<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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 JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION 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, INCLUDING AREA 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. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value..... $44,850,000 $15,465.00
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
----------------
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>
ITEM NUMBER
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 , 1996
PROSPECTUS
SHARES
[TRI-POINT MEDICAL CORPORATION LOGO APPEARS HERE]
TRI-POINT MEDICAL CORPORATION
COMMON STOCK
------------
Of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby, shares are being offered by Tri-Point Medical
Corporation ("Tri-Point" or the "Company") and 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 $ and $ . See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. Application has
been made for quotation of the Common Stock on the Nasdaq National Market under
the symbol "TPMC."
------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------
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 $685,000 payable by the Company.
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to 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>
[PHOTO OF LACERATION PRIOR
TO APPLICATION]
[PHOTO OF CHILD AND SYRINGE]
Actual Laceration: Prior to
TraumaSeal application.
[PHOTO OF TRAUMASEAL
APPLICATION TO LACERATION]
[PHOTO OF CHILD WITH NURSE] [PHOTO OF APPLICATOR
FOR TRAUMASEAL]
Actual Laceration: After TraumaSeal
is applied.
[PHOTO OF SUTURES] [PHOTO OF LACERATION AFTER
TWO WEEKS]
After Two Weeks: The laceration
shows healing with minimal scarring.
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.
----------------
"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.
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 all 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.
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's 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 $3 billion,
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 is
authorized for marketing in Canada, with product launch
expected by the end of 1996. 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 control post-
surgical leakage from cardiovascular graft, cardiovascular bypass and bowel
resection procedures and for surgical adhesives 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. In order to
achieve its objective, 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.
THE OFFERING
Common Stock offered by:
<TABLE>
<S> <C>
The Company........... shares
The Selling Stockhold-
ers.................. shares
Common Stock to be out-
standing after the Of-
fering(1).............. 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 $ per share and (ii) 450,000 shares
reserved for future option grants under the Equity Compensation Plan. See
"Management--Equity Compensation Plan."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- -----------------
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 $ 415 $ 162
License and product
development revenues... 112 230 162 25 -- -- 3,500
------- ------- ------- ------- ------- ------- --------
Total revenues........ 510 878 1,210 1,503 1,380 415 3,662
Cost of products sold... 375 386 366 528 531 117 136
------- ------- ------- ------- ------- ------- --------
Gross profit............ 135 492 844 975 849 298 3,526
Research, development
and regulatory affairs
expenses............... 819 895 863 1,231 1,637 341 651
Selling and
administrative
expenses............... 670 912 1,037 1,366 5,089 326 626
Payments to CRX Medical,
Inc.................... -- 150 150 150 250 62 287
------- ------- ------- ------- ------- ------- --------
Total operating
expenses............. 1,489 1,957 2,050 2,747 6,976 729 1,564
------- ------- ------- ------- ------- ------- --------
Income (loss) from
operations............. (1,354) (1,465) (1,206) (1,772) (6,127) (431) 1,962
Interest expense to
Sharpoint Development
Corporation............ 135 234 342 443 845 192 134
------- ------- ------- ------- ------- ------- --------
Net income (loss)....... $(1,489) $(1,699) $(1,548) $(2,215) $(6,972) $ (623) $1,828
======= ======= ======= ======= ======= ======= ========
Pro forma net income
(loss) per common
share(1)(2)............
Shares used in
computation of pro
forma net income (loss)
per common share(1)....
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)(3)
------ -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $4,091
Working capital...................................... 2,011
Total assets......................................... 4,835
Long-term debt and capital lease obligations, less
current portion..................................... 26
Total partners' capital and stockholders' equity..... 2,462
</TABLE>
- --------
(1) Pro forma net income (loss) per common share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the periods assuming that the contribution of all
obligations of and interests in the Partnership to the Company in exchange
for shares of Common Stock in connection with the Exchange and the sale
by the Company in the Offering of shares of Common Stock had been
consummated as of the first day of the applicable periods. Although such
payments will not continue after the Exchange, pro forma net income (loss)
does not reflect the elimination of the payments to CRX Medical, Inc.
("CRX"), interest expense to Sharpoint Development Corporation
("Sharpoint") or the non-cash expense ($ per share) discussed in footnote
(2) below. 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., 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 $25,000,000 and which will
equal the difference between the value of the Common Stock issued to
Caratec, L.L.C. 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 shares of Common Stock
(at an assumed public offering price of $ per share) and the application
of the net proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus 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
March 31, 1996 had accumulated losses of $12.9 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. Although the Company had net income during the
first quarter of 1996, the Company anticipates that its expenses will increase
in the future and that it may 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 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, the Company's lead product, 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."
6
<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 establish additional marketing agreements on terms
favorable to the Company, if at all, or that current or future agreements will
ultimately be successful.
The Company is dependent for product sales revenues upon the success of such
marketing partners in performing their responsibilities. 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 which may be devoted to these activities 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
establish future arrangements, 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."
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
7
<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 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. While the Company
believes that its current facility is being operated in substantial compliance
with these regulations, 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 it considers 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. Although the Company has
not experienced difficulty acquiring cyanoacetate for the manufacture of its
products on a limited scale and for clinical trials, 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."
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
8
<PAGE>
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 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 to 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 prepare and file patent
applications in the United States that claim technology also claimed by the
Company, 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 and 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."
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 premarket approval
9
<PAGE>
("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 PMA approvals 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.
In order for the Company to market its products in Europe 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 approval. 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. See "--Limited
Manufacturing Experience" and "Business--Government Regulations."
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 $4,091,000 as of March 31,
1996, together with net proceeds of approximately $ 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 collaborative partners or from other sources will be
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
10
<PAGE>
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 its ability to 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 Availability 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 collaborators or licensees. Although the
Company currently maintains clinical trial and commercial product liability
insurance in the amount of $3 million per claim with an annual aggregate limit
of $3 million, there can no assurance that such coverage 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, the Company's Chairman and a co-founder,
and F. William Schmidt, a director of the Company and a co-founder, and their
affiliates, will beneficially own approximately % of the outstanding
Common Stock (approximately % of the outstanding Common Stock assuming
exercise in full of the Underwriters' over-allotment option), and in the
aggregate the Company's existing stockholders will beneficially own a total of
approximately % of the outstanding Common Stock after the Offering
(approximately % of the outstanding Common Stock assuming exercise in full
of the Underwriters' over-allotment option). Accordingly, the Schmidts, either
acting alone or together with all 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
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 the
net proceeds to the Company from the Offering to fund clinical trials,
research and development and capital expenditures, and for working capital and
general corporate purposes. In addition, a portion of the net proceeds may be
used for the
11
<PAGE>
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. 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 shares to be outstanding after this Offering (assuming that the
Underwriters' over-allotment option is not exercised), shares of Common
Stock to be issued to certain stockholders in the Exchange will constitute
"restricted securities," as defined in Rule 144 under the Securities Act of
1933, as amended (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 shares, shares
of Common Stock will be held by "affiliates" of the Company as defined in Rule
144(a). 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.
All directors and executive officers and certain other stockholders of the
Company holding in the aggregate shares of Common Stock, representing all
of the shares of Common Stock to be outstanding prior to this Offering which
will not be sold by the Selling Stockholders, 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. on behalf of the representatives
of the Underwriters.
Certain holders of shares of Common Stock to be outstanding prior to the
Offering, of which 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" and "Shares Eligible for Future Sale."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale and issuance of the 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 $ per share), are estimated to be approximately $
million ($ 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 $6.0 million of the net
proceeds for capital expenditures related to laboratories, office space and
manufacturing facilities. The Company expects to use the remaining net
proceeds for clinical trials, research and development, 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 $4,091,000 as of March 31, 1996, together with net proceeds of
approximately $ 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.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company to reflect the consummation of the Exchange and (iii) the pro forma as
adjusted capitalization of the Company to reflect the Exchange and the sale of
the shares of Common Stock offered by the Company hereby (at an assumed
public offering price of $ 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 MARCH 31, 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 $
------ ------ ---
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000,000
shares authorized........................ -- -- --
Common Stock, $.01 par value; 35,000,000
shares authorized; shares issued and
outstanding; shares as adjusted(3).. -- 96
Additional paid-in capital.................. -- 2,366
Accumulated deficit......................... -- -- --
Partners' capital........................... 2,462 -- --
------ ------ ---
Total partners' capital and stockholders'
equity................................... 2,462 2,462
------ ------ ---
Total capitalization.................... $2,488 $2,488 $
====== ====== ===
</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 shares of Common Stock (at an assumed public offering price
of $ per share) and the application of the net proceeds therefrom. See
"Use of Proceeds." In connection with the Exchange, Caratec, L.L.C., 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
$25,000,000 and which will equal the difference between the value of the
Common Stock issued to Caratec, L.L.C. 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 $ per share, of which 132,500 will be fully
vested and exercisable. See "Management--Equity Compensation Plan."
14
<PAGE>
DILUTION
As of March 31, 1996, the pro forma net tangible book value of the Company,
after giving effect to the Exchange, but before the Offering, was $
or $ 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 March 31, 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 shares of
Common Stock offered by the Company hereby (based on an assumed public
offering price of $ per share and after deducting the Underwriters'
discounts and commissions and other estimated offering expenses), would have
been approximately $ per share of Common Stock. This represents an immediate
increase of $ per share to existing stockholders and an immediate dilution
of $ per share to new investors. The following table illustrates this per
share dilution:
Assumed public offering price per share(1)............................
Pro forma net tangible book value per share before Offering.........
Increase per share attributable to new investors....................
Pro forma net tangible book value per share after Offering............
Dilution to new investors.............................................
- -------
(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 March 31, 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 $ 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)........
New investors...........
Total.................
</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 CRX in exchange for its right to receive various payments
from 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 $ 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.
15
<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 data for the three months
ended March 31, 1995 and 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 three months ended March 31, 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- -----------------
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 $ 415 $ 162
License and product
development revenues... 112 230 162 25 -- -- 3,500
------- ------- ------- ------- ------- ------- --------
Total revenues........ 510 878 1,210 1,503 1,380 415 3,662
Cost of products sold... 375 386 366 528 531 117 136
------- ------- ------- ------- ------- ------- --------
Gross profit............ 135 492 844 975 849 298 3,526
Research, development
and regulatory affairs
expenses............... 819 895 863 1,231 1,637 341 651
Selling and
administrative
expenses............... 670 912 1,037 1,366 5,089 326 626
Payments to CRX Medical,
Inc.................... -- 150 150 150 250 62 287
------- ------- ------- ------- ------- ------- --------
Total operating
expenses............. 1,489 1,957 2,050 2,747 6,976 729 1,564
------- ------- ------- ------- ------- ------- --------
Income (loss) from
operations............. (1,354) (1,465) (1,206) (1,772) (6,127) (431) 1,962
Interest expense to
Sharpoint Development
Corporation............ 135 234 342 443 845 192 134
------- ------- ------- ------- ------- ------- --------
Net income (loss)....... $(1,489) $(1,699) $(1,548) $(2,215) $(6,972) $ (623) $ 1,828
======= ======= ======= ======= ======= ======= ========
Pro forma net income
(loss) per common
share(1)(2)............
Shares used in
computation of pro
forma net income (loss)
per common share(1)....
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, AS OF MARCH 31, MARCH 31,
-------------------------------------------- ----------------- ---------------
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 $ 84 $ 4,091
Working capital......... 37 (181) (392) (10) (395) 14 2,011
Total assets............ 823 750 764 784 908 781 4,835
Long-term debt and
capital lease
obligations, less
current portion........ 2,511 3,942 5,232 7,851 10,088 8,307 26
Total partners' capital
and stockholders'
equity................. (1,916) (3,615) (5,163) (7,378) (10,850) (8,001) 2,462
</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 all
obligations of and interests in the Partnership to the Company in exchange
for shares of Common Stock in connection with the Exchange and the
sale by the Company in the Offering of shares of Common Stock had been
consummated as of the first day of the applicable periods. Although such
payments will not continue after the Exchange, pro forma net income (loss)
does not reflect the elimination of the payments to CRX, interest expense
to Sharpoint or the non-cash expense ($ per share) discussed in footnote
(2) below. See "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., 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
$25,000,000 and which will equal the difference between the value of the
Common Stock issued to Caratec, L.L.C. 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 shares of Common Stock
(at an assumed public offering price of $ per share) and the application
of the net proceeds therefrom. See "Use of Proceeds."
16
<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 fees 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 losses
of approximately $12,872,000 as of March 31, 1996. Although the Company had
net income during the first quarter of 1996, the Company anticipates that it
may 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, all obligations of and interests in the
Partnership will be contributed to the Company in exchange for an aggregate of
shares of Common Stock. As of March 29, 1996, the long-term debt of the
Company 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 the date of the Exchange, CRX, as a limited partner of the
Partnership, received payments of approximately $987,000 based on net revenues
pursuant to the Partnership agreement. As part of the Exchange, Caratec,
L.L.C., 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 $25,000,000 and which
will equal the difference between the value of the Common Stock issued to
Caratec, L.L.C. 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 expects to incur compensation expense in connection with options
for Common Stock granted to employees, consultants and directors because such
options have exercise prices of approximately $3 per share below the estimated
fair market value of the Common Stock. Such expense will be approximately
$397,000 upon the consummation of the Offering, approximately $341,000 per
year over the first two years and
17
<PAGE>
$285,000 per year over the next 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
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Total revenues for the three months ended March 31, 1996 increased to
$3,662,000 from $415,000 for the three months ended March 31, 1995. This
increase was primarily the result of the receipt of $3,500,000 in license fees
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 $415,000 for the three months ended March 31, 1995 to
$162,000 for the three months ended March 31, 1996. This decrease was
attributable to decreased sales volume of Octyldent.
Cost of products sold for the three months ended March 31, 1996 increased
16% to $136,000 from $117,000 for the three months ended March 31, 1995. This
increase was primarily a result of decreased efficiencies and related costs
associated with the expansion of the Company's manufacturing capabilities and
decreased product sales volume.
Operating expenses for the three months ended March 31, 1996 increased 115%
to $1,564,000 from $729,000 for the three months ended March 31, 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 three months ended March 31, 1996 decreased 30% to
$134,000 from $192,000 for the three months ended March 31, 1995. This
decrease resulted primarily from the contribution of long-term debt and
accrued interest held by Sharpoint to partners' capital as of March 29, 1996.
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.
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 costs for development and
preparation for clinical trials for TraumaSeal, increased financial advisory
and professional fees and increased compensation expenses. 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.
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.
18
<PAGE>
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").
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 March 31, 1996, the Company 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, such long-term debt,
including accrued interest, were contributed as partners' capital to the
Partnership. The Company also has financed its operations by generating
product sales of $5,332,000 and license and product development revenues of
$4,036,000 as of March 31, 1996.
The Company's cash and cash equivalents totaled $4,091,000 at March 31,
1996, an increase of $4,071,000 from December 31, 1995. The primary sources of
cash and cash equivalents for the three months ended March 31, 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 $869,000 in cash and cash equivalents during
the three months ended March 31, 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."
The Company believes that existing cash and cash equivalents, which totaled
$4,091,000 as of March 31, 1996, together with net proceeds of approximately
$ 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
19
<PAGE>
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."
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.
20
<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's
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 $3 billion, 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 is authorized for
marketing in Canada, with product launch expected by the end of
1996. 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 PMA approval. 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 control post-
surgical leakage from cardiovascular graft, cardiovascular bypass and bowel
resection procedures, and for surgical adhesives 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
21
<PAGE>
Toxicology Testing Standards for the Biological Evaluation of Medical Devices.
A key element in the 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 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 challenge 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 18-24
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.
22
<PAGE>
BUSINESS STRATEGY
The Company's objective is to become the leader in the medical adhesive
market by capitalizing on its proprietary cyanoacrylate technology. In order
to achieve its objective, 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.
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 that are classified as medical devices, which will
be 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
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.
23
<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
Authorized 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 are an
estimated 7.6 million minimally invasive surgical procedures, over 1.5 million
plastic surgery procedures and 25 million other surgical procedures 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. As of May 31, 1996, 554 patients out of a
planned 825 patient population had been enrolled, and it is anticipated that
the clinical trials will be completed by late 1996. Tri-Point has engaged a
clinical research organization to administer the human trials.
24
<PAGE>
TraumaSeal has been authorized for marketing in Canada and is expected to be
launched in Canada by the end of 1996. 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 estimates that over 24 million scaling and root planing procedures
are performed annually 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. PMA approval 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 PMA approval 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 approval
for this or any additional indication.
The Company's marketing partner for Nexacryl is Chiron.
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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 are an
estimated 16 million surgical procedures performed on animals annually in the
United States in which Nexaband products could be used. 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 are performed in the United States each year. 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 are approximately 50 million
surgical procedures performed globally each year, with an estimated growth
rate of 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.
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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, 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 both FDA and European approvals 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."
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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 on a
product-by-product basis. 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
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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 to 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 prepare and file patent
applications in the United States that claim technology also claimed by the
Company, 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.
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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 establishes 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
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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 PMA approvals 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 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.
The FDA must approve certain exports of devices that require a PMA but are
not yet approved in the United States. Previous FDA requirements provided that
the FDA must first give export approval for an unapproved device, based on,
among other information, documentation from the medical device regulatory
authority of the importing country stating that the import of the device is
not a violation of such country's medical device laws. In April 1996, the
United States Congress passed new FDA legislation that provides that a non-FDA
approved medical device can be exported to any country, provided it complies
with the laws of that country and has valid marketing authorization from the
appropriate authority in Australia, Canada, Israel, Japan, New Zealand,
Switzerland or South Africa, the European Union or a country in the European
Economic Area (the "listed countries"). Export directly to other non-listed
countries will continue to require FDA export approval.
Medical devices that are marketed in the European Union will be required to
comply with the Medical Devices Directive ("MDD") when the transition period
for the MDD expires on June 13, 1998. To comply with the MDD, the Company will
need to obtain the right to affix the CE mark on its medical devices. The CE
mark will permit the Company to market its medical devices in the European
Union and for such devices to circulate
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freely throughout the European Union. Without receipt of the right to affix
the CE mark on its medical devices, the Company's medical devices will not be
able to be marketed anywhere in the European Union.
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 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.
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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.
33
<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 arrangements, 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 that 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 the Scientific
Advisors who are 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 which 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>
34
<PAGE>
EMPLOYEES
As of May 31, 1996, the Company had 34 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 February 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.
35
<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 May 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)................ 46 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Rolf D. Schmidt 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 1970, he
cofounded Sharpoint, Inc., a developer and manufacturer of surgical needles
and sutures with emphasis on ophthalmic microneedles, sutures and blades. In
1986, he sold a significant portion of the business to its primary distributor
of ophthalmic products, Alcon Labs. Mr. Schmidt is a senior level executive
who brings over 30 years of engineering and management experience to the
Company. Rolf D. Schmidt is F. William Schmidt's brother.
