty (60) days of the settlement, final judgment or other final resolution of
such claim, the parties shall account to each other so as to cause the total
Liabilities of both parties to be shared equally.
9.6 Patent Indemnification. TRI-POINT agrees to defend, indemnify and
----------------------
hold CHIRON harmless against any and all Liabilities which arise out of claims
by third parties that the manufacturing process used by TRI-POINT to manufacture
Products infringes patent or other proprietary rights; provided that CHIRON
shall give TRI-POINT prompt notice of any such third party claim. CHIRON may, at
its option and cost, be represented by counsel in any such proceeding.
9.7 Product Infringement. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
--------------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The party sued shall promptly give notice to
the other party. The party sued shall have the duty to defend; provided,
however, the other party shall have the right to be represented by counsel in
the proceeding or, if the parties agree, by joint counsel. XXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
ARTICLE 10
TERM AND TERMINATION
--------------------
10.1 Term. The term of this Agreement shall be ten (10) years from the
----
Effective date of regulatory approval in the United States of the last to be
approved Product developed under this Agreement.
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<PAGE>
(a) By either party, for material breach of any provision of this
Agreement if within ninety (90) days after receipt of written notice
of such breach, the breaching party has failed to cure.
(b) By CHIRON as to any Product for which FDA approval is still pending by
giving TRI-POINT thirty (30) days notice and providing TRI-POINT with
a letter to the FDA changing the sponsor of such product from
NEWGLUECO to TRI-POINT.
(c) By CHIRON, on a Product by Product basis, upon one hundred eighty
(180) days written notice to TRI-POINT.
(d) By TRI-POINT, if CHIRON fails to file an IDE with the U.S. Food and
Drug Administration for one additional indication other than corneal
tears and punctures for the product within twenty-four (24) months of
the execution of this Agreement.
10.2 Surviving Liability. Termination of this Agreement shall not relieve
-------------------
any party from any liability incurred or obligation to pay amounts accrued under
the terms of this Agreement prior to or upon such termination.
ARTICLE 11
CONFIDENTIALITY
---------------
11.1 Confidential Information. Each party ("Receiving Party") shall
------------------------
maintain in confidence all information disclosed by the other ("Disclosing
Party") which such party knows or has reason to know are trade secrets or other
proprietary or confidential information of the other, including, without
limitation, information relating to any Product and the business plans of the
other party, and shall not use such trade secrets or proprietary or confidential
information except as permitted by this Agreement or disclose the same to anyone
other than those persons to whom it is necessary to disclose in connection with
such party's activities as contemplated in this Agreement providing such
-17-
<PAGE>
person agrees to hold in confidence and not make use of such trade secrets or
proprietary or confidential information for any purpose other than those
permitted by this Agreement. Each party shall notify the other promptly upon
discovery of any unauthorized use or disclosure of the other's trade secrets or
proprietary or confidential information.
11.2 Exclusions. The obligation of confidentiality contained in this
----------
Agreement shall not apply to the extent that:
(a) the Receiving Party is required to disclose information by applicable
law, regulation, or order of a governmental agency or a court of
competent jurisdiction;
(b) the Receiving Party can demonstrate that the disclosed information
was, at the time of disclosure, already in the public domain or
thereafter becomes part of the public domain other than as a result of
actions or failure to act of the Receiving Party in violation hereof;
(c) the disclosed information was rightfully known by the Receiving Party
(as shown by its written records) prior to the date of disclosure to
the Receiving Party in connection with this Agreement; or
(d) the disclosed information was received by the Receiving Party on an
unrestricted basis from a source which is not under a duty of
confidentiality to the Disclosing Party.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of Delaware, U.S.A.
-18-
<PAGE>
12.2 No Assignment. This Agreement shall not be assigned by either party
-------------
hereto without the prior written consent of the other party hereto. Nothing
herein contained, however, shall prevent either party from assigning this
Agreement to an Affiliate [or partially owned subsidiary] of such party or to
any third party which purchases all or substantially all of such party's
business relating to the Product covered hereunder.
12.3 Entire Understanding. This Agreement, the Stockholders Agreement, and
--------------------
that certain Confidentiality Agreement dated ____________ shall constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof, and, on the Effective Date hereof, shall supersede any other agreements
concerning the subject matter hereof, whether oral or written, express or
implied, as they pertain to the Product. This Agreement may not be changed or
modified, except as specifically and mutually agreed upon by the parties in
writing.
12.4 Notice. Any notice required hereunder may be served by any party on
------
the others by personal delivery, or by sending same, post-prepaid by registered
or by certified mail to the address set forth below:
To TRI-POINT MEDICAL INC:
ATTN: President
TRI-POINT Medical L.P.
5265 Capital Boulevard
Raleigh, N.C. 27609
Copy to:
Morgan, Lewis & Bockus
2000 One Logan Square
Philadelphia, PA 19103
Attention: Barbara S. Schilberg
TO CHIRON:
ATTN: Chairman and Chief Executive Officer
CHIRON INTRAOPTICS, INC.
9342 Jeronimo Road
Irvine, California 92718
-19-
<PAGE>
Copy to:
ATTN: General Counsel
CHIRON CORPORATION
4560 Horton Street
Emeryville, California 94608
12.5 Arbitration.
-----------
(a) Disputes. The parties recognize that a bona fide dispute as to
--------
certain matters may from time to time arise during the term of this Agreement
which relate to either party's rights and/or obligations hereunder. In the event
of the occurrence of such a dispute, either party may, by written notice to the
other, have such dispute referred to their respective officer designated below
or their successors, for attempted resolution by good faith negotiations within
thirty (30) days after such notice is received. Said designated officers are as
follows:
For TRI-POINT - President
For CHIRON - Chairman and Chief Executive Officer
In the event the designated officers are not able to resolve such
dispute within such thirty-day period, either party may invoke the provisions of
paragraph (b) below.
(b) Alternative Dispute Resolution. Any dispute, controversy, or claim
------------------------------
arising out of or relating to the validity, construction, enforceability, or
performance of this Agreement, shall be settled by binding Alternative Dispute
Resolution ("ADR") in the manner described below:
(i) If a party intends to begin an ADR to resolve a dispute, such
party shall provide written notice (the "ADR Request") to counsel for the other
party of such intention and the issues to be resolved. From the date of the ADR
Request and until such time as any matter has been finally settled by ADR, the
running of the time periods
-20-
<PAGE>
contained in Section 12.5(a) as to which party must cure a breach of this
Agreement shall be suspended as to the subject matter of the dispute.
(ii) Within ten (10) business days after the receipt of the ADR
Request, the other party may, by written notice to the counsel for the party
initiating ADR, add additional issues to be resolved.
(iii) Within twenty (20) business days following the receipt of the
ADR Request, the controversy or claim shall be referred to a panel of three
arbitrators, one chosen by each of the parties and the third selected by the two
chosen parties and shall be settled by arbitration by such panel, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
(iv) The ADR proceeding shall be confidential. Except as required by
law, no party shall make any public announcement with respect to the proceedings
or decision of the arbitrators without the prior written consent of the other
party. The existence of any dispute submitted to ADR and the award of the
arbitrators shall be kept in confidence by the parties and the arbitrators
except as required in connection with the enforcement of such award or as
otherwise required by applicable law.
(v) Each party may appeal to a court of competent jurisdiction for
relief in the event of threatened or actual disclosure of its Confidential
Information.
(vi) The decision of the arbitrators shall be final and binding and
judgment upon the award rendered by the arbitrators may be entered into any
court having jurisdiction.
12.6 Waiver. The waiver by either party of a breach of any provisions
------
contained herein shall in no way be construed as a waiver of any subsequent
breach of such provision or the waiver of the provision itself.
-21-
<PAGE>
12.7 Invalidity. The invalidity or enforceability of any term, provision,
----------
clause or any portion thereof of this Agreement shall in no way impair or affect
the validity or enforcement of any other provision of this Agreement.
12.8 Survival. The provisions of Sections 4.5, 4.6, 7.1, 10.3, 12.1 and
--------
12.5 and Articles 9 and 11 shall survive the termination of this Agreement as
well as those provisions which by their meaning and intent have applicability
beyond the term of this Agreement.
12.9 Relationship of the Parties. The relationship between TRI-POINT and
---------------------------
CHIRON is that of vendor and vendee. Neither party, nor its agents or employees,
shall, under any circumstances, be deemed agents or representatives of the other
and neither shall have authority to act for and/or bind the other in any way, or
represent that it is in any way responsible for the acts of the other. This
Agreement does not establish a joint venture, agency, or partnership between the
parties, nor does it create an employer/employee relationship.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate counterparts by their duly authorized officers, each fully executed
copy hereof to be deemed an original, as of this date first above written.
CHIRON INTRAOPTICS, INC.
BY: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------
TITLE: Sr. Vice President
-----------------------------
TRI-POINT MEDICAL L.P.
BY: /s/ Jeffrey C. Basham
-----------------------------
TITLE: PRESIDENT
-----------------------------
-22-
<PAGE>
EXHIBIT A
---------
[REDACTED]
-23-
<PAGE>
EXHIBIT B
---------
[REDACTED]
-24-
<PAGE>
EXHIBIT C
---------
[REDACTED]
<PAGE>
EXHIBIT D
---------
[REDACTED]
<PAGE>
EXHIBIT E
---------
[REDACTED]
<PAGE>
EXHIBIT F
---------
[REDACTED]
<PAGE>
FIRST AMENDMENT TO SUPPLY AND DISTRIBUTION AGREEMENT*
----------------------------------------------------
THIS FIRST AMENDMENT ("Amendment"), is made effective as of this 25th
day of April, 1995, by and between CHIRON VISION CORPORATION, a Delaware
corporation (formerly Chiron IntraOptics, Inc. and successor to Chiron
Ophthalmics, Inc.) ("Chiron"), and TRI-POINT MEDICAL L.P., a Delaware limited
partnership ("Tri-Point").
BACKGROUND
----------
A. Chiron and Tri-Point entered into a certain Supply and
Distribution Agreement, effective as of July 14, 1992 (the "Agreement"),
pursuant to which, among other things, (i) Tri-Point appointed Chiron as
Tri-Point's exclusive, worldwide distributor for the advertising, promotion,
sale and distribution of Product for ophthalmic use in humans, and
(ii) Tri-Point agreed to supply Chiron with the amounts of Product ordered by
Chiron pursuant to the provisions of the Agreement, all as described more fully
in the Agreement. All initially capitalized terms used but not defined in this
Amendment shall have the respective meanings assigned to them in the Agreement.
B. Chiron and Tri-Point desire to enter into this Amendment to (i)
amend the Purchase Price for Product to be paid by Chiron to Tri-Point under the
Agreement and (ii) provide for the payment by Chiron to Tri-Point of royalties
on Chiron's Net Sales Price per Unit of Product.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Amendments to Agreement.
-----------------------
(a) The following words are hereby inserted immediately after
the word "parties" in the second line of the definition of "Net Sales Price,"
set forth in Section 1.4 of the Agreement:
"including, without limitation, any sublicensee or other person
or entity that sells or otherwise distributes Product for or on
behalf of CHIRON,"
(b) Section 5.4 of the Agreement is hereby amended and
restated in its entirety as follows:
"5.4 Payment of Purchase Price. TRI-POINT shall invoice
-------------------------
CHIRON for the Purchase Price of Product when shipped.
Each shipment of Product shall constitute a separate sale
obligating CHIRON to pay TRI-POINT
* Portions of this exhibit were omitted and filed separately with
the Secretary of the Commission pursuant to an application for
confidential treatment filed with the Commission pursuant to
Rule 406 under the Securities Act of 1933. Such portions are
marked by "X" or the word "Redacted."
1
<PAGE>
therefor in accordance with the terms hereof. Each TRI-POINT
invoice shall be due and payable within thirty (30) days after
the date thereof."
(c) The following provisions are hereby added to the Agreement at
the end of Article 5 thereof:
"5.5 Payment of Royalties.
--------------------
(a) Commending on the date of the first direct or
indirect sale or other distribution of Product outside of
the United States of America by CHIRON or any of its
sublicensees, and continuing through the balance of the
term of this Agreement, CHIRON shall pay to TRI-POINT
royalties equal to XXXXXXXXXXX of CHIRON's Net Sales
Price per Unit of Product. The royalty calculations shall
be made on a per Unit of Product basis. The per Unit of
Product royalty shall be reduced by the applicable
Purchase Price paid by CHIRON for the Unit of Product
pursuant to the provisions of Sections 5.2 through 5.4
above. The amount by which any per unit royalty amount is
less than the applicable Purchase Price paid by CHIRON
for the Unit of Product shall be absorbed by CHIRON.
(b) Within sixty (60) days after each calendar quarter
during the term of this Agreement (ending on each March
31, June 30, September 30 and December 31,) CHIRON shall
furnish TRI-POINT with a report setting forth for such
calendar quarter: (i) the actual Net Sales Price for all
Units of Products sold by CHIRON during the calendar
quarter; (ii) the Purchase Price paid by CHIRON to TRI-
POINT for the Units of Product sold by CHIRON during the
calendar quarter; and (iii) the calculation of the
royalties payable by CHIRON to TRI-POINT pursuant to the
preceding Section 5.5(a). Simultaneously with making such
report CHIRON shall pay to TRI-POINT the amount of
royalties then due and payable by CHIRON to TRI-POINT.
5.6 General Payment Terms. All payments required to be
---------------------
paid hereunder shall be made in legal currency of the
United States of American by CHIRON check payable to TRI-
POINT and sent to TRI-POINT at its address set forth in
Section 12.4 below or such other location as TRI-POINT
may from time to time designate in writing to CHIRON. A
payment will be deemed to have been made when received at
such location. Net Sales Price shall first be determined
in the currency in which Products were sold and then
converted into its equivalent in United States currency
each month, at the average monthly conversion rate for
such foreign currency
2
Agreement No. 09095.2
<PAGE>
computed based on the conversion rate as published in the Wall
Street Journal for such month.
5.7 Restriction of Funds. If the law or regulation of any
--------------------
country shall at any time operate or prohibit the transfer of
funds there from to TRI-POINT, CHIRON shall notify TRI-POINT to
such effect and shall have the right to pay or cause to be paid
hereunder on account of sales of Product in such country by
local currency (if CHIRON is paid in such currency) to the
account of TRI-POINT in an interest bearing account if
permissible at prevailing commercial interest rate in a bank in
such country (which account and bank are reasonably acceptable
to TRI-POINT). CHIRON shall thereafter cooperate with all
reasonable requests of TRI-POINT in TRI-POINT's efforts to
obtain the lawful release of funds to TRI-POINT, but shall have
no further responsibility therefore.
5.8 Taxes. Any and all taxes levied by a proper taxing authority
-----
in any country and paid by CHIRON or its sublicensees on account
of payments accruing to TRI-POINT under this Agreement, for
which provision is made in the law or by regulation for
withholding of taxes, will be deducted from amounts paid by
CHIRON; provided that, proof of payment is secured and promptly
sent to TRI-POINT as evidenced of such payment.
5.9 Records. CHIRON shall maintain complete and accurate books
-------
and records which enable TRI-POINT to verify the Net Sales Price
of all Units of Product sold or otherwise distributed by CHIRON,
CHIRON's compliance with minimum purchase requirements, and
royalties payable by CHIRON. CHIRON shall maintain the books and
records (a) on an accrual basis and in accordance with generally
accepted accounting principles and (b) relating to each calendar
quarter for two (2) years after the submission of each report
required to be submitted by it under Section 5.5(b) hereof,
provided, however, that if there is a good faith dispute between
the parties continuing at the end of any such two (2) year
period, the time period for which CHIRON must maintain such
books and records shall be extended until such time that the
dispute is finally resolved.
5.10 Audit. TRI-POINT shall have the right, on no more than an
-----
annual basis, to have an independent accounting firm audit all
of the books and records maintained by CHIRON pursuant to
Section 5.7 on behalf of TRI-POINT. Such audit rights of
TRI-POINT
3
Agreement No. 090596.2
<PAGE>
shall survive for two (2) years after the expiration or
termination of the term of this agreement."
(d) The address for CHIRON for notices under the Agreement as
set forth in Section 12.4 shall be:
Chiron Vision Corporation
500 Iolab Drive
Claremont, California 91711
Attn: Chairman and Chief Executive Officer
Fax: (909) 399-1572
with a copy to Chiron Vision Corporation
500 Iolab Drive
Claremont, California 91711
Attn: Legal Department
Fax: (909) 399-1376
(e) Exhibit D to the Agreement is hereby amended and restated
in its entirety as follows:
XXXX
XXXXX
XXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
3. Governing Law. This Amendment shall be governed by and
-------------
interpreted and enforced in accordance with the laws of the State of Delaware,
U.S.A., without giving effect to the conflict of laws principles thereof.
4. Counterparts. This Amendment shall become binding when any one
------------
or more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Amendment may be executed in any
number of counterparts, each of which shall be an original as against either
party whose signature appears thereon, but all of which together shall
constitute but one and the same instrument.
5. Entire Agreement. The Agreement, as amended by Amendment, the
----------------
Stockholders Agreement, and the Confidentiality Agreement dated November 16,
1990, between the parties, set forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby. The Agreement, as
amended by this Amendment, is hereby ratified and confirmed to be in full force
and effect. This Agreement shall not be amended or modified except by written
instrument duly executed by each of the parties hereto.
4
Agreement No. 090595.2
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment on the
date first written above.
CHIRON VISION CORPORATION
By: /s/ William H. Link
------------------------------
William H. Link, Ph.D.
Chairman & CEO
TRI-POINT MEDICAL, L.P.
By: /s/ Robert V. Toni
-----------------------------
Robert V. Toni
President & CEO
5
Agreement No. 090595.2
<PAGE>
LICENSING AND DISTRIBUTION AGREEMENT*
This Agreement (hereinafter "AGREEMENT"), executed on the date of
acceptance hereinafter shown, by and between Tri-Point Medical L.P. (hereinafter
"LICENSOR"), a Delaware limited partnership with its principal place of business
at 5265 Capital Boulevard, Raleigh, North Carolina, 27604, and Farnam Companies,
Inc. (hereinafter "LICENSEE"), an Arizona corporation with its principal place
of business at 301 West Osborn Road, Phoenix, Arizona, 85013, WITNESSETH:
A. WHEREAS, LICENSOR has developed certain products containing specially
formulated adhesives for use on animals (hereinafter the "PRODUCTS"), said
PRODUCTS being listed and described in EXHIBIT A hereto; and
B. WHEREAS, LICENSOR and LICENSEE plan to agree on LICENSOR's development
of additional adhesive products which have application for use on animals
(hereinafter the "NEW PRODUCTS," such NEW PRODUCTS to be appended to the list of
PRODUCTS in EXHIBIT A when and as they are developed); and
C. WHEREAS, LICENSOR desires to grant to LICENSEE and LICENSEE desires to
be granted by LICENSOR the exclusive rights to market, sell, and distribute the
PRODUCTS and the NEW PRODUCTS to the ethical veterinary market, including,
without limitation, large and small animal veterinarians and their
staff/employees, privately-employed and government-employed veterinarians and
their staff/employees, schools of veterinary medicine and their staff/
employees, and veterinary clinics and hospitals and their staff/employees (the
"FIELD") in and for North America, consisting of the United States, its
possessions and territories, and Canada (the "TERRITORY") according to the terms
and conditions of this AGREEMENT.
NOW, THEREFORE, in consideration of the provisions, covenants, and mutual
undertakings of the parties as provided herein, the parties do hereby agree as
follows:
1. Grant of Exclusive Rights - Market, Sell, & Distribute.
------------------------------------------------------
(a) LICENSOR grants to LICENSEE, for the term of this AGREEMENT, the
exclusive rights to market, sell, and distribute the PRODUCTS and the NEW
PRODUCTS within and to the FIELD in and for the TERRITORY.
(b) LICENSOR retains the right to market, sell, and distribute, or to
license third parties to market, sell and distribute, the PRODUCTS and the NEW
PRODUCTS in any other market outside the FIELD or in any geographic area outside
the TERRITORY.
* Portions of this exhibit were omitted and filed separately with the Secretary
of the Commission pursuant to an application for confidential treatment filed
with the Commission pursuant to Rule 406 under the Securities Act of 1933.
Such portions are marked by "X" or the word "Redacted."
1/17
<PAGE>
2. Grant of Exclusive Rights - Trademarks.
--------------------------------------
(a) LICENSOR grants to LICENSEE, for the term of this AGREEMENT (as
defined in PARAGRAPH 24 hereof), the exclusive rights in the TERRITORY and
within the FIELD only to use LICENSOR's registered trademark "Nexaband(R)" and
LICENSOR's trademarks/trade names "Nexaband S/C," "Nexaband Liquid," "Nexaband
Ophthalmic," "Nexaband Avian," "Nexaband Groomer," and "Nexaband Pump Spray,"
(hereinafter collectively referred to as the "TRADEMARKS"), together with any
and all associated trade dress, in connection with LICENSEE'S selling,
marketing, and distributing the corresponding PRODUCTS and the NEW PRODUCTS.