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.
36
<PAGE>
Dennis C. Carey 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.
Mr. Lorelli has served as President-North/Latin Americas Division for
Tambrands, Inc. since 1994. 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
and is an adviser to Rosenbluth 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 has served as a director of the Company since February
1996. Mr. Schmidt cofounded Sharpoint, Inc. with Rolf Schmidt, and completed
the design work on production and manufacturing equipment that led to product
development within that company. Mr. Schmidt also was significantly involved
with the technological invention of a variety of ophthalmic needles and
sutures, and brings 25 years of management and business experience to the
Company. F. William Schmidt is Rolf D. Schmidt's brother.
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."
37
<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.
(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
38
<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 pursuant to the 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.
39
<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, agreement 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 May 31, 1996, 34 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 $ 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
40
<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.
41
<PAGE>
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) during any period of two consecutive years, the individuals
constituting 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, all obligations of and interests in
the Partnership will be contributed to the Company in exchange for an
aggregate of 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 capital. The Schmidts are the only
stockholders of Sharpoint.
Caratec, L.L.C., 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 was
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 $987,000 as of the date of the Exchange. CRX
also was 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."
42
<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. 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. 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, all obligations of and interests in the Partnership will be
contributed to the Company in exchange for an aggregate of 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 Company 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 was 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 $987,000 as of March 31, 1996. CRX also was 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, L.L.C., 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 $25,000,000 and which will equal the
difference between the value of the Common Stock issued to Caratec, L.L.C. 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."
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of May 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 --------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT TO BE SOLD NUMBER PERCENT
- ------------------------ --------- ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Rolf D. Schmidt(2)(3).............. 3,026,831 31.5%
F. William Schmidt(3)(4)........... 3,026,831 31.5%
Caratec, L.L.C.(5)................. 1,776,250 18.5%
Robert V. Toni(6).................. 733,320 7.6%
J. Blount Swain(6)................. 488,610 5.1%
Jeffrey G. Clark(6)................ 488,020 5.1%
Joe B. Barefoot(6)(7).............. 367,247 3.8%
Dennis C. Carey(6)................. 12,500 *
Michael K. Lorelli(6).............. 12,500 *
Randy H. Thurman(6)................ 12,500 *
All directors and executive
officers as a group
(9 persons)(8).................... 7,568,447 78.2%
</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 May 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 shares of Common Stock, F. William Schmidt
will sell shares of Common Stock and OMI Partners, L.P. will sell
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, L.L.C. 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, L.L.C.
(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--
44
<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.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
See the Restated Certificate of Incorporation (the "Certificate") and By-
Laws of the Company, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part, for additional information
relating to the description of capital stock below.
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 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
46
<PAGE>
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."
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 a directors' and officers' liability insurance policy which
affords directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts.
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
47
<PAGE>
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 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, shares of Common Stock ( 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, L.L.C. ("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 to 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, 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, shares are to be sold by the Schmidts
in the Offering.
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 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.
48
<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 shares to be outstanding after this Offering (assuming that the
Underwriters' over-allotment option is not exercised), shares of Common
Stock to be issued to certain stockholders in the Exchange 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
shares, 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 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 holding in the aggregate shares of Common Stock, representing all
of the shares of Common Stock to be outstanding prior to this Offering which
will not be sold by the Selling Stockholders, 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. on behalf of the representatives of the Underwriters.
Certain holders of shares of Common Stock to be outstanding prior to
the Offering, of which 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."
49
<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,
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 Company has 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.........................................................
===
</TABLE>
The Company has 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 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 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 has 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.
50
<PAGE>
The stockholders of the Company prior to the Offering owning in the
aggregate shares of Common Stock (representing all of the shares of Common
Stock to be outstanding prior to the Offering which will not be sold by the
Selling Stockholders in the Offering) have agreed not to, directly or
indirectly, offer for sale, sell or otherwise dispose of (or enter into any
transaction or device that is designed to result in the disposition by any
person of), other than to the Underwriters pursuant to the Underwriting
Agreement, their shares 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, not to, directly or indirectly, offer for sale,
sell or otherwise dispose of (or enter into any transaction or device which is
designed to result in the disposition by any person) any Common Stock or other
capital stock or any securities convertible into or exchangeable for, or any
rights to acquire, Common Stock or other capital stock, or waive any
restrictions on sale contained in any agreement or award letter to which the
options or shares of Common Stock of any officer or director of the Company
are subject, prior to the expiration of 180 days from the date of this
Prospectus without the prior written consent of Lehman Brothers Inc. on behalf
of the Representatives.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price was negotiated between the Company and the
Representatives. Among the factors considered in determining the initial
public offering price of the Common Stock, in addition to the prevailing
market conditions, were 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
and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders 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 not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
all respects by such reference. 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.
51
<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 March 31, 1996
(unaudited) and Pro Forma Balance Sheet as of March 31, 1996
(unaudited)............................................................ F-3
Statement of Operations for the years ended December 31, 1993, 1994 and
1995 and for the three month periods ended March 31, 1995 and 1996
(unaudited)............................................................ F-4
Statement of Partners' Capital (Deficit) for the years ended December
31, 1993, 1994 and 1995 and for the three month periods ended March 31,
1995 and March 31, 1996 (unaudited).................................... F-5
Statement of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the three month periods ended March 31, 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, MARCH 31,
------------------------- MARCH 31, 1996
1994 1995 1996 PRO FORMA
----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTE 6)
Current assets:
Cash...................... $ 30,038 $ 19,698 $4,090,839 $4,090,839
Accounts receivable (Note
8)....................... 129,710 266,253 112,785 112,785
Inventories (Note 4)...... 119,319 119,158 83,705 83,705
Prepaid expenses.......... 22,625 26,918 71,665 71,665
----------- ------------ ---------- ----------
Total current assets.... 301,692 432,027 4,358,994 4,358,994
----------- ------------ ---------- ----------
Furniture, fixtures and
equipment (Note 3)......... 433,123 417,887 419,793 419,793
Less--accumulated
depreciation and
amortization............... (148,724) (142,083) (142,515) (142,515)
----------- ------------ ---------- ----------
284,399 275,804 277,278 277,278
----------- ------------ ---------- ----------
Intangible assets, net of
accumulated amortization of
$295,063 and $326,441 at
December 31, 1994 and 1995,
respectively, and $329,060
at March 31, 1996 (Note
5)......................... 198,001 200,164 199,057 199,057
----------- ------------ ---------- ----------
Total assets............ $ 784,092 $ 907,995 $4,835,329 $4,835,329
=========== ============ ========== ==========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Current liabilities:
Accounts payable.......... $ 184,886 $ 513,717 $ 909,670 $ 909,670
Accrued payroll and
vacation................. 54,353 28,023 72,243 72,243
Deferred revenue (Note
10)...................... -- 77,794 1,069,358 1,069,358
Payable to CRX Medical,
Inc. (Note 2)............ 70,263 195,275 287,454 287,454
Capital lease obligations
(Note 7)................. 2,012 11,956 9,095 9,095
----------- ------------ ---------- ----------
Total current
liabilities............ 311,514 826,765 2,347,820 2,347,820
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 2,373,719 2,373,719
----------- ------------ ---------- ----------
Partners' capital
(deficit).................. (7,377,785) (10,849,826) 2,461,610 --
Common stock, $.01 par
value, 35,000,000 shares
authorized, 9,600,000
shares issued and
outstanding.............. -- -- -- 96,000
Additional paid-in
capital.................. -- -- -- 2,365,610
----------- ------------ ---------- ----------
Total partners' capital
(deficit) and
stockholders' equity... (7,377,785) (10,849,826) 2,461,610 2,461,610
----------- ------------ ---------- ----------
Total liabilities and
partners' capital
(deficit) and
stockholders' equity... $ 784,092 $ 907,995 $4,835,329 $4,835,329
=========== ============ ========== ==========
</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>
THREE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ---------------------
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 $ 415,162 $ 162,173
License and product
development revenues
(Notes 8 and 10)....... 161,551 25,000 -- -- 3,500,000
----------- ----------- ----------- --------- ----------
Total revenues........ 1,209,419 1,503,109 1,380,081 415,162 3,662,173
----------- ----------- ----------- --------- ----------
Cost of products sold... 366,239 527,644 530,546 117,399 135,743
----------- ----------- ----------- --------- ----------
Gross profit.......... 843,180 975,465 849,535 297,763 3,526,430
----------- ----------- ----------- --------- ----------
Research, development
and regulatory affairs
expenses............... 862,758 1,230,771 1,637,241 341,009 650,852
Selling and
administrative expenses
(Note 1)............... 1,036,900 1,366,603 5,088,979 325,669 626,404
Payments to CRX Medical,
Inc.................... 150,000 150,000 250,000 62,500 287,454
----------- ----------- ----------- --------- ----------
Total operating
expenses............. 2,049,658 2,747,374 6,976,220 729,178 1,564,710
----------- ----------- ----------- --------- ----------
Income (loss) from
operations............. (1,206,478) (1,771,909) (6,126,685) (431,415) 1,961,720
Interest expense to
Sharpoint Development
Corporation............ (341,559) (442,783) (845,356) (191,940) (133,500)
----------- ----------- ----------- --------- ----------
Net income (loss)....... $(1,548,037) $(2,214,692) $(6,972,041) $(623,355) $1,828,220
=========== =========== =========== ========= ==========
Unaudited pro forma data
(Note 9):
Net income (loss) per
common share........... $ (.73) $ .19
Weighted average common
shares outstanding..... 9,600,000 9,600,000
</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 THREE MONTH PERIOD ENDED
MARCH 31, 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).. 1,307,177 521,043 -- 1,828,220
------------ ---------- ------ ------------
BALANCE AT MARCH 31,
1996 (UNAUDITED)....... $ (1,560,433) $4,021,043 $1,000 $ 2,461,610
============ ========== ====== ============
</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>
THREE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ---------------------
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) ($623,355) $1,828,220
Adjustments to
reconcile net income
(loss) to net cash
provided (used) by
operating activities:
Amortization expense.. 65,438 66,555 31,378 17,003 2,619
Depreciation expense.. 41,984 43,817 51,208 11,738 10,770
Employee Limited
Partnership
interest............. -- -- 3,500,000 -- --
Net loss on disposals
of fixed assets...... 18,302 4,129 55,161 -- 11,252
Net loss on disposals
of intangibles....... -- -- 13,559 -- --
Change in accounts
receivable........... (30,434) 57,659 (136,543) 57,206 153,468
Change in
inventories.......... (53,326) (23,223) 161 (6,087) 35,453
Change in prepaid
expenses............. 7,745 (13,736) (4,293) 7,499 (44,746)
Change in accounts
payable and accrued
expenses............. (32,813) 126,648 302,501 (24,195) 440,173
Change in deferred
revenue.............. -- -- 77,794 -- 991,564
Change in accrued
payable to CRX
Medical, Inc. ....... (36,512) (24,026) 125,012 (7,763) 92,179
Change in accrued
interest due to
Sharpoint Development
Corporation.......... 341,693 442,775 842,857 191,291 138,058
----------- ----------- ----------- --------- ----------
Net cash provided (used)
by operating
activities............. (1,225,960) (1,534,094) (2,113,246) (376,663) 3,659,010
----------- ----------- ----------- --------- ----------
Cash flows from
investing activities:
Additions to furniture,
fixtures and
equipment............. (60,186) (69,771) (97,774) (24,747) (23,496)
Additions to intangible
assets................ (18,583) (66,424) (47,100) (4,422) (1,512)
----------- ----------- ----------- --------- ----------
Net cash used by
investing activities... (78,769) (136,195) (144,874) (29,169) (25,008)
----------- ----------- ----------- --------- ----------
Cash flows from
financing activities:
Proceeds from notes
payable to Sharpoint
Development
Corporation........... 1,290,000 1,683,500 2,215,500 460,000 440,000
Change in capital lease
obligation............ -- 5,575 32,280 -- (2,861)
----------- ----------- ----------- --------- ----------
Net cash provided by
financing activities... 1,290,000 1,689,075 2,247,780 460,000 437,139
----------- ----------- ----------- --------- ----------
Increase (decrease) in
cash................... (14,729) 18,786 (10,340) 54,168 4,071,141
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 $ 84,206 $4,090,839
=========== =========== =========== ========= ==========
</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 quarter ended March 31, 1996
is not considered necessary since Tri-Point Medical Corporation (Note 9) does
not expect to have a tax liability for the full year ending December 31, 1996
in accordance with the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes".
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. 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.
F-8
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 can not 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 three month periods ended March 31,
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 three months ended March 31, 1996 are not indicative of the results to
be expected for the year.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment..................... $ 129,406 $ 134,327 $ 152,299
Machinery and equipment..................... 269,442 208,273 192,207
Leasehold improvements...................... 27,609 27,405 27,405
Machinery and equipment under capital leases
(Note 7)................................... 6,666 47,882 47,882
--------- --------- ---------
433,123 417,887 419,793
Accumulated depreciation and amortization... (148,724) (142,083) (142,515)
--------- --------- ---------
$ 284,399 $ 275,804 $ 277,278
========= ========= =========
</TABLE>
F-9
<PAGE>
TRI-POINT MEDICAL L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORY
Inventory includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Packaging......................................... $ 42,205 $ 34,574 $30,064
Raw materials..................................... 22,624 22,840 20,185
Work-in-process................................... 32,103 45,408 24,905
Finished goods.................................... 22,387 16,336 8,551
-------- -------- -------
$119,319 $119,158 $83,705
======== ======== =======
</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)................. 1,512 -- -- -- -- 1,512
1996 amortization (unau-
dited)................. (2,619) -- -- -- -- (2,619)
-------- ------- -------- -------- ------- --------
Net book value at March
31, 1996 (unaudited)... $199,057 -- -- -- -- $199,057
======== ======= ======== ======== ======= ========
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,
----------------------- MARCH 31,
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, Sharpoint Development Corporation 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 Sharpoint Development Corporation.
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 three months ended
March 31, 1995 and 1996 was approximately $21,276 and $26,037, 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 $119,626
1997...................................................... 14,078 124,552
1998...................................................... 12,436 19,596
1999...................................................... 2,206 --
------- --------
Total minimum lease payments.............................. 43,966 $263,774
========
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
A seven year marketing agreement with Farnam Companies, Inc. was signed in
December of 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 $83,426 or 20% and
$137,990 or 4% of total revenue for the three months ended March 31, 1995 and
1996, respectively.
The Partnership has a non-exclusive supply agreement with the Procter &
Gamble/ALZA Partnership for Healthcare 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 $331,736 or 80% and $24,183 or 1% of total revenues for the
three months ended March 31, 1995 and 1996, respectively. Accounts receivable
related to these revenues were approximately $45,000 and $243,500 at December
31, 1994 and 1995, 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
Sharpoint Development Corporation, assignees of Sharpoint's economic interest
in the Partnership, 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 Tri-Point Medical Corporation common stock
(see Note 10), subject to the completion of an initial public offering by Tri-
Point Medical Corporation. The Company will record a non-cash expense which
should not exceed $25,000,000 and which will be offset by a credit to
additional paid-in capital. 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).
A tax provision related to the unaudited pro forma results of operations for
the three month period ended March 31, 1996 is not considered necessary since
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 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 Tri-Point Medical
Corporation on March 1, 1996. Tri-Point Medical Corporation also assumed all
liabilities of Tri-Point Medical L.P. except for the indebtedness to Sharpoint
Development Corporation and accrued interest thereon.
On March 20, 1996, Tri-Point Medical Corporation entered into an eight year
exclusive supply and distribution rights agreement with Ethicon, Inc., a
subsidiary of Johnson & Johnson, whereby Tri-Point Medical Corporation will
supply Ethicon with a product for human topical wound closure. In
consideration, Ethicon paid Tri-Point Medical Corporation $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 Tri-Point Medical Corporation 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 Sharpoint
Development Corporation in the amounts of $10,502,301 and $980,915,
respectively, were contributed to Partners' capital.
F-12
<PAGE>
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.
OPERATING ROOM
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
patients--and
translate into less
time spent in the
operating room for
patients and medi-
cal staff.
[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]
OPHTHAMOLOGY
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]
<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 BY 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 IN-
FORMATION 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............................................................. 6
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 21
Management............................................................... 36
Certain Transactions.....................................................
Prior Partnership Status................................................. 43
Principal and Selling Stockholders....................................... 44
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Additional Information................................................... 51
Reports to Security Holders.............................................. 51
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO OF TRI-POINT MEDICAL CORPORATION 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....................................... 40,000.00
Legal fees................................................... 350,000.00
Representatives' non-accountable expense allowance........... 50,000.00
Blue Sky fees and expenses................................... 25,000.00
Nasdaq National Market listing fee........................... 48,625.00
Accounting fees.............................................. 125,000.00
Miscellaneous................................................ 15,925.00
-----------
Total.................................................... $685,000.00
===========
</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.
C. Reference is made to Section 11 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 maintains, 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. The premiums for such insurance are 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
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, all obligations and interests in the Partnership
will be contributed to the Company in exchange for an aggregate of 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.
4** Specimen Stock Certificate for Common Stock of the Registrant.
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.
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 this Registration
Statement).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
+ 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 REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN RALEIGH, NORTH
CAROLINA, ON JUNE 6, 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
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
EACH PERSON IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS ROBERT V.
TONI AND J. BLOUNT SWAIN, AND EACH OF THEM ACTING ALONE, HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO EXECUTE AND CAUSE TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE REQUIREMENTS
OF THE SECURITIES ACT OF 1933, AS AMENDED, ANY AND ALL AMENDMENTS AND POST-
EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, AND INCLUDING ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING THAT IS TO BE EFFECTIVE UPON
FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, WITH EXHIBITS THERETO
AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS
ALL THAT SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO OR
CAUSE TO BE DONE BY VIRTUE HEREOF.
NAME CAPACITY DATE
/s/ Robert V. Toni President and Chief June 6, 1996
- ------------------------------------- Executive Officer
ROBERT V. TONI (principal
executive officer)
and Director
/s/ J. Blount Swain Vice President and June 6, 1996
- ------------------------------------- Chief Financial
J. BLOUNT SWAIN Officer (principal
financial and
accounting officer)
/s/ Rolf D. Schmidt Chairman of the June 6, 1996
- ------------------------------------- Board and Director
ROLF D. SCHMIDT
/s/ F. William Schmidt Director June 6, 1996
- -------------------------------------
F. WILLIAM SCHMIDT
/s/ Dennis C. Carey Director June 6, 1996
- -------------------------------------
DENNIS C. CAREY
/s/ Michael K. Lorelli Director June 6, 1996
- -------------------------------------
MICHAEL K. LORELLI
/s/ Randy H. Thurman Director June 6, 1996
- -------------------------------------
RANDY H. THURMAN
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
---------- ----------- -----------
<C> <S> <C>
1** Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation.