(b) LICENSEE acknowledges that all right, title and interest in and
to the TRADEMARKS, except the right to use the TRADEMARKS as provided in this
AGREEMENT, remains with LICENSOR. LICENSEE acknowledges that the goodwill
associated with the TRADEMARKS belongs exclusively to LICENSOR.
(c) In accordance with the provisions of PARAGRAPH 15(B), LICENSEE
shall submit to LICENSOR all new uses of the TRADEMARKS for LICENSOR's advance
approval, in its sole discretion. LICENSEE shall use the TRADEMARKS only in
conjunction with another word or words and shall not, in any circumstances, use
the TRADEMARKS alone. LICENSEE shall not use the TRADEMARKS as all or part of
the name of any company, partnership or other entity. LICENSEE shall not use
any variation of any of the TRADEMARKS without LICENSOR's prior written
approval, which may be withheld in the sole discretion of LICENSOR. If LICENSOR
approves the use of any variation of any TRADEMARK, such mark shall become a
TRADEMARK owned by LICENSOR and governed by the terms of this Agreement.
LICENSEE shall not offer for sale any PRODUCT under, or in association with, the
TRADEMARKS other than the corresponding PRODUCT or NEW PRODUCT without the
written consent of LICENSOR.
(d) LICENSEE may desire to use LICENSEE's own trademarks, trade
names, and/or trade dress on or in connection with the PRODUCTS/NEW PRODUCTS it
markets, sells, and distributes hereunder. LICENSEE must, however, obtain
LICENSOR's consent with regard to any such desired change, which consent shall
not be withheld unreasonably.
3. Nexaband (R) Absorbable Product Development Fee. LICENSEE will pay
------------------------------------------------
to LICENSOR a one time, nonrefundable research, testing, and development fee of
$150,000, for the development of the contemplated Nexaband(R) absorbable
product(s). Said fee shall be paid to LICENSOR as follows: $75,000 upon
execution of this AGREEMENT; $25,000 upon LICENSOR's first shipment of a
Nexaband(TM) absorbable product to LICENSEE; and the remaining $50,000 upon the
first anniversary of the execution of this AGREEMENT.
2/17
<PAGE>
4. Minimum Purchases - Products.
----------------------------
(a) LICENSEE shall purchase from LICENSOR the minimum annual dollar
amounts of the PRODUCTS as specified in EXHIBIT B during each of the
corresponding twelve-month periods of this AGREEMENT, with the first such
-------------------
twelve-month period commencing upon January 1, 1993 and consisting of calendar
- ------------------------------------------------------------------------------
year 1993, and each subsequent twelve-month period beginning on the following
- -----------------------------------------------------------------------------
January 1 and consisting of the following calendar year.
- -------------------------------------------------------
(b) If, during any such twelve-month period, LICENSEE fails to
purchase from LICENSOR the minimum annual dollar amount specified in EXHIBIT B
hereto, then LICENSOR, at its sole and exclusive discretion, may revoke the
exclusivity of the rights granted to LICENSEE in PARAGRAPHS 1 AND 2 herein;
provided that LICENSEE may, in such a situation, retain the exclusivity of the
rights granted to LICENSEE in PARAGRAPHS 1 AND 2 herein by paying to LICENSOR,
within sixty (60) days following the end of that twelve-month period, an amount
equal to the exact dollar amount by which LICENSEE'S total dollar purchases
falls short of the required minimum specified in EXHIBIT B hereto. Upon such
payment, LICENSOR shall, if LICENSEE so requests, provide LICENSEE with PRODUCT
of LICENSEE's choosing equal in value (based on LICENSOR's sales prices to
LICENSEE as specified in PARAGRAPH 5 herein) to said payment.
(c) If, during any such twelve-month period, LICENSEE fails to
purchase from LICENSOR the minimum annual dollar amount specified in EXHIBIT B
hereto, and LICENSEE elects not to pay to LICENSOR the difference between the
minimum annual dollar amount and the total dollar amount LICENSEE actually
purchased, then LICENSOR shall have the right, in its sole discretion and upon
written notice to LICENSEE, to make the rights granted to LICENSEE in PARAGRAPHS
1 AND 2 herein non-exclusive, or to terminate this AGREEMENT.
5. Purchase Price - PRODUCTS.
-------------------------
(a) For the first two twelve-month periods of this AGREEMENT, as
---
these periods are defined in paragraph 4(a) herein (i.e. through December 31,
1994), LICENSEE shall pay LICENSOR the price specified in EXHIBIT C hereto for
each PRODUCT. Included in this price, LICENSOR shall cause the PRODUCTS to be
manufactured, packaged, labeled, and packed according to the specifications
listed in EXHIBIT D hereto. Prices shall not be increased during the first two
twelve-month periods of this AGREEMENT. If LICENSEE desires changes to the
packaging, labeling, and/or other specifications listed in EXHIBIT D hereto,
said change(s) must be consented to by LICENSOR, which consent shall not be
withheld unreasonably. If LICENSEE requests more than minimal changes to the
packaging or labeling, then the parties shall share the increased costs of
accommodating such changes on XXXXXXXXXXXXXXXXXXXXXXXX.
3/17
<PAGE>
(b) Thereafter (and only thereafter), LICENSOR may increase the
purchase price for the PRODUCTS by an amount not to exceed any increase in the
Wholesale Price Index published by the Bureau of Labor Statistics for the United
States Department of Labor for the United States, or any successor agency
thereto, during the immediately preceding twelve-month period; provided that
such a price increase may only occur after the initial two twelve-month periods
of this AGREEMENT, as these periods are defined in paragraph 4(a) herein
(i.e. after December 31, 1994), and may only occur upon LICENSEE's receipt of
ninety (90) days advance notice of such price increase, and may only occur once
per year (each such year beginning on January 1). Any and all PRODUCT purchase
orders made by LICENSEE and received by LICENSOR prior to the effective date of
any such price increase shall be filled and paid for at the price existing prior
to such price increase.
(c) PRODUCTS will be shipped via a mutually agreed upon commercial
carrier from LICENSOR's plant in Raleigh, North Carolina to LICENSEE'S warehouse
facilities in Omaha, Nebraska. This shall occur on a once-a-month basis. The
cost of freight shall be XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
The monthly shipments of PRODUCT shall be performed by LICENSOR according to a
forecast submitted by LICENSEE in accordance with PARAGRAPH 9 hereof.
(d) Both parties hereto agree that in the event of any conflict
between the terms of LICENSEE'S purchase order or LICENSOR's acknowledgment or
any other document, and this AGREEMENT, the terms of this AGREEMENT shall
govern.
6. Purchase Price and Minimum Purchases - NEW PRODUCTS. Pricing and
---------------------------------------------------
minimum annual dollar amounts for the NEW PRODUCTS developed in accordance with
PARAGRAPH 20 hereof shall be negotiated in good faith and with all good
intentions when each such NEW PRODUCT or group thereof is ready for sale. Once
a NEW PRODUCT price and corresponding unit size has been established, that price
shall be effective and shall not increase for twenty-four (24) months from the
date of the first shipment of such from LICENSOR to LICENSEE, after which
twenty-four (24) month period the pricing shall follow, upon all terms and
conditions, those guidelines established for the PRODUCTS in PARAGRAPH 5 herein.
7. Payment Terms. Payment terms shall be XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
-------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. All payments to LICENSOR shall
be made by check payable to the order of "Tri-Point Medical L.P." A service
charge of XXXXXX per month shall be assessed on any amount remaining unpaid
after its due date, subject to the limitations of applicable usury laws, if any.
8. Security Interest. To the extent that any PRODUCTS/NEW PRODUCTS have
-----------------
not yet been paid for by LICENSEE, and until said PRODUCTS/NEW PRODUCTS have
been paid for by LICENSEE, LICENSEE hereby grants to LICENSOR a security
interest in said PRODUCTS/NEW PRODUCTS (in LICENSEE's possession and not yet
sold or
4/17
<PAGE>
transferred to another party) to secure LICENSEE's performance of its payment
obligations under this AGREEMENT. If LICENSEE fails to make any payment when
due to LICENSOR under this AGREEMENT, LICENSOR may exercise all of its rights
and remedies as a secured party under the Uniform Commercial Code. LICENSEE
shall execute any instruments or documents reasonably requested by LICENSOR to
evidence and perfect such security interest.
9. Forecasting. Upon the execution of this AGREEMENT, and upon each
-----------
anniversary date thereof, LICENSEE shall present to LICENSOR a forecast of
LICENSEE's needs for the PRODUCTS by PRODUCT, by month, for the following twelve
(12) months. This forecast shall be fixed and unchangeable for a rolling period
of ninety (90) days from the then-present date and changeable for the periods of
time which are more than ninety (90) days from the then-present date.
10. Title and Risk of Loss. Title and risk of loss for the PRODUCTS and
----------------------
NEW PRODUCTS supplied under this AGREEMENT shall transfer from LICENSOR to
LICENSEE F.O.B. LICENSOR's facility in Raleigh, North Carolina. In the event of
any conflict between the terms of LICENSEE'S purchase order or LICENSOR's
acknowledgment or any other document, and this AGREEMENT, the terms of this
AGREEMENT shall govern.
11. LICENSEE'S Obligations.
----------------------
(a) LICENSEE shall use its best efforts to actively solicit and
promote sales of the PRODUCTS in the TERRITORY. LICENSEE shall maintain a
qualified staff to promote sales of the PRODUCTS and shall promptly deal with
all inquiries, orders, and complaints received in connection with its activities
under this AGREEMENT in accordance with the procedures specified in EXHIBIT G
hereto and PARAGRAPH 23 herein. LICENSEE shall make no warranties with respect
to the PRODUCTS/NEW PRODUCTS except as authorized in writing by LICENSOR or
except as appear on approved labeling/packaging of the PRODUCTS/NEW PRODUCTS.
(b) LICENSEE's resale prices for the PRODUCTS sold by LICENSEE in the
TERRITORY shall be established unilaterally by LICENSEE.
(c) At all times during the term of this Agreement, LICENSEE shall
strictly comply with all prevailing laws and regulations of the TERRITORY
pertaining to the distribution, sales promotion, and marketing of the PRODUCTS
in the TERRITORY. Without limiting the foregoing, LICENSEE shall not engage in
any unfair trade practice, make any false or misleading representations with
respect to the PRODUCTS, or participate in any illegal, deceptive, misleading or
unethical advertising, practice or scheme.
5/17
<PAGE>
(d) During the term of this Agreement, LICENSEE shall not, directly
or indirectly, manufacture, market, sell, purchase or distribute in the
TERRITORY any adhesive product competitive with the PRODUCTS.
(e) LICENSEE shall not solicit or accept orders for the PRODUCTS from
any person outside the TERRITORY. If LICENSEE receives any order for the
PRODUCTS from a prospective purchaser located outside the TERRITORY, LICENSEE
shall refer that order to LICENSOR. LICENSEE shall not directly or indirectly
deliver or tender for shipment the PRODUCTS to a destination outside the
TERRITORY without receiving prior written permission from LICENSOR. LICENSEE
shall not establish any branch or depot outside the TERRITORY for the marketing,
distribution or sale of the PRODUCTS.
12. Shelf Life.
----------
(a) LICENSOR warrants that the minimum shelf life of the PRODUCTS is
at least 11 months from date of manufacture. LICENSOR shall not ship to
LICENSEE any PRODUCT with a remaining shelf life of less than 11 months.
LICENSEE acknowledges that LICENSOR has notified LICENSEE that the PRODUCTS
require adherence to the special handling specifications listed in EXHIBIT E
hereto.
(b) LICENSEE shall replace outdated PRODUCT in accordance with
LICENSOR's return policy, specified in EXHIBIT F hereto. LICENSEE shall send
outdated PRODUCT back to LICENSOR, who will replace at no charge the outdated
PRODUCT with fresh PRODUCT, having a remaining shelf life of at least 11 months.
(c) LICENSEE has assured LICENSOR that LICENSEE will use the FIFO
(first in, first out) method of inventory control for the PRODUCTS/NEW PRODUCTS.
13. Quality Assurance and Nonconforming Product.
-------------------------------------------
(a) LICENSOR shall at all times keep adequate samples of all batches
of the manufactured PRODUCTS/NEW PRODUCTS for quality assurance purposes and
shall accept full responsibility for any and all PRODUCTS/NEW PRODUCTS that are
not manufactured according to the specifications of such PRODUCTS/NEW PRODUCTS
including, but not limited to, replacing defective PRODUCTS/NEW PRODUCTS in
LICENSEE'S warehouse or LICENSEE'S customer's warehouses and paying any and all
freight costs and other reasonable administrative costs associated with such
replacement and/or recall. If LICENSOR discovers that a defective PRODUCT/NEW
PRODUCT has been sent to LICENSEE, then LICENSOR shall promptly notify LICENSEE
of such shipment and LICENSOR shall work with LICENSEE to insure that the
defective PRODUCT/NEW PRODUCT is replaced, at LICENSOR's expense as stated
above, at all levels of distribution as quickly as possible.
6/17
<PAGE>
(b) LICENSOR shall be fully responsible for the quality assurance in
the manufacture of the PRODUCTS/NEW PRODUCTS. LICENSEE shall be responsible
only for insuring that the design and content of the packaging and labeling
supplied by LICENSEE for the PRODUCTS/NEW PRODUCTS represents the correct
specifications for said PRODUCTS/NEW PRODUCTS.
14. New LICENSEE Labeling.
---------------------
(a) Immediately upon the execution of this AGREEMENT, LICENSEE shall
begin the art work for changing the labeling to reflect LICENSEE as the
distributor and the art work for changing the product inserts for each of the
PRODUCTS to reflect LICENSEE as the distributor. During this labeling,
packaging and insert transition, LICENSEE will market the PRODUCTS as currently
packaged. Both LICENSEE and LICENSOR are anxious for this labeling, packaging
and insert change to occur as quickly as possible and both shall take all
reasonable efforts to effect such change.
(b) LICENSEE will make no change to the labeling or the insert, other
than listing LICENSEE as the distributor, placing the "800" telephone numbers of
LICENSEE and LICENSOR on the insert. LICENSEE's number shall be designed and
intended for ordering PRODUCTS in the TERRITORY and LICENSOR's number shall be
designed and intended for technical inquiries. LICENSOR shall have full control
over the technical aspects of the label. Any changes must be mutually agreed
upon and consented to by both parties, which consent shall not be withheld
unreasonably.
15. Sales Materials.
---------------
(a) Upon the execution of this AGREEMENT, LICENSOR shall make
available to LICENSEE any inventories of catalog pages and other sales materials
that LICENSOR may have in stock. LICENSEE shall make every effort to produce
new sales materials reflecting LICENSEE as the distributor as quickly as
possible.
(b) Before LICENSEE shall print any new advertising or other sales
materials, LICENSEE shall submit a copy of the artboard of such to LICENSOR for
LICENSOR's approval, which approval shall not be withheld unreasonably.
LICENSOR shall respond to such proposed new advertising or other sales materials
as quickly as possible, and in no case later than two weeks after receipt of
such proposed new advertising or other sales materials. LICENSOR shall have
sole and complete control over LICENSEE's use of the TRADEMARKS.
16. Sales History. Upon the execution of this AGREEMENT, LICENSOR shall
-------------
furnish to LICENSEE the sales history of each of the PRODUCTS, by customer, by
month, for the twelve-month period immediately preceding the execution of this
AGREEMENT until the last day of the month preceding the execution of this
AGREEMENT. Such information shall be subject to the confidentiality provisions
of PARAGRAPH 22 hereof.
7/17
<PAGE>
17. Formulas, Manufacturing procedures, M.S.D.S.
-------------------------------------------
(a) LICENSEE acknowledges that LICENSOR owns and shall retain all
right, title and interest in and to all formulas, specifications and
manufacturing procedures of the PRODUCTS/NEW PRODUCTS and that LICENSEE shall
have no rights thereto.
(b) Upon the execution of this AGREEMENT, LICENSOR shall furnish to
LICENSEE Material Safety Data Sheets (M.S.D.S.) on each and every PRODUCT.
(c) As soon as possible, LICENSOR shall furnish to LICENSEE Material
Safety Data Sheets (M.S.D.S.) on each and every NEW PRODUCT which is developed
by LICENSOR in accordance with the provisions of PARAGRAPH 20 hereof.
18. Samples. LICENSOR and LICENSEE acknowledge that LICENSEE plans to do
-------
a limited mailing of approximately 30,000 free samples of various of the
PRODUCTS (of LICENSEE's choosing), excluding Nexaband Liquid. LICENSOR shall
furnish the 30,000 free samples to LICENSEE at no charge. LICENSEE shall not
sell/resell these samples. LICENSEE agrees to furnish a forecast for these
samples a minimum of ninety (90) days before they are needed. LICENSOR shall
manufacture these samples fresh and shall not use existing inventory for such.
LICENSOR will use existing inventory of the PRODUCTS for providing to LICENSEE
at no charge working "sales-tools" samples of the various PRODUCTS for use by
LICENSEE's salespersons.
19. LICENSOR Participation.
----------------------
(a) Within twenty (20) days of the execution date of this AGREEMENT,
LICENSOR shall make a product manager and a salesperson available for a sales
meeting with the sales force, technical staff, marketing people, etc. of
LICENSEE, said meeting to be held in Phoenix, Arizona. LICENSOR shall be
responsible for and pay all travel expenses of LICENSOR's people for this
initial meeting.
(b) Subsequent to this initial meeting and during the term of this
AGREEMENT, LICENSOR shall make a product manager and a salesperson available for
training meetings, conventions, etc. and LICENSEE shall pay one half of all
reasonable travel, lodging and living expenses for said staff members of
LICENSOR when they are requested to be present by LICENSEE and such request is
approved by LICENSOR.
(c) During the first 24 months of this AGREEMENT, LICENSOR shall keep
available at least one salesperson to work in the field as LICENSEE wishes,
calling on veterinarians and/or distributors to detail the PRODUCTS/NEW PRODUCTS
and to increase the sales of such for the benefit of LICENSEE. This person
shall be at all times an employee of LICENSOR; and LICENSOR shall be solely
responsible for said salesperson's salary, insurance, and other benefits. In
consideration of such salesperson's assistance, LICENSEE shall pay to LICENSOR a
consulting fee equal to such salesperson's travel
8/17
<PAGE>
expenses, car allowance, and agreed-upon bonus only. Said salesperson shall be
considered an independent contractor to LICENSEE, and shall at no time be deemed
an employee of LICENSEE. It is presently understood by both parties that said
salesperson shall be Mr. John McCadden. Should, however, Mr. McCadden leave the
employ of LICENSOR for any reason before the end of the first 24 months of this
AGREEMENT, then a mutually agreeable replacement shall be chosen to perform as
herein described for the remainder of the 24-month time period.
(d) LICENSOR will maintain an "800" telephone number to handle
product inquiries of a technical nature. The insert for each PRODUCT/NEW PRODUCT
will, when re-printed, provide this technical assistance telephone number and
the hours of operation of such, together with the "800" telephone number of
LICENSEE for placing PRODUCT/NEW PRODUCT orders and for other marketing or sales
information. If LICENSEE receives a technical question that LICENSEE cannot
answer, an order for PRODUCTS outside the TERRITORY or a complaint regarding the
performance of the PRODUCT/NEW PRODUCT, then LICENSEE will give such caller the
"800" telephone number of LICENSOR or will contact LICENSOR and request that
LICENSOR contact the relevant party. LICENSOR will inform LICENSEE of the
resolution of any and all product complaints on a quarterly basis. Both parties
hereto agree to work together to insure the proper, effective, and efficient
handling of all product complaints and inquiries. To that end, the parties shall
adhere to their respective complaint policies set forth in EXHIBIT G hereto and
PARAGRAPH 23 herein.
20. Joint Development of NEW PRODUCTS. LICENSOR and LICENSEE shall
---------------------------------
mutually agree on any NEW PRODUCTS to be developed in the FIELD. LICENSOR will
provide the product development and technical expertise and LICENSEE will
provide the marketing and distribution expertise. Both parties mutually agree
to negotiate in good faith and with all good intentions for the development and
distribution of such NEW PRODUCTS.
21. Warranties and Representations.
------------------------------
(a) LICENSOR warrants and represents to LICENSEE that:
(1) all PRODUCTS supplied by LICENSOR to LICENSEE hereunder
shall meet the labeled ingredient specifications as specified in EXHIBIT D
hereto. Furthermore, LICENSOR shall test each lot of PRODUCT in order to
insure that said lot meets said specifications, and LICENSOR shall keep and
maintain a record of said test results; and
(2) all PRODUCTS, if manufactured according to LICENSOR's
specifications as listed in EXHIBIT D hereto, shall perform as claimed on
LICENSOR's current PRODUCT labels, copies of which are attached hereto as
EXHIBIT H; and
9/17
<PAGE>
(3) to the best of LICENSOR's knowledge, all PRODUCTS, if
manufactured according to LICENSOR's specifications as listed in EXHIBIT D
hereto, are in compliance with all laws, rules, and regulations, state
and/or federal, which may be applicable at the time of execution hereof;
and
(4) any and all toxic or otherwise hazardous properties known to
LICENSOR and any and all reports of adverse reactions received by LICENSOR
relating to any of the PRODUCTS have been made known to LICENSEE in
writing. Furthermore, LICENSOR shall promptly inform LICENSEE in writing
of any toxic or otherwise hazardous property or of any report of an adverse
reaction relating to any of the PRODUCTS which becomes known to LICENSOR
subsequent to the execution date hereof; and
(5) all information relating to the PRODUCTS provided to
LICENSEE by LICENSOR in written form is truthful and accurate. No
significant facts which may relate to the salability of the PRODUCTS have
been withheld or omitted by LICENSOR; and
(6) to LICENSOR's knowledge, none of the PRODUCTS currently
requires registration with or by any governmental agency or entity; and
(7) LICENSOR has not received any notice that the manufacture,
distribution, and/or sale of the PRODUCTS or any of them infringes upon any
patent or other proprietary right of any third party in the TERRITORY
within the FIELD; and to LICENSOR's knowledge, the manufacture,
distribution, and/or sale of the PRODUCTS or any of them does not infringe
upon any patent or other proprietary right of any third party in the
TERRITORY within the FIELD; and
(8) LICENSOR has the full right to grant the licenses and rights
granted to LICENSEE under this AGREEMENT; and
(9) the execution of this AGREEMENT and the rights granted
hereunder do not conflict with or violate any other agreement or document
or law or regulation to which LICENSOR is subject.
(10) EXCEPT AS SET FORTH ABOVE, LICENSOR MAKES NO OTHER
REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE. LICENSOR SHALL NOT BE LIABLE TO LICENSEE FOR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF LICENSEE (INCLUDING, BUT NOT LIMITED
TO, LOSS OF PROFITS OR LOSS OF USE DAMAGES) ARISING OUT OF THE MANUFACTURE,
SALE OR SUPPLY OF THE PRODUCTS OR THE NEW PRODUCTS, WHETHER OR NOT
FORESEEABLE. In the event of
10/17
<PAGE>
any conflict or contradiction in terms between this SUB-PARAGRAPH 21(A)(10)
and the indemnification provisions of PARAGRAPH 23 herein, PARAGRAPH 23
shall control.
(b) LICENSEE warrants and represents to LICENSOR that:
(1) LICENSEE has the full right and power to enter into this
AGREEMENT; and
(2) LICENSEE shall not make any warranties or representations
regarding any PRODUCT or NEW PRODUCT to any third party except as
authorized in writing by LICENSOR or except as appear on approved
labeling/packaging of the PRODUCTS/NEW PRODUCTS; and
(3) LICENSEE shall at all times store and handle the PRODUCTS
and NEW PRODUCTS in accordance with the directions and specifications
provided by LICENSOR and in accordance with any applicable federal, state
or local law or regulation; and
(4) LICENSEE shall adhere to all Good Manufacturing Procedure
requirements regarding the reporting and handling of complaints in
accordance with Exhibit G hereto; and
(5) the execution of this AGREEMENT and the rights granted
hereunder do not conflict with or violate any agreement or document or law
or regulation to which LICENSEE is subject.
(c) It is further understood by both parties that performance under
this AGREEMENT shall be conditioned upon the accuracy and completeness of each
and every of these representations and warranties, the inaccuracy or
incompleteness of any of which shall be a material breach of this AGREEMENT.
22. Confidentiality.
---------------
(a) "Confidential Information" shall mean all data, specifications,
information and other materials that are owned or developed by the disclosing
party that relate to the PRODUCTS or NEW PRODUCTS and that are disclosed to the
receiving party or its representative. Notwithstanding the foregoing,
"Confidential Information, shall not include:
(1) Information that is in the public domain at the time of
disclosure or subsequently enters the public domain without any act or
omission on the part of the receiving party or its representative, agents
or employees;
11/17
<PAGE>
(2) Information that was known by the receiving party prior to
receipt of the Confidential Information from the disclosing party, to the
extent evidenced by the receiving party's pre-existing records promptly
disclosed to the disclosing party upon receipt of such information;
(3) Information that is lawfully received by the receiving party
from a third party without contravention of this AGREEMENT or any similar
nondisclosure agreement (whether or not with the disclosing party) by which
such a third party is bound;
(4) Information that is approved for release by written
authorization of the disclosing party; or
(5) Information that is independently developed by the receiving
party provided that the person or persons developing the same have not had
any access to the Confidential Information.
(b) The receiving party agrees, on behalf of itself and its
employees, agents and representatives, to maintain all of the Confidential
Information received under this AGREEMENT in strict confidence, to use the
Confidential Information only for the purpose stated in this AGREEMENT, and to
not disclose or disseminate any part of the Confidential Information to any
person, unless the disclosing party consents in writing to such disclosure or
dissemination. Any information established by the receiving party relative to
its use of the Confidential Information as permitted hereunder shall be held
confidential to the same extent as the Confidential Information itself.
(c) The receiving party agrees not to permit any disclosure of the
Confidential Information except to those of its employees who require knowledge
of the same in order to accomplish the purpose specified above, will inform all
such employees of the confidential nature of the Confidential Information and
will confirm that each such employee has executed an agreement requiring the
employee to maintain the confidentiality of matters including the Confidential
Information.
(d) The receiving party agrees to take all necessary and reasonable
precautions to prevent the Confidential Information from being disclosed to any
other party.
23. Indemnification.
---------------
(a) LICENSOR hereby indemnifies and holds harmless LICENSEE, its
divisions, parent company, subsidiaries, affiliates, agents, employees,
successors, and permitted assigns from and against any and all liability,
actions, claims, losses, costs, damages, fines, penalties, and expenses
(including, without limitation, reasonable and necessary attorneys fees),
incurred by reason of or arising out of the manufacture, sale, use, or attempted
use of the PRODUCTS and/or NEW PRODUCTS or any of them (including
12/17
<PAGE>
LICENSEE's own brand name versions of the PRODUCTS/NEW PRODUCTS), or any third
party's claim of infringement of any patent or any other proprietary rights
regarding the PRODUCTS/NEW PRODUCTS or any of them (including LICENSEE's own
brand name versions of the PRODUCTS/NEW PRODUCTS), unless, and then only to the
extent that, any such liability, action, claim, loss, cost, damage, fine,
penalty or expense is due to LICENSEE's negligence, LICENSEE's
misrepresentations, LICENSEE's unauthorized adulteration of the PRODUCTS/NEW
PRODUCTS, LICENSEE's use of its own trademarks and/or trade dress, or LICENSEE's
material breach of this AGREEMENT.
(b) LICENSEE hereby indemnifies and holds harmless LICENSOR, its
employees, agents, successors, permitted assigns, limited partners and general
partner from and against any and all liability, actions, claims, losses, costs,
damages, fines, penalties, and expenses (including, without limitation,
reasonable and necessary attorneys fees), incurred by reason of or arising out
of: LICENSEE's negligence, LICENSEE's misrepresentations, LICENSEE's
unauthorized adulteration of the PRODUCTS/NEW PRODUCTS, LICENSEE's use of its
own trademarks and/or trade dress, or LICENSEE's material breach of this
AGREEMENT.
(c) The obligations of the indemnifying party under PARAGRAPHS 23(A)
AND (B) above are conditioned upon the prompt notification to the indemnifying
party of any of the aforementioned suits or claims in writing within fifteen
(15) days after receipt of notice by the indemnified party of an official
Summons & Complaint and/or legal demand letter. The indemnifying party shall
have the right to assume the defense of any such suit or claim unless, in the
reasonable judgment of the indemnified party, such suit or claim involves an
issue or matter which could have a materially adverse effect on the business,
operations or assets of the indemnified party, in which event the indemnified
party may mutually control the defense or settlement thereof. If the
indemnifying party defends the claim, the indemnified party may participate in
the defense of such suit or claim at its sole cost and expense. This provision
for indemnification shall be void and there shall be no liability against a
party as to any suit or claim for which settlement or compromise or an offer of
settlement or compromise is made without the prior consent of the indemnifying
party.
(d) LICENSOR agrees to maintain, at its own expense, product
liability insurance in the amount of at least One Million Dollars
($1,000,000.00), which policy shall insure against any and all claims,
liabilities, costs, expenses, etc. for which LICENSOR is under an obligation to
indemnify according to this PARAGRAPH 23. LICENSOR shall provide LICENSEE with
appropriate documentation evidencing such, and, further, LICENSOR shall provide
that an appropriate endorsement naming LICENSEE as an additional insured is
issued to protect LICENSEE.
24. Term and Termination. Unless earlier terminated in accordance with
--------------------
the provisions of Paragraph 4(c) hereof, or by any of the occurrences set forth
below, the term of this AGREEMENT shall be for a period of seven (7) years
commencing on January 1, 1993. Thereafter, the term of this AGREEMENT shall
automatically renew for successive
13/17
<PAGE>
one-year terms provided that LICENSEE maintains the required minimum annual
dollar amounts as specified in Exhibit B hereto. Notwithstanding the foregoing:
(a) if both parties agree in writing to terminate this AGREEMENT,
then this AGREEMENT shall so terminate according to the terms of said writing
when fully executed; or
(b) If LICENSEE fails to pay any amount that is due to LICENSOR and
such failure continues for fifteen (15) days after LICENSEE's receipt from
LICENSOR of notice of said overdue payment, then LICENSOR has the right to
terminate this AGREEMENT; or
(c) If either party materially breaches this AGREEMENT, the non-
breaching party may terminate this AGREEMENT forty-five (45) days following
receipt by the breaching party of written notice from the non-breaching party of
said material breach, provided that the breaching party has not cured such
material breach within the forty-five (45) day time period.
The terms, conditions, rights, duties, and obligations set forth in PARAGRAPHS
2(B), 8, 21, 22, AND 23 herein and any obligations of payments rightfully due
hereunder shall survive any termination of this AGREEMENT.
25. Force Majeure. Neither party shall be liable for any failure to
-------------
perform under this AGREEMENT (other than failure to make any payment of sums due
hereunder) when such failure is caused by factors beyond the reasonable control
of such party, including by way of illustration, but not limited to, war,
embargo, fire or other calamity, strikes, unavailability of raw materials or
ingredients, supply allocations, or actions of governmental authorities.
26. No Partnership/Agency . LICENSOR and LICENSEE are and at all times
----------------------
shall be and remain independent contractors as to each other, and at no time
shall either be deemed to be the agent of the other, and no joint venture,
partnership, agency, or other relationship shall be created or implied hereby.
Each is prohibited from doing any acts which may create the impression of
agency. Except as is expressly set forth herein, each party shall bear full and
sole responsibility for its own expenses, liabilities, costs of operation and
the like.
27. Assignment. This AGREEMENT shall not be assignable in whole or in
----------
part by either party without the prior written consent of the other party, which
consent shall not be withheld unreasonably.
28. Binding Upon. This AGREEMENT shall be binding upon and shall inure to
------------
the benefit of each of the parties hereto and their respective heirs, devisees,
legatees, executors, administrators, successors, and permitted assigns.
14/17
<PAGE>
29. Non-waiver. Any failure or delay by either party to insist upon
----------
strict performance of any provision hereof or to exercise any right, power,
privilege, or remedy consequent upon default hereunder shall not constitute a
waiver of any provision, right, power, or privilege, or of any available remedy
under the AGREEMENT, including any provision the performance of which was not
insisted upon and/or any right, power, privilege, and/or remedy which was not
exercised.
30. Severability. In the event that any one or more of the provisions set
------------
forth in this AGREEMENT shall be for any reason held invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this AGREEMENT, and this AGREEMENT shall
be construed as if the invalid, illegal, or unenforceable provision(s) had never
been set forth herein. If any one or more of the provisions contained in this
AGREEMENT shall for any reason be held to be excessively broad as to time,
duration, activity, subject, or geographical scope, it shall be construed by
reducing it so as to be enforceable to the extent capable.
31. Choice of Law. This AGREEMENT shall be construed in accordance with
-------------
and shall be governed by the laws of the State of North Carolina, without
reference to the principles governing the conflict of laws applicable in that or
any other jurisdiction.
32. Notices. Except as otherwise specified herein, any notices permitted
-------
or required by this AGREEMENT shall be sent by telecopy, telex, by recognized
overnight mail service or by certified or registered mail, return receipt
requested, except that normal correspondence not related to termination,
defaults, or rights to manufacture may be sent by first class mail. Any such
notice shall be effective when received if sent and addressed as follows or to
such other address as may be designated by such party in writing and delivered
in accordance with this PARAGRAPH 32:
If to LICENSOR:
Mr. Jeffrey C. Basham, President
Tri-Point Medical L.P.
5265 Capital Boulevard
Raleigh, North Carolina 27604
If to LICENSEE:
Mr. Charles B. Duff, C.E.O.
Farnam Companies, Inc.
301 West Osborn Road
Phoenix, Arizona 85013
15/17
<PAGE>
33. Entire Agreement. This AGREEMENT and that certain "Confidentiality
----------------
Agreement" between LICENSOR and LICENSEE executed on or about February 2, 1992,
comprise the entire agreement between the parties and supersedes all other
understandings or agreements between the parties relative to the PRODUCTS.
34. Amendment/Modification. This AGREEMENT may not be amended or modified
----------------------
except through a writing referencing this AGREEMENT and fully executed by both
parties hereto.
35. Paragraph Headings. The headings/titles to each paragraph of this
------------------
AGREEMENT are for reference purposes only and shall not be used to interpret
said paragraph, nor any other provision or paragraph of this AGREEMENT. All
interpretations of the meaning of each paragraph of this AGREEMENT shall rely
solely upon the content of that paragraph and/or the content of the AGREEMENT
and shall not incorporate the heading/title of that or any other paragraph for
such interpretation.
16/17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this AGREEMENT to
be executed by its duly authorized representative on the 7th day of
December, 1992.
LICENSOR: TRI-POINT MEDICAL L.P.
By: /s/ Jeffrey C. Basham
----------------------------------------
Jeffrey C. Basham
President
Date: December 7, 1992
--------------------------------------
Witness: /s/ J. Blount Swain
-----------------------------------
LICENSEE: FARNAM COMPANIES, INC.
By: /s/ Charles B. Duff
-------------------------------------
Charles B. Duff
Chief Executive Officer
Date: December 3, 1992
-------------------------------------
Witness: /s/ [Signature Illegible]
----------------------------------
17/17
<PAGE>
Exhibit A
NEXABAND/R/ Product Line
NEXABAND Liquid - Product Code # 51A01
NEXABAND Avian - Product Code # 51A03
NEXABAND Ophthalmic - Product Code # 51A04
NEXABAND Groomer - Product Code # 51A05
NEXABAND S/C - Product Code # 51A08
NEXABAND Pump Spray - Product Code # 51A09
<PAGE>
EXHIBIT B
1. Minimum Annual Purchases of the Existing Nexaband/R/ Product Line
------------------------------------------------------------------
(consisting of "Nexaband Liquid," "Nexaband Avian," "Nexaband Ophthalmic,"
- --------------------------------------------------------------------------
"Nexaband Groomer," "Nexaband S/C," and "Nexaband Pump Spray") (hereinafter
- ---------------------------------------------------------------------------
collectively referred to as "NEXABAND/R/ PRODUCT LINE").
- --------------------------------------------------------
(a) During the first twelve-month period of this AGREEMENT, as such is
defined in paragraph 4(a) herein (i.e. January 1, 1993 through December 31,
1993), LICENSEE shall purchase from LICENSOR a minimum of XXXXXXXXXX worth of
PRODUCTS (based on LICENSOR sales prices to LICENSEE as specified in Exhibit C
hereto) from the NEXABAND/R/ PRODUCT LINE in any combination of PRODUCT amounts
LICENSEE chooses. Furthermore, but with regard to this first twelve-month
period only, in order to maintain the exclusivity of the rights granted to
LICENSEE in PARAGRAPHS 1 AND 2 herein, LICENSEE shall pay to LICENSOR an
additional amount equal to the exact dollar amount by which LICENSEE's total
- -----------------
dollar purchases of PRODUCTS from the NEXABAND/R/ PRODUCT LINE during the first
twelve-month period of this AGREEMENT falls short of XXXXXXXXXX. Such additional
----------
amount shall be paid to LICENSOR by LICENSEE as follows: XXXXXXXXXXXXXXXXXXXXXXX
- ------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
(b) During the second twelve-month period of this AGREEMENT, as such is
defined in paragraph 4(a) herein (i.e. January 1, 1994 through December 31,
1994), LICENSEE shall purchase from LICENSOR a minimum of XXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX of the actual dollar amount (based on LICENSOR's sales prices to
LICENSEE as specified in Exhibit C hereto) of "NEXABAND/R/ PRODUCT LINE"
PRODUCTS purchased during the previous twelve-month period of this AGREEMENT.
(c) During the third twelve-month period of this AGREEMENT, as such is
defined in paragraph 4(a) herein (i.e. January 1, 1995 through December 31,
1995), LICENSEE shall purchase from LICENSOR a minimum of XXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX of the actual dollar amount (based on LICENSOR's sales prices to
LICENSEE as specified in EXHIBIT C hereto) of "NEXABAND/R/ PRODUCT LINE"
PRODUCTS purchased during the previous twelve-month period of this AGREEMENT.
(d) During the fourth twelve-month period of this AGREEMENT, as such is
defined in paragraph 4(a) herein (i.e. January 1, 1996 through December 31,
1996), LICENSEE shall purchase from LICENSOR a minimum of XXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX of the actual dollar amount (based on LICENSOR's sales prices to
LICENSEE as specified in EXHIBIT C hereto) of "NEXABAND/R/ PRODUCT LINE"
PRODUCTS purchased during the previous twelve-month period of this AGREEMENT.
<PAGE>
(e) During the fifth twelve-month period of this AGREEMENT, and during
each subsequent twelve-month period thereafter, as such is defined in paragraph
4(a) herein, LICENSEE shall purchase from LICENSOR a minimum of XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXX of the actual dollar amount (based on LICENSOR's sales
prices to LICENSEE as specified in EXHIBIT C hereto) of "NEXABAND/R/ PRODUCT
LINE" PRODUCTS purchased during the previous twelve-month period of this
AGREEMENT, until such minimum dollar amount for any given twelve-month period
equals XXXXXXXXX, at which time the minimum dollar amount required of LICENSEE
will be capped at XXXXXXXXXX for each of the remaining twelve-month periods of
this AGREEMENT.
<PAGE>
Exhibit C
NEXABAND/R/ PRICING
NEXABAND Liquid - XXXXXXXXXXXXXXXXXXXXXX
NEXABAND Avian - XXXXXXXXXXXXXXXXXXXXXX
NEXABAND Opthalmic - XXXXXXXXXXXXXXXXXXXXXX
NEXABAND Groomer - XXXXXXXXXXXXXXXXXXXXXX
NEXABAND S/C - XXXXXXXXXXXXXXXXXXXXXX
NEXABAND Pump Spray - XXXXXXXXXXXXXXXXXXXXXX
<PAGE>
SUPPLY AND DISTRIBUTION RIGHTS AGREEMENT*
----------------------------------------
SUPPLY AND DISTRIBUTION RIGHTS AGREEMENT ("Agreement") dated as of March
20, 1996, between ETHICON, INC., a company with its principal office at Route
22, Somerville, New Jersey 08876-0151 ("Ethicon"), and TRI-POINT MEDICAL
CORPORATION, a company with its principal office at 5265 Capital Boulevard,
Raleigh, North Carolina 27604 ("Tri-Point").
WHEREAS, Tri-Point and Ethicon desire to enter into this agreement which
will set out the terms and conditions under which (i) Tri-Point will supply to
Ethicon a Non-absorbable (as defined below), formulated, 2-octylcyanoacrylate
adhesive, packaged and sterile in an agreed-upon delivery system (such product
hereinafter referred to as the "Product") for use in the Field (as defined
below) and (ii) Tri-Point is granting Ethicon the worldwide exclusive right to
market and sell the Product;
NOW THEREFORE, in consideration of the mutual covenants and consideration
set forth herein, the parties hereto agree as follows:
ARTICLE I
I. DEFINITIONS.
-----------
A. "AAA" shall have the meaning ascribed in Article VI(L).
B. "ABSORBABLE TECHNOLOGY" shall have the meaning ascribed in Article
III(I).
C. "AFFILIATE" shall mean, in relation to either party hereto, (a) any
company in which the relevant party directly or indirectly holds more than 50%
of the voting stock, (b) any company ("Holding Company") which holds directly or
indirectly more than 50% of the voting stock of the relevant party, (c) any
other company in which more than 50% of the voting stock is directly or
indirectly held by any Holding Company of the relevant party or (d) any company
in which the relevant party directly or indirectly holds less than 50% of the
voting stock but has management control of such company in that it has the
ability to appoint and remove the majority of the directors of such company.
D. "BANKRUPTCY EVENT" shall mean the person or entity in question becomes
insolvent, or voluntary or involuntary proceedings by or against such person or
entity are instituted in bankruptcy or under any insolvency law, or a receiver
or custodian is appointed for such person or entity, or proceedings are
instituted by or against such person or entity for corporate reorganization or
the dissolution of such person or entity, which proceedings, if involuntary,
shall not have been dismissed within
* Portions of this exhibit were omitted and filed separately with the Secretary
of the Commission pursuant to an application for confidential treatment filed
with the Commission pursuant to Rule 406 under the Securities Act of 1933.