3.2* By-Laws.
4** Specimen Stock Certificate for Common Stock of the
Registrant.
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.
</TABLE>
<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.
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 this
Registration Statement).
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
+ 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>
RESTATED CERTIFICATE OF INCORPORATION
OF TRI-POINT MEDICAL CORPORATION
Tri-Point Medical Corporation, a Delaware corporation, the original
Certificate of Incorporation of which was filed with the Secretary of State of
the State of Delaware on February 20, 1996, HEREBY CERTIFIES that this Restated
Certificate of Incorporation restating, integrating and amending its Certificate
of Incorporation was duly proposed by its Board of Directors and adopted by its
stockholders in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware, as amended (the "GCL").
1. Corporate Name. The name of the corporation is Tri-Point Medical
--------------
Corporation (hereinafter referred to as the "Corporation").
2. Registered Office. The registered office of the Corporation is
-----------------
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, in the County of New Castle, in the State of Delaware. The name of
its registered agent at that address is The Corporation Trust Company.
3. Corporate Purpose. The purpose of the Corporation is to engage in
-----------------
any lawful act or activity for which a corporation may now or hereafter be
organized under the GCL.
4. Capital Stock.
-------------
4.1 Authorized Amount. The Corporation shall be authorized to
-----------------
issue 37,000,000 shares of capital stock, of which 35,000,000 shares shall be
Common Stock, par value $0.01 per share, and 2,000,000 shares shall be Preferred
Stock, par value $0.01 per share.
4.2 Authority of Board to Fix Terms of Preferred Stock. The Board
--------------------------------------------------
of Directors of the Corporation is hereby expressly authorized at any time and
from time to time to provide for the issuance of all or any shares of the
Preferred Stock in one or more series, and to fix for each such series such
voting powers, full or limited, or no voting powers, and such distinctive
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such series and to the fullest extent as
may now or hereafter be permitted by the GCL, including, without limiting the
generality of the foregoing, the authority to provide that any such series may
be (i) subject to redemption at such time or times and at such price or prices;
(ii) entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or any other series; (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation; or (iv) convertible
into, or exchangeable for, shares of any other class or classes of stock, or of
any other series of the same or any other class or classes of stock, or other
securities or property, of the Corporation at such price or prices or at such
rates of exchange and with such adjustments, all as may be stated in such
resolution or resolutions. Unless otherwise provided in such resolution or
resolutions, shares of Preferred Stock of any series which shall be issued and
thereafter acquired by the Corporation through purchase, redemption, exchange,
conversion or otherwise shall return to the status of authorized but unissued
Preferred Stock.
<PAGE>
5. Board of Directors.
------------------
5.1 Number; Classification. Subject to the rights of the holders
----------------------
of any series of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would have if there were no vacancies. The
directors, other than those who may be elected by the holders of any series of
Preferred Stock under specified circumstances, shall be divided, with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as possible, with the term of office of the first class (Class
I) to expire at the 1997 annual meeting of stockholders, the term of office of
the second class (Class II) to expire at the 1998 annual meeting of stockholders
and the term of office of the third class (Class III) to expire at the 1999
annual meeting of stockholders, with each director to hold office until his or
her successor shall have been duly elected and qualified. At each annual meeting
of stockholders, commencing with the 1997 annual meeting, (i) directors elected
to succeed those directors whose terms then expire shall be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified, and (ii) if authorized by a
resolution of the Board of Directors, directors may be elected to fill any
vacancy on the Board of Directors, regardless of how such vacancy shall have
been created.
5.2 Vacancies. Subject to applicable law and the rights of the
---------
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified.
5.3 Removal of Directors. Subject to the rights of the holders of
--------------------
any series of Preferred Stock with respect to such series of Preferred Stock,
any director, or the entire Board of Directors, may be removed from office at
any time, but only for cause and only by the affirmative vote of the holders of
at least 75 percent of the voting power of all of the then-outstanding shares of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class. No decrease or increase in the size of the Board of
Directors shall shorten or otherwise affect the term of any incumbent director.
6. Special Meetings of Stockholders. Subject to the rights of the
--------------------------------
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, special meetings of the stockholders may be called only by the
Chairman of the Board or by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors which the Corporation
would have if there were no vacancies.
7. No Stockholder Action by Written Consent. Subject to the rights
----------------------------------------
of the holders of any series of Preferred Stock with respect to such series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special
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<PAGE>
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
8. Liability of Directors. A director of the Corporation shall not
----------------------
be liable to the Corporation or its stockholders for monetary damages
(including, without limitation, any judgment, amount paid in settlement, fine,
penalty, punitive damages, excise tax assessed with respect to an employee
benefit plan, or expense of any nature, including attorneys' fees) for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the GCL; or (iv) for any
transaction from which the director derived an improper personal benefit.
If the GCL is amended after the date hereof to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall automatically be eliminated
or limited to the fullest extent permitted by the GCL as so amended. Neither
the amendment nor repeal of this Article 8 nor the adoption of any provision of
this Restated Certificate of Incorporation inconsistent with this Article 8
shall eliminate or reduce the effect of this Article 8 in respect of any matter
arising or relating to any actions or omissions occurring prior to such
amendment, repeal or adoption of an inconsistent provision.
9. Fundamental Transactions.
------------------------
9.1 Stockholder Authorization of Fundamental Transaction
----------------------------------------------------
Recommended by the Board. Whenever a Fundamental Transaction to be taken by vote
- ------------------------
of the stockholders has been recommended by a vote of 75 percent of the
directors then in office at a meeting at which a quorum is present, the proposed
Fundamental Transaction shall be authorized upon receiving the minimum vote
required for the authorization of such action by statute, after taking into
account the express terms of any series of Preferred Stock of the Corporation
with respect to such vote.
9.2 Stockholder Authorization of Fundamental Transaction Not
--------------------------------------------------------
Recommended by the Board. Except as provided in Section 9.1 above, whenever a
- ------------------------
Fundamental Transaction is to be taken by vote of the stockholders, the proposed
Fundamental Transaction shall be authorized only upon receiving the affirmative
vote of the holders of 75 percent of the voting power of all of the then-
outstanding shares of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, and, in addition, the
affirmative vote of the number or proportion of shares of any series of
Preferred Stock of the Corporation, if any, as shall at the time be required by
statute or the express terms of such series of Preferred Stock.
9.3 Fundamental Transaction Defined. For the purposes of this
-------------------------------
Article 9, the term "Fundamental Transaction" shall mean any of the following,
if any such transaction requires the approval of the stockholders under the
Restated Certificate of Incorporation of the Corporation as then in effect or
the GCL as then in effect with respect to the Corporation: the sale, lease,
exchange or other disposition of all or substantially all of the assets of the
Corporation; or the merger, consolidation, division, reorganization,
recapitalization, dissolution, liquidation or winding up of the Corporation.
10. Amendment. Except as otherwise provided in this Article 10, this
---------
Restated Certificate of Incorporation may be amended in the manner now or
hereafter prescribed by statute, and all rights
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<PAGE>
conferred upon stockholders are granted subject to this reservation, provided,
however, that unless such action has been recommended by a vote of 75 percent of
the directors then in office at a meeting at which a quorum is present, the
provisions set forth in Articles 5, 6, 7 and 9 hereof may not be repealed or
amended in any respect, and the provisions set forth in Article 8 hereof may not
be amended or repealed in any respect so as to adversely affect the rights
therein conferred upon directors of the Corporation, unless in any of such cases
such action is approved by the affirmative vote of the holders of 75 percent of
the voting power of all of the then-outstanding shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class.
IN WITNESS WHEREOF, Tri-Point Medical Corporation has caused this
Restated Certificate of Incorporation to be signed on this 30th day of May, 1996
in its name and attested by duly authorized officers.
ATTEST: TRI-POINT MEDICAL CORPORATION
By: By:
------------------------------- --------------------------------
Name: J. Blount Swain Name: Robert V. Toni
Title: Secretary Title: President
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<PAGE>
BY-LAWS
OF
TRI-POINT MEDICAL CORPORATION
(a Delaware Corporation)
(effective May 30, 1996)
ARTICLE I
Offices, Fiscal Year and Records
1.01. Registered Office. The registered office of the Corporation shall
-----------------
be in the City of Wilmington, County of New Castle, State of Delaware until
otherwise established by resolution of the Board of Directors and a certificate
certifying the change is filed in the manner provided by statute.
1.02. Other Offices. The Corporation may also have offices at such other
-------------
places within or without the State of Delaware as the Board of Directors may
from time to time determine or the business of the Corporation requires.
1.03. Fiscal Year. The fiscal year of the Corporation shall end on the
-----------
31st of December in each year.
1.04. Books and Records. The books and records of the Corporation may be
-----------------
kept outside the State of Delaware at such place or places as may from time to
time be designated by the Board of Directors. The stockholders and directors of
the Corporation shall have examination rights as specified in Section 7.06 of
these By-Laws.
ARTICLE II
Stockholders
2.01. Annual Meeting. The annual meeting of the stockholders of the
--------------
Corporation shall be held on such date and at such place and time as may be
fixed by resolution of the Board of Directors.
2.02. Special Meeting. Subject to the rights of the holders of any
---------------
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation ("Preferred Stock") with respect to such series
of Preferred Stock, special meetings of the stockholders may be called only by
the Chairman of the Board or by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors which the Corporation
would have if there were no vacancies (the "Whole Board").
<PAGE>
2.03. Place of Meeting. The Board of Directors or the Chairman of the
----------------
Board, as the case may be, may designate the place of meeting for any annual
meeting or for any special meeting of the stockholders called by the Board of
Directors or the Chairman of the Board. If no designation is so made, the place
of meeting shall be the principal office of the Corporation.
2.04. Notice of Meeting. Written or printed notice, stating the place,
-----------------
day and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be delivered by the Corporation not less than 10 days nor more
than 60 days before the date of the meeting, either personally or by mail, to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
with postage thereon prepaid, addressed to the stockholder at his address as it
appears on the stock transfer books of the Corporation. Such further notice
shall be given as may be required by law. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Meetings may be held
without notice if all stockholders entitled to vote are present, or if notice is
waived by those not present in accordance with Section 7.01 of these By-Laws.
Any previously scheduled meeting of the stockholders may be postponed, and
(unless the Certificate of Incorporation otherwise provides) any special meeting
of the stockholders may be cancelled, by resolution of the Board of Directors
upon public notice given prior to the date previously scheduled for such meeting
of stockholders.
2.05. Quorum and Adjournment. Except as otherwise provided by law or by
----------------------
the Certificate of Incorporation, the holders of a majority of the voting power
of the outstanding shares of the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"), represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series of stock voting as a
class, the holders of a majority of the shares of such class or series shall
constitute a quorum of such class or series for the transaction of such
business. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum. No notice of the time and place of adjourned meetings need be
given except as required by law. The stockholders present at a duly called
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
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<PAGE>
2.06. Proxies. At all meetings of stockholders, a stockholder may vote by
-------
proxy executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware) by the stockholder, or by his duly
authorized attorney in fact.
2.07. Notice of Stockholder Business and Nominations.
----------------------------------------------
(A) Annual Meetings of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-Law.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the l0th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended
-3-
<PAGE>
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class or series and number of shares of the Corporation which
are owned of record and beneficially by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this By-Law to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the l0th day
following the day on which such public announcement is first made by the
Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meet-
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<PAGE>
ing, if the stockholder's notice required by paragraph (A)(2) of this By-Law
shall be delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law, the Certificate of
Incorporation, or these By-Laws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
2.08. Procedure for Election of Directors; Required Vote. Election of
--------------------------------------------------
directors at all meetings of the
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<PAGE>
stockholders at which directors are to be elected shall be by ballot, and,
subject to the rights of the holders of any series of Preferred Stock to elect
directors under specified circumstances, a plurality of the votes cast thereat
shall elect directors. Except as otherwise provided by law, the Certificate of
Incorporation, or these By-Laws, in all matters other than the election of
directors, the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the matter shall be
the act of the stockholders.
2.09. Inspectors of Elections; Opening and Closing the Polls. The Board
------------------------------------------------------
of Directors by resolution shall appoint one or more inspectors, which inspector
or inspectors may include individuals who serve the Corporation in other
capacities, including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act or is able to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.
2.10. No Stockholder Action by Written Consent. Subject to the rights of
----------------------------------------
the holders of any series of Preferred Stock with respect to such series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE III
Board of Directors
3.01. General Powers. The business and affairs of the Corporation shall
--------------
be managed under the direction of the Board of Directors. In addition to the
powers and authorities by these By-Laws expressly conferred upon it, the Board
of
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<PAGE>
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
3.02. Number; Classification. Subject to the rights of the holders of
----------------------
any series of Preferred Stock to elect directors under specified circumstances,
the number of directors shall be fixed from time to time exclusively pursuant to
a resolution adopted by a majority of the Whole Board. Commencing May 30, 1996,
the directors, other than those who may be elected by the holders of any series
of Preferred Stock under specified circumstances, shall be divided, with respect
to the time for which they severally hold office, into three classes, as nearly
equal in number as possible, with the term of office of the first class (Class
I) to expire at the 1997 annual meeting of stockholders, the term of office of
the second class (Class II) to expire at the 1998 annual meeting of stockholders
and the term of office of the third class (Class III) to expire at the 1999
annual meeting of stockholders, with each director to hold office until his or
her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the 1997 annual meeting, (i) directors
elected to succeed those directors whose terms then expire shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified, and (ii) if
authorized by a resolution of the Board of Directors, directors may be elected
to fill any vacancy on the Board of Directors, regardless of how such vacancy
shall have been created.
3.03. Regular Meetings. A regular meeting of the Board of Directors
----------------
shall be held without other notice than this By-Law immediately after, and at
the same place as, the annual meeting of stockholders, or at such other place or
time as the Board of Directors may determine by resolution and without other
notice than such resolution. The Board of Directors may, by resolution, provide
the time and place for the holding of additional regular meetings without other
notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of Directors shall
----------------
be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
-7-
<PAGE>
3.05. Notice. Notice of any special meeting of directors shall be given
------
to each director at his business or residence in writing by first-class or
overnight mail or courier service, telegram or facsimile transmission, orally by
telephone or by hand delivery. If mailed by first class mail, such notice shall
be deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram, overnight mail or courier service, such notice shall
be deemed adequately delivered when the telegram is delivered to the telegraph
company or the notice is delivered to the overnight mail or courier service
company at least twenty-four (24) hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least twelve (12) hours prior to the time set for the meeting.
If by telephone or by hand delivery, the notice shall be given at least twelve
(12) hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these By-Laws, as provided under Section 7.09. A meeting may be
held at any time without notice if all the directors are present or if those not
present waive notice of the meeting in accordance with Section 7.01 of these By-
Laws.
3.06. Action by Consent of Board of Directors. Any action required or
---------------------------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
3.07. Conference Telephone Meetings. Members of the Board of Directors,
-----------------------------
or any committee thereof, may participate in a meeting of the Board of Directors
or such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
3.08. Quorum. Subject to Section 3.09, a whole number of directors equal
------
to at least a majority of the Whole Board shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors there
shall be less than a quorum present, a majority of the directors present may
adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. The directors present at
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<PAGE>
a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
3.09. Vacancies. Subject to applicable law and the rights of the holders
---------
of any series of Preferred Stock with respect to such series of Preferred Stock,
and unless the Board of Directors otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Whole Board shall shorten the term of any incumbent
director.
3.10. Executive and Other Committees. The Board of Directors may, by
------------------------------
resolution adopted by a majority of the Whole Board, designate an Executive
Committee to exercise, subject to applicable provisions of law, all the powers
of the Board in the management of the business and affairs of the Corporation
when the Board is not in session, including without limitation the power to
declare dividends, to authorize the issuance of the Corporation's capital stock
and adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of the State of Delaware, and may, by resolution
similarly adopted, designate one or more other committees. The Executive
Committee and each such other committee shall consist of two or more directors
of the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, other than the Executive
Committee (the powers of which are expressly provided for herein), may to the
extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in the designating resolution. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board when required.
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<PAGE>
A majority of any committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide. Notice
of such meetings shall be given to each member of the committee in the manner
provided for in Section 3.05 of these By-Laws. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
3.11. Removal. Subject to the rights of the holders of any series of
-------
Preferred Stock with respect to such series of Preferred Stock, any director, or
the entire Board of Directors, may be removed from office at any time, but only
for cause and only by the affirmative vote of the holders of at least 75 percent
of the voting power of all of the then-outstanding shares of Voting Stock,
voting together as a single class.
3.12. Compensation of Directors. Unless otherwise restricted by the
-------------------------
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of directors.
3.13. Records. The Board of Directors shall cause to be kept a record
-------
containing the minutes of the proceedings of the meetings of the Board and its
committees and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct of
the business of the Corporation.
ARTICLE IV
Officers
4.01. Number, Qualifications and Designation. The officers of the
--------------------------------------
Corporation shall be chosen by the Board of Directors and shall be a President,
one or more Vice Presidents, a Secretary, a Treasurer, and such other officers
as may be elected in accordance with the provisions of Section 4.03 of this
Article. Any number of offices may be held by the same person. Officers may,
but need not, be directors or stockholders of the Corporation. The Board of
Directors may elect from among the members of the Board a Chairman of the Board
and a Vice Chairman of the Board who may be officers of the Corporation if so
designated by the Board. The Chairman of the Board or the President, as
designated from time to time by the Board of Directors, shall
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<PAGE>
be the chief executive officer of the Corporation. All officers elected by the
Board of Directors shall each have such powers and duties as generally pertain
to their respective offices, subject to the specific provisions of this Article
IV. Such officers shall also have such powers and duties as from time to time
may be conferred by the Board of Directors or by any committee thereof.
4.02. Election and Term of Office. The officers of the Corporation,
---------------------------
except those elected by delegated authority pursuant to Section 4.03 of this
Article, shall be elected annually by the Board of Directors, and each such
officer shall hold office for a term of one year and until a successor is
elected and qualified, or until his or her earlier resignation or removal.
4.03. Subordinate Officers, Committees and Agents. The Board of
-------------------------------------------
Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these By-Laws, or as the Board of Directors may from
time to time determine. The Board of Directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
4.04. Removal. Any officer elected, or agent appointed, by the Board of
-------
Directors may be removed by the affirmative vote of a majority of the Whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby. Any officer or agent appointed by another officer by
delegated authority pursuant to Section 4.03 may be removed by him whenever, in
his judgment, the best interests of the Corporation would be served thereby. No
elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of his
successor, his death, his resignation or his removal, whichever event shall
first occur, except as otherwise provided in an employment contract or under an
employee deferred compensation plan.
4.05. Vacancies. A newly created elected office and a vacancy in any
---------
elected office because of death, resignation, or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy in an office appointed by another officer by
delegated authority pursuant to Section 4.03 because of death, resignation, or
removal may be filled by such other officer.
-11-
<PAGE>
4.06. The Chairman and Vice Chairman of the Board. The Chairman of the
-------------------------------------------
Board, if there be one, or in the absence of the Chairman, the Vice Chairman of
the Board, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors, and shall perform such other duties as may from
time to time be assigned to them by the Board of Directors.
4.07. The President. The President shall have general supervision over
-------------
the business, operations and affairs of the Corporation, subject, however, to
the control of the Board of Directors. The President shall, in general, perform
all duties incident to the office of president, and such other duties as from
time to time may be assigned by the Board of Directors and, if the Chairman of
the Board is the chief executive officer, the Chairman of the Board.
4.08. The Vice Presidents. The Vice Presidents shall perform such duties
-------------------
as may from time to time be assigned to them by the Board of Directors or by the
chief executive officer (either the Chairman of the Board or the President).
4.09. The Secretary. The Secretary, or an Assistant Secretary, shall
-------------
attend all meetings of the stockholders and of the Board of Directors and shall
record the proceedings of the stockholders and of the directors and of
committees of the Board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the Corporation as required by law; shall be the custodian of the seal of the
Corporation and see that it is affixed to all documents to be executed on behalf
of the Corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the Board of Directors or the chief executive officer
(either the Chairman of the Board or the President).
4.10. The Treasurer. The Treasurer, or an Assistant Treasurer, shall
-------------
have or provide for the custody of the funds or other property of the
Corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the Corporation;
shall deposit all funds in his or her custody as treasurer in such banks or
other places of deposit as the Board of Directors may from time to time
designate; whenever so required by the Board of Directors, shall render an
account showing his or her transactions as treasurer and the financial condition
of the Corporation; and, in general, shall discharge such other duties as may
from time to time be assigned by the Board of Directors or the chief executive
officer (either the Chairman of the Board or the President).
-12-
<PAGE>
4.11. Officers' Bonds. No officer of the Corporation need provide a bond
---------------
to guarantee the faithful discharge of the officer's duties unless the Board of
Directors shall by resolution so require a bond in which event such officer
shall give the Corporation a bond (which shall be renewed if and as required) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of office.
4.12. Salaries. The salaries of the officers and agents of the
--------
Corporation elected by the Board of Directors shall be fixed from time to time
by the Board of Directors.
ARTICLE V
Certificates of Stock, Transfer, Etc.
5.01. Form and Issuance.
-----------------
(a) Issuance. The shares of the Corporation shall be represented
--------
by certificates unless the Board of Directors shall by resolution provide that
some or all of any class or series of stock shall be uncertificated shares. Any
such resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the Corporation. Notwithstanding the adoption of
any resolution providing for uncertificated shares, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the
President or Vice President, and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form.
(b) Form and Records. Stock certificates of the Corporation shall
----------------
be in such form as approved by the Board of Directors. The stock record books
and the blank stock certificate books shall be kept by the Secretary or by any
agency designated by the Board of Directors for that purpose. The stock
certificates of the Corporation shall be numbered and registered in the stock
ledger and transfer books of the Corporation as they are issued.
(c) Signatures. Any of or all the signatures upon the stock
----------
certificates of the Corporation may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any stock certificate shall have ceased to be such officer,
transfer agent or registrar, before the certificate
-13-
<PAGE>
is issued, it may be issued with the same effect as if the signatory were such
officer, transfer agent or registrar at the date of its issue.
5.02. Transfer. Transfers of shares shall be made on the stock register
--------
or transfer books of the Corporation upon surrender of the certificate therefor,
endorsed by the person named in the certificate or by an attorney lawfully
constituted in writing. No transfer shall be made which would be inconsistent
with the provisions of Article 8, Title 6 of the Delaware Uniform Commercial
Code.
5.03. Lost, Stolen, Destroyed or Mutilated Certificates. The Board of
-------------------------------------------------
Directors may direct a new certificate of stock or uncertificated shares to be
issued in place of any certificate theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or uncertificated
shares, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or the legal representative of the owner,
to give the Corporation a bond sufficient to indemnify against any claim that
may be made against the Corporation on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate or
uncertificated shares.
5.04. Record Holder of Shares. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner and shall be entitled
to hold liable for calls and assessments a person registered on its books as the
owner of shares. The Corporation shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
5.05. Determination of Stockholders of Record.
---------------------------------------
(a) Meetings of Stockholders. In order that the Corporation may
------------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than 60 nor less than 10 days before the date of such
meeting. If no
-14-
<PAGE>
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting unless the Board of Directors fixes a
new record date for the adjourned meeting.
(b) Dividends. In order that the Corporation may determine the
---------
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
ARTICLE VI
Indemnification of Directors, Officers and
Other Authorized Representatives
6.01. Indemnification of Authorized Representatives in Third Party
------------------------------------------------------------
Proceedings. The Corporation shall indemnify any person who was or is an
- -----------
authorized representative of the Corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the Corporation,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not of itself create a presumption
that the authorized representative did not act in good faith and in a manner
which such person reasonably believed to be in or not opposed to, the best
interests of the Corporation, and,
-15-
<PAGE>
with respect to any criminal third party proceeding, had reasonable cause to
believe that such conduct was unlawful.
6.02. Indemnification of Authorized Representatives in Corporate
----------------------------------------------------------
Proceedings. The Corporation shall indemnify any person who was or is an
- -----------
authorized representative of the Corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding, by reason of the fact
that such person was or is an authorized representative of the Corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate proceeding, if such person
acted in good faith and in a manner reasonably believed to be in, or not opposed
to, the best interests of the Corporation; except that no indemnification shall
be made in respect of 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 corporate proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
6.03. Mandatory Indemnification of Authorized Representatives. To the
-------------------------------------------------------
extent that an authorized representative or other employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
third party or corporate proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith.
6.04. Determination of Entitlement to Indemnification. Any
-----------------------------------------------
indemnification under Section 6.01, 6.02 or 6.03 of this Article (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
or other employee or agent is proper in the circumstances because such person
has either met the applicable standard of conduct set forth in Section 6.01 or
6.02 or has been successful on the merits or otherwise as set forth in Section
6.03 and that the amount requested has been actually and reasonably incurred.
Such determination shall be made:
(a) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such third party or corporate
proceeding; or
-16-
<PAGE>
(b) if such a quorum is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion; or
(c) by the stockholders.
6.05. Advancing Expenses. Expenses actually and reasonably incurred in
------------------
defending a third party or corporate proceeding shall be paid on behalf of an
authorized representative by the Corporation in advance of the final disposition
of such third party or corporate proceeding upon receipt of an undertaking by or
on behalf of the authorized representative to repay such amount if it shall
ultimately be determined that the authorized representative is not entitled to
be indemnified by the Corporation as authorized in this Article. The financial
ability of any authorized representative to make a repayment contemplated by
this section shall not be a prerequisite to the making of an advance. Expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
6.06. Definitions. For purposes of this Article:
-----------
(a) "authorized representative" shall mean any and all directors
and officers of the Corporation and any person designated as an authorized
representative by the Board of Directors of the Corporation (which may, but need
not, include any person serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise);
(b) "corporate proceeding" shall mean any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor or investigative proceeding by the Corporation;
(c) "criminal third party proceeding" shall include any action or
investigation which could or does lead to a criminal third party proceeding;
(d) "expenses" shall include attorneys' fees and disbursements;
(e) "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan;
(f) "not opposed to the best interests of the Corporation" shall
include actions taken in good faith and in
-17-
<PAGE>
a manner the authorized representative reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan;
(g) "other enterprises" shall include employee benefit plans;
(h) "party" shall include the giving of testimony or similar
involvement;
(i) "serving at the request of the Corporation" shall include any
service as a director, officer or employee of the Corporation which imposes
duties on, or involves services by, such director, officer or employee with
respect to an employee benefit plan, its participants, or beneficiaries; and
(j) "third party proceeding" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative, other than an action by or in the right of the Corporation.
6.07. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against the
person and incurred by the person in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power or the
obligation to indemnify such person against such liability under the provisions
of this Article.
6.08. Scope of Article. The indemnification of authorized
----------------
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The indemnification and advancement of
expenses provided by or granted pursuant to this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be an authorized representative and shall inure to the benefit of the heirs,
executors and administrators of such a person.
6.09. Reliance on Provisions. Each person who shall act as an authorized
----------------------
representative of the Corporation shall
-18-
<PAGE>
be deemed to be doing so in reliance upon rights of indemnification provided by
this Article.
ARTICLE VII
General Provisions
7.01. Waiver of Notice. Whenever any notice is required to be given to
----------------
any stockholder or director of the Corporation under the provisions of the
General Corporation Law of the State of Delaware or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board of
Directors or committee thereof need be specified in any waiver of notice of such
meeting.
7.02. Dividends. Subject to the restrictions contained in the General
---------
Corporation Law of the State of Delaware and any restrictions contained in the
Certificate of Incorporation, the Board of Directors may declare and pay
dividends upon the shares of capital stock of the Corporation.
7.03. Contracts. Except as otherwise required by law, the Certificate of
---------
Incorporation, or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the Corporation by such
officer or officers of the Corporation as the Board of Directors may from time
to time direct. Such authority may be general or confined to specific instances
as the Board may determine. The Chairman of the Board, if an executive officer,
the President or any Vice President may execute bonds, contracts, deeds, leases,
and other instruments to be made or executed for or on behalf of the
Corporation. Subject to any restrictions imposed by the Board of Directors, the
Chairman of the Board, if an executive officer, the President or any Vice
President of the Corporation may delegate contractual powers to others under his
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise of
such delegated power.
7.04. Corporate Seal. The Corporation shall have a corporate seal, which
--------------
shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
-19-
<PAGE>
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
7.05. Deposits. All funds of the Corporation shall be deposited from
--------
time to time to the credit of the Corporation in such banks, trust companies, or
other depositories as the Board of Directors may approve or designate, and all
such funds shall be withdrawn only upon checks signed by such one or more
officers or employees as the Board of Directors shall from time to time
determine.
7.06. Corporate Records.
-----------------
(a) Examination by Stockholders. Every stockholder shall, upon
---------------------------
written demand under oath stating the purpose thereof, have a right to examine,
in person or by agent or attorney, during the usual hours for business, for any
proper purpose, the stock ledger, list of stockholders, books or records of
account, and records of the proceedings of the stockholders and directors of the
Corporation, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the Corporation at its registered office in Delaware or at its principal
place of business. Where the stockholder seeks to inspect the books and records
of the Corporation, other than its stock ledger or list of stockholders, the
stockholder shall first establish (1) that the stockholder has complied with the
provisions of this section respecting the form and manner of making demand for
inspection of such documents; and (2) that the inspection sought is for a proper
purpose. Where the stockholder seeks to inspect the stock ledger or list of
stockholders of the Corporation and has complied with the provisions of this
section respecting the form and manner of making demand for inspection of such
documents, the burden of proof shall be upon the Corporation to establish that
the inspection sought is for an improper purpose.
(b) Examination by Directors. Any director shall have the right to
------------------------
examine the Corporation's stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to the person's position as a
director.
7.07. Resignations. Any director or any officer, whether elected or
------------
appointed, may resign at any time by giving written notice of such resignation
to the Chairman of
-20-
<PAGE>
the Board, the President, or the Secretary, and such resignation shall be deemed
to be effective as of the close of business on the date said notice is received
by the Chairman of the Board, the President, or the Secretary, or at such later
time as is specified therein. No formal action shall be required of the Board
of Directors or the stockholders to make any such resignation effective.
7.08. Proxies. Unless otherwise provided by resolution adopted by the
-------
Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation, any of whose stock or other
securities may be held by the Corporation, at meetings of the holders of the
stock or other securities of such other corporation, or to consent in writing,
in the name of the Corporation as such holder, to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed in the name and on behalf of the Corporation and under its corporate
seal or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
7.09. Amendment of By-Laws. These By-Laws may be altered, amended, or
--------------------
repealed at any meeting of the Board of Directors or of the stockholders,
provided notice of the proposed change was given in the notice of the meeting
and, in the case of a meeting of the Board of Directors, in a notice given not
less than two days prior to the meeting; provided, however, that, in the case of
amendments by the Board of Directors, notwithstanding any other provisions of
these By-Laws or any provision of law which might otherwise permit a lesser vote
or no vote, the affirmative vote of at least 75 percent of the directors then in
office shall be required to alter, amend or repeal any provision of these By-
Laws; and further provided, that in the case of amendments by stockholders,
notwithstanding any other provisions of these By-Laws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the capital
stock of the Corporation required by law, the Certificate of Incorporation or
these By-Laws, the affirmative vote of the holders of at least 75 percent of the
voting power of all the then outstanding shares of the Voting Stock, voting
together as a single class, shall be required to alter, amend or repeal any
provision of these By-Laws.
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<PAGE>
OFFICE-WAREHOUSE LEASE AGREEMENT
Between
AP SOUTHEAST PORTFOLIO PARTNERS, L.P.
as Landlord
and
TRI-POINT MEDICAL, L.P.
as Tenant
5265 CAPITAL BOULEVARD
One North Commerce Center, Phase I Building
Raleigh, North Carolina
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Demise of Premises ..................................................... 1
2. Term ................................................................... 1
3. Rent ................................................................... 2
4. Use of Premises; Compliance with Legal Requirements .................... 3
5. Taxes Payable by Tenant ................................................ 4
6. Insurance Coverage; Waiver of Subrogation .............................. 5
7. Repairs and Maintenance by Landlord .................................... 5
8. Repairs and Maintenance by Tenant ...................................... 7
9. Utilities and Janitorial Services ...................................... 7
10. Alterations and Improvements ........................................... 7
11. Trade Fixtures and Other Personal Property ............................. 8
12. Signs and Advertising .................................................. 8
13. Landlord's Right of Entry .............................................. 8
14. Casualty Damage ........................................................ 9
15. Condemnation ........................................................... 9
16. Transfers by Tenant ................................................... 10
17. Transfers by Landlord ................................................. 11
18. Subordination ......................................................... 11
19. Estoppel Certificates; Financial Statements ........................... 12
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
20. Events of Default by Tenant ........................................... 12
21. Landlord's Remedies ................................................... 13
22. Landlord's Default .................................................... 14
23. Tenant's Remedies ..................................................... 14
24. Indemnification ....................................................... 15
25. Protection Against Liens .............................................. 15
26. Holding Over .......................................................... 16
27. Attorneys' Fees ....................................................... 16
28. Waiver ................................................................ 16
29. Leasing Commissions ................................................... 16
30. Notices ............................................................... 17
31. Miscellaneous ......................................................... 17
32. Special Provisions .................................................... 19
</TABLE>
Exhibits
- --------
A Legal Description of Building Site
B Floor Plan of Premises
C [Intentionally Deleted]
D Minimum Rent
E Additional Rent Calculation and Addendum to Exhibit E
F Building Rules
G Special Provisions
<PAGE>
OFFICE-WAREHOUSE LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), made and entered into as of November 7,
1995, by and between AP SOUTHEAST PORTFOLIO PARTNERS, L.P., a Delaware limited
partnership ("Landlord"), and TRI-POINT MEDICAL, L.P., a Delaware limited
partnership ("Tenant"),
WITNESSETH:
1. DEMISE OF PREMISES. Landlord hereby demises the Premises (as hereafter
described) to Tenant and covenants that Tenant shall peaceably and quietly hold
and enjoy the Premises throughout the term on and subject to all the provisions
and conditions of this Lease; and Tenant hereby accepts such demise of the
Premises from Landlord.
(a) The "Premises" consist of the space containing approximately 14,978
rentable square feet located at 5265 Capital Boulevard in the building
containing approximately 101,127 rentable square feet known as One North
Commerce Center, Phase I (the "Building") on a tract of land located at 5297
Capital Boulevard, more particularly described on Exhibit A attached hereto
(together with the Building, the "Property"). The Premises are shown outlined
in red on the building plan attached hereto as Exhibit B.
(b) As long as Tenant is entitled to possession of the Premises, Tenant
shall have the nonexclusive right to use any parking areas, driveways,
sidewalks, and other common facilities of the Property as they may exist from
time to time. Notwithstanding anything herein to the contrary, in connection
with Tenant's non-exclusive use of any such parking areas made available by
Landlord to serve all tenants of the Building, Tenant shall not be entitled to
the use of parking spaces within such parking areas in excess of its
proportionate share of the applicable parking spaces contained therein, such
proportionate share to be a fraction thereof, the numerator of which is the
number of rentable square feet in the Premises and the denominator of which is
the number of rentable square feet in the Building.
(c) Tenant's Proportionate Share (herein so called) is stipulated to be
Fourteen and 81/100 percent (14.81 %), and has been calculated based on the
current rentable area of the Building. If the rentable area of the Building
changes, Tenant's Proportionate Share shall be adjusted accordingly (based on an
architect's certificate or other reasonable substantiation of the Building's
rentable area) by an amendment to this Lease, which Landlord and Tenant agree to
execute.
2. TERM. The term of this Lease shall begin on March 1, 1996 (the
"Commencement Date") and end on February 28, 1998. Tenant shall take possession
of the Premises on the Commencement Date "AS IS, WHERE IS", and surrender the
Premises to Landlord at the expiration of the term or earlier termination of
this Lease free of waste and in as good a condition as on the Commencement Date
except for reasonable wear and tear and repairs that are Landlord's
responsibility under this Lease. By taking possession of the Premises, Tenant
shall
<PAGE>
have agreed that the Premises are suitable for their intended purpose and that
the Premises and all other parts of the Property are in good and satisfactory
condition, and free of material defects, other than hidden defects which would
not be evident upon the close observation by a qualified professional
inspector(s).
3. RENT. Throughout the term of this Lease, Tenant shall pay rent to Landlord
in accordance with the following provisions:
(a) Tenant shall pay minimum annual rent (the "Minimum Rent") in monthly
installments in advance on or before the first day of each calendar month as
reflected in Exhibit D hereto.
(b) Additional Rent (herein so called) shall be calculated as provided in
Exhibit E hereto. For each calendar year after the year in which the
Commencement Date occurs, Landlord shall furnish Tenant a written estimate of
Additional Rent for the applicable calendar year. Estimates of Additional Rent
shall be made by Landlord on a reasonable basis determined by Landlord. During
the calendar year in which the Commencement Date occurs, Tenant shall pay
estimated Additional Rent to Landlord in advance on or before the first day of
each month in the amount of Two Thousand One Hundred Eighty-Four and 30/100
Dollars ($2,184.30) per month, and throughout the balance of the term
thereafter, Tenant shall pay estimated Additional Rent in advance on or before
the first day of each month in monthly installments equal to one-twelfth (1/12)
of the estimated Additional Rent for the applicable calendar year. Pending
receipt of Landlord's written estimate of Additional Rent for any calendar year,
monthly installments of estimated Additional Rent shall continue to be paid in
the same amount as in the prior calendar year. By April 30 of each calendar
year or as soon as possible thereafter, Landlord shall deliver to Tenant a
written statement reflecting any difference between estimated Additional Rent
paid and actual Additional Rent accrued for the prior calendar year (or in the
case of any partial calendar year in which the term of this Lease begins or
ends, a prorated portion of such Additional Rent based on actual days elapsed
during the portion of term occurring in that calendar year). Tenant shall pay
Landlord the total amount of any balance of Additional Rent due shown on such
annual statement within thirty (30) days after receipt of the statement.