Such portions are marked by "X" or the word "Redacted."
<PAGE>
sixty (60) days after the date of filing, or such person or entity makes an
assignment for the benefit of its creditors, or substantially all of the assets
of such person or entity are seized or attached and not released within sixty
(60) days thereafter.
E. "Change in Control" shall mean:
1. The liquidation or dissolution of Tri-Point or the sale or other
transfer by Tri-Point (excluding transfers to subsidiaries) of all or
substantially all of its assets; or
2. The occurrence of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, sale or
transfer of assets or other transaction, as a result of which any person or
group (as such terms are used in and under Section 13(d) of the Securities
Exchange Act of 1934, as amended, but excluding Rolf D. Schmidt and F.W. Schmidt
or any entity controlled by (as defined below) either or both of them) (i)
becomes the beneficial owner (as defined in Rule 13-d under such Act), directly
or indirectly, of securities of Tri-Point representing more than 50% of the
common stock of Tri-Point or representing more than 50% of the combined voting
power with respect to the election of directors (or members of any other
governing body) of Tri-Point's then outstanding securities, (ii) obtains the
ability to appoint a majority of the Board of Directors (or other governing
body) of Tri-Point, or (iii) obtains the ability to direct the operations or
management of Tri-Point or any successor to Tri-Point's business; and
3. For purposess of this definition the term "controlled by", when
used with respect to an entity controlled by either or both of Rolf D. Schmidt
and/or F.W. Schmidt, shall mean an entity with respect to which either or both
of them (i) is or are the beneficial owner(s) (as defined in Rule 13-d referred
to above), directly or indirectly, of securities representing more than 50% of
the total voting power in the election of directors of all such entity's then
outstanding voting securities, (ii) has or have the ability to appoint a
majority of the board of directors (or other governing body), or (iii) has or
have the ability to direct the operations or management.
F. "CLAIMS" shall have the meaning ascribed in Article IV (E)(5).
G. "E.C." shall mean the European Community, as recognized as of the date
of this Agreement.
H. "ESCROW AGENT" shall mean the independent escrow agent selected by
Ethicon and consented to by Tri-Point (such consent not to be unreasonably
withheld or delayed), in its capacity as
2
<PAGE>
the escrow agent under the Escrow Agreement, or any successor or assign thereof,
which is approved in advance by Ethicon and Tri-Point, which approval shall not
be unreasonably withheld or delayed.
I. "ESCROW AGREEMENT" shall mean that certain Escrow Agreement dated the
date hereof among Tri-Point, Ethicon and the Escrow Agent, pursuant to which
Tri-Point has agreed to place into escrow certain materials, information and
samples of the Product and Improvements.
J. "ESCROW DEPOSIT MATERIALS" shall have the meaning ascribed in Article
(V)(E).
K. "ETHICON INVENTIONS" shall have the meaning ascribed in Article
V(F)(2).
L. "ETHICON TERRITORY" shall have the meaning ascribed in Article
III(D)(1).
M. "EVALUATION RIGHT" shall have the meaning ascribed in Article
III(I)(1).
N. "EVENT OF DEFAULT" shall have the meaning ascribed in Article V(C).
O. "EXCLUDED TERRITORIES" shall mean those Territories listed on Exhibit
E.
P. "FDA" shall mean the U.S. Food and Drug Administration.
Q. "FIELD" shall mean all human medical and surgical Topical
applications; provided, however, that Field does not include (i) cyanoacrylate
-------- -------
adhesives that include a drug, (ii) formulations of cyanoacrylates for treatment
of ulcers and burns, and (iii) cyanoacrylate adhesives which may be sold or
distributed Over-the-Counter.
R. "FORMULATION SPECIFICATIONS" shall mean those manufacturing and
quality control release specifications set forth on Exhibit A, as well as any
labelling requirements specified in any Regulatory Approval (which labelling
requirements shall become a part of Exhibit A upon the receipt of any such
Regulatory Approval).
S. "FORCE MAJEURE NOTICE" shall have the meaning ascribed in Article
VI(G)(2).
T. "HOLDING COMPANY" shall have the meaning ascribed in Article I(C).
3
<PAGE>
U. "IMPROVEMENTS" shall mean such Know-How, whether or not patented or
patentable, that is or comes to be at least in part owned or controlled by Tri-
Point during the term of this Agreement, related to the manufacture,
development, use or sale of the Product in the Field (including, but not limited
to, the delivery systems therefor), which is based upon any of the Patents or
Know-How of Tri-Point as of the date of this Agreement (including, but not
limited to, formulas, processes, data, techniques, methods, technology,
materials and compositions).
V. "INVESTMENT BANK OFFER" shall have the meaning ascribed in Article
III(J)(3).
W. "INVOICE PRICE" shall mean, with respect to the Product or
Improvement, the invoice price for the Product or Improvement when shipped by
Tri-Point to Ethicon, which Invoice Price shall initially be XXXXXXX per unit,
and which Invoice Price may be changed by Ethicon on an annual basis to an
estimated Invoice Price (equal to XXXXXXXXXXXXXXXXXXXXXX of the Net Sales per
unit during the calendar quarter immediately preceding the quarter in which the
change is made) commencing with first full calendar quarter after the third
anniversary of this Agreement (or earlier if mutually agreed by the parties).
X. "JOINT INVENTIONS" shall have the meaning ascribed in Article V(F)(3).
Y. "KNOW-HOW" shall mean all know-how owned or controlled by Tri-Point at
any time prior to or during the term of Tri-Point's performance under this
Agreement related to the manufacture, development, use or sale of the Product or
any Improvement (including the delivery system therefor) in the Field, including
without limitation, processes, techniques, methods, products, apparatuses,
materials and compositions.
Z. "LABELLING/PACKAGING SPECIFICATIONS" shall mean those specifications
provided pursuant to the provisions of Article IV(E)(1), but shall exclude those
labelling and/or packaging specifications required under any Regulatory Approval
of a Product or Improvement.
AA. "MANUFACTURING PLAN" shall have the meaning ascribed in Article
III(C)(3).
AB. "MINIMUM PURCHASE PRICE" shall have the meaning ascribed in Article
IV(B)(3).
AC. "NET SALES" shall mean, with respect to any Product or Improvement (i)
the per unit gross revenues derived from the sale or other transfer by Ethicon,
its Affiliates, licensees and assignees from the sale or other transfer of the
Product or Improvement to independent third parties and/or to any Affiliate
4
<PAGE>
of Ethicon acting as a distributor and/or wholesaler, and (ii) the per unit
gross revenues derived from the transfer or sale to an Affiliate of Products or
Improvements which are to be used primarily for performing testing; in each case
(A) after subtracting all bona fide trade and cash discounts, volume discounts,
rebates, marketing subsidies, sales and other taxes and governmental charges
applicable to sales, import and customer duties, freight, carriage, handling,
packaging, insurance and other transportation charges, to the extent actually
paid, allowed or incurred on such sales, (B) taking into account all bona fide
claims or returns of such Product or Improvement, (C) in the case of sales or
other transfers to an Affiliate of Ethicon, such sales or transfers shall, for
purposes of determining Net Sales, be the fair market value of such sales or
transfers, where the fair market value shall be determined from the sales of
similar volumes of similar Products or Improvements to independent third
parties, and (D) it being understood that in calculating any royalties on Net
Sales payable by Ethicon under this Agreement, such calculation shall be based
upon either (i) sales or other transfers to independent third parties, where
Ethicon's Affiliates are not acting as a distributor and/or wholesaler, or (ii)
sales or other transfers to Ethicon's Affiliates where they are acting as a
distributor and/or wholesaler, but not both.
In the event that the Product or any Improvement is sold in the form of a
combination product, Net Sales for such Product or Improvement will be
calculated by multiplying the actual Net Sales of the combination product by the
fraction A/(A+B), where A is the invoiced price of such Product or Improvement
as if sold separately by Ethicon, its Affiliates, licensees or assignees, and B
is the total invoice price of the other component or components in the
combination product if sold separately by Ethicon, its Affiliates, licensees or
assignees.
If, on a country-by-country basis, the other component or components in the
combination product are not sold separately in said country by Ethicon or its
Affiliates, licensees or assignees, Net Sales for the Product or Improvement
shall be calculated by multiplying the actual Net Sales of such combination
product by the fraction A/C, where A is the invoice price of the Product or
Improvement as if sold separately, and C is the invoice price of the combination
product.
If on a country-by-country basis, neither the Product, the Improvement nor
the other component or components in the combination product is sold separately
in said country by Ethicon, its Affiliates, licensees or assignees, Net Sales
for the Product or Improvement shall be calculated by multiplying the actual Net
Sales of such combination product by the fraction D/E, where D is Ethicon's, or
its Affiliates', licensees' or assignees' total actual cost of the Product or
Improvement and E
5
<PAGE>
shall be Ethicon's, or its Affiliates', licensees' or assignees' total actual
cost of the combination product.
AD. "NEW PRODUCTS" shall mean any Non-absorbable cyanoacrylate adhesive
products of Tri-Point and its Affiliates which may be used in the Field and
which are not Improvements.
AE. "NON-ABSORBABLE" shall mean a material which, if implanted in a living
animal would persist in an identifiable form after implantation in such animal
for greater than six (6) months.
AF. "OCTYLDENT" shall mean those non-absorbable, 2-octylcyanoacrylate
products currently being sold on a non-exclusive basis by Tri-Point for use in
the dental market.
AG. "OFFER" shall have the meaning given in Article III(J)(1).
AH. "OPHTHALMIC RIGHTS" shall have the meaning given in Article III(K).
AI. "OTC RIGHTS" shall have the meaning given in Article III(I)(1).
AJ. "OTHER PRODUCT" shall mean a product whose manufacture, use or sale
would infringe a Valid Claim of a Patent covering a Joint Invention.
AK. "OVER-THE-COUNTER" shall mean products which may be sold or
distributed in a manner which does not require the prescription or written
direction of a medical professional, entity or institution.
AL. "PATENT(S)" shall mean (i) all the patents and applications for
patents, if any, that are identified in Exhibit C, any foreign counterparts
thereof, as well as all continuations, continuations-in-part, divisions and
renewals thereof, all patents which may be granted thereon, and all reissues,
reexaminations, extensions, patents of addition and patents of importation
thereof; (ii) any Tri-Point patent application related to or based on any Tri-
Point Know-How that is developed during the term of this Agreement, and any
division, continuation or continuation-in-part of any such application and any
patent which shall issue based on such application, divisional, continuation or
continuation-in-part, and any patent which is a reissue or extension thereof or
a patent of addition to any such patent; and (iii) all such patent applications
and patents, directly or indirectly owned, licensed or controlled by Tri-Point,
which but for the rights granted herein, the manufacture, use or sale of the
Product or any Improvement would infringe a Valid Claim.
6
<PAGE>
AM. "PRE-PAID AMOUNT" shall have the meaning given in Article III(G)(1).
AN. "PROCESS DESCRIPTION" shall mean, with respect to the Product or any
Improvement, manufacturing and control procedures and specifications, as well as
such other know-how, technical specifications, instructions, processes and other
intellectual property and information Tri-Point shall possess and own or
control, and as shall be necessary in order to allow Ethicon to manufacture
and/or have manufactured for it the Product or Improvement. Such Process
Descriptions shall be sufficiently clear and detailed that it can be readily
followed and carried out by a skilled person.
AO. "PURCHASE PRICE" shall have the meaning ascribed in Article IV(B)(1).
AP. "REGULATORY APPROVAL" shall mean, with respect to any country, filing
for and receipt of all regulatory agency registrations and approvals (including,
but not limited to, approvals of all final Product or Improvement labelling)
required for the marketing and sale of the Product or any Improvement for the
indication for which it is being marketed in such country. With respect to the
E.C., Regulatory Approval shall mean approval for sale of the Product or
Improvement within all the E.C. countries.
AQ. "REGULATORY FILINGS" shall mean all applications, filings, materials,
studies, data and documents of any nature whatsoever filed with, prepared in
connection with or necessary to support any Regulatory Approval process in any
country or territory.
AR. "REVERTED TERRITORY" shall mean any country with respect to which
marketing and sales rights of Products and/or Improvements have reverted back to
Tri-Point pursuant to the provisions of Article III(E).
AS. "SPECIFICATIONS" shall mean the Formulation Specifications and the
Labelling/Packaging Specifications.
AT. "TERRITORY" shall mean the entire world, excluding any Reverted
Territory.
AU. "TOPICAL" shall mean involving the external tissue of the human body
such as the skin, but shall not include the external surface of the eyeball and
tissues inside of the mouth.
AV. "TRI-POINT INVENTIONS" shall have the meaning ascribed in Article
V(F)(1).
7
<PAGE>
AW. "VALID CLAIM" shall mean a claim in any issued and unexpired Patent
which has not been held invalid by a non-appealed or unappealed decision by a
court or other appropriate body of competent jurisdiction.
ARTICLE II
II. DISCLOSURES.
------------
Tri-Point expressly understands and acknowledges that Ethicon is currently
and in the future will evaluate other business opportunities and products for
the medical adhesive market. Ethicon in its sole discretion may participate in
these markets alone or in other business or research arrangements with third
parties, both now and during the term of this Agreement. Tri-Point acknowledges
that the consideration provided under this Agreement is complete and adequate
consideration for Tri-Point entering this Agreement.
ARTICLE III
III. DEVELOPMENT; MARKETING AND DISTRIBUTION RIGHTS
----------------------------------------------
A. GRANT; NO-COMPETE.
------------------
1. Subject to the terms and conditions of this Agreement, Tri-Point
hereby grants to Ethicon, during the term of this Agreement, an exclusive,
royalty-bearing, right and license to use, market, advertise, promote,
distribute and sell the Product (and any Improvements) in the Field throughout
the Territory.
2. During the term of this Agreement and except as specifically
permitted in this Agreement, Tri-Point shall not, directly or indirectly (such
as through the grant of a license or other conveyance of rights to Tri-Point's
Know-How and Patents) make, have made, use, lease, sell or otherwise
commercialize any Non-absorbable product that competes with the Product or
Improvement in the Field. For purposes of this Article III(A)(2), (i) a Non-
absorbable product which is sold or marketed for use outside the Field shall be
deemed to be competing with the Product or any Improvement in the Field if such
Non-absorbable product can be shown to have captured at least one percent (1%)
share of the market for Topical Non-absorbable adhesives in the Field in any
given country and (ii) any Topical Non-absorbable adhesive product which is sold
or marketed for use within the Field shall be deemed to be competing with the
Product or Improvement in the Field.
3. Tri-Point shall cooperate with Ethicon and take all actions
reasonable and appropriate to prohibit and prevent third parties from making,
using, distributing or selling any
8
<PAGE>
product obtained from or through Tri-Point which violates the no compete
obligation in the foregoing Article III(A)(2) including, without limitation, the
termination of licenses and contract rights.
4. Ethicon shall have the right to grant sublicenses to any
Affiliate or to any third party with respect to any rights conferred upon
Ethicon under this Agreement to the extent permitted by Article VI (E);
provided, however, that any sublicense shall be pursuant to an agreement, the
- -------- -------
terms and conditions of which shall be consistent with those of this Agreement.
B. OCTYLDENT PRODUCT. Tri-Point hereby agrees to grant to Ethicon,
-----------------
during the term of this Agreement, a non-exclusive, worldwide right and license
to use, market, advertise, promote, distribute and sell Octyldent (and any
improvements thereon for which Tri-Point grants any other party non-exclusive
rights) for approved indications. The terms and conditions of such grant shall
be negotiated between Ethicon and Tri-Point in good faith.
C. RESEARCH AND DEVELOPMENT; U.S. AND E.C. REGULATORY APPROVAL.
-----------------------------------------------------------
1. Tri-Point shall conduct those studies and undertake such other
steps and actions as shall be reasonably necessary to obtain in a prompt fashion
Regulatory Approval of the Product for use in the Field in the United States and
in the E.C. Tri-Point will keep Ethicon informed of its progress toward
obtaining such Regulatory Approvals. If Tri-Point ceases active pursuit of
Regulatory Approval in either of the United States or the E.C., Ethicon shall be
given notice of Tri-Point's decision to cease active pursuit of Regulatory
Approval and shall have the right to use these submissions, approvals,
information and data regarding the Product for use in the countries in which
Tri-Point ceases to pursue Regulatory Approval. Tri-Point acknowledges that
Ethicon's right to pursue Regulatory Approval in no way relieves Tri-Point of
its obligations to pursue Regulatory Approval for the Product under this
Agreement.
2. Ethicon shall have the right to review and comment on strategies
and protocols of the clinical trials and regulatory submissions made by Tri-
Point related to the Product.
3. Within ninety (90) days after the execution and delivery of this
Agreement, Tri-Point shall submit to Ethicon its one and two year manufacturing
capability plan (the "Manufacturing Plan") for completing implementation of
procedures and facilities for producing the Product which satisfy the
requirements of Article IV of this Agreement. Ethicon shall promptly review such
procedures and discuss with Tri-Point changes, if any, required to meet such
provisions.
9
<PAGE>
Notwithstanding Ethicon's review of such procedures, it is expressly
acknowledged that Tri-Point shall be solely responsible for complying with its
obligations under Article IV.
4. Within six (6) months after the execution and delivery of this
Agreement, Tri-Point shall allow Ethicon to audit or have audited the
manufacturing facilities that Tri-Point shall use to produce the Product to
confirm that such facilities are adequate to meet the requirements of the
Manufacturing Plan and the requirements of Article IV of this Agreement.
5. During this Agreement, the parties agree to form an Advisory
Board made up of not more than three (3) individuals each from Tri-Point and
Ethicon, which shall include Tri-Point's President and Ethicon's Vice President,
Growth Technologies and New Business Development and associated members. The
Advisory Board will meet from time to time (at least once a calendar quarter and
more frequently if mutually agreed to by Tri-Point and Ethicon) to discuss the
details of the research, development, regulatory approval process and associated
time lines for the Product and Improvements, as well as to review and discuss
the adequacy of Tri-Point's manufacturing facilities to meet the requirements of
this Agreement. The location, time and length of such meetings shall be agreed
to by the parties. The Advisory Board shall alternate the location of its
meetings between the facilities of each of the parties or by mutual agreement
meet at either facility or telephonically.
D. EX-U.S. AND E.C. REGULATORY APPROVALS.
-------------------------------------
1. Ethicon shall have the right but not the obligation, to pursue
regulatory approval of the Product and any Improvements in all countries outside
the U.S. and the E.C. (individually, an "Ethicon Territory", and collectively,
the "Ethicon Territories") at its own expense. In the event Ethicon pursues such
approvals, Tri-Point shall provide to Ethicon copies of all Regulatory Filings
as well as provide to Ethicon such assistance and other information as shall be
reasonably necessary for Ethicon to obtain such approvals including, but not
limited to, the right to cross-reference Tri-Point's Regulatory Filings (it
being understood that, to the extent necessary to protect Tri-Point's
proprietary information, Tri-Point may provide directly to a regulatory
authority such proprietary information so long as it does not adversely impact
Ethicon's ability to obtain the Regulatory Approval from such regulatory
authority).
2. With respect to the Ethicon Territories (excluding the Excluded
Territories), Ethicon shall be responsible for and shall use reasonable and
customary efforts in obtaining any Regulatory Approvals, permits and licenses
necessary to market the Product and any Improvement in such Territories. The
timing of Ethicon's efforts to obtain Regulatory Approvals shall be
10
<PAGE>
guided by Ethicon's marketing plans and will be under the sole discretion of
Ethicon. All such approvals, permits and licenses shall be in Ethicon's (or its
Affiliates) name unless otherwise required by law.
E. REVERSION OF COUNTRIES TO TRI-POINT.
-----------------------------------
1. If, within one (1) year after obtaining Regulatory Approval in
the U.S. for the Product or any Improvement, Ethicon or its Affiliates do not
commence reasonable and customary efforts to obtain Regulatory Approval for the
Product or Improvement in a particular Ethicon Territory (excluding the Excluded
Territories, and other than as a result of an event of force majeure or Tri-
Point's failure to meet its obligations under this Agreement), then Tri-Point
shall have the option to have Ethicon's exclusive rights to such Ethicon
Territory for such Product or Improvement revert back to Tri-Point. Tri-Point
shall exercise such right by providing written notice to Ethicon of its desire
to exercise such option. Rights to such Ethicon Territory shall automatically
vest in Tri-Point thirty (30) days after delivery of such notice by Tri-Point.
Conveyance to Tri-Point of rights to such Ethicon Territory shall be contingent
upon Tri-Point agreeing to make no sales outside of such Ethicon Territory (such
restriction not being applicable to the Reverted Territories) of the Product or
Improvement, and committing to reasonable contractual provisions which will not
allow others to sell the Product or Improvement outside of such Ethicon
Territory and Reverted Territories. Reversion of such rights to Tri-Point shall
not entitle Tri-Point to any rights in Ethicon's trademarks, tradename,
tradedress, etc., which it uses in connection with the Product or Improvement
(except as may otherwise be provided in this Agreement).
2. If, within one (1) year of obtaining the requisite approvals
(including, but not limited to, Regulatory Approvals) necessary to market the
Product or any Improvement in a particular Ethicon Territory (excluding the
Excluded Territories), Ethicon or its Affiliates do not initiate marketing of
such Product or Improvement in such Ethicon Territory (other than as a result of
an event of force majeure or Tri-Point's failure to comply with the provisions
of this Agreement), then Tri-Point shall have the option to have Ethicon's
exclusive rights to such Ethicon Territory revert back to Tri-Point. Tri-Point
shall exercise such right by providing written notice to Ethicon of its desire
to exercise such option. Rights to such Ethicon Territory shall automatically
vest in Tri-Point thirty (30) days after delivery of such notice by Tri-Point.
Conveyance to Tri-Point of rights to such Ethicon Territory shall be contingent
upon Tri-Point agreeing to make no sales outside of such Ethicon Territory (such
restriction not being applicable to the Reverted Territories) of the Product or
Improvement, and committing to reasonable contractual provisions which will not
11
<PAGE>
allow others to sell the Product or any Improvement outside of such Ethicon
Territory and the Reverted Territories. Reversion of such rights to Tri-Point
shall not entitle Tri-Point to any rights in Ethicon's trademarks, tradename,
tradedress, etc., which it uses in connection with the Product or Improvement
(except as may otherwise be provided in this Agreement). Upon any such reversion
of an Ethicon Territory to Tri-Point, Ethicon shall, to the extent reasonably
possible, assign to Tri-Point such Regulatory Approvals which Ethicon may have
obtained in such Reverted Territory which relate solely to the Product or any
Improvement.
F. REVERSION OF COUNTRIES BACK TO ETHICON.
--------------------------------------
1. If, within one (1) year after Tri-Point obtains rights to a
Reverted Territory for the Product or any Improvement, Tri-Point or its
Affiliates do not commence reasonable and customary efforts to obtain Regulatory
Approval for the Product or Improvement in such Reverted Territory (other than
as a result of an event of force majeure or Ethicon's failure to meet its
obligations under this Agreement), then Ethicon shall have the option to have
Tri-Point's exclusive rights to such Reverted Territory for such Product or
Improvement revert back to Ethicon. Ethicon shall exercise such right by
providing written notice to Tri-Point of its desire to exercise such option.
Rights to such Reverted Territory shall automatically vest in Ethicon thirty
(30) days after delivery of such notice by Ethicon. Reversion of such rights to
Ethicon shall not entitle Ethicon to any rights in Tri-Point's trademarks,
tradename, tradedress, etc., which it uses in connection with the Product or
Improvement (except as may otherwise be provided in this Agreement).
2. If, within one (1) year of obtaining the requisite approvals
necessary to market the Product or any Improvement in a particular Reverted
Territory, Tri-Point or its Affiliates do not initiate marketing of such Product
or Improvement in such Reverted Territory (other than as a result of an event of
force majeure or Ethicon's failure to meet its obligations under this
Agreement), then Ethicon shall have the option to have Tri-Point's exclusive
rights to such Reverted Territory revert back to Ethicon. Ethicon shall exercise
such right by providing written notice to Tri-Point of its desire to exercise
such option. Rights to such Reverted Territory shall automatically vest in
Ethicon thirty (30) days after delivery of such notice by Ethicon. Conveyance of
such rights to Ethicon shall not entitle Ethicon to any rights in Tri-Point's
trademarks, tradename, tradedress, etc., which it uses in connection with the
Product or Improvement (except as may otherwise be provided in this Agreement).
12
<PAGE>
G. MILESTONE PAYMENTS. In consideration of Tri-Point entering into this
------------------
exclusive Supply and Distribution Rights Agreement, and of Tri-Point's reaching
certain milestones relating to the Product, Ethicon shall pay to Tri-Point the
following payments:
1. the sum of Four Million Five Hundred Thousand Dollars
($4,500,000) due the date of execution of this Agreement (One Million Dollars of
which (the "Pre-Paid Amount") is subject to the credit provisions set out in
Article III(L)); and
2. the sum of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX, due within ten (10) days after receipt by Ethicon of a copy of
the written notification from the FDA for the first Regulatory Approval (PMA
notification) for the Product in the Field.
The foregoing Milestone Payments shall be made by wire transfer to the account
designated by Tri-Point in writing no later than five (5) business days prior to
the date on which transfer is to be made.
H. FUNDING FOR CLINICAL STUDIES.
----------------------------
1. Ethicon shall reimburse Tri-Point for up to XXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX of the direct costs incurred by Tri-Point in having contract
research organization(s) perform clinical studies related to the Product for FDA
Regulatory Approval purposes for use in the Field. Payment of such costs by
Ethicon shall be made within thirty (30) days of receipt from time to time of a
written invoice from such research organizations identifying the costs involved.
Such invoice shall provide in reasonable detail a breakdown of the work
performed, the time and materials involved, the personnel involved, and such
other items as Ethicon shall reasonably request. Ethicon shall have the right to
audit such research organization's records to verify the accuracy of such
invoices.
2. The aggregate of all amounts paid by Ethicon pursuant to the
preceding Article III(H)(1) shall be creditable against any royalties due by
Ethicon to Tri-Point pursuant to Article IV(D).
I. Right of Evaluation.
-------------------
1. Ethicon shall have a right to review and evaluate ("Evaluation
Right") Tri-Point's technology and know-how with respect to (i) absorbable
cyanoacrylate adhesives ("Absorbable Technology"), (ii) cyanoacrylate technology
for all human medical Over-the-Counter applications on a worldwide basis outside
the scope of this Agreement ("OTC Rights") and (iii) New Products.
2. With respect to the Evaluation Rights for the Absorbable
Technology and New Products, Tri-Point shall promptly notify Ethicon if and
when, at any time during the term of this Agreement, it provides any
formulations to, or enters into discussions (other than preliminary,
non-substantive discussions) with, any third party with respect to the
Absorbable Technology and New Products; provided, however, that it is under-
-------- -------
stood that once Tri-Point shall have provided Ethicon with information and
materials with respect to either Absorbable Technology or New Products, it shall
not be obligated to provide such information a second time to Ethicon unless
such information or other materials with respect to the Absorbable Technology or
New Products, as the case may be, shall have changed from that previously
provided to Ethicon. Upon Ethicon executing and delivering to Tri-Point (A) a
confidentiality agreement substantially in the form of the Confidential
Disclosure Agreement dated June 8, 1994 between Tri-Point and Ethicon, as
amended (the "Confidential Disclosure Agreement"), and (B) a materials transfer
agreement substantially in the form of the Materials Transfer Agreement dated
February 6, 1996 between Tri-Point and Ethicon, as amended (the "Materials
Transfer Agreement"), Tri-Point shall promptly provide to Ethicon such studies,
patent information, descriptions of technology, product samples and other
materials as Ethicon shall reasonably request in order for it to conduct a
review of the Absorbable Technology and/or New Products.
3. With respect to the Evaluation Rights for the OTC Rights Tri-
Point shall, prior to entering into discussions or exchanging any information
with respect to the OTC Rights with any third party, provide to Ethicon or its
Affiliates such studies, patent information, descriptions of technology, product
samples and other materials Ethicon shall reasonably request in order for it to
conduct a review of Tri-Point's technology and know-how with respect to the OTC
Rights. Such information shall be provided promptly upon Ethicon executing and
delivering to Tri-Point (A) a confidentiality agreement substantially in the
form of the Confidential Disclosure Agreement and (B) a materials transfer
agreement substantially in the form of the Materials Transfer Agreement.
4. Ethicon or its Affiliates shall be entitled to review any
materials delivered to it under the foregoing Article III (I) (2) and (3) for a
period of nine months ("Review Period") from the date Tri-Point so provides such
information to Ethicon. Upon expiration of such nine month review period
Ethicon shall return to Tri-Point all confidential and proprietary materials
provided to Ethicon in connection with its Evaluation Right.
J. Right of First Offer.
--------------------
1. During the term of this Agreement, Ethicon shall have the right of
first offer with respect to the OTC Rights. Such right of first offer shall be
exercised by Ethicon prior to the end of the Review Period by providing to Tri-
Point a written, reasonably detailed offer (the "Offer") to Tri-Point for the
OTC Rights.
2. Tri-Point shall have sixty (60) days from receipt of the Offer to
either accept or reject such Offer. In the event Tri-Point accepts such Offer,
the parties shall negotiate in good faith and agree upon definitive
documentation based upon the Offer within ninety (90) days of Tri-Point's
acceptance of such Offer.
3. In the event Tri-Point does not accept the Offer, then the parties
shall submit the matter within thirty (30) days after Tri-Point's rejection of
such Offer to an independent investment bank of nationally recognized standing
mutually selected by the parties for purposes of having such independent
investment bank provide a detailed, written evaluation of, and terms and
conditions to, the OTC Rights (the "Investment Bank Offer"). In the event the
parties cannot agree upon an investment bank within such period of time, then
each party shall select an independent investment bank, and the two selected
independent investment banks together shall decide upon a third independent
investment bank to provide the Investment Bank Offer.
4. The selected investment bank shall have sixty (60) days within
which to prepare the Investment Bank Offer, and the fees of the investment bank
in doing so shall be equally split between the parties. The fees of the
investment bank shall only be a negotiated flat-rate fee (i.e., no fees shall be
based upon a percentage of the valuation or other similar mechanism.) Upon
preparation of the Investment Bank Offer, it shall be submitted to the two
parties. Each party shall have thirty (30) days within which to decide to accept
or reject the Investment Bank Offer. The decision as to whether to accept or
reject the Investment Bank Offer shall be delivered by sealed envelope to the
investment bank which prepared such Investment Bank Offer. In the event that
both parties accept the Investment Bank Offer, then the parties shall negotiate
in good faith and agree upon definitive documentation based upon such Investment
Bank Offer within ninety (90) days of acceptance of such Investment Bank Offer.
5. If Ethicon rejects the Investment Bank Offer and Tri-Point accepts
the Investment Bank Offer, then Tri-Point shall be free to enter into
negotiations with third parties with respect to the OTC Rights for a period of
twelve (12) months thereafter. In the event Tri-Point does not enter into
definitive documentation with respect to the OTC Rights within such time period,
then Ethicon shall have a right to match any agreement or other arrangement with
respect to the OTC Rights which Tri-Point agrees to after the expiration of such
twelve (12) month period ( the "Right of First Refusal"). The Right of First
Refusal shall be exercised by Ethicon within sixty (60) days after delivery by
Tri-Point to Ethicon of a written detailed description of any such agreement.
Upon exercise by Ethicon, the parties shall negotiate in good faith and agree
upon definitive documentation with respect to the OTC Rights.
6. If Ethicon accepts the Investment Bank Offer and Tri-Point rejects
the Investment Bank Offer, then Ethicon shall have a Right of First Refusal with
respect to any agreements or arrangements Tri-Point subsequently agrees to after
rejection of such Investment Bank Offer, such Right of First Refusal to commence
immediately after such rejection.
7. If both parties reject the Investment Bank Offer, then Ethicon
shall have a Right of First Refusal with respect to any agreements or
arrangements Tri-Point subsequently agrees to after rejection of such Investment
Bank Offer, such Right of First Refusal to commence immediately after such
rejection.
K. Rights to Ophthalmic Products. If and when Tri-Point's existing
-----------------------------
agreements with respect to its Non-Absorbable cyanoacrylate products for use in
the ophthalmic area ("Ophthalmic Rights") terminate or otherwise expire, then
Tri-Point shall notify Ethicon of such fact in writing. Upon such notification,
the Ophthalmic Rights shall be subject to the same Right of Evaluation and Right
of First Offer provisions which are applicable to the OTC Rights.
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<PAGE>
L. PRE-PAID AMOUNT. The Pre-Paid Amount shall be creditable (i) first,
---------------
against any Product or Improvement purchases by Ethicon under this Agreement and
(ii) second, against royalty payments not previously used up with other credits
under this Agreement, subject in both cases to maximum annual creditable amounts
set out in the amortization schedule on Exhibit F.
ARTICLE IV
IV. SUPPLY OF PRODUCT
-----------------
A. EXCLUSIVE SUPPLY OF PRODUCT. Except as specifically provided by the
---------------------------
provisions of this Agreement, Tri-Point shall be the exclusive supplier of the
Product and any Improvement to Ethicon during the term of this Agreement, and
Tri-Point shall exclusively supply the Product and any Improvement to Ethicon
during the term of this Agreement.
B. ORDERS, PRICES AND TERMS.
------------------------
1. The purchase price ("Purchase Price") for each unit of the
Product or Improvement purchased from Tri-Point shall
14
<PAGE>
be (i) XXXXXXXXXXXXXXXXXXXXXX of the average Net Sales for such Product or
Improvement; provided, however, that in no event shall the Purchase Price for
-------- -------
such Product be less than XXXXXXX per each Product unit.
2. The parties shall use the Invoice Price for purposes of invoicing
and shipping the Product or Improvement. The parties shall, on a calendar
quarter basis, reconcile the Invoice Price initially charged to Ethicon to the
Purchase Price as follows. Ethicon shall provide to Tri-Point no later than the
thirtieth (30th) day after the end of each calendar quarter Ethicon's
calculation (along with a summary of the sales and/or transfers on which such
calculation is based) of the average Net Sales per unit for each Product or
Improvement, along with a calculation of the difference between such amount and
the actual Invoice Prices charged. For purposes of calculating the average Net
Sales, Ethicon shall combine the average Net Sales per unit in the U.S. for the
just-completed calendar quarter, along with the average Net Sales per unit
outside the U.S. for the calendar quarter which preceded the just-completed
calendar quarter. The average Net Sales shall be based upon the total Products
or Improvements shipped by Ethicon or its Affiliates to customers during such
calendar quarters. If such calculation indicates that the aggregate Invoice
Price exceeded the aggregate Purchase Price during such quarters, then Tri-Point
shall issue a check to Ethicon within ten (10) business days of receipt of such
calculation of such amount or, at Ethicon's option, Ethicon may credit such
excess amount against royalties or purchases under this Agreement. If such
calculation indicates that the aggregate Invoice Price was less than the
aggregate Purchase Price during such quarters, then Ethicon shall submit such
amount to Tri-Point when it provides such calculation to Tri-Point. For purposes
of this Agreement, calendar quarters commence on each January 1, April 1, July 1
and October 1.
3. Notwithstanding the minimum purchase price of XXXXXXX set out in
the preceding paragraph (B)(1) (the "Minimum Purchase Price"), in the event that
(i) for any two consecutive calendar quarters after the third anniversary of
this Agreement the Purchase Price is XXXXXXX or (ii) for any two consecutive
calendar quarters after the first anniversary of commercial sale of a Product in
either the U.S. or the E.C. the Purchase Price is XXXXXXX, then in either such
event the parties shall negotiate in good faith equitable adjustments to the
Minimum Purchase Price to take into account market and economic conditions.
4. All shipments of the Product or Improvements shall be F.O.B. Tri-
Point's (or Tri-Point's subcontractor's) U.S. manufacturing facility, and shall
be accompanied by a packing slip which describes the Product or Improvements,
states the purchase order number and shows the shipment's destination. To the
extent of any conflict or inconsistency between this
15
<PAGE>
Agreement and any purchase order, purchase order release, confirmation,
acceptance or any similar document, the terms of this Agreement shall govern.
5. Ethicon shall by the first business day of each calendar month
provide purchase orders to Tri-Point for Ethicon's Product or Improvement
requirements for the second calendar month following the month in which the
purchase order is to be provided (i.e., a sixty (60) day advance purchase order
requirement). Tri-Point shall be obligated to supply such Products or
Improvements as requested by Ethicon to the extent the purchase orders do not
exceed by an amount greater than 15% the latest First Quarter Forecast provided
pursuant to Article IV(I). Tri-Point shall use its commercially reasonable
efforts to fill any orders in excess of such amounts. Ethicon shall at all times
be obliged to purchase the quantity of the Product and Improvements requested in
such purchase orders and, in any event, shall be obligated to purchase at least
eighty five percent (85%) of each First Quarter Forecast during the calendar
quarter to which such First Quarter Forecast relates.
6. Ethicon will make payment upon any ordered Product or
Improvements within thirty (30) days from date of invoice for such Product or
Improvements (said invoice to be dated the date of shipment and forwarded
directly to Ethicon via first class mail or other mutually agreed-upon means).
C. ANNUAL PURCHASE MINIMUMS.
------------------------
1. Upon the Product receiving Regulatory Approval in the U.S. or the
E.C., then during each year commencing with the date of first commercial sale in
the U.S. or the E.C., as applicable (but in no event shall such yearly period
commence later than four (4) months after the date Tri-Point notifies Ethicon of
such Regulatory Approval), there shall be annual purchase minimums for the
Product as set out on Exhibit B. Purchases of Product by Ethicon during the four
(4) months prior to the commencement of the first commercial sale in the U.S. or
the E.C. shall be counted towards the annual minimum purchase minimum for the
first year period.
2. In the event Ethicon does not meet the applicable annual purchase
minimums set out on Exhibit B for two consecutive years, but not including the
first year of commercial sales in the U.S. or E.C. (it being understood that if
no commercial sales have commenced in either the U.S. or E.C. after Regulatory
Approval, then the first year shall be deemed to commence four (4) months after
the date Tri-Point notifies Ethicon of such Regulatory Approval), then Tri-
Point's sole and exclusive remedy shall be its option to terminate this
Agreement effective upon thirty (30) days prior written notice of Tri-Point's
intention to so terminate this Agreement (it being understood that any such
16
<PAGE>
failure to meet the annual purchase minimums shall not be considered to be an
Event of Default under this Agreement); provided, however, that upon delivery of
-------- -------
such termination notice Ethicon shall not be obligated to purchase any more
Products under this Agreement from Tri-Point (irrespective of whether or not
Ethicon has become committed to purchase such Products pursuant to the terms of
this Agreement).
3. So long as Ethicon meets the combined U.S. and E.C. applicable
annual purchase minimums in each year, irrespective of whether those purchases
were for the U.S. market, the E.C. market and/or for other countries outside
those markets, then Ethicon shall be deemed to have met the annual purchase
minimums for such year.
4. Ethicon shall not be considered as having failed to meet the
annual purchase minimums in the event such failure is a result of Tri-Point's
failure to supply a Product or Improvement under this Agreement, or in the event
of a recall or government initiated action with respect to a Product or
Improvement.
D. ROYALTIES.
---------
1. In further consideration of the rights granted to Ethicon under
this Agreement, Ethicon shall pay to Tri-Point on a country by country basis in
the Territory the following royalties:
a. in a country where at least one Patent has issued to Tri-
Point, and Ethicon or its Affiliates, directly or indirectly, makes, has made,
uses, sells or otherwise transfers a Product or Improvement falling within the
scope of a Valid Claim of any such Patents in force in that country, a royalty
of XXXXXXXXXXXXXXXXXXX of Net Sales of such Product or Improvement in such
country shall be paid by Ethicon to Tri-Point, until the expiration or
abandonment of such Patent or Patents in said country;
b. in a country where the Product or Improvement is not within
the scope of a Valid Claim and is not provided for in Article IV(D)(1)(a) above
where Ethicon or its Affiliates, directly or indirectly, makes, has made, uses,
sells or otherwise transfers such Product or Improvement, a royalty of XXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX of Net Sales of such Product or Improvement in such
country shall be paid by Ethicon to Tri-Point;
provided, however, it is expressly understood that if a Product or Improvement
- -------- -------
falls within the scope of more than one Valid Claim of one or more Patents in a
particular country, that the royalty due for sales in such country shall only be
XXXXXXXXXXXXXXXXXXX no matter how many Patents or Valid Claims may exist.
17
<PAGE>
2. Royalties payable on sales outside the United States will be
payable in United States Dollars calculated at the official rate of exchange of
the currency of the country from which the royalties are payable as quoted by
The Wall Street Journal, New York Edition, for the last business day of the
- -----------------------
calendar quarter for which the royalty payment is due. If the transfer or the
conversion into United States Dollars in any such instance is not lawful or
possible, the payment of such part of the royalties as is necessary shall be
made by the deposit thereof, in the currency of the country where the sales were
made on which the royalty was based, to the credit and account of the
appropriate party or its nominee in any commercial bank or trust company of its
choice located in that country, prompt notice of which shall be given the
appropriate party.
3. If the applicable royalty rate exceeds the permissible rate
established by law in a given country for royalty payments in that country or
royalty remission from that country, as the case may be, the rate of royalty
payable by the party paying the royalty shall not exceed such established
permissible rate.
4. Any tax required to be withheld by Ethicon or any Affiliates or
sublicensee under the laws of any foreign country for the account of Tri-Point
shall be promptly paid by Ethicon or said Affiliates or sublicensee for and on
behalf of Tri-Point to the appropriate governmental authority, and Ethicon or
its Affiliates or sublicensees shall furnish Tri-Point with proof of payment of
such tax together with official or other appropriate evidence issued by the
appropriate governmental authority sufficient to enable Tri-Point to document
claim for income tax credit in respect to any sum so withheld. Any such tax
required to be withheld shall be an expense of and borne solely by Tri-Point.