Landlord shall refund any overpayment of Additional Rent by Tenant shown on such
annual statement within thirty (30) days after delivery of the statement, or
Landlord, at its option, may credit the amount of any such overpayment against
the installment(s) of Minimum Rent and Additional Rent due for the remainder of
the then current calendar year. Tenant may examine the accounting records
supporting the amount of Additional Rent reflected on such annual statement
within sixty (60) days after receipt of the statement, such examination to occur
after reasonable advance written notice to Landlord during normal business hours
at the place where Landlord's accounting records are normally kept.
(c) The installments of Minimum Rent and Additional Rent for any initial
partial calendar month shall be prorated based on actual days elapsed, and shall
be paid in advance on the Commencement Date.
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(d) Except as expressly provided to the contrary in this Lease,
installments of Minimum Rent and Additional Rent shall be payable without
notice, demand, reduction, setoff, or other defense. Installments of Minimum
Rent and Additional Rent and payments of other sums owing to Landlord pursuant
to this Lease shall be made to Landlord at Post Office Box 65180, Charlotte,
North Carolina 28265-0180, or at whatever other account or address that Landlord
may designate from time to time after reasonable advance written notice to
Tenant.
(e) If any installment of Minimum Rent or Additional Rent, or any other
sum due and payable pursuant to this Lease, remains unpaid for more than ten
(10) days after the date due, Tenant shall pay Landlord a late payment charge
equal to the greater of (i) Fifty and No/100 Dollars ($50.00), or (ii) five
percent (5 %) of the unpaid installment or other payment. The late payment
charge is intended to compensate Landlord for administrative expenses associated
with responding to late payment, and shall not be considered liquidated damages
or interest. All rent and other sums of whatever nature owed by Tenant to
Landlord under this Lease that remain unpaid for more than ten (10) days shall
bear interest from the date due until paid at the lesser of (iii) five percent
(5%) in excess of the prime or general reference rate of interest of NationsBank
of North Carolina, N.A. (or its successors) in effect from time to time, or (iv)
the maximum interest rate per annum allowed by law.
4. USE OF PREMISES; COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant shall use the
Premises only for general office, medical laboratory or light manufacturing
(including without limitation the development and manufacture of cyanoacrylate-
based products) or warehouse purposes and for no other purposes. Tenant shall
not commit or allow waste to be committed in the Premises or elsewhere on the
Property, and shall not do or allow to be done in the Premises or elsewhere on
the Property anything that shall constitute a nuisance or detract in any way
from the reputation of the Property as a first-class office-warehouse real
estate development. Tenant shall allow no noxious or offensive odors, fumes,
gases, smoke, dust, steam or vapors, or any loud or disturbing noise or
vibrations to originate in or be emitted from the Premises. Tenant shall comply
with all laws, ordinances, and regulations of any governmental authority
relating to Tenant's use or occupancy of the Premises, with the requirements of
insurance underwriters or rating bureaus applicable to the Property, and with
the following requirements:
(a) Without limiting the generality of the above, Landlord acknowledges
that Tenant may desire to use all or a portion of the Premises for light
manufacturing (including, without limitation, the manufacture of cyanoacrylate
products) and as a medical laboratory. Tenant agrees that to the extent that
such use by Tenant of the Premises for light manufacturing (including, without
limitation, the manufacture of cyanoacrylate products) and as a medical
laboratory, or any other use of the Premises by Tenant (or any applicable
sublessee or assignee), involves the treatment, storage, transportation to or
from, use or disposal of toxic, infectious or hazardous waste or substances, or
any other substance that is prohibited, limited or regulated by any governmental
or quasi-governmental authority or that, even if not so regulated, could or does
pose a hazard to health and safety of the occupants of the Building or
surrounding property (collectively, "Hazardous Substances"), Tenant shall comply
with all applicable governmental and quasi-governmental laws and regulations and
shall obtain all required governmental and quasi-
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governmental permits, licenses and authorizations related to such treatment,
storage, transportation to and from, use or disposal of such Hazardous
Substances. Tenant shall not use the Premises for any treatment, storage,
transportation or disposal of any Hazardous Substances in violation of
applicable laws, regulations, and governmental or quasi-governmental permits,
licenses and authorizations. Further, Tenant shall notify Landlord immediately
of any release of any Hazardous Substances in or about the Premises and shall
provide Landlord (within ten days following receipt thereof by Tenant) with a
copy of any notice of any such violation received by Tenant regarding its use,
storage, disposal, treatment or transportation of any Hazardous Substances in or
about the Premises.
(b) No portion of the Premises or the Property shall be used or occupied
for anything that is extrahazardous on account of fire or other risks, that
causes an increase in the premiums payable by Landlord for any of its insurance
with respect to the Property, or that causes any underwriter to deny insurance
coverage to Landlord.
(c) Tenant shall comply with all requirements of the Americans with
Disabilities Act and implementing regulations applicable to its use and
occupancy of the Premises other than requirements relating solely to the
physical structure of (i) the Tenant Improvements, (ii) the roof, foundation,
and exterior walls of the Building, and (iii) the common use areas of the
Property, which shall be Landlord's responsibility except to the extent made
necessary by the actions and/or activities of Tenant, in which event Tenant
shall be responsible for the cost of same and shall pay same promptly upon
demand.
(d) [Intentionally deleted.]
(e) Landlord shall have the right to prescribe and modify reasonable rules
for the use of the Property and leased premises within the Building so long as
same apply to all tenants of the Building and are uniformly enforced. A copy of
Landlord's current Building rules is attached hereto as Exhibit F. In the event
of any conflict with the Building rules, the provisions in the main body of this
Lease control.
(f) Tenant shall ensure that its agents, employees, and contractors comply
with this Paragraph, and shall use reasonable efforts to ensure that its
invitees and customers comply with this Paragraph.
5. TAXES PAYABLE BY TENANT. Tenant shall pay any documentary stamp tax, sales
or use tax, excise tax, or any other tax, assessment, or charge (other than any
income, franchise, or similar tax imposed directly on Landlord or Landlord's net
income from the Property) required to be paid on account of (a) the execution of
this Lease, (b) the use or occupancy of the Premises by Tenant, (c) the rent or
other payments due hereunder, or (d) Tenant's trade fixtures, equipment,
machinery, inventory, merchandise or other personal property located on the
Premises and owned by or in the custody of Tenant. All such taxes, assessments,
and charges shall be paid promptly as they become due prior to delinquency.
Given not less than ten (10) business days prior written notice from Landlord,
if applicable, Tenant shall provide Landlord with copies of paid receipts
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for such taxes, assessments, or charges promptly after payment of same. Tenant
shall also pay on written demand from Landlord any increase in ad valorem taxes
or assessments on the Property as a result of alterations, additions, or
improvements made by or on behalf of Tenant other than the initial Tenant
Improvements.
6. INSURANCE COVERAGE; WAIVER OF SUBROGATION.
(a) Landlord shall maintain property and casualty insurance on the
Building, with extended coverage or such other additional coverage as Landlord
shall elect, in an amount of not less than eighty percent (80%) of the
replacement cost of the Building; provided, however, if the premium for any
insurance carried by Landlord with respect to the Property increases as the
result of Tenant's use or occupancy or as the result of any act or omission of
Tenant or its agents, employees, or contractors, Tenant shall pay Landlord the
amount of any such increase on written demand; or, if Landlord shall provide
written demand that Tenant remedy the condition which caused any such increase
in insurance premiums, Tenant shall remedy such condition within ten (10) days
after receipt of such demand. Payment of such increased premiums shall not
excuse any noncompliance with this Lease by Tenant that may have caused the
increased premiums.
(b) Tenant shall maintain and pay for property and casualty insurance with
extended coverage on all trade fixtures, equipment, machinery, merchandise, or
other personal property belonging to or in the custody of Tenant in the Premises
or otherwise on the Property. Tenant shall maintain and pay for commercial
general liability insurance (occurrence coverage) in the amount of not less than
$1,000,000.00, with a company licensed to do business in the state in which the
Property is located and reasonably acceptable to Landlord, naming Landlord as an
additional insured, providing contractual liability coverage, and containing an
undertaking by the insurer not to cancel or change coverage materially without
first giving thirty (30) days' written notice to Landlord. Tenant shall furnish
Landlord certificates of insurance evidencing the required commercial general
liability insurance coverage prior to the Commencement Date and thereafter prior
to each policy renewal date.
(c) Each of Landlord and Tenant hereby waives all claims or other rights
of recovery against the other and its agents, employees, and contractors for any
loss or damage to the Premises or other portions of the Property, or to any
personal property or fixtures thereon, by reason of fire or other insurable risk
of loss (whether or not actually insured), regardless of cause or origin,
including negligence, gross negligence, or misconduct of the other party or its
agents, employees, or contractors, and covenants that no insurer shall hold any
right of subrogation against such other party. Landlord and Tenant shall each
advise its insurers of the foregoing waiver and such waiver shall be a part of
the respective policies of property and casualty insurance maintained by
Landlord and Tenant.
7. REPAIRS AND MAINTENANCE BY LANDLORD. At its own cost (and not as a cost
included in the calculation of Additional Rent), Landlord shall repair only the
roof, exterior walls, structural members (including foundation and subflooring)
of the Premises, and central plumbing and electrical systems serving the entire
Building up to the point of entry into the Premises. If Tenant
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gives Landlord written notice of the need for repairs, Landlord shall begin any
repair work required under the terms of this Lease within ten (10) business days
after its receipt of such notice, and shall diligently pursue such required
repairs to completion. If Landlord defaults in its obligations under this
Paragraph 7 beyond any applicable cure period, Tenant may obtain the necessary
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repairs and maintenance and Landlord shall reimburse Tenant the reasonable cost
thereof promptly upon demand. If repairs are required to be made by Landlord as
the result of any act or omission of Tenant or its agents, employees, or
contractors, then any cost of such repairs in excess of insurance proceeds
actually received by Landlord shall be paid by Tenant to Landlord on written
demand, and Landlord shall not be obligated to begin or continue repair work
until funds for such purposes are received from insurance proceeds or from
Tenant. As used in this Paragraph, "repair" includes the replacement of
materials or equipment. As items whose cost is included in the calculation of
Additional Rent, Landlord shall provide for:
(a) Routine and periodic maintenance and regular inspection of heating,
ventilating, and air conditioning ("HVAC") systems and equipment for the
Premises, replacement of filters as recommended, and performance of other
recommended periodic HVAC maintenance service in accordance with applicable
manufacturer's standards and recommendations. If Landlord elects to provide
HVAC maintenance through a contract that includes portions of the Building
outside the Premises, the contract shall provide that labor and materials
furnished for the Premises will be separately invoiced.
(b) Routine control (and extermination, as applicable) of insects, pests,
and other vermin in the Premises. If Landlord elects to provide routine pest
control through a contract that includes portions of the Building outside the
Premises, the contract shall provide that labor and materials furnished for the
Premises will be separately invoiced.
(c) Routine maintenance and repair of the common areas, facilities, and
equipment of the Property, including landscaping, irrigation systems, parking
and loading areas, driveways, sidewalks, exterior lighting, common signs,
garbage collection and disposal, common water, sewer, plumbing, gas, electric
facilities and equipment, and other areas, facilities, or equipment shared by
the various tenants in the Building. If and to the extent Landlord chooses,
common area security services and equipment. Landlord has no duty to provide
security, and no duty to so shall be deemed to have been assumed by Landlord's
furnishing any security services or equipment. Tenant waives and releases all
claims against Landlord and its agents, employees, and contractors to the extent
based on any wrongful, negligent, or other failure to furnish security services
or equipment or on any wrongful, negligent, or other act or omission in
connection with any security services or equipment furnished.
Tenant shall not be deemed to have been evicted as the result of, nor shall
Landlord be liable for any loss or damage to the property of Tenant located in
the Premises or for any loss of business or profits of Tenant or other damages
of any kind arising from (i) any failure of Landlord to provide maintenance,
repair, or other services to be furnished by Landlord pursuant to this Paragraph
as the result of circumstances outside of Landlord's reasonable control, (ii)
any interruption or unavailability of utilities or any stoppage, leaking,
bursting, or other defect or
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failure in the utility lines, pipes, wires, and other facilities serving the
Premises as the result of circumstances outside of Landlord's reasonable
control, or (iii) any repairs, maintenance, alterations, or improvements to any
portion of the Property made in connection with correcting any of the foregoing
circumstances or providing the maintenance, repair, or other services to be
furnished by Landlord pursuant to this Paragraph. If as the result of any of
the foregoing, the Premises remain untenantable for more than five (5)
consecutive business days after written notice from Tenant to Landlord
specifying the circumstances giving rise to such untenantability, then as
Tenant's sole and exclusive remedy, Minimum Rent and Additional Rent shall abate
for so long thereafter as the Premises remain untenantable, and, if Landlord is
in default regarding its obligations hereunder beyond any applicable cure
period, Tenant may remedy such circumstance(s) causing such untenantability and
Landlord shall reimburse Tenant the reasonable cost thereof promptly upon
demand. Such abatement of Minimum Rent and Additional Rent shall not extend the
term of this Lease.
8. REPAIRS AND MAINTENANCE BY TENANT. Tenant shall maintain and keep in good
repair all parts and components of the Premises not expressly required by this
Lease to be maintained or repaired by Landlord, including without limitation,
plumbing, wiring, electrical systems, HVAC systems and equipment (except for
routine maintenance provided by Landlord), glass and plate glass, and equipment
or machinery constituting fixtures. All maintenance and repair work performed
by Tenant shall be carried out in a good and workmanlike manner in compliance
with applicable building codes and other laws. As used in this Paragraph,
"repair" includes the replacement of materials or equipment.
9. UTILITIES AND JANITORIAL SERVICES. Tenant shall contract directly with
public or private utility companies to obtain, and shall pay directly any
required deposits, installation and hook-up costs, and consumption or use
charges for (a) electricity, gas, and telephone or other telecommunications
services, (b) water and sewer service if separately metered for the Premises,
(c) unless provided by Landlord as part of the common facilities of the
Property, trash and waste collection and disposal service, and (d) waste
collection and disposal services for waste in exceptional quantities or of a
type requiring special handling or that is otherwise not suitable for collection
and disposal through common facilities of the Property, if any. Tenant shall
provide and pay for janitorial services of a type and frequency to keep the
Premises in a clean, safe, healthful, and presentable condition.
10. ALTERATIONS AND IMPROVEMENTS. Tenant shall make no major alterations,
additions, or improvements to the Premises or the Property without the prior
written consent of Landlord in each instance, which consent shall not be
unreasonably withheld or delayed. Tenant shall comply with all reasonable
requirements of Landlord relating to approval of plans and specifications,
compliance with building codes and other laws, protection of the integrity,
condition, and proper functioning of the roof, walls, foundations, and other
structural elements of the Building and of the Building's mechanical,
electrical, and plumbing systems and equipment, employment and bonding of
contractors, insurance, aesthetic considerations, and other relevant matters as
determined by Landlord. All alterations, additions or improvements, including
without limitation all partitions, walls, railings, carpeting, floor and wall
coverings, and other fixtures (excluding
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Tenant's trade fixtures) made by, for, or at the direction of Tenant shall
become the property of Landlord when made, and shall remain upon the Premises at
the expiration or earlier termination of this Lease. Landlord reserves the
right to make structural and nonstructural alterations, additions, and
improvements to the Property, to re-stripe parking areas and otherwise control
parking and traffic movement on the Property, and to change the name or street
address of the Property.
11. TRADE FIXTURES AND OTHER PERSONAL PROPERTY. Any trade fixtures installed
in the Premises at Tenant's expense shall remain Tenant's personal property, and
Tenant shall have the right at any time during the term of this Lease to remove
such trade fixtures (provided that any damage to the Building or Premises caused
by such removal shall immediately be repaired by Tenant). On or before the
expiration of the term or earlier termination of this Lease, Tenant shall remove
all trade fixtures and other personal property of Tenant from the Premises,
repair any damage to the Building or Premises caused by removal of its trade
fixtures and other personal property (unless Landlord provides written
authorization to Tenant which unambiguously exempts Tenant from this
requirement), and leave the Premises in a clean condition free of waste, refuse,
or debris. If Tenant fails to do so, Landlord may retain, store, or dispose of
such trade fixtures and other personal property however Landlord chooses without
liability of any kind to Tenant, repair any damage to the Building or Premises
caused by removal of such trade fixtures and other personal property, and clean
the Premises and properly dispose of all such waste, refuse, or debris; and all
costs and expenses incurred by Landlord in connection with the foregoing shall
be payable by Tenant to Landlord on written demand. The following property
shall be considered part of the permanent improvements to the Building owned by
Landlord, not trade fixtures of Tenant, and shall not be removed from the
Premises by Tenant under any circumstances: (a) HVAC systems, fixtures, or
equipment; (b) lighting fixtures or equipment; (c) dock levelers; (d) carpeting,
other permanent floor coverings, or raised flooring; (e) paneling or other wall
coverings; (f) plumbing fixtures and equipment; and (g) permanent shelving.
12. SIGNS AND ADVERTISING. As part of the initial Tenant Improvements,
Landlord shall install or has installed a single exterior tenant identification
sign for Tenant on the Building at or near Tenant's front entrance to the
Premises. The identification sign will be of a design acceptable to Landlord in
its sole discretion. Tenant shall install no signs, marquees, billboards,
outside lighting fixtures, or other decorations on the Premises that are visible
from the exterior of the Building, and Landlord shall have the right to remove
any such items and repair any resulting damage to the Building or Premises at
the cost and expense of Tenant payable on written demand. Tenant shall not use
or allow the use in or about the Premises or elsewhere on the Property of any
sound production device, mechanical or moving display device, bright lights, or
other advertising media that would be visible or audible from the exterior of
the Building. Landlord and Tenant each acknowledge that Tenant's existing
signage meets the requirements of this paragraph.
13. LANDLORD'S RIGHT OF ENTRY. Landlord and persons authorized by Landlord may
enter the Premises at any time without notice to Tenant in the event of
emergency involving possible injury to property or persons in or around the
Premises or the Building. Landlord and persons
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authorized by Landlord shall have the right to enter the Premises at all
reasonable times and upon reasonable notice for the purposes of making repairs
or connections, making alterations, additions, or improvements to the Building,
installing utilities, providing services to the Premises or for other tenants,
making inspections, or showing the Premises to prospective purchasers or lenders
of the Property. During the last six (6) months of the initial or any extended
term, Landlord and persons authorized by Landlord shall have the right at
reasonable times and upon reasonable notice to show the Premises to prospective
tenants.
14. CASUALTY DAMAGE. If any part of the Premises is damaged by fire or other
casualty, Tenant shall give prompt notice to Landlord. If damage by fire or
other casualty renders any substantial part of the Premises untenantable and the
repair time to restore the Premises to a tenantable condition will exceed one
hundred twenty (120) days (or will exceed thirty (30) days in the case of damage
occurring during the last twelve (12) months of the term), or if any part of the
Property is so damaged that in Landlord's judgment, substantial alteration or
reconstruction is required (whether or not the Premises have been damaged by the
casualty), or if any mortgagee of the Property requires application of the
insurance proceeds to the reduction of the mortgage debt, or if any material
uninsured loss occurs, Landlord may, at its option, terminate this Lease by so
notifying Tenant in writing within sixty (60) days after the date of the
casualty. If the damage by fire or other casualty renders any substantial part
of the Premises untenantable and if the repair time to restore the Premises to a
tenantable condition will exceed one hundred twenty (120) days (or will exceed
thirty (30) days in the case of damage occurring during the last twelve (12)
months of the term), Tenant may elect to terminate this Lease by so notifying
Landlord in writing within sixty (60) days after the date of the casualty. If
the Lease is not so terminated by Landlord or Tenant, Landlord shall promptly
begin and diligently pursue the work of restoring the Premises (including the
initial Tenant Improvements) to substantially their former condition as soon as
reasonably possible. Landlord shall not, however, be required to restore any
alterations, additions, or improvements other than the initial Tenant
Improvements or to spend any amount in excess of the insurance proceeds actually
received by Landlord as a result of the casualty. Landlord shall allow Tenant
an equitable abatement of Minimum Rent and Additional Rent during the time and
to the extent the Premises are untenantable as the result of fire or other
casualty, but such abatement shall not extend the term.
15. CONDEMNATION. If all or substantially all of the Property is condemned or
is sold in lieu of condemnation, then this Lease shall terminate on the date
the condemning authority takes possession. If less than all of the Property is
so condemned or sold (whether or not the Premises are affected) and in
Landlord's judgment, the Property cannot be restored to an economically viable
condition, or if any mortgagee of the Property requires application of
condemnation proceeds to the reduction of the mortgage debt, Landlord may
terminate this Lease by written notice to Tenant effective on the date the
condemning authority takes possession. If the condemnation will render any
substantial part of the Premises untenantable, Tenant may terminate this Lease
by written notice to Landlord effective on the date the condemning authority
takes possession of the affected part of the Premises. If this Lease is not so
terminated by Landlord or Tenant, Landlord shall, to the extent feasible,
restore the Premises (including the initial Tenant Improvements) to
substantially their former condition. Landlord shall not, however, be required
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to restore any alterations, additions, or improvements other than the initial
Tenant Improvements or to spend any amount in excess of the condemnation
proceeds actually received by Landlord. Landlord shall allow Tenant an
equitable abatement of Minimum Rent and Additional Rent during the time and to
the extent the Premises are untenantable as the result of any condemnation, but
such abatement shall not extend the term. All condemnation awards and proceeds
shall belong exclusively to Landlord, and Tenant shall not be entitled to, and
expressly waives and assigns to Landlord, all claims for any compensation for
condemnation; provided, however, if Tenant is permitted by applicable law to
maintain a separate action that will not reduce condemnation awards or proceeds
to Landlord, Tenant shall be permitted to pursue such separate action, but only
for loss of business, moving expenses, and Tenant's trade fixtures.
16. TRANSFERS BY TENANT.
(a) Without the prior written consent of Landlord in each instance, which
consent will not be unreasonably withheld or delayed, Tenant shall not do any of
the following (as used in this Paragraph, a "Transfer"): (i) assign this Lease
or any estate or interest therein, whether absolutely or collaterally as
security for any obligation; (ii) sublease any part of the Premises; (iii)
permit any assignment of this Lease or any estate or interest therein by
operation of law; (iv) grant any license, concession, or other right of
occupancy for any part of the Premises; or (v) permit the use of the Premises by
any person other than Tenant and its agents and employees. Permissible reasons
for Landlord's withholding consent include (but are not limited to) the
following: (vi) the proposed use of the Premises is not permitted by this Lease,
would negatively affect insurance or environmental risks, or would otherwise
negatively impact the Property; (vii) the creditworthiness of the proposed
transferee is unacceptable to Landlord in Landlord's good faith business
judgment; (viii) the proposed use or occupancy would require alterations or
additions to the Premises or other portions of the Property to comply with
applicable laws, ordinances, and regulations; (ix) the proposed transferee is a
tenant or occupant of the Property or any other rental real property owned by
Landlord; and (x) if the consent of any mortgagee is required, such mortgagee
refuses to consent after good faith efforts by Landlord to obtain such consent.
Any attempted Transfer without Landlord's prior written consent shall be void.
(b) Notwithstanding the foregoing to the contrary, occupancy of all or
part of the Premises by any parent, subsidiary, or affiliated company(ies) of
Tenant shall not be deemed an assignment or subletting provided that such
parent, subsidiary or affiliated company(ies) were not formed as a subterfuge to
avoid the obligations and/or restrictions of this Paragraph 16. Furthermore,
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without limiting the generality of the foregoing, Tenant may assign the Lease at
any time, or sublease all or part of the Premises, without receipt of Landlord's
consent, but with prior written notice to Landlord, to any entity which acquires
all or part of Tenant, or which is acquired in whole or in part by Tenant, or
which is controlled directly or indirectly by Tenant, or which entity controls,
directly or indirectly, Tenant ("Affiliate"), so long as (i) such transaction
was not entered into as a subterfuge to avoid the obligations and/or
restrictions of the Lease; (ii) if the transaction which results in such
Transfer is a merger, the surviving entity has a net worth greater than or equal
to the greater of the net worth of Tenant at the time of entering into this
Lease or at the time of such Transfer; and (iii) there is no change in the use
of, or operations
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conducted in, the Premises.
(c) If Tenant requests Landlord's consent to a Transfer, Landlord may
either (i) approve or disapprove the Transfer, or (ii) terminate this Lease with
respect to the part of the Premises included in the proposed Transfer. In
connection with each Transfer request by Tenant, Tenant shall obtain and furnish
to Landlord all documents, financial reports, and other information Landlord
reasonably requires in order to evaluate the proposed Transfer. Landlord shall
advise Tenant of Landlord's decision with respect to the requested Transfer
within thirty (30) days after receipt of Tenant's written Transfer request and
all requested supporting materials. If Landlord refuses to consent to a
requested Transfer, this Lease shall nonetheless remain in full force and
effect. The consent of Landlord to one requested Transfer shall never be
construed to waive the requirement for Landlord's consent to other Transfers,
nor shall any consent by Landlord or Transfer by Tenant discharge or release
Tenant from any obligations or liabilities to Landlord. Notwithstanding any
permitted assignment or subletting, Tenant shall at all times remain directly,
primarily and fully responsible and liable for all payments owed by Tenant under
this Lease and for compliance with all obligations under the terms, provisions
and covenants of the Lease, and Landlord shall be under no obligation either to
bill said subtenant or assignee directly or to look first to such assignee or
subtenant for any such payment.
(d) All cash or other proceeds of any Transfer in excess of the Minimum
Rent and Additional Rent payable under this Lease shall be divided evenly
between Landlord and Tenant, and Tenant hereby assigns to Landlord all rights it
might have or ever acquire to the portion of the excess proceeds so allocable to
Landlord. No transferee of less than the entire Premises or Lease shall ever be
entitled to exercise any extension, expansion, or other option provided in this
lease or to the return of any applicable security deposit. If an Event of
Default by Tenant occurs after any Transfer, Landlord may, at its option,
collect rent directly from the transferee, and Tenant hereby authorizes any
transferee to pay rent directly to Landlord at all times after receipt of
written notice from Landlord. No direct collection by Landlord from any
transferee shall constitute a novation or release Tenant from its obligations
and liabilities under this Lease.
17. TRANSFERS BY LANDLORD. Landlord shall have the unrestricted right to sell,
assign, mortgage, encumber, or otherwise dispose of all or any part of the
Property or any interest therein. Upon sale or other disposition of the
Property to a party who assumes the obligations of Landlord under this Lease,
Landlord shall be released and discharged from obligations and liabilities
thereafter accruing under this Lease (including liability for the return of any
applicable security deposit), and Tenant shall look solely to Landlord's
successor for performance of the Lease thereafter (including the return of any
applicable security deposit). Tenant's obligations under this Lease shall not
be affected by any sale, assignment, mortgage, encumbrance, or other disposition
of the Property by Landlord, and Tenant shall attorn to anyone who thereby
becomes the successor to Landlord's interest in this Lease.
18. SUBORDINATION. This Lease is subject and subordinate to any and all
mortgages now or hereafter encumbering the Property. Such subordination shall
be self-operative without the necessity of any further instrument, but if
requested by Landlord, Tenant shall promptly execute
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<PAGE>
and deliver to Landlord any instrument Landlord may reasonably request to
evidence the subordination of this Lease to such mortgages or to acknowledge the
assignment of this Lease as additional security for such mortgages. If any
person acquires the Property through the exercise of remedies provided in a
mortgage, Tenant shall automatically attorn to and become the tenant of the new
owner of the Property, except that the new owner shall not be bound by any
payment of rent for more than one (1) month in advance or liable for any act or
omission of Landlord that occurred prior to the date the new owner acquired
title and possession of the Property. Upon request by any successor owner of
the Property, Tenant shall execute an instrument confirming the attornment
required by this Lease.
19. ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS. Within ten (10) days after a
written request by Landlord, Tenant shall deliver an estoppel certificate in a
form supplied by or acceptable to Landlord certifying any facts that are then
true with respect to this Lease, including without limitation that this Lease is
in full force and effect, that no default exists on the part of Landlord or
Tenant, that Tenant is in possession, that Tenant has commenced payment of rent,
and that Tenant claims no defenses or offsets with respect to payment of rent
under this Lease. Likewise, within ten (10) days after a written request by
Tenant, Landlord shall deliver to Tenant an estoppel certificate covering such
matters of fact with respect to Landlord's obligations under the Lease as are
reasonably requested by Tenant. If Landlord intends to sell the Property or
obtain a loan secured by the Property, then within ten (10) days of Landlord's
written request, Tenant shall furnish Landlord its most recent available audited
or unaudited financial statements.
20. EVENTS OF DEFAULT BY TENANT. Each of the following constitutes an Event of
Default by Tenant (herein so called):
(a) Tenant fails or refuses to pay any installment of Minimum Rent,
Additional Rent, or any other sum payable under this Lease when due, and the
failure or refusal is not remedied within five (5) days after written notice
thereof.
(b) Tenant fails or refuses to comply with any provision of this Lease not
requiring the payment of money, and the failure or refusal continues for at
least thirty (30) days after written notice from Landlord; provided, however, if
any failure by Tenant to comply with this Lease cannot be corrected within such
30-day period solely as a result of nonfinancial circumstances outside of
Tenant's control, and if Tenant has commenced substantial corrective actions
within such 30-day period and is diligently pursuing such corrective actions,
such 30-day period shall be extended for such additional time as is reasonably
necessary to allow completion of actions to correct Tenant's noncompliance.
(c) Tenant's leasehold estate is taken on execution or other process of
law in any action against Tenant.
(d) Tenant fails or refuses to take occupancy of the Premises upon the
Commencement Date.
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<PAGE>
(e) Tenant or any guarantor of this Lease files a petition under any
chapter of the United States Bankruptcy Code, as amended, or under any similar
law or statute of the United States or any state, or a petition is filed against
Tenant or any such guarantor under any such statute and is not dismissed with
prejudice within twenty (20) days of filing, or a receiver or trustee is
appointed for Tenant's leasehold estate or for any substantial part of the
assets of Tenant or any such guarantor and such appointment is not dismissed
with prejudice within sixty (60) days, or Tenant or any such guarantor makes an
assignment for the benefit of creditors.
21. LANDLORD'S REMEDIES. If an Event of Default by Tenant occurs, Landlord
shall be entitled then or at any time thereafter to do any one or more of the
following at Landlord's option:
(a) Enter the Premises if need be, and take whatever curative actions are
necessary to rectify Tenant's noncompliance with this Lease; and in that event
Tenant shall reimburse Landlord on written demand for any expenditures by
Landlord to effect compliance with Tenant's obligations under this Lease.
(b) Terminate this Lease, in which event Tenant shall immediately
surrender possession of the Premises to Landlord, or without terminating this
Lease, terminate Tenant's right to possession of the Premises; and in either
case, Landlord may re-enter and take possession of the Premises, evict Tenant
and all parties then in occupancy or possession, and if permitted under
applicable law, change the locks on the doors of the Premises without making
keys to the changed locks available to Tenant.
(c) If Landlord has terminated this Lease, recover all Minimum Rent,
Additional Rent, and other sums owing and unpaid under this Lease as of the date
of termination plus damages measured by the difference in the rental value of
the Premises if this Lease had been fully performed for the balance of the term
and the rental value of the Premises following the Event of Default by Tenant
(taking into account probable remodelling, lease commission, allowance,
inducement, and other costs of reletting).
(d) If Landlord has not terminated this Lease (whether or not Landlord has
terminated Tenant's right to possession of the Premises or actually retaken
possession), recover (in one or more suits from time to time or at any time
before or after the end of the term) all Minimum Rent, Additional Rent, and
other sums then or thereafter owing and unpaid under this Lease, together with
all costs, if any, incurred in reletting the Premises (including remodelling,
lease commission, allowance, inducement, and other costs), less all rent, if
any, actually received from any reletting of the Premises during the remainder
of the term. Landlord shall have the right following an Event of Default by
Tenant to relet the Premises on Tenant's account without terminating the Lease,
any such reletting to be on such terms as Landlord considers reasonable under
the circumstances. To the extent, in the manner, and on the conditions
permitted or required by applicable law, Landlord shall have the option to
accelerate payment of all future rent and other sums due from Tenant to the date
the Event of Default by Tenant occurred; and if Landlord actually receives the
future rent and other sums due from Tenant on such acceleration,
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<PAGE>
then to the extent necessary to avoid Landlord's retaining funds in excess of
the rent and other sums due from Tenant, Landlord shall thereafter refund to
Tenant from time to time any net proceeds of any reletting of the Premises
during the remainder of the term remaining after paying the costs of such
reletting.
(e) Recover all reasonable costs of retaking possession of the Premises
and any other damages incidental to the Event of Default by Tenant.
(f) Terminate all of Tenant's rights to any allowances or under any
renewal, extension, expansion, refusal, or other options granted to Tenant by
this Lease.
(g) Exercise any and all other remedies available to Landlord at law or in
equity, including injunctive relief of all varieties.
If Landlord elects to retake possession of the Premises without terminating this
Lease, it may nonetheless at any subsequent time elect to terminate this Lease
and exercise the remedies provided above on termination of the Lease. Nothing
done by Landlord or its agents shall be considered an acceptance of any
attempted surrender of the Premises unless Landlord specifically so agrees in
writing. No re-entry or taking of possession of the Premises by Landlord, nor
any reletting of the Premises, shall be considered an election by Landlord to
terminate this Lease unless Landlord gives Tenant written notice of termination.
22. LANDLORD'S DEFAULT. It shall be an Event of Default by Landlord (herein so
called) only if Landlord fails to comply with any provision of this Lease and
the failure continues for at least thirty (30) days after written notice from
Tenant to Landlord (with a copy to Landlord's mortgagees if Tenant has been
notified in writing of the identities and addresses of such mortgagees);
provided, however, if any failure by Landlord to comply with this Lease cannot
be corrected within such 30-day period solely as a result of nonfinancial
circumstances outside of the control of Landlord, and if substantial corrective
actions have commenced within such 30-day period and are being diligently
pursued, such 30-day period shall be extended for such additional time as is
reasonably necessary to allow completion of actions to correct Landlord's
noncompliance.
23. TENANT'S REMEDIES. Except as otherwise provided in this Lease, in the
Event of Default by Landlord, Tenant shall be entitled to any remedies available
at law or in equity. Notwithstanding anything in this Lease to the contrary,
Landlord shall never be liable in the Event of Default by Landlord, under any
promise of indemnity in this Lease, or under any other provision of this Lease
for any loss of business or profits of Tenant or other consequential damages or
for punitive or special damages of any kind. None of Landlord's officers,
employees, agents, directors, shareholders, or partners shall ever have any
liability to Tenant under or in connection with this Lease. Tenant agrees to
look solely to Landlord's interest in the Property for the recovery of any
judgment against Landlord, and Landlord shall never be personally liable for any
judgment.
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<PAGE>
24. INDEMNIFICATION.
(a) Tenant shall indemnify and hold Landlord and its officers, employees,
agents, directors, shareholders, and partners harmless against any loss,
liability, damage, fine or other governmental penalty, cost, or expense
(including reasonable attorneys' fees and costs of litigation), or any claim
therefor, resulting from: (i) Tenant's noncompliance with or violation of any
law, ordinance, or other governmental regulation applicable to Tenant or its use
and occupancy of the Premises; (ii) the use, generation, storage, treatment, or
transportation, or the disposal or other release into the environment, of any
Hazardous Material by Tenant or its employees, agents, or contractors or as the
result of Tenant's use and occupancy of the Premises; or (iii) injury to persons
or loss or damage to property to the extent caused by any negligent or wrongful
act or omission of Tenant or its employees, agents, and contractors, but only to
the extent the loss or damage would not be covered by property and casualty
insurance of the type and amount required to be carried by Landlord pursuant to
this Lease (whether or not actually so carried).
(b) Landlord shall indemnify and hold Tenant and its officers, employees,
agents, directors, shareholders, and partners harmless against any loss,
liability, damage, fine or other governmental penalty, cost, or expense
(including reasonable attorneys' fees and costs of litigation), or any claim
therefor, resulting from: (i) Landlord's noncompliance with or violation of any
law, ordinance, or other governmental regulation applicable to Landlord, but
only to the extent such noncompliance or violation is not based on the use or
occupancy of the Premises by Tenant or on any other act or omission of Tenant or
its employees, agents, or contractors; (ii) the use, generation, storage,
treatment, or transportation, or the disposal or other release into the
environment, of any Hazardous Material by Landlord or its employees, agents, or
contractors; or (iii) injury to persons or loss or damage to property (other
than trade fixtures or personal property owned by, or in the custody of Tenant)
to the extent caused by any negligent or wrongful act or omission of Landlord or
its employees, agents, and contractors (other than any negligent or wrongful
omission to furnish security services or equipment or any negligent or wrongful
act or omission in connection with any security services or equipment
furnished). Nothing herein shall create any liability on the part of Landlord
for any acts or omissions by other tenants or occupants of the Property or their
agents, employees, contractors, or invitees.