5. In the event that a party owes royalty, such party shall deliver
to the party owed the royalty written reports of Net Sales during the preceding
calendar quarter, on or before the thirtieth (30th) day following the end of
each calendar quarter. In the event that a party owes royalty for sales made by
its Affiliate or its sublicensee, such party shall deliver to the party owed the
royalty written reports of Net Sales for such Affiliate or sublicensee during
the preceding calendar quarter, on or before the ninetieth (90th) day following
the end of each calendar quarter. Such reports shall include a calculation of
the earned royalty due and shall be accompanied by the monies due (subject to
adjustments as a result of the reconciliation of the Purchase Price with the
Invoice Price).
6. If Tri-Point ceases to supply any Product under this Agreement
which is subject to a royalty under the provisions of this Article IV(D), then
Ethicon shall, subject to the
18
<PAGE>
provisions of Article (V)(D), have the right to offset any expenses incurred for
said interruption of supply against any royalty that would have been due Tri-
Point under this Agreement.
7. Ethicon's obligations to pay royalties under this Agreement shall
be subject to any credits against such royalty obligation pursuant to the
provisions of this Agreement.
E. LABELLING AND PACKAGING.
-----------------------
1. Ethicon shall provide to Tri-Point in writing the
Labelling/Packaging Specifications for the Product or any Improvement within a
reasonable period of time prior to the first order by Ethicon of each Product or
Improvement (but in any event no later than thirty (30) days prior to the
placement of such order) in order to allow Tri-Point to be able to satisfy
Ethicon's requirements. Such Labelling/Packaging Specifications shall be
provided in camera ready form, where appropriate. When provided, the
Labelling/Packaging Specifications shall become part of the Specifications for
the Product or Improvement. Ethicon shall have the option, but not the
obligation (except as may legally be required), to identify on the packaging for
the Product or Improvements Tri-Point as the manufacturer of the Product or
Improvement.
2. In the event some or all of the Labelling/Packaging
Specifications are required for Tri-Point's PMA or CE Mark submission for the
Product or Improvement, then Ethicon shall provide such portion of the
Labelling/Packaging Specifications as may be required for such PMA submission.
Tri-Point shall provide Ethicon at least thirty (30) days advance notice of its
requirements for the PMA or CE Mark submission.
3. In addition, from time to time, Ethicon may request that there be
improvements and/or changes to the Specifications should Ethicon determine such
improvements or changes are necessary or desirable. Ethicon shall be responsible
for the first XXXXXXXXX of the documented direct costs of Tri-Point in
implementing any such change. In the event such change will cost more than
XXXXXXXXX, if Ethicon and Tri-Point mutually agree to such change, then the
costs in excess of XXXXXXXXX shall be equally split between the two. In the
event such change is not consented to by Tri-Point (such consent not to be
unreasonably withheld or delayed), then Ethicon may at its option, require Tri-
Point to make such change at Ethicon's expense, with Ethicon recovering the
costs of such change by deducting them first, against any royalties on sales of
the Product/Improvement incorporating such change and second, against any
Product/Improvement purchases incorporating such change. No more than one-fifth
of the aggregate of such costs shall be applied in any one year against such
royalties and/or Product/Improvement purchases.
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<PAGE>
4. Tri-Point acknowledges that Ethicon is the exclusive owner of and
has all rights to the trademarks, copyrights, plans, ideas, names, slogans,
artwork and all other intellectual property that appear on or are otherwise used
by Ethicon in connection with the Product and Improvements (except as may
otherwise be provided in Article IV(F)). Ethicon acknowledges that such
ownership rights do not extend to Tri-Point's proprietary formulae or other
proprietary information or intellectual property rights.
5. Delivery of any Product or Improvement by Tri-Point to Ethicon
shall constitute a certification by Tri-Point that the Product or Improvement
conforms to the Specifications. After delivery of a shipment of any Product or
Improvement to Ethicon, Ethicon shall have forty-five (45) days to examine the
Product or Improvement to determine if they conform to the Specifications and,
on the basis of such examination, to accept or reject such shipment. Any claims
for failure to so conform ("Claims") shall be made by Ethicon in writing to Tri-
Point, indicating the nonconforming characteristics of the Product or
Improvement.
6. If Tri-Point agrees with such Claim, then as promptly as possible
after the submission of a Claim by Ethicon, Tri-Point shall, at Ethicon's
option, provide Ethicon (i) with a credit against future billings equal to the
full amount paid by Ethicon for such Product or Improvements or (ii) replacement
Product or Improvements. Tri-Point shall pay for all shipping costs of returning
or destroying Product or Improvements that are the subject of such accepted
Claims. Tri-Point shall bear the risk of loss for such Product or Improvements,
beginning at such time as they are taken at Ethicon's premises for return
delivery.
7. If Tri-Point does not agree with such Claim, then the parties
agree to submit the Product or Improvements in question to an independent party
which has the capability of testing the Product or Improvements to determine
whether or not it complies with the Specifications therefor. In the event the
parties cannot agree upon such independent party, or in the event it is not
possible to acquire the services of such an independent party, then such dispute
shall be resolved pursuant to Article VI(L).
F. TRADEMARKS.
----------
1. All trademarks to be used by Ethicon and/or its Affiliates in
connection with the Product or Improvements shall be chosen by Ethicon and/or
its Affiliates in their sole discretion and shall be owned by Ethicon and/or its
Affiliates.
2. Ethicon shall have the option, but not the obligation, to acquire
all right and title to use Tri-Point's
20
<PAGE>
Traumaseal(R) trademark on a worldwide basis at no cost in connection with the
marketing, distribution, promotion, advertising and sale of the Product or
Improvements. Exercise of such option must be made by Ethicon prior to the first
commercial sale of the Product in the U.S. or the E.C., whichever occurs first.
Ethicon shall acquire such trademark by providing written notice to Tri-Point of
its desire to do so. Upon receipt of such notice, Tri-Point shall promptly
undertake (at Ethicon's expense) to convey to Ethicon title to such trademark.
Upon termination of this Agreement pursuant to Article V(B), and upon the
written request of Tri-Point, Ethicon shall re-convey (at Tri-Point's expense)
all rights, title and interest in such trademark to Tri-Point. Conveyance of
such trademark by either of Ethicon or Tri-Point shall be made without any
representation or warranty as to whether such trademark infringes the
intellectual property rights of any third party.
3. Upon the termination of this Agreement as a result of Ethicon's
Event of Default under Article V(C)(1) or (2), then Tri-Point shall have the
option, but not the obligation, to acquire all right and title to use the
trademark or trademarks used by Ethicon or its Affiliates in connection with the
marketing, distribution, promotion, advertising and sale of the Product and any
Improvement (assuming such trademark is not the Traumaseal(R) trademark, in
which event the provisions of the preceding paragraph shall apply) on a
worldwide basis at no cost in connection with the marketing, distribution,
promotion, advertising and sale of the Product or Improvements. Tri-Point shall
acquire such trademark by providing written notice to Ethicon of its desire to
do so. Upon receipt of such notice, Ethicon shall promptly undertake (at Tri-
Point's expense) to convey to Tri-Point title to such trademark. Conveyance of
such trademark shall be made without any representation or warranty as to
whether such trademark infringes the intellectual property rights of any third
party. Ethicon's obligation to convey such trademark shall be subject to: (i)
such trademark not containing any word, partial word, or other attribute which
is similar to or based upon any other trademark or tradename used by Ethicon or
its Affiliates and (ii) Tri-Point providing to Ethicon indemnification for any
loss, claim or damages of any nature whatsoever in connection with Tri-Point's
use of such trademark.
G. OTHER RESPONSIBILITIES OF TRI-POINT. During the term of this
-----------------------------------
Agreement, Tri-Point and its Affiliates shall:
i. Refer to Ethicon all customers' inquiries and
correspondence which it receives relating to the sale of the Product or
Improvements, as well as all customer complaints, adverse reaction
information or notifications, correspondence, etc., with respect to the use
of the Product or Improvements;
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ii. Maintain at all times manufacturing capacity and
capabilities which shall allow it to satisfy the provisions of this
Agreement and timely supply the Product or Improvements to Ethicon as
contemplated under this Agreement;
iii. Immediately notify Ethicon should it become aware of the
Product or any Improvement infringing any patents, patent rights, patent
applications, inventions, trademarks, service marks, trade names,
copyrights, confidential information, trade secrets, proprietary rights or
processes of any other person; and
iv. Adhere to all laws, rules and regulations applicable to the
manufacture and sale to Ethicon of the Product or Improvements under this
Agreement.
H. OTHER RESPONSIBILITIES OF ETHICON. During the term of this Agreement,
---------------------------------
Ethicon and its Affiliates shall:
i. Inform Tri-Point of all adverse reaction information or
notifications, with respect to the use of the Product or Improvements;
ii. Immediately notify Tri-Point should it become aware of the
Product or any Improvement infringing any patents, patent rights, patent
applications, inventions, confidential information, trade secrets,
proprietary rights or processes of any other person, or of the Product or
any Improvement significantly infringing any trademark, service marks or
tradenames; and
iii. Adhere to all laws, rules and regulations applicable to the
marketing, distribution, promotion, advertising and sale of the Product or
Improvements under this Agreement.
I. FORECASTS. During the term of this Agreement, Ethicon shall provide
---------
to Tri-Point no later than sixty (60) days prior to the first day of each
calendar quarter a non-binding good faith estimate by month of Ethicon's
requirements for the Product or Improvements for the next twelve (12) calendar
months. The first calendar quarter of each such estimate shall be referred to as
the "First Quarter Forecast". The second quarter of each such forecast may be
adjusted by Ethicon in the next subsequent calendar quarter's forecast (at which
point in time the second quarter becomes the First Quarter Forecast), provided
that no such adjustment shall (absent the consent of Tri-Point) cause such First
Quarter Forecast to be greater than one hundred fifty percent (150%) of the
second quarter forecast contained in the immediately preceding forecast
submitted under this Article IV(I).
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J. REPRESENTATIONS AND WARRANTIES.
------------------------------
1. Tri-Point represents and warrants to Ethicon that:
a. the Product or Improvements will be manufactured in
accordance with the Specifications for such Product or
Improvement;
b. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
c. the Product or Improvements are being sold to Ethicon free
and clear of all liens, claims and encumbrances of any
nature;
d. as of the date of this Agreement, Tri-Point has no actual
knowledge that the Product violates any patents, patent
rights, patent applications, inventions, trademarks, service
marks, trade names, copyrights, confidential information,
trade secrets, proprietary rights or processes of any other
person;
e. as of the date of this Agreement, there are no pending or,
to Tri-Point's actual knowledge, threatened suits, claims,
or actions of any type whatsoever with respect to Tri-
Point's Non-Absorbable cyanoacrylate adhesive products,
Patents or Know-How;
f. as of the date of this Agreement, all Patents presently
owned by Tri-Point which relate to the manufacture, sale or
distribution of the Product are owned by Tri-Point free of
any encumbrances, liens or security interests;
g. all necessary corporate (or partnership) and other
authorizations, consents and approvals which are necessary
or required for the entering into of this Agreement have
been duly obtained;
h. the entering into of this Agreement by Tri-Point will not
(i) violate any provision of law, statute, rule or
regulation or any ruling, writ, injunction, order, judgment
or decree of any court, administrative agency or other
governmental body or (ii) conflict
23
<PAGE>
with or result in any breach of any of the terms, conditions
or provisions of, or constitute a default (or give raise to
any right of termination, cancellation or acceleration)
under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties
or assets of Tri-Point under its organizational documents,
as amended to date, or any material note, indenture,
mortgage, lease, agreement, contract, purchase order or
other instrument, document or agreement in which Tri-Point
is a party or by which it or any of its properties or assets
is bound or affected; and
i. Tri-Point Medical L.P. is the sole stockholder of Tri-Point.
Sharpoint Development Corporation, a Pennsylvania
corporation, is the sole general partner of Tri-Point
Medical L.P., with full control over the management of Tri-
point Medical L.P.'s business and affairs, and Rolf D.
Schmidt and F.W. Schmidt are the only shareholders of
Sharpoint Development Corporation.
2. Ethicon represents and warrants to Tri-Point that:
a. all necessary corporate and other authorizations, consents
and approvals which are necessary or required for the
entering into of this Agreement have been duly obtained; and
b. the entering into of this Agreement by Ethicon will not (i)
violate any provision of law, statute, rule or regulation or
any ruling, writ, injunction, order, judgment or decree of
any court, administrative agency or other governmental body
or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default
(or give raise to any right of termination, cancellation or
acceleration) under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the
properties or assets of Ethicon under its organizational
documents, as amended to date, or any material note,
indenture, mortgage,
24
<PAGE>
lease, agreement, contract, purchase order or other
instrument, document or agreement in which Ethicon is a
party or by which it or any of its properties or assets is
bound or affected.
3. THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT
ARE THE SOLE REPRESENTATIONS AND WARRANTIES OF THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE PRODUCTS
AND ALL IMPROVEMENTS). NEITHER PARTY IS MAKING ANY OTHER REPRESENTATION OR
WARRANTY (EITHER EXPRESS OR IMPLIED, BY FACT OR LAW) OTHER THAN THOSE SET OUT IN
THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE, MERCHANTABILITY OR FREEDOM FROM INFRINGEMENT.
K. RETURNS. Ethicon shall notify Tri-Point of any short shipment claims
-------
within thirty (30) days of receipt of a shipment of Product or Improvements.
L. INSPECTION OF PRODUCT FACILITY.
------------------------------
1. Ethicon shall have the right, upon reasonable advance notice and
during regular business hours, to inspect and audit the facilities (including
any facilities of sub-contractors) being used by Tri-Point for production of the
Product or Improvements to assure compliance with applicable rules and
regulations, U.S. Good Manufacturing Practices, the CE Mark Procedures (but only
after E.C. Regulatory Approval for the Product is obtained), Ethicon quality
control procedures (as referenced on Exhibit G), and with the other provisions
of this Agreement (including such facilities' capacity to meet the requirements
for Product as provided under this Agreement). Such inspection and audit shall
be conducted at Ethicon's sole cost and expense and in a manner so as to
minimize disruption of Tri-Point's business operations. Ethicon may conduct such
audits not more than once per every two calendar quarters until the second
anniversary of either U.S. or E.C. Regulatory Approval for the Product, and
thereafter not more than once per every calendar year; provided, however, that
-------- -------
in the event any deficiencies are noted in any such audit, Ethicon shall have
the right to re-inspect the facilities upon reasonable notice and during regular
business hours to determine whether Tri-Point has remedied any such
deficiencies.
2. Tri-Point shall, within sixty (60) days after Tri-Point's receipt
of written notice from Ethicon detailing any deficiencies which may be noted in
any such audit which relate to U.S. Good Manufacturing Practices, CE Mark
Procedures, Ethicon quality control procedures in effect as of the date of this
Agreement, and Ethicon quality control procedures in effect after the date of
this Agreement and with which Tri-Point was
25
<PAGE>
previously in compliance, remedy such deficiencies. During such sixty (60) day
period, Tri-Point shall continuously use commercially reasonable efforts to
remedy such deficiencies. In the event that Tri-Point does not remedy any of
such deficiencies within such sixty (60) day period, then Ethicon shall be
entitled to manufacture the Product or any Improvements itself and shall have a
royalty bearing, exclusive license to the Patents and Know-How to make, have
made, use, lease and sell the Product or any Improvement in the Field throughout
the Territory during the term of this Agreement, as well as all rights to use
and cross-reference Tri-Point's Regulatory Filings and to have access to the
Escrow Deposit Materials solely in connection with the exercise of such license
rights, all in accordance with the provisions of this Agreement.
3. Notwithstanding the provisions of the foregoing Article IV(L)(2),
in the event that, due to circumstances beyond Tri-Point's control, Tri-Point is
not capable of remedying any deficiency within such sixty (60) day period, then
the period for Tri-Point to remedy such deficiency shall be extended for an
additional one hundred and twenty (120) days, subject to Tri-Point's continued
use of commercially reasonable efforts to remedy such deficiency during such
time period.
4. Tri-Point shall, with respect to any written deficiencies which
may be noted in any such audit which relate to Ethicon quality control
procedures in effect after the date of this Agreement and with which Tri-Point
was not previously in compliance with, continuously use commercially reasonable
efforts to remedy any deficiencies.
5. Tri-Point acknowledges that the provisions of this Article IV(L)
granting Ethicon certain audit rights shall in no way relieve Tri-Point of any
of its obligations under this Agreement, nor shall such provisions require
Ethicon to conduct any such audits.
M. INSURANCE. Tri-Point agrees to procure and maintain in full force and
---------
effect during the term of this Agreement valid and collectible insurance
policies in connection with its activities as contemplated hereby which policies
shall provide for the type of insurance and amount of coverage described in
Exhibit D. Upon Ethicon's request, Tri-Point shall provide to Ethicon a
certificate of coverage or other written evidence reasonably satisfactory to
Ethicon of such insurance coverage.
N. COMPLIANCE WITH CERTAIN LAWS.
----------------------------
1. Tri-Point and Ethicon each agree to comply with the applicable
provisions of any federal (United States or otherwise) or state law and all
executive orders, rules and regulations issued thereunder, whether now or
hereafter in force,
26
<PAGE>
including Executive Order 11246, as amended, Chapter 60 of Title 41 of the Code
of Federal Regulations, as amended, prohibiting discrimination against any
employee or applicant for employment because of race, color, religion, sex or
national origin; Article 60-741.1 of Chapter 60 of 41 Code of Federal
Regulations, as amended, prohibiting discrimination against any employee or
applicant for employment because of physical or mental handicap; Article
60.250.4 of Chapter 60 of 41 Code of Federal Regulations, as amended, providing
for the employment of disabled veterans and veterans of the Vietnam era; Chapter
1 of Title 48 of the Code of Federal Regulations, as Amended, Federal
Acquisition Regulations; Articles 6, 7 and 12 of the Fair Labor Standards Act,
as amended, and the regulations and orders of the United States Department of
Labor promulgated in connection therewith; and any provisions, representations
or agreements required thereby to be included in this Agreement are hereby
incorporated by reference.
2. If any Product or Improvements are ordered by Ethicon under U.S.
government contracts, Tri-Point agrees that all applicable federal statutes and
regulations applying to Ethicon as contractors are accepted and binding upon
Tri-Point insofar as Tri-Point may be deemed a subcontractor.
3. Ethicon shall adhere to all laws, rules and regulations
applicable to the marketing, distribution, promotion, advertising and sale of
the Product and any Improvement.
O. TRI-POINT AUDIT RIGHTS.
----------------------
1. Ethicon shall maintain complete and accurate books and records
with respect to the Net Sales Price of Products and Improvements, the Purchase
Price for the Product and any Improvements, compliance with Minimum Annual
Purchase requirements, and any royalties payable by Ethicon. Ethicon shall
maintain the books and records in accordance with generally accepted accounting
principles and for a period of two (2) years after the submission of each report
required to be submitted by Ethicon to Tri-Point under this Agreement; provided,
--------
however, that if there is a good faith dispute between the parties continuing at
- -------
the end of any such two (2) year period with respect to such books or records,
then the time period for Ethicon to maintain such books and records under
dispute shall be extended until such time as the dispute is finally resolved.
2. Tri-Point shall have the right to nominate an independent
accountant acceptable to and approved by Ethicon (which approval shall not be
unreasonably withheld or delayed) who shall have access to the relevant Ethicon
records during reasonable business hours for the purpose of verifying, at Tri-
Point's expense, the Purchase Price, the Net Sales Price and royalty
calculations provided for in this Agreement for the preceding year, but this
right may not be exercised more than
27
<PAGE>
once in any year. Tri-Point shall solicit or receive only information relating
to the accuracy of the information and the payments made. Ethicon shall be
entitled to withhold approval of an accountant which Tri-Point nominates unless
the accountant agrees to sign a confidentiality agreement with Ethicon which
shall obligate such accountant to hold the information he receives from Ethicon
in confidence, except for information necessary for disclosure to Tri-Point
necessary to establish the accuracy of the reports and amounts paid to Tri-
Point. Such audit rights shall survive for one year after the expiration or
termination of this Agreement.
3. Any underpayment of royalty shall be paid within thirty (30) days
of the delivery of a detailed written accountants report to the party paying
royalty. Any overpayment of royalty shall be credited to the next royalty
payment due from the party paying the royalty. If no further royalty payments
will be due then a refund will be made within sixty (60) days of the audit.
P. Indemnification.
---------------
In order to distribute among themselves the responsibility for claims
arising out of this Agreement, and except as otherwise specifically provided for
herein, the parties agree as follows:
i. Tri-Point agrees to defend and indemnify and hold Ethicon (and
any Affiliate which is marketing, distributing or selling a Product or
Improvement) harmless against any and all claims, suits, proceedings,
expenses, recoveries and damages (including, but not limited to, any
expenses incurred in connection with any Product or Improvement recall),
including court costs and reasonable attorneys fees and expenses
(collectively, "Losses"), arising out of the breach of any representation
or warranty made by Tri-Point in this Agreement (including all Losses
related to the breach of Article IV(J) (1) (a)); provided, however, that it
-------- -------
is understood that all Losses arising out of Product Liability Claims (as
defined below) shall be handled solely in accordance with the provisions of
Article IV(Q) below. Ethicon will promptly notify Tri-Point of any such
claim or demand which comes to its attention. The foregoing indemnification
obligation on the part of Tri-Point shall not extend to those claims,
suits, proceedings, expenses, recoveries and damages related to use of a
Product or Improvement outside its approved indications.
ii. Ethicon agrees to defend and indemnify and hold Tri-Point
harmless against any and all Losses arising out of the breach of any
representation or warranty made by Ethicon in this Agreement. Tri-Point
will promptly notify Ethicon of any such claim or demand which comes to its
attention.