25. PROTECTION AGAINST LIENS. Tenant shall do all things necessary to prevent
the filing of any mechanics', materialmen's, or other type of lien or claim
against Landlord or the Property by, against, through, or under Tenant or its
contractors. If any such lien or claim is filed, Tenant shall either cause the
same to be discharged within twenty (20) days after filing, or if Tenant in its
discretion and in good faith determines that such lien or claim should be
contested and if all required consents or approvals of Landlord's mortgagee are
obtained, Tenant shall furnish such security as may be necessary to prevent any
foreclosure proceedings against the Property during the pendency of such
contest. If Tenant fails to discharge such lien or claim within such 20-day
period or fails to furnish such security, then Landlord may at its election, in
addition to any other right or remedy available to it, discharge the lien or
claim by paying the amount alleged to be due or by giving appropriate security.
If Landlord discharges or secures such lien or claim, then
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<PAGE>
Tenant shall reimburse Landlord on written demand for all sums paid and all
costs and expenses (including reasonable attorneys' fees and costs of
litigation) so incurred by Landlord.
26. HOLDING OVER. If Tenant remains in possession of any part of the Premises
after the expiration of the term of this Lease, whether with or without
Landlord's consent, Tenant shall be only a tenant at will, the monthly
installments of Minimum Rent payable during such holdover period shall be one
hundred fifty percent (150%) of the monthly installments of Minimum Rent payable
immediately preceding such expiration, and all Additional Rent and other sums
payable under this Lease shall continue to be due and payable. The acceptance
of any rent or other payments from Tenant with respect to any holdover period
shall not serve to extend the term or waive any rights of Landlord, but Landlord
may at any time refuse to accept rent or other payments from Tenant, and may re-
enter the Premises, evict Tenant and all parties then in occupancy or
possession, take possession of the Premises, and if permitted under applicable
law, change the locks on the doors of the Premises without making keys to the
changed locks available to Tenant. Tenant shall indemnify and hold Landlord
harmless against any loss, liability, damage, cost, or expense (including
reasonable attorneys' fees and costs of litigation), or any claim therefor,
related to Tenant's holding over, including liabilities to any person to whom
Landlord may have leased any part of the Premises.
27. ATTORNEYS' FEES. If an Event of Default by Tenant or an Event of Default
by Landlord occurs, the nondefaulting party shall be entitled to recover
reasonable attorneys' fees and any costs of litigation incurred in exercising
and enforcing its remedies under this Lease.
28. WAIVER. The failure of a party to insist upon the strict performance of
any provision of this Lease or to exercise any remedy for an event of default
shall not be construed as a waiver. The waiver of any noncompliance with this
Lease shall not prevent subsequent similar noncompliance from being or becoming
an event of default. No waiver shall be effective unless expressed in writing
signed by the waiving party. No waiver shall affect any condition other than
the one specified in the waiver and then only for the time and in the manner
stated. Landlord's receipt of any rent or other sums with knowledge of
noncompliance with this Lease by Tenant shall not be considered a waiver of the
noncompliance. No payment by Tenant of a lesser amount than the full amount
then due shall be considered to be other than on account of the earliest amount
due. No endorsement or statement on any check or any letter accompanying any
check or payment shall be considered an accord and satisfaction, and Landlord
may accept any check or payment without prejudice to Landlord's right to recover
the balance owing and to pursue any other available remedies.
29. LEASING COMMISSIONS. Each of Landlord and Tenant represents and warrants
to the other that it has not dealt with anyone claiming any entitlement to any
commission in connection with this leasing transaction except: Carolantic
Realty, Inc. and Corporate Realty Advisors ("Broker"). Each of Landlord and
Tenant agrees to indemnify and hold the other harmless against any loss,
liability, damage, cost, or expense (including reasonable attorneys' fees and
costs of litigation), or any claim therefor, for any leasing or other
commissions, fees, charges, or payments resulting from or arising out of their
respective actions in connection with this Lease except as to Broker.
-16-
<PAGE>
Landlord shall indemnify and hold Tenant harmless against payment of any leasing
commission due Broker in connection with this Lease.
30. NOTICES. Any notice may be given by (a) depositing written notice in the
United States mail, postpaid and certified and addressed to the party at its
notification address under this Lease with return receipt requested, (b)
delivering written notice in person or by commercial messenger or overnight
private delivery service to the party at its notification address under this
Lease, or (c) by facsimile transmission of written notice to the party at its
notification address under this Lease. Unless actually received earlier,
written notice deposited in the mail in the manner described above shall be
effective on the third business day after it is so deposited, even if not
received. Written notice given in person or by commercial messenger, overnight
private delivery, or facsimile transmission in the manner described above shall
be effective as of the time of receipt at the destination address as evidenced
by a receipt signed by an employee of Tenant, by any confirmation of delivery
provided by the messenger or delivery service, or by facsimile confirmation of
transmission. The notification addresses of the parties are specified on the
signature page(s) of this Lease. Each party shall have the right to change its
address by not less then ten (10) days' prior written notice to the other party.
31. MISCELLANEOUS.
(a) If requested by Landlord, Tenant shall furnish appropriate evidence of
the valid existence and good standing of Tenant and the authority of any parties
signing this Lease to act for Tenant. If requested by Tenant, Landlord shall
furnish appropriate evidence of the valid existence and good standing of
Landlord and the authority of any parties signing this Lease to act for
Landlord.
(b) This document embodies the entire contract between the parties, and
supersedes all prior agreements and understandings between the parties related
to the Premises, including all lease proposals, letters of intent, and similar
documents. All representations, warranties, or agreements of an inducement
nature, if any, are merged with, and stated in this document. This may be
amended only by a written instrument executed by both Landlord and Tenant.
(c) The relationship created by this Lease is that of landlord and tenant.
Landlord and Tenant are not partners or joint venturers, and neither has any
agency powers on behalf of the other. Tenant is not a beneficiary of any other
contract or agreement relating to the Property to which Landlord may be a party,
and Tenant shall have no right to enforce any such other contract or agreement
on behalf of itself, Landlord, or any other party.
(d) No consent or approval by Landlord shall be effective unless given in
writing signed by Landlord or its duly authorized representative. Any consent
or approval by Landlord shall extend only to the matter specifically stated in
writing.
(e) Whenever this lease requires Landlord's consent to or approval of any
item, Landlord may condition such consent or approval on payment or
reimbursement of all reasonable
-17-
<PAGE>
costs and expenses incurred by Landlord.
(f) The captions appearing in this Lease are included solely for
convenience and shall never be given any effect in construing this Lease.
(g) This Lease is being executed in multiple counterparts, each of which
shall be considered an original for all purposes.
(h) If any provision of this Lease is invalid or unenforceable, the
remainder of this Lease shall not be affected. Each separate provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
(i) This Lease binds not only Landlord and Tenant, but also their
respective heirs, personal representatives, successors, and assigns (to the
extent assignment is permitted by this Lease).
(j) This Lease is governed by the laws of the state in which the Property
is located.
(k) All references to "business days" in this Lease shall refer to days
that national banks are open for business in the city where the Property is
located. Time is of the essence of this Lease.
(l) All references to "mortgage(s)" in this Lease shall include deeds of
trust, deeds to secure debt, other security instruments, and any ground or other
lease under which Landlord may hold title to the Property as lessee. All
references to "mortgagee(s)" in this Lease shall include trustees, secured
parties, ground or other lessors, and other parties holding any lien, security,
or other interest in the Property pursuant to any mortgage.
(m) Any liability or obligation of Landlord or Tenant arising during or
accruing with respect to the term of this Lease shall survive the expiration or
earlier termination of this Lease, including without limitation, obligations and
liabilities relating to (i) the final adjustment of estimated installments of
Additional Rent to actual Additional Rent owed, (ii) the condition of the
Premises or the removal of Tenant's property, and (ii) indemnity and hold
harmless provisions of this Lease.
(n) Tenant and Landlord agree not to record this Lease. Tenant or
Landlord may record a memorandum of this Lease in a form approved by Landlord
and Tenant in writing prior to recording provided the party who intends to
record the memorandum pays all taxes, recording fees, or other governmental
charges incident to such recording. The memorandum shall not disclose the rent
payable under this Lease and shall expressly provide that it shall be of no
further force or effect after the last day of the term or on filing by Landlord
of an affidavit that this Lease has expired or been terminated. Additionally,
Tenant shall not disclose the terms of this Lease to any third party except (i)
legal counsel to Tenant, (ii) any assignee of Tenant's interest in this Lease or
sublessee of Tenant, (iii) as required by applicable law or by subpoena or other
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<PAGE>
similar legal process, (iv) for financial reporting purposes, or (v) Tenant's
designated real estate broker; provided, however, Tenant shall ensure that such
third parties to whom the terms of this Lease are disclosed shall similarly keep
same confidential.
(o) Landlord has delivered a copy of this Lease solely for Tenant's
review, and such delivery does not constitute an offer to Tenant or an option
reserving the Premises. This Lease shall not be effective until a counterpart
executed by both Landlord and Tenant is delivered by Landlord to Tenant.
32. SPECIAL PROVISIONS. Any special provisions are attached to this Lease as
Exhibit G.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be executed pursuant
to authority duly given as of the day and year first above written.
TENANT: LANDLORD:
TRI-POINT MEDICAL, L.P., AP SOUTHEAST PORTFOLIO PARTNERS,
a Delaware limited partnership L.P., a Delaware limited partnership
By: CROCKER REALTY
MANAGEMENT, INC.,
its authorized agent
By: /s/
---------------------------
Title:
-------------------------
[SEAL] By: /s/
-------------------------------
Title:
----------------------------
Witness to Tenant:
[SEAL]
/s/ Witness to Landlord:
- ----------------------------------
Printed Name:
---------------------
/s/ /s/
- ---------------------------------- ------------------------------
Printed Name: Printed Name:
--------------------- -----------------
------------------------------
Printed Name:
-----------------
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<PAGE>
Tenant's Notification Address: Landlord's Notification Address:
- ----------------------------- -------------------------------
Tri-Point Medical, L.P. c/o Crocker Realty Management, Inc.
5265 Capital Boulevard 433 Plaza Real, Suite 335
Raleigh, North Carolina 27604 Boca Raton, Florida 33432
Facsimile: 919/790-1041 Attention: Thomas J. Crocker
Facsimile: (407) 394-7712
Attn: J. Blount Swain
Copy to:
-------
Crocker Realty Management, Inc.
8720 Red Oak Boulevard, Suite 527
Charlotte, North Carolina 28217
Attention: Thomas F. Cochran
Executive Vice President
Telephone: (704) 529-5383
Facsimile: (704) 529-5389
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<PAGE>
EXHIBIT A
Legal Description of Building Site
----------------------------------
Being all of Lot "A" containing 8.19 acres as shown on map entitled "Property of
North Boulevard Industrial Park, Neuse Twsp., Wake County, NC prepared by Murphy
& Associates, Registered Land Surveyors, dated November 1979, revised February
11, 1980, and recorded in Book of Maps 1980, Page 112, Wake County Registry,
North Carolina, Public Registry, reference to which is hereby made for a more
particular description.
Being in all respects the same property conveyed to Grantor by deed recorded in
Box 2830 at Page 726 in Wake County, North Carolina, Public Registry.
<PAGE>
EXHIBIT B
Floor Plan of Premises
[Floor Plan Shown Here]
<PAGE>
EXHIBIT C
[INTENTIONALLY DELETED]
<PAGE>
EXHIBIT D
Minimum Rent
------------
<TABLE>
<CAPTION>
FROM/1/ THROUGH/2/ RATE/3/ ANNUAL MONTHLY
AMOUNT/4/ INSTALLMENT
================================================================================
<S> <C> <C> <C> <C>
March 1, 1996 February 28, 1997 $5.85 $87,621.30 $7,301.78
March 1, 1997 February 28, 1998 $6.10 $91,365.80 $7,613.82
================================================================================
</TABLE>
____________________________
Unless otherwise indicated, beginning on the first day of the specified
full calendar month following the Commencement Date.
Unless otherwise indicated, through and including the last day of the
specified full calendar month following the Commencement Date.
Per rentable square foot per year.
Expressed on an annualized basis even though the applicable period may be
longer or shorter than twelve (12) months.
<PAGE>
EXHIBIT E
Additional Rent Calculation
---------------------------
Additional Rent for any calendar year shall equal the sum of the following
amounts:
1. Tenant's Proportionate Share of Taxes on the Property. "Taxes" means all
real estate taxes, assessments (whether for drainage, sewage, or other public
improvements), taxes on rent or on occupancy or use of the Property, and similar
governmental impositions now or hereafter levied or assessed, whether general or
special, and whether imposed by any governmental entity or special taxing or
assessment district (excluding, however, any income, franchise, or similar tax
imposed directly on Landlord or Landlord's net income from the Property),
together with all costs incurred by Landlord in contesting same.
2. Tenant's Proportionate Share of premiums for casualty and for liability
insurance coverage carried by Landlord for the Property (including any
endorsements or additional coverages that Landlord may reasonably elect to
carry); excluding, however, any premium attributable solely to a particular use
of the Property by another tenant.
3. Tenant's Proportionate Share of all costs payable by Landlord for (a)
operating and maintaining (including routine repairs and replacements) the
common areas, facilities, and equipment of the Property, including landscaping,
irrigation systems, parking and loading areas, driveways, sidewalks, exterior
lighting, common signs, garbage collection and disposal, common water, sewer,
plumbing, gas, electric facilities and equipment, common area security services
and equipment (if furnished by Landlord), and other areas, facilities, or
equipment shared by the various tenants in the Building, (b) assessments, fees,
or similar charges imposed on the Property for its share of the cost of
operating and maintaining common areas and facilities of the business park in
which the Property is located, (c) unless separately metered and payable
directly by Tenant, charges by public or private utility companies for water and
sewer usage, and (d) administrative costs, management fees and expenses and
costs and expenses of providing accounting and bookkeeping services with respect
to the operation and maintenance of the Property. To the extent such costs
reasonably can be controlled by Landlord, Landlord shall attempt in good faith
(without litigation) to keep such costs reasonably consistent with those of
comparable properties in the same market area.
4. To the extent attributable to the Premises, the entire amount of any costs
payable by Landlord for routine mechanical maintenance and inspection of the
HVAC equipment supplying the Premises and for pest control and vermin
extermination in the Premises. Landlord shall attempt in good faith (without
litigation) to keep such costs reasonably consistent with those of comparable
properties in the same market area.
Additional Rent shall be calculated and appropriately adjusted for each calendar
year to reflect costs that would have been incurred for a full calendar year
with the entire rentable area of the Building occupied.
<PAGE>
ADDENDUM TO EXHIBIT E
ADDITIONAL RENT CALCULATION
---------------------------
Notwithstanding anything in this Lease to the contrary, the following costs and
expenses shall be excluded from the definition of Taxes, insurance, and
Additional Rent:
1. Any income, franchise, excise, corporation, estate, inheritance,
succession, stock or transfer tax levied on Landlord.
2. Costs (including permit, utility, license and inspection fees) incurred in
constructing Landlord's original improvements to the Property (including
without limitation landscaping materials) or tenant improvements or
otherwise incurred in renovating, improving, decorating, painting or
redecorating space for tenants or other occupants or for vacant space in
the Property.
3. Legal fees, costs and disbursements (I) related to disputes with tenants,
(ii) based upon Landlord's negligence or other tortious conduct, or (iii)
related to the defense of Landlord's title to or interest in the Property
or any portion thereof.
4. Costs incurred due to violation by Landlord of (i) any of the terms and
conditions of this Lease or any other lease relating to the Property or
(ii) any governmental rule, regulation, code, or law.
5. Fees paid to Landlord, subsidiaries or affiliates of Landlord for
management or other services for the Property or for other supplies and
materials to be used in connection with the Property to the extent that the
costs of such services, supplies or materials exceed the cost that would
have been paid had the services, supplies or materials been provided by
unrelated parties on a competitive basis. In any event, management fees
shall not exceed four percent (4%) of the gross yearly rental income for
the Property.
6. Any compensation paid to (i) clerks, attendants or other persons in
commercial concessions operated at the Property by Landlord or any
affiliate or subsidiary of Landlord or (ii) employees of Landlord who do
not work exclusively at the Property.
7. Advertising and promotional expenditures with respect to the Property.
8. Landlord's general corporate overhead and general administrative expenses
except to the extent related specifically to the Property.
9. Depreciation of any improvement of the Property.
10. Expenses not actually legally accrued to or paid by Landlord.
<PAGE>
11. Capital improvements costs unless the present value of the projected cost
savings exceeds the present value of the projected cost and subsequent
repairs and (including cost and subsequent repairs and replacements).
Furthermore, a capital improvement can be deemed a cost savings only if it
achieves economies for the Tenant over the life of this Lease.
12. Costs of any debt service of Landlord.
13. Costs associated with the remediation or removal of toxic or Hazardous
Materials from the Property (including but not limited to asbestos and
Hazardous Materials in the ground water or soil).
14. Expenses incurred to comply with any building or fire code violations
existing on the Commencement Date or to correct structural defects.
15. Taxes paid on any personal property of Landlord which is not used solely in
the operation or maintenance of the Property.
16. Costs in connection with services (including water and electricity) or
other benefits of a type which are not standard for the Property or which
are not available to Tenant without additional cost or charge.
17. Any impact fees or assessments paid or assessed in connection with the
development of the Property.
18. Repairs to the extent some are paid for through insurance or condemnation
proceeds.
19. Leasing commissions and other expenses incurred in connection with the
leasing space for tenants and prospective tenants in the Building.
20. Any other expense which under generally accepted accounting principles and
practice would not be considered a normal maintenance or operating expense.
Landlord represents that all tenants of the Property or Landlord contribute on
the same pro rata share basis as Tenant and that all such other tenant's square
footage of their respective Premises is included in the denominator for purposes
of determining Tenant's share. Landlord represents that Tenant's Share is
currently fourteen and eighty-one hundredths percent (14.81 %) and shall not
increase without Tenant's prior written consent.
Landlord shall maintain a complete set of its books and records with respect to
taxes, insurance, and Additional Rent at Landlord's management office or such
other office which shall at all times be in the Raleigh area. Tenant shall be
entitled to reasonable supporting data to substantiate said costs and shall have
the right to audit Landlord's books and records regarding same. In the event
any such audit should reveal that Landlord has overstated Tenant's Share, then
Landlord shall immediately reimburse Tenant for such overpayment.