28
<PAGE>
Q. Product Liability Claims. Notwithstanding the indemnification
------------------------
provisions of Article IV(P), the parties desire to separately allocate between
themselves the risks and costs of any product liability claims from third
parties with respect to the Products or any Improvements (whether related to the
safety or efficacy of the Product or any Improvement, or arising out of alleged
defects in materials, design or workmanship of the Product or Improvements or
otherwise, but excluding those related to a breach of Article IV(J) (1) (a))
(hereinafter, a "Product Liability Claim"). Any Losses arising out of a Product
Liability Claim shall be XXXXXXXXXXXXXX between Ethicon and Tri-Point, Ethicon
shall not be permitted to recover any of the Losses incurred or paid by it under
this Article IV(Q) from Tri-Point under Article IV (P) or through any claim,
suit or other proceeding against Tri-Point based upon a breach of Article IV(J)
(1) (b), and no indemnification obligation under Article IV(P) shall be
separately owed or payable for a Product Liability Claim. In the event either
party becomes aware of a Product Liability Claim, it shall promptly notify the
other of such matter, and provide copies of any notices, claims, letters or
other information which such party has received or possesses in connection with
such Product Liability Claim. Each party shall reasonably cooperate with the
other with respect to the defense and resolution of any such Product Liability
Claim.
R. RECALLS.
-------
1. In the event any governmental agency having applicable
jurisdiction shall order any corrective action with respect to the Product or
any Improvement supplied hereunder (including any recall of any product
containing the Product or any Improvement), customer notice, restriction,
change, corrective action or market action or the Product or any Improvement
change, and the cause of such corrective action is due to a breach by Tri-Point
of any of its warranties, representations, obligations or covenants contained
herein, then Tri-Point shall be liable, and shall reimburse Ethicon for the
reasonable costs of such action, including the cost of the Product or any
Improvement affected thereby whether or not such particular Product or
Improvement shall be established to be in breach of any warranty by Tri-Point
hereunder.
2. In the event that Ethicon determines to undertake any recall of
the Product or any Improvement supplied hereunder (including any recall of any
product containing the Product or any Improvement), customer notice,
restriction, change, corrective action or market action or any Product change,
and the cause of such corrective action is due to a breach by Tri-Point of any
of its warranties, representations, obligations or
29
<PAGE>
covenants contained herein, then Tri-Point shall be liable, and shall reimburse
Ethicon for the reasonable costs of such action, including the cost of any
Product affected thereby whether or not such particular Product shall be
established to be in breach of any warranty by Tri-Point hereunder.
ARTICLE V
V. GENERAL TERMS AND CONDITIONS
----------------------------
A. CONFIDENTIALITY; PRESS RELEASES.
-------------------------------
1. Ethicon and Tri-Point will be exchanging information relating to
the Product or Improvements at the inception of and from time to time during the
term of this Agreement. Any such information which is considered by the
disclosing party to be confidential will be identified in writing as
confidential information or, if disclosed orally or in another non-written
manner, shall be confirmed in writing as being confidential promptly after the
disclosure thereof. The party receiving such information will maintain the
information in confidence using the same standard of care it uses to maintain
its own information in confidence, and shall only use such information solely
for purposes of performing its obligations under this Agreement. Such
obligation of confidentiality shall not apply to information which (i) is known
to the receiving party prior to the disclosure, (ii) is publicly known as of the
date of the disclosure, (iii) becomes publicly known after the date of
disclosure through no fault of the receiving party or any person or entity to
whom the receiving party has disclosed the information, (iv) is received from a
third party who has no obligation of confidentiality to the disclosing party or
(v) is developed independently by the receiving party. Such obligation of
confidentiality shall continue for a period of seven (7) years from the date of
disclosure of the confidential information (except for any Specifications or
manufacturing know-how, in which event such confidentiality period shall
continue for a period of ten (10) years from the date of disclosure), and shall
survive the expiration or any termination of this Agreement.
2. Notwithstanding the foregoing Article V(A)(1), Ethicon shall be
permitted to disclose to its wholesalers and other direct customers such
confidential information relating to the Product or Improvements as Ethicon
shall reasonably determine to be necessary in order to effectively market and
distribute the Product or Improvements, provided that such entities undertake
the same confidentiality obligation as Ethicon has with respect to Tri-Point's
confidential information.
3. Except as may be required by applicable laws, rules or
regulations (including in connection with a public offering of securities by
Tri-Point), neither party will
30
<PAGE>
originate any publicity, news release, or other public announcement, written or
oral, whether to the public press or otherwise, relating to any amendment hereto
or to performance hereunder or the existence of an arrangement between the
parties, without the prior written approval of the other party. In the event
disclosure is required by applicable law, rules or regulations, then the party
required to so disclose such information shall, to the extent possible, provide
to the other party for its approval (such approval not to be unreasonably
withheld) a written copy of such public announcement at least five (5) business
days prior to disclosure.
4. Notwithstanding the foregoing Article V(A)(3), Tri-Point shall
have the right to make a press release with respect to its entering into this
Agreement. Tri-Point shall provide to Ethicon a copy of the proposed press
release no less than five (5) business days prior to its proposed release. The
contents of such press release shall be subject to Ethicon's consent, such
consent not to be unreasonably withheld or delayed.
5. Neither party shall use the name of the other for advertising or
promotional claims without the prior written consent of the other party.
B. TERM. This Agreement shall remain in effect for a period of eight (8)
----
years from the date of this Agreement, and may be renewed thereafter for
successive additional periods of one (1) year each by Ethicon upon at least
ninety (90) days' notice prior to the expiration of the applicable period.
C. EVENTS OF DEFAULT.
-----------------
1. The occurrence of any one or more of the following acts, events
or occurrences shall constitute an "Event of Default" under this Agreement:
i. either party becomes the subject of a Bankruptcy
Event; or
ii. either party breaches any material provision of
this Agreement or defaults in the performance or
observance of any material provision hereof, and
fails to remedy such breach or default within
sixty (60) days after receipt of notice thereof.
2. Notwithstanding the foregoing Article V(C)(1)(ii), in the event
of a breach or default which cannot be remedied within such sixty (60) day
period (other than a failure to supply Product or Improvements by Tri-Point), so
long as the breaching/defaulting party is diligently attempting to remedy
31
<PAGE>
such breach or default, an Event of Default shall not have occurred until four
(4) months after notice of such breach or default and only if such breach or
default is not cured during such period.
3. An Event of Default by Tri-Point shall also have occurred:
i. in the event Tri-Point breaches the Escrow
Agreement, and such breach is not remedied as
provided for in the Escrow Agreement;
ii. if Regulatory Approval for the Product is not
obtained in the U.S. within two (2) years from the
date of submission of the 510(k) notification or
PMA.
D. REMEDIES.
--------
1. Immediately upon the occurrence of any Event of Default by Tri-
Point pursuant to Article V(C)(1), (C)(2) or V(C)(3)(i), then Ethicon shall have
the option, in its sole discretion, to either (i) terminate Tri-Point's right to
supply the Product and any Improvement under this Agreement by delivering
written notice thereof, and take a royalty bearing, exclusive license in the
Territory to the Patents and Know-How to make, have made, use, lease and sell
the Product or any Improvement in the Field throughout the Territory during the
term of this Agreement, as well as all rights to use and cross reference Tri-
Point's Regulatory Filings and to have access to the Escrow Deposit Materials
solely in connection with the exercise of such license rights, all in accordance
with the provisions of this Agreement, as modified pursuant to Article
V(D)(3)(ii), or (ii) terminate this Agreement in its entirety by delivering
written notice thereof and pursue any and all legal remedies available to it
under law and pursuant to this Agreement including, but not limited to, seeking
recovery from Tri-Point of all damages or losses of any nature whatsoever (such
as consequential damages, lost profits, direct costs, etc.).
2. Immediately upon the occurrence of an Event of Default by Tri-
Point pursuant to Article V(C)(3)(ii), Ethicon shall have the right to terminate
this Agreement by delivering written notice thereof to Tri-Point. Such right of
termination shall be the sole and exclusive remedy available to Ethicon upon
such an Event of Default.
3. In the event Ethicon elects to take a license pursuant to Article
V(D)(1)(i), (i) it shall only be permitted to recover from Tri-Point those
direct costs which it incurred in connection with the breach, any such costs to
be offset solely
32
<PAGE>
against the royalties payable to Tri-Point under such license; (ii) this
Agreement shall remain in full force and effect, except for the provisions of
the Agreement specified on Exhibit H, which provisions shall no longer remain in
force or effect, or shall be modified as indicated on Exhibit H, as the case may
be; and (iii) Tri-Point shall use its diligent efforts to assist Ethicon in
procuring manufacturing capabilities for the Product or Improvements in the
event of such termination.
4. In the event Ethicon elects to pursue legal recourse against Tri-
Point pursuant to Article V(D)(1)(ii), this Agreement shall terminate including,
without limitation, Ethicon's license rights under this Agreement, and Ethicon
shall not be entitled to have access to the Escrow Deposit Materials.
5. Immediately upon the occurrence of any Event of Default by
Ethicon pursuant to Article V(C)(1) or (C)(2), Tri Point shall have the right to
terminate this Agreement by delivering written notice thereof to Ethicon. If
Tri-Point so terminates this Agreement, then Tri-Point shall also have the right
to pursue any and all remedies available to Tri-Point at law or in equity
including, without limitation, the right to seek to recover from Ethicon any and
all damages and losses of any nature whatsoever (including, without limitation,
consequential damages, lost profits, and direct damages).
6. The parties expressly acknowledge that the remedy provisions
contained in this Article are reasonable, considering the intended nature and
scope of this Agreement, and considering the investments and undertakings
required on the part of the parties in connection herewith.
7. Upon termination of this Agreement by Tri-Point (other than as a
result of Ethicon's determination not to renew this Agreement pursuant to
Article V(B)), Ethicon shall have one hundred eighty (180) days in which to sell
out its stock of any Product or Improvements it possesses or has committed to
purchase under this Agreement (it being understood that the royalty obligations
under this Agreement shall continue to apply to any such sales).
8. Notwithstanding the foregoing, it is agreed by the parties that
the foregoing provisions are not intended to modify the provisions of this
Agreement with respect to the costs of Product Liability Claims, which are
separately handled pursuant to the provisions of Article IV(Q).
E. ESCROW AGREEMENT. Tri-Point agrees to place into escrow upon signing
----------------
of this Agreement and on each succeeding one year anniversary date of this
Agreement (if necessary to update or supplement the then current Process
Descriptions and/or Regulatory Filings), a sealed envelope containing a copy of
the
33
<PAGE>
Process Descriptions for each Product or Improvement along with a copy of the
Regulatory Filings (collectively, the "Escrow Deposit Materials"), to be held
subject to the terms and conditions of the Escrow Agreement. Tri-Point shall,
upon placing the Escrow Deposit Materials into escrow, so notify Ethicon of such
fact in writing. Tri-Point and Ethicon shall each be responsible for paying
XXXXXXXXXXXXXXXXXXXXX of the fees and other charges of the Escrow Agent under
the Escrow Agreement.
F. INVENTIONS.
----------
1. Title to any inventions or discoveries made by Tri-Point
employees or agents without inventive contribution of Ethicon employees or
agents, based on any Tri-Point Know-How related in any way to the Product or any
Improvement or developed during Tri-Point's performance under this Agreement
("Tri-Point Inventions") shall belong to Tri-Point. Tri-Point may file
applications for U.S. Patents at its own expense for such Tri Point Inventions
and shall keep Ethicon fully and promptly informed as to such Tri-Point
Inventions and the filing, prosecution and maintenance of such patent
application(s) and patent(s) and corresponding foreign patent applications. If
Tri Point does not elect to file, prosecute or maintain any such patent
application(s) or patent(s) on such Tri-Point Inventions after being reduced to
practice, Tri-point shall so notify Ethicon and Ethicon shall, in its sole
discretion, have the right to require that Tri-Point file, prosecute or maintain
at Ethicon expense on a country by country basis such patent application(s) or
patent(s) on such Tri-Point Inventions; provided, however, that in the event any
-------- -------
such Tri-Point Inventions can be kept a trade secret, then Ethicon shall only
have the right to request that Tri-Point file such patent applications. In that
event, Ethicon shall pay the costs and expenses of and manage the prosecution of
such patent application(s) or patent(s). Tri-Point will cooperate in a timely
manner with Ethicon to prepare, review and execute all such patent applications
and further papers as may be necessary to enable the parties to protect such
Tri-Point Inventions by patent. Ethicon shall cease to have any further
obligation to pay a royalty to Tri-Point in such country under Article IV(D),
until Ethicon shall have recovered all costs and expenses associated with
filings, prosecuting, issuing and maintaining said patent application(s) or
patent(s). In addition, Ethicon shall have no obligation to pay royalty on said
patent.
2. Title to any inventions and discoveries made by Ethicon employees
or agents without inventive contribution by Tri-Point employees or agents and
not based on any Tri-Point Know-How and conceived or first reduced to practice
under this Agreement (hereinafter, "Ethicon Inventions") shall belong to
Ethicon. Ethicon may file patent application(s) for Ethicon Inventions in its
own discretion and at its own expense.
34
<PAGE>
3. Title to any inventions or discoveries (i) made jointly by
employees or agents of Tri-Point and Ethicon or (ii) made by Ethicon employees
or agents without inventive contribution by Tri-Point employees or agents and
based upon Tri Point's Know-How (other than Know-How which is in the public
domain through no fault of Ethicon) and, in either case, conceived or first
reduced to practice under this Agreement (hereinafter, "Joint Inventions") shall
belong to Tri-Point and Ethicon jointly, i.e. each shall own an undivided one-
half interest therein. Tri-Point and Ethicon shall keep each other fully and
promptly informed as to such Joint Inventions. After Joint Inventions are
reduced to practice Ethicon shall have primary responsibility for filing,
prosecuting and maintaining any U.S. patent application(s) or patent(s) and
foreign counterpart thereof for Joint Inventions, but shall give full
consideration to Tri-Point's recommendations including selection of attorney(s).
The expenses for Joint Inventions shall be borne equally by Ethicon and Tri-
Point, but either may, by giving timely notice to the other, withdraw from
further participation in the filing, prosecution and/or maintenance of any such
patent application(s) or patent(s) and shall not be liable for any expenses
incurred after written notice is given. If either party does not elect to file,
prosecute or maintain any such patent application(s) or patent(s) in a country
or countries, or after electing to participate in the filing, prosecution and/or
maintenance on such Joint Inventions in a country or countries, does not pay its
share of the expenses within one hundred twenty (120) days of written
notification of expenses being due, the other party, in its sole discretion,
shall have the right to file, prosecute or maintain at its expense on a country
by country basis each such patent application(s) and patent(s). In that event,
the party paying all the costs and expenses shall cease to have any further
obligation to pay a royalty to the other party on such patent(s) in such
country.
4. Each party shall require its employees or agents responsible for
conducting research in performance of this Agreement to keep contemporaneous
records of their results and findings in sufficient detail to document any
inventions or discoveries made by such employees and agents under this Agreement
in bound notebooks (that shall be reviewed and signed by a witness on a regular
basis).
5. Tri-Point and Ethicon will cooperate in a timely manner to
prepare, review and execute patent applications and all such further papers as
may be necessary to enable the parties to protect Joint Inventions by patent in
any and all countries and to vest title to said patent application(s) and
patent(s) and assist in Patent Office proceedings.
6. If either party wishes to practice a patented Joint Invention
outside the grant provided to Ethicon under
35
<PAGE>
Article III(A), the party practicing the patented Joint Invention will pay a
royalty of XXXXXXXXXXXXXXXXXX of the net selling price (which shall mean Net
Sales with respect to any Other Product or Improvement) of any Other Product or
Improvement unless said Joint Invention is used solely by a party in fulfilling
its obligations under this Agreement; provided, however, that if a party seeks
-------- -------
to practice a patented Joint Invention for which it did not pay its share of the
cost and expenses, such party shall have to reimburse the party that paid the
costs and expenses one half of the documented costs and expenses incurred in the
country or countries in which the party seeking to practice the Joint Invention
will make, have made, use, lease or sell the Other Product prior to practicing
the patented Joint Invention.
7. In the event that a party owes royalty, such party shall deliver
to the party owed the royalty written reports of Net Sales during the preceding
calendar quarter, on or before the thirtieth (30th) day following the end of
each calendar quarter. In the event that a party owes royalty for sales made by
its Affiliate or its sublicensee, such party shall deliver to the party owed the
royalty written reports of Net Sales of its Affiliates and its sublicensee
during the preceding calendar quarter, on or before the ninetieth (90th) day
following the end of each calendar quarter. Such reports shall include a
calculation of the earned royalty due and shall be accompanied by the monies
due.
8. The respective party owed royalty and paying royalty under this
Article V(F), shall have the same rights and duties provided under Article IV(D)
and (0) with respect to the royalties paid pursuant thereto.
G. INFRINGEMENT
------------
1. If, as a result of the manufacture, use or sale of the Product or
Improvement in any country of the Territory, Tri Point or Ethicon and/or its
Affiliate is sued for patent infringement or threatened with such a lawsuit or
other action by a third party, Tri-Point and Ethicon shall meet to analyze the
infringement claim and avoidance of same. If it is necessary to obtain a
license from such third party, Tri-Point and Ethicon in negotiating such a
license shall make every effort to minimize the license fees and/or royalty
payable to such third party. If Ethicon shall be obligated to pay a license fee
and/or royalty then Tri-Point shall elect within ten (10) days of the execution
of the license with such third party to (i) pay all fees and expenses associated
with obtaining and maintaining the license or (ii) having all such amounts being
credited against any of the royalties due pursuant to Article IV(D). Any
license fee and/or royalty due as the result of using Ethicon's patents,
inventions or know-how to manufacture, use or sell the Product or any
Improvement shall be borne by Ethicon.
36
<PAGE>
2. In the event that there is infringement of a Patent involving the
Product or Improvement by a third party, Tri-Point and Ethicon (or its Affiliate
or sublicensee) shall notify each other in writing to that effect, including
with said written notice evidence establishing a case of infringement by such
third party. Tri-Point shall bear all the expenses of any suit brought by it and
shall retain all damages or other monies awarded or received in settlement of
such suit. Ethicon and/or its Affiliates will cooperate with Tri-Point in any
such suit or shall have the right to consult with Tri-Point and be represented
by its own counsel at its own expense. If after the expiration of one hundred
eighty (180) days from the date of receipt of said notice, Tri-Point has not
overcome the case of infringement, obtained a discontinuance of such
infringement, or brought suit against the third party infringer, then Ethicon
shall have the right, in its sole discretion, but not the obligation to bring
such suit at its own expense, in its own name, if possible and in Tri-Point's
name, if required. Ethicon shall bear all the expenses of any suit brought by it
and shall retain all damages or other monies awarded or received in settlement
of such suit. Tri-Point will cooperate with Ethicon in any such suit and shall
have the right to consult with Ethicon and be represented by its counsel at its
own expense. Under this Article, Ethicon shall be relieved of all obligations to
pay royalties at the XXXXXXXXXXXXXXXXXXX rate for Patents under Article IV(D),
in the country or countries where said Patent is being infringed, until such
time as either the third party infringement has ceased or suit for infringement
has been filed by Tri-Point or Ethicon, at which time such royalty shall
immediately resume. However, Ethicon shall still be obligated to pay royalties
of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX rate under Article IV(D) during any such
suspension of such XXXX royalty rate.
ARTICLE VI
VI. MISCELLANEOUS
-------------
A. SURVIVAL. Those provisions of, or obligations under, this Agreement
--------
(i) that expressly survive termination of this Agreement or which have accrued
prior to termination of this Agreement and (ii) dealing with rights and
obligations upon and/or after termination of this Agreement, shall survive
termination of this Agreement to the extent necessary to give effect to such
provisions including, but not limited to, payments obligations of the parties
accruing prior to the date of expiration or termination.
B. PENALTIES. If either party terminates this Agreement in accordance
---------
with the terms herein, the terminating party shall owe no penalty or indemnity
to the terminated party on account of such termination.
37
<PAGE>
C. INDEPENDENT CONTRACTOR. Both parties of this Agreement are an
----------------------
independent contractor and shall have no authority to obligate the other party
in any respect nor hold itself out as having any such authority. All personnel
of Tri-Point shall be solely employees of Tri-Point and shall not represent
themselves as employees of Ethicon. All personnel of Ethicon shall be solely
employees of Ethicon and shall not represent themselves as employees of Tri-
Point.
D. BINDING EFFECT; BENEFITS. This Agreement shall enure to the benefit
------------------------
of and be binding upon the parties hereto and their respective permitted
successors and assigns. Nothing contained herein shall give to any other person
any benefit or any legal or equitable right, remedy or claim.
E. ASSIGNMENT; SUB-CONTRACTORS.
---------------------------
1. Anything contained herein to the contrary notwithstanding,
without the prior written consent of Ethicon, which consent shall not be
unreasonably withheld or delayed, Tri-Point shall not assign this Agreement, and
Tri-Point shall be in default under this Agreement if a Change in Control of
Tri-Point shall occur during the term hereof. In the event of any proposed
assignment or Change in Control of Tri-Point, Tri-Point shall provide to Ethicon
no less than thirty (30) days prior to the consummation of such proposed
assignment or Change in Control such financial and commercial information with
respect to the proposed assignee or party acquiring control of Tri-Point as
Ethicon shall reasonably request and Tri-Point can reasonably provide. Tri-Point
shall not enter into any agreement which prohibits Tri-Point from complying
with its obligation to provide Ethicon with such information upon a Change in
Control.
2. Ethicon's consent shall not be considered to be unreasonably
withheld in the event that (i) the proposed assignee or acquiring party is a
competitor of Ethicon at the time of the proposed consummation of the
transaction, (ii) the proposed assignee or acquiring party has had (within the
last four years) documented Good Manufacturing Practice problems or problems
with the U.S. FDA, or (iii) the proposed assignee or acquiring party has a prior
or existing relationship with Ethicon or its Affiliates which can be documented
to be of a nature which would adversely affect Ethicon's enjoying the full
benefits of this Agreement.
3. Ethicon shall be permitted to assign this Agreement to any
Affiliate thereof upon written notice to Tri-Point. This Agreement shall not be
assignable in its entirety by Ethicon to any third party without the prior
written consent of Tri-Point, which consent shall not be unreasonably withheld
or delayed.
38
<PAGE>
4. Notwithstanding the foregoing, Tri-Point shall be permitted to
sub-contract those mutually agreed-upon manufacturing procedures to third
parties, provided that Ethicon consents to such sub-contractor (such consent not
to be unreasonably withheld or delayed) and provided further that such sub-
contractor agrees to be bound by a subcontract that is consistent with the terms
and conditions of this Agreement.
5. Notwithstanding the foregoing, Ethicon shall be permitted to sub-
contract or sub-license the performance of this Agreement to third parties in
any particular country or countries without the prior written consent of Tri-
Point, provided that such sub-contract or sub-license does not result in the
total assignment, sub-contracting or sub-licensing by Ethicon of its obligations
under this Agreement.
6. Each permitted assignee hereunder shall assume and be deemed to
have assumed this Agreement and all of the provisions herein, and shall be and
remain jointly and severally liable with the assigning party for the due
performance of and compliance with all of the terms, conditions, covenants and
provisions herein contained on the assigning party's part to be complied with
and performed.
F. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Escrow Agreement,
----------------------------
the Materials Transfer Agreement and the Confidential Disclosure Agreement, and
the other writings referred to herein or delivered pursuant hereto which form a
part hereof contain the entire understanding of the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument duly
executed by the parties hereto. To the extent of any conflict or inconsistency
between this Agreement and any purchase order, purchase order release,
confirmation, acceptance or any similar document, the terms of this Agreement
shall govern.
G. FORCE MAJEURE.
-------------
1. The obligations of Tri-Point and Ethicon hereunder shall be
subject to any delays or non-performance caused by acts of God, earthquakes,
fires, floods, explosion, sabotage, riot, accidents; orders of, or failure to
issue all necessary permits or licenses by, regulatory, governmental, or
military authorities; strikes, lockouts or labor trouble; perils of the sea; or
any other similar cause beyond the reasonable control of either party. The
party which is not performing its obligations under this Agreement as a result
of an event of force majeure shall use diligent efforts to resume compliance
with this Agreement as soon as possible. Should the event of force majeure
continue unabated for a period of thirty (30) days or more, the parties shall
enter into good faith discussions with a view to alleviating its affects or to
agreeing upon such alternative
39
<PAGE>
arrangements as may be fair and reasonable having regard to the circumstances
prevailing at that time.
2. In the event that such alternative arrangements cannot be agreed
upon within sixty (60) days after occurrence of the event of force majeure, and
in the event that such force majeure event results in an interruption of supply
to Ethicon or its Affiliates of the Product or any Improvement in accordance
with the terms of this Agreement, Ethicon shall have the right and option, upon
written notice to Tri-Point (the "Force Majeure Notice"), to either manufacture
itself the Product or Improvements which are the subject of such force majeure
event, or to have a third party so manufacture such Product or Improvements.
The Force Majeure Notice shall specify the Product or Improvements which are the
subject thereof. Upon delivery of the Force Majeure Notice to the Escrow Agent
(as defined in the Escrow Agreement), Ethicon shall be entitled to manufacture
the Product or any Improvements itself, and shall be granted a royalty bearing,
exclusive license to the Patents and Know-How to make, have made, use, lease and
sell the Product or any Improvement in the Field throughout the Territory during
the term of this Agreement, as well as all rights to use and cross-reference
Tri-Point's Regulatory Filings and to have access to the Escrow Deposit
Materials solely in connection with the exercise of such license rights, all in
accordance with the provisions of this Agreement. Tri-Point shall provide such
assistance and other information as shall be necessary in order for Ethicon to
manufacture itself or have someone else manufacture the Product or any
Improvements.
3. In the event that such alternative arrangements cannot be agreed
upon within sixty (60) days after occurrence of the event of force majeure, and
in the event that such force majeure event does not result in an interruption of
supply to Ethicon or its Affiliates of a Product or Improvement in accordance
with the terms of this Agreement, then the non performing party shall continue
to diligently attempt to alleviate such event of force majeure until it is
removed or eliminated.
4. In the event that manufacture of a Product or Improvement is
undertaken by or on behalf of Ethicon as a result of Ethicon exercising its
rights thereto under Article VI(G)(2), then upon the termination or
discontinuance of the force majeure event which prevented Tri-Point from being
able to supply the Products or Improvements, Tri-Point shall have the right to
resume supply of the Products or Improvements under this Agreement; provided,
--------
however, that resumption of such supply shall be subject to any agreement or
- -------
other arrangement Ethicon shall have entered into in order to obtain supply of
such Products or Improvements (it being understood that Ethicon shall not
voluntarily renew or extend any such arrangements); and
---
40
<PAGE>
provided further, however, that Tri-Point shall be obligated to reimburse
- -------- ------- -------
Ethicon for those costs it incurred in order to obtain supply of such Products
or Improvements (either directly incurred or those paid to a third party). In
the event that Ethicon uses a third party manufacturer for the Products pursuant
to this clause, Ethicon shall require such third party to be bound by the same
confidentiality provisions as are contained in this Agreement.
H. NOTICES. All notices, claims, certificates, requests, demands and
-------
other communications hereunder shall be in writing and shall be delivered
personally or sent by facsimile transmission, air courier, or registered or
certified mail, return receipt requested, addressed as follows:
if to TRI-POINT to:
Tri-Point Medical Corporation
5265 Capital Boulevard
Raleigh, North Carolina, 27604
Attention: President
Fax: (919) 790-1041;
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Attention: Michael L. Pillion
Fax: (215) 963-5299; and
if to ETHICON to:
Ethicon, Inc.
Route 22
Somerville, New Jersey 08876
Attention: Vice President, Growth Technologies
and New Business Development
Fax: (908) 218-3492
with a copy to:
Office of General Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Fax: (908) 524-2788;
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
communication shall be deemed to have been delivered (i) when delivered, if
delivered personally,
41
<PAGE>
(ii) when sent (with confirmation received), if sent by facsimile transmission
on a business day, (iii) on the first business day after dispatch (with
confirmation received), if sent by facsimile transmission on a day other than a
business day, (iv) on the second business day after dispatch, if sent by air
courier, and (v) on the fifth business day after mailing, if sent by mail.
I. WAIVERS. It is further understood and agreed that no failure or delay
-------
by either party hereto in exercising any right, power or privilege under this
Agreement shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege hereunder.
J. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and execution by each of the parties of any one of such
counterparts will constitute due execution of this Agreement. Each such
counterpart hereof shall be deemed to be an original instrument, and all such
counterparts together shall constitute but one agreement.
K. HEADINGS. The article and section headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
L. GOVERNING LAW; DISPUTE RESOLUTION. Excepting only actions and claims
---------------------------------
relating to actions commenced by a third party against Tri-Point or Ethicon
(including, without limitation, actions for injuries caused by the Product or
any Improvement, or in respect to a trademark or patent infringement claim), any
controversy or claim arising out of or relating to this Agreement, or the
parties' decision to enter into this Agreement, or the breach thereof, shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA"), and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
The arbitration shall be held before a single arbitrator in the Borough of
Manhattan, the City of New York, State of New York, U.S.A., and the arbitrator
shall apply the substantive law of the State of New Jersey, except that the
interpretation and enforcement of this arbitration provision shall be governed
by the Federal Arbitration Act. The arbitrator shall be selected from the CPR
New York Regional Panel of Distinguished Neutrals. If the parties are unable to
agree upon such an arbitrator who is willing to serve within forty-five (45)
days of receipt of a demand to arbitrate by the other party, then the AAA shall
appoint an arbitrator willing to serve from the stated panel, or if no such
panel exists, then from an appropriate AAA panel.
42
<PAGE>
It shall be the duty of the arbitrator to set dates for preparation and
hearing of any dispute and to expedite the resolution of such dispute. The
arbitrator shall permit and facilitate discovery, which will be conducted in
accordance with the Federal Rules of Civil Procedure, taking into account the
needs of the parties and the desirability of making discovery expeditious and
cost-effective. The arbitrator will set a discovery schedule with which the
parties will comply and attend depositions if requested by either party. The
arbitrator will entertain such presentation of sworn testimony or evidence,
written briefs and/or oral argument as the parties may wish to present; however,
no testimony or exhibits will be admissible unless the adverse party was
afforded an opportunity to examine such witness and to inspect and copy such
exhibits during the pre-hearing discovery phase. The arbitrator shall among his
other powers and authorities, have the power and authority to award interim or
preliminary relief.
The arbitrator shall not award either party punitive damages and the
parties shall be deemed to have waived any right to such damages. A qualified
court reporter will record and transcribe the proceedings. The decision of the
arbitrator will be in writing and judgment upon the award by the arbitrator may
be entered into any court having jurisdiction thereof. Prompt handling and
disposal of the issue is important. Accordingly, the arbitrator is instructed
to assume adequate managerial initiative and control over discovery and other
aspects of the proceeding to schedule discovery and other activities for
substantially continuous work, thereby expediting the arbitration as much as is
deemed reasonable to him, but in all events to effect a final award within 365
days of the arbitrator's selection or appointment and within 20 days of the
close of evidence.
The proceedings shall be confidential and the arbitrator shall issue
appropriate protective orders to safeguard both parties' confidential
information. The arbitrator shall have the right, but not the obligation, to
order that the fees of the arbitrator and the AAA shall be paid by the losing
party which shall be designated by the arbitrator. If the arbitrator is unable
to designate a losing party or does not order the losing party to pay all such
fees, he shall so state and the fees shall be split equally between the parties.
43
<PAGE>
IN WITNESS WHEREOF, duly authorized representatives of the parties hereto
have duly executed this Agreement as of the date first above written.
ETHICON, INC. TRI-POINT MEDICAL CORPORATION
By: /s/ Patrick J. O'Neill By: /s/ Robert V. Toni
--------------------------- ---------------------------
Name: Patrick J. O'Neill Name: Robert V. Toni
Title: Vice President, Title: President
Growth Technologies
and New Business
Development
44
<PAGE>
EXHIBIT A
---------
SPECIFICATIONS
45
<PAGE>
A.1 Photograph of Trauma Seal(TM) Applicator
XXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXX
XXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
46
<PAGE>
[PHOTOGRAPH OF TRAUMA SEAL (TM) APPLICATOR APPEARS HERE]
47
<PAGE>
[REDACTED]
48
<PAGE>
EXHIBIT B
---------
ANNUAL PURCHASE MINIMUMS
(IN UNITS)
<TABLE>
<CAPTION>
Year of
Approval U.S. Approval
- -------- -------------
<S> <C>
1 XXXXXXXXX
2 XXXXXXXXX
3 XXXXXXXXX
4 XXXXXXXXX
5 XXXXXXXXX
6 (and
after) XXXXXXXXXXX
XXXXXXXXX
<CAPTION>
Year of
Approval E.C. Approval
- -------- -------------
<S> <C>
1 XXXXXXXXX
2 XXXXXXXXX
3 XXXXXXXXX
4 XXXXXXXXX
5 XXXXXXXXX
6 (and
after) XXXXXXXXXXX
</TABLE>
49
<PAGE>
EXHIBIT C
---------
PATENTS
[REDACTED]
50
<PAGE>
EXHIBIT D
---------
INSURANCE COVERAGE
$3 million per occurrence and $3 million in the aggregate general liability
insurance; provided, however, that upon Regulatory Approval for the Product in
-------- -------
the U.S. or the E.C., Tri-Point and Ethicon shall discuss and determine in good
faith (based upon commercially reasonable practices in effect at the time)
whether such limits should be increased and, if so, in what amounts. In the
event the parties determine that such limits should be increased, Tri-Point
shall promptly increase the limits.
51
<PAGE>
EXHIBIT E
---------
EXCLUDED TERRITORIES
1. India.
2. China.
3. Vietnam, North Korea and Cuba.
4. CIS Russia (including all of the former Soviet Union).
5. Eastern Europe, including Poland, Hungary, Czechoslovakia, Slovinia,
Croatia, Serbia, Bulgaria, Romania and Albania.
6. Africa (excluding South Africa)
52
<PAGE>
EXHIBIT F
---------
AMORTIZATION SCHEDULE FOR PRE-PAID AMOUNT
-----------------------------------------
<TABLE>
<CAPTION>
Year of Agreement Amount Creditable
- ----------------- -----------------
<S> <C>
Year 3 XXXXXXXXXX
Year 4 XXXXXXXXXX
Year 5 XXXXXXXXXX
Year 6 XXXXXXXXXX
Year 7 XXXXXXXXXX
Year 8 and annually XXXXXXXXXX
thereafter*
</TABLE>
__________________________
* Any amounts not creditable in one year due to lack of available royalties
or purchase price amounts shall be carried over to subsequent years until fully
credited.
53
<PAGE>
EXHIBIT G
---------
ETHICON QUALITY CONTROL PROCEDURES
Reference is made to "ETHICON quality control procedures" in Section IV(L)(1) of
the Tri-Point Medical-ETHICON contract. Specific procedures that fall under
this general quality control umbrella are referenced in the attached list.
This list is intended to provide the general framework under which ETHICON
operates, and does not/could not encompass all quality system documents. In
brief, the ETHICON Quality Manual is the overall guidance document used by
ETHICON, but since this includes elements required for full ISO certification,
it is not wholly applicable to Tri-Point Medical.
ETHICON Quality Assurance representatives are willing to provide a more
comprehensive review of ETHICON quality control procedures with the appropriate
Tri-Point Medical personnel upon request.
54
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
DOCUMENT TYPE TITLE
<S> <C>
- -------------------------------------------------------------------------------
POLICY QUALITY MANUAL
- -------------------------------------------------------------------------------
POLICY VALIDATION POLICY
- -------------------------------------------------------------------------------
POLICY PREPRODUCTION QUALITY ASSURANCE POLICY
- -------------------------------------------------------------------------------
PROCEDURE RAW MATERIAL TRACEABILITY FOR
FINISHED GOODS
- -------------------------------------------------------------------------------
PROCEDURE COMPANY PROCEDURE FOR SUPPLIER
SELECTION AND APPROVAL
- -------------------------------------------------------------------------------
PROCEDURE MATERIAL SUPPLIER QUALITY SYSTEM
COMPANY PROCEDURE
- -------------------------------------------------------------------------------
PROCEDURE FACT BOOK ADMINISTRATION
- -------------------------------------------------------------------------------
PROCEDURE CORPORATE PROCEDURE FOR PROCESS
VALIDATION
- -------------------------------------------------------------------------------
PROCEDURE DEVICE MASTER RECORD
- -------------------------------------------------------------------------------
PROCEDURE PRODUCT RECALL PROCEDURE
- -------------------------------------------------------------------------------
PROCEDURE PROCEDURE FOR ETHICON TEST DOCUMENT
FORMATS (FOR THE PURPOSE OF DEFINING
REQUIREMENTS NOT MERELY TEXT FORMAT)
- -------------------------------------------------------------------------------
PROCEDURE PRODUCT INQUIRIES, REPORTING AND
PROCESSING
- -------------------------------------------------------------------------------
PROCEDURE PROCEDURE FOR DESIGN CONTROL
- -------------------------------------------------------------------------------
PROCEDURE PROCEDURE FOR PACKAGE DEVELOPMENT
- -------------------------------------------------------------------------------
PROCEDURE PROCEDURE FOR DEVELOPMENT AND
MODIFICATION OF PACKAGING DRAWINGS
- -------------------------------------------------------------------------------
PROCEDURE CORPORATE PROCEDURE FOR REGULATORY
AGENCY INSPECTIONS
- -------------------------------------------------------------------------------
PROCEDURE CONTRACT SERVICES FOR EtO PROCESSING
OR COBALT IRRADIATION
- -------------------------------------------------------------------------------
PROCEDURE ENGINEERING DRAWING AND PRODUCTION
EQUIPMENT CHANGE CONTROL
- -------------------------------------------------------------------------------
OPERATING PROCEDURE INSPECTION AND DISPOSITION OF RAW
MATERIALS AT A SUPPLIER FACILITY
- -------------------------------------------------------------------------------
OPERATING PROCEDURE OPERATING PROCEDURE FOR SUPPLIER
QUALITY EVALUATIONS AND CLOSE-OUT
- -------------------------------------------------------------------------------
OPERATING PROCEDURE OPERATING PROCEDURE FOR THE SELECTION
AND APPROVAL OF NON-CHEMICAL/GAS RAW
MATERIAL SUPPLIERS
===============================================================================
</TABLE>
55
<PAGE>
EXHIBIT H
---------
AGREEMENT PROVISIONS WHICH ARE TERMINATED
(OR MODIFIED AS PROVIDED BELOW)
Article III(E) and (F).
Article III(G), it being agreed that this provision shall survive, but that any
expenses which Ethicon incurs in obtaining Regulatory Approval from the FDA may
be offset against the payment to be made pursuant to Article III(G)(2).
Article III(H) shall survive, unless Ethicon shall notify Tri-Point not to
engage in further clinical studies, in which event Ethicon shall only be
required to reimburse those costs incurred up to the point of such
notification.
Article IV(A), (B), (C), (G)(ii), (G)(iv), (H)(ii), (H)(iii), (I), (K), (L),
(M), (N), and (R); provided, however, that Ethicon shall indemnify Tri-Point for
-------- -------
any Losses which Tri-Point incurs as a result of a breach by Ethicon of either
of Article IV(H)(ii) or (H)(iii).
Article IV(E), except for (E)(4)
Article V(E)
Article VI(E), it being agreed that either party may assign part or all of its
obligations under the Agreement upon notice to the other party and without the
prior written consent of the other party.
56
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
PER ITEM 601(B)(11) OF REGULATION S-K
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Pro forma Common Stock outstanding(1)......... 9,600,000 9,600,000
Common Stock equivalents for options to be
granted(2)................................... 550,000 550,000
----------- ----------
Shares used in computing pro forma net income
(loss) per share............................. 10,150,000 10,150,000
=========== ==========
Pro forma net income (loss)................... $(6,972,041) $ 784,769
=========== ==========
Pro forma net income (loss) per common share.. $ (.69) $ .08
=========== ==========
</TABLE>
- --------
(1) Common Stock outstanding as of the beginning of the period reflects the
exchange of obligations of and interests in the Partnership for an
aggregate of 9,600,000 shares of Common Stock of the Company in the
Exchange.
(2) Options to acquire Common Stock at prices below the expected public
offering price issued within 12 months of the effective date of the
Offering have been included as Common Stock equivalents as if they had
been issued as Common Stock as of January 1, 1995.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the Registration Statement on Form S-1 of our report dated
June 3, 1996, relating to the financial statements of Tri Point Medical L.P.,
which appears in such Prospectus. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data".
Price Waterhouse LLP
Raleigh, North Carolina
August 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from
12/31/95 Audited Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 19,698 2,308,807
<SECURITIES> 0 0
<RECEIVABLES> 266,253 15,607
<ALLOWANCES> 0 0
<INVENTORY> 119,158 141,075
<CURRENT-ASSETS> 432,027 3,105,037
<PP&E> 417,887 510,817
<DEPRECIATION> (142,083) (155,241)
<TOTAL-ASSETS> 907,995 3,685,861
<CURRENT-LIABILITIES> 826,765 2,241,803
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 907,995 3,685,861
<SALES> 1,380,081 192,703
<TOTAL-REVENUES> 1,380,081 3,692,703
<CGS> 530,546 173,291
<TOTAL-COSTS> 530,546 173,291
<OTHER-EXPENSES> 6,976,220 2,641,307
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 845,356 93,336
<INCOME-PRETAX> (6,972,041) 784,769
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,972,041) 784,769
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,972,041) 784,769
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