<PAGE>
EXHIBIT F
Office-Warehouse Building Rules
-------------------------------
1. Sidewalks, doorways, vestibules, halls, stairways, elevator lobbies and
other similar areas in the common areas of the Property shall not be used for
the storage of materials or disposal of trash, obstructed by tenants or others,
or used by tenants or others for any purpose other than entrance to and exit
from tenant premises.
2. Plumbing fixtures shall be used only for the purposes for which they are
designed, and no sweepings, rubbish, rags, or other unsuitable materials shall
be disposed into them. Damage resulting to any such fixtures from misuse by a
tenant shall be the liability of said tenant.
3. Landlord's property manager shall have the authority to approve the
proposed weight and location of any safes and heavy furniture and equipment,
which shall if determined to be necessary by Landlord's property manager, stand
on supporting devices approved by Landlord's property manager in order to
distribute the weight.
4. Each tenant shall keep its premises neat and clean. No exterior storage of
materials, equipment, supplies, or other property shall be permitted unless
authorized in writing by Landlord. All trash shall be properly disposed of in
appropriate containers or receptacles.
5. No birds, fish or other animals shall be brought into or kept in, on or
about the Building (except for seeing-eye dogs).
6. Each tenant shall comply with all security procedures (if any) both during
business hours and after hours and on weekends. Landlord's property manager
will provide each tenant with prior notice of any such security procedures and
any changes thereto promptly. Tenants shall lock all exterior doors after
working hours.
7. No flammable or explosive fluids or materials shall be kept or used within
the Building except in areas approved by Landlord, and each tenant shall comply
with all applicable building and fire codes relating thereto.
8. The location of any vending machines must be approved by Landlord's
property manager.
9. All locks for doors in each tenant's premises shall be Building Standard
except as otherwise permitted by Landlord and no tenant shall place any
additional lock or locks on any door in its premises without Landlord's property
manager's written consent. All requests for duplicate keys shall be made to
Landlord's property manager.
10. No machinery of any kind may be operated that would overload, damage, or
otherwise exceed design capacities for the Building's mechanical, electrical,
and plumbing systems and
<PAGE>
equipment.
11. Canvassing, peddling, soliciting and distribution of hand bills on the
Property (except for activities within a tenant's premises that involve only
such tenant's employees) is prohibited. Each tenant is requested to notify
Landlord (or Landlord's property manager) if such activities occur.
12. Prior approval from Landlord's property manager will be required for access
to Building mechanical, telephone or electrical rooms or to the roof of the
Building by any person. No penetration of the roof of the Building shall be
allowed in any circumstances without the prior written consent of Landlord. The
tenant will be responsible for contacting Landlord's property manager in advance
for clearance of tenant contractors. All tenants shall refer all contractors,
contractors' representatives, and installation technicians rendering any service
to them to Landlord for Landlord's supervision, approval, and control.
13. Each tenant and their contractors are responsible for removal of trash
resulting from large deliveries or move-ins. Such trash must be removed from
the Building and Building facilities may not be used for dumping. If such trash
is not promptly removed, Landlord (or Landlord's property manager) may cause
such trash to be removed at the tenant's sole cost and expense plus a reasonable
additional charge to be determined by Landlord to cover Landlord's
administrative costs in connection with such removal.
14. Tenants may not install, leave or store equipment, supplies, furniture or
trash in the common areas of the Property.
15. Each tenant shall provide Landlord's property manager with names and
telephone numbers of individuals who should be contacted in an emergency.
16. Electric current shall not be used for space heaters, cooking or heating
devices or similar appliances without Landlord's prior written permission.
17. No vehicles shall be parked except in designated areas. No vehicles may be
stored or abandoned on the Property. All loading and unloading shall occur only
at designated loading docks or areas. All persons on the property shall comply
with traffic control and parking signs.
18. No antennas (including microwave or satellite dish antennas) shall be
placed on the roof of the Building or elsewhere on the Property without the
prior written consent of Landlord.
Landlord reserves the right to amend and add to these rules as Landlord
considers appropriate for the safety, care, maintenance, operation, and
cleanliness of the Building, and for the preservation of good order therein. If
any of these rules directly contradicts the other terms of the Lease, such other
terms shall prevail.
<PAGE>
EXHIBIT G
Special Provisions
------------------
None.
<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
<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.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
----------------------------------------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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
<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
<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:
-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.
-2-
<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.
-3-
<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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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.
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<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:
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<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,
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<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
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<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.
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<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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(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.
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<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
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<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
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<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.
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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
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.
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 XXXXXXXXXXXXXXXXXXXXXXXXX from the
date of the first shipment of such from LICENSOR to LICENSEE, after which
XXXXXXXXXXXXXXXXXX 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 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX, 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
[REDACTED]
<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
<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.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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
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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 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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).
XXXXXXXXXXXXXXXXXXXXXXXXXXX
-------------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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<PAGE>
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XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
-------- -------
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XXXXXXXXXXXXXXXXXXXXXXXXXXXX
--------------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXX
15
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XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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
16
<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
17
<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
18
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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.
19
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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
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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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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
22
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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;
23
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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).
24
<PAGE>
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
25
<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,
26
<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
27
<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,
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<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
29
<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.
XXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXX XXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX
30
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXX
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
31
<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
32
<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
33
<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
34
<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
35
<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.
36
<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
37
<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.
38
<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.
39
<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.
---------------------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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.
40
<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
41
<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
---
42
<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,
43
<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.
44
<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.
45
<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
46
<PAGE>
EXHIBIT A
---------
SPECIFICATIONS
[REDACTED]
47
<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>
48
<PAGE>
EXHIBIT C
---------
PATENTS
[REDACTED]
49
<PAGE>
EXHIBIT D
---------
INSURANCE COVERAGE
XXXXXXXXXXXX per occurrence and XXXXXXXXXXXX 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.
50
<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)
51
<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.
52
<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.
53
<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>
54
<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.
55
<PAGE>
6/4/96
TRI-POINT MEDICAL CORPORATION
1996 EQUITY COMPENSATION PLAN
-----------------------------
The purpose of the Tri-Point Medical Corporation 1996 Equity Compensation
Plan (the "Plan") is to provide (i) designated officers (including officers who
are also directors) and other employees of Tri-Point Medical Corporation (the
"Company") and its subsidiaries, (ii) non-employee members of the board of
directors of the Company (the "Board"), and (iii) independent contractors and
consultants who perform valuable services for the Company or its subsidiaries,
with the opportunity to receive grants of incentive stock options, nonqualified
stock options, stock appreciation rights and restricted stock. The Company
believes that the Plan will cause the participants to contribute materially to
the growth of the Company, thereby benefitting the Company's stockholders, and
will align the economic interests of the participants with those of the
stockholders.
1. Administration
--------------
The Plan shall be administered and interpreted by a committee (the
"Committee"), which shall consist of two or more persons appointed by the Board,
all of whom shall be "disinterested persons" as defined under Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act") and "outside directors"
as defined under section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and related Treasury regulations.
The Committee shall have the sole authority to (i) determine the
individuals to whom grants shall be made under the Plan, (ii) determine the
type, size and terms of the grants to be made to each such individual, (iii)
determine 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) deal with any other matters arising
under the Plan.
The Committee shall have 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
the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interests in the Plan or in any
awards granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
<PAGE>
2. Grants
------
Incentives under the Plan shall consist of grants of incentive stock
options, nonqualified stock options, stock appreciation rights and restricted
stock (hereinafter collectively referred to as "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to those other terms
and conditions consistent with this Plan as the Committee deems appropriate and
as are specified in writing by the Committee to the individual (the "Grant
Letter"). The Committee shall approve the form and provisions of each Grant
Letter to an individual. Grants under a particular Section of the Plan need not
be uniform as among the grantees.
3. Shares Subject to the Plan
--------------------------
(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company (the "Company Stock") that may be issued
or transferred under the Plan is 1,000,000 shares in the aggregate.
Notwithstanding anything in the Plan to the contrary, the maximum aggregate
number of shares of Company Stock that shall be subject to Grants made under the
Plan to any individual during any calendar year shall be 75,000 shares. The
shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company on the open
market for purposes of the Plan. If and to the extent options or stock
appreciation rights granted under the Plan terminate, expire, or are cancelled,
forfeited, exchanged or surrendered without having been exercised or if any
shares of restricted stock are forfeited, the shares subject to such Grants
shall again be available for purposes of the Plan.
(b) If there is any change in the number or kind of shares of Company
Stock outstanding by reason of a stock dividend, recapitalization, stock split,
or combination or exchange of shares, or a merger, reorganization or
consolidation in which the Company is the surviving corporation,
reclassification or change in par value or by reason of any other extraordinary
or unusual events affecting the outstanding Company Stock as a class without the
Company's receipt of consideration, or if the value of outstanding shares of
Company Stock is substantially reduced due to the Company's payment of an
extraordinary dividend or distribution, then (i) the maximum number of shares of
Company Stock available for Grants, (ii) the maximum number of shares of Company
Stock which any one individual participating in the Plan may be granted during
the term of the Plan, (iii) the number of shares covered by outstanding Grants,
and (iv) the price per share or the applicable market value of such Grants shall
be proportionately adjusted by the Committee to reflect any increase or decrease
in the number or kind of issued shares of Company Stock to preclude the
enlargement or dilution of rights and benefits under such Grants; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated. The adjustments determined by the Committee shall be final, binding
and conclusive. Notwithstanding the foregoing, no adjustment shall be authorized
or made pursuant to this Section to the extent that such authority or
-2-
<PAGE>
adjustment would cause any incentive stock option to fail to comply with section
422 of the Code.
4. Eligibility for Participation
-----------------------------
All employees of the Company and its subsidiaries ("Employees"), including
Employees who are officers or members of the Board, shall be eligible to
participate in the Plan. All members of the Board who are not employees of the
Company or any of its subsidiaries ("Non-Employee Directors") shall be eligible
only to receive nonqualified stock options pursuant to Section 6. Any
independent contractors or consultants who perform valuable services to the
Company or any of its subsidiaries ("Consultants") shall be eligible to
participate in the Plan, but shall not be eligible to receive incentive stock
options.
The Committee shall select the Employees and Consultants to receive Grants
and determine the number of shares of Company Stock subject to a particular
Grant in such manner as the Committee determines. Employees and Consultants who
receive Grants under this Plan shall hereinafter be referred to as "Grantees".
Non-Employee Directors shall receive Grants only in accordance with the terms of
Section 6.
Nothing contained in this Plan shall be construed to (i) limit the right of
the Committee to make Grants under this Plan in connection with the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of any corporation, firm or association, including options granted to
employees thereof who become Employees of the Company, or for other proper
corporate purpose, or (ii) limit the right of the Company to grant stock options
or make other awards outside of this Plan.
5. Granting of Options
-------------------
(a) Number of Shares. The Committee, in its sole discretion, shall
----------------
determine the number of shares of Company Stock that will be subject to each
Grant of stock options to any Employee or Consultant.
(b) Type of Option and Price. The Committee may grant options intended to
------------------------
qualify as "incentive stock options" within the meaning of section 422 of the
Code ("Incentive Stock Options") or options which are not intended to so qualify
("Nonqualified Stock Options") or any combination of Incentive Stock Options and
Nonqualified Stock Options (hereinafter collectively the "Stock Options"), all
in accordance with the terms and conditions set forth herein.
The purchase price of Company Stock subject to a Stock Option shall be
determined by the Committee and may be equal to, greater than, or less than the
Fair Market Value (as defined below) of a share of such Stock on the date such
Stock Option
-3-
<PAGE>
is granted; provided, however, that (i) the purchase price of Company Stock
subject to an Incentive Stock Option shall be equal to, or greater than, the
Fair Market Value of a share of such Stock on the date such Stock Option is
granted and (ii) an Incentive Stock Option may not be granted to an Employee
who, at the time of grant, owns stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company or any parent
or subsidiary of the Company, unless the option price per share is not less than
110% of the Fair Market Value of Company Stock on the date of grant.
If the Company Stock is traded in a public market, then the Fair Market
Value per share shall be (i) if the principal trading market for the Company
Stock is a national securities exchange or the National Market segment of the
Nasdaq Stock Market, the last reported sale price thereof on the relevant date
or (if there were no trades on that date) the latest preceding date upon which a
sale was reported, or (ii) if the Company Stock is not principally traded on
such exchange or market, the mean between the last reported "bid" and "asked"
prices thereof on the relevant date, as reported on Nasdaq, or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not traded in a public market or
subject to reported transactions or "bid" or "ask" quotations as set forth
above, the Fair Market Value per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Stock
-----------
Option. The term of any Stock Option shall not exceed ten years from the date
of grant. Notwithstanding the foregoing, an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the option term
does not exceed five years from the date of grant.
(d) Exercisability of Options. Subject to Section 6, Stock Options shall
-------------------------
become exercisable in accordance with the terms and conditions determined by the
Committee, in its sole discretion, and specified in the Grant Letter. The
Committee, in its sole discretion, may accelerate the exercisability of any or
all outstanding Stock Options at any time for any reason. In addition, all
outstanding Stock Options automatically shall become fully and immediately
exercisable upon a Change of Control (as defined herein) in accordance with the
provisions of Section 11, unless in cases not covered by Section 11(f), the
Committee in its sole discretion determines not to accelerate such Stock Options
upon a Change of Control. The Committee may make such determination prior to
the Change of Control or, if the Committee making such determination following a
Change of Control is comprised of the same members as served on the Committee
immediately prior to such Change of Control, within five days following such
Change of Control.
-4-
<PAGE>
(e) Manner of Exercise. A Grantee may exercise a Stock Option which has
------------------
become exercisable, in whole or in part, by delivering a notice of exercise to
the Committee with accompanying payment of the option price in accordance with
Subsection (g) below. Such notice may instruct the Company to deliver shares of
Company Stock due upon the exercise of the Stock Option to any registered broker
or dealer designated by the Committee in lieu of delivery to the Grantee. Such
instructions must designate the account into which the shares are to be
deposited.
(f) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, a Stock Option may only be exercised
while the Grantee is employed by the Company as an Employee, Consultant or
member of the Board. In the event that a Grantee ceases to be employed by the
Company for any reason other than a "disability", death, or "termination for
cause", any Stock Option which is otherwise exercisable by the Grantee shall
terminate unless exercised within 90 days of the date on which the Grantee
ceases to be employed by the Company (or within such other period of time as may
be specified in the Grant Letter), but in any event no later than the date of
expiration of the option term. Any of the Grantee's Stock Options which are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by the Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the Company on
account of a "termination for cause" by the Company, any Stock Option held by
the Grantee shall terminate as of the date the Grantee ceases to be employed by
the Company.
(iii) In the event the Grantee ceases to be employed by the Company
because the Grantee is "disabled", any Stock Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year of
the date on which the Grantee ceases to be employed by the Company (or within
such other period of time as may be specified in the Grant Letter), but in any
event no later than the date of expiration of the option term. Any of the
Grantee's Stock Options which are not otherwise exercisable as of the date on
which the Grantee ceases to be employed by the Company shall terminate as of
such date.
(iv) If the Grantee dies while employed by the Company or within 90
days after the date on which the Grantee ceases to be employed by the Company on
account of a termination of employment specified in Section 5(f)(i) above (or
within such other period of time as may be specified in the Grant Letter), any
Stock Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within one year of the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
in the Grant Letter), but in any event no later than the date of expiration of
the option term. Any of the Grantee's Stock Options
-5-
<PAGE>
which are not otherwise exercisable as of the date on which the Grantee ceases
to be employed by the Company shall terminate as of such date.
(v) For purposes of this Section 5(f), the term "Company" shall
include the Company's subsidiaries, and the following terms shall be defined as
follows: (A) "disability" shall mean a Grantee's becoming disabled within the
meaning of section 22(e)(3) of the Code and (B) "termination for cause" shall
mean, except to the extent otherwise provided in a Grantee's Grant Letter, a
finding by the Committee, after full consideration of the facts presented on
behalf of both the Company and the Grantee, that the Grantee has breached his or
her employment or service contract with the Company, or has been engaged in
disloyalty to the Company, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such information.
In such event, in addition to the immediate termination of the Stock Option, the
Grantee shall automatically forfeit all option shares for any exercised portion
of a Stock Option for which the Company has not yet delivered the share
certificates upon refund by the Company of the option price paid by the Grantee
for such shares.
(g) Satisfaction of Option Price. The Grantee shall pay the option price
----------------------------
specified in the Grant Letter in (i) cash, (ii) with the approval of the
Committee, by delivering shares of Company Stock owned by the Grantee (including
Company Stock acquired in connection with the exercise of a Stock Option,
subject to such restrictions as the Committee deems appropriate) and having a
Fair Market Value on the date of exercise equal to the option price or (iii)
through any combination of (i) and (ii). The Grantee shall pay the option price
and the amount of withholding tax due, if any, at the time of exercise. Shares
of Company Stock shall not be issued or transferred upon exercise of a Stock
Option until the option price is fully paid and any required withholding is
made.
(h) Rule 16b-3 Restrictions. Unless a Grantee who is an "insider," as
-----------------------
defined under Section 16 of the Exchange Act, could otherwise transfer Company
Stock issued pursuant to a Stock Option without incurring liability under
Section 16(b) of the Exchange Act, at least six months must elapse from the date
of acquisition of a Stock Option by such a Grantee to the date of disposition of
the Company Stock issued upon exercise of such option.
(i) Limits on Incentive Stock Options. Each Incentive Stock Option shall
---------------------------------
provide that, to the extent that the aggregate Fair Market Value of the stock on
the date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year under the
Plan or any other stock option plan of the Company or a parent or subsidiary
exceeds $100,000, then such option as to the excess shall be treated as a
Nonqualified Stock Option. An Incentive Stock Option
-6-
<PAGE>
shall not be granted to any participant who is not an Employee of the Company or
any parent or subsidiary (within the meaning of section 424(f) of the Code).
6. Formula Option Grants to Non-Employee Directors
-----------------------------------------------
A Non-Employee Director shall be entitled to receive Nonqualified Stock
Options in accordance with this Section 6.
(a) Initial Grant. Each Non-Employee Director who first becomes a member
-------------
of the Board on or after the effective date of this Plan (as specified in
Section 19) will receive a grant of a Nonqualified Stock Option to purchase
25,000 shares of Company Stock immediately upon the date he or she becomes a
member of the Board; provided, however, that an initial grant pursuant to this
Section 6 to a Non-Employee Director who first becomes a member of the Board on
or after the effective date of this Plan and before the consummation of the
Company's initial public offering of Common Stock (a "Pre-IPO Initial Grant")
shall be made as of the date the Non-Employee Director first becomes a member of
the Board on or after the effective date of this Plan (which is the date of
grant) and shall become effective as of the Effective Time as defined in the
Contribution and Exchange Agreement dated as of May 30, 1996 by and among (1)
Sharpoint Development Corporation, (2) Robert V. Toni, J. Blount Swain, Jeffrey
G. Clark, Joe B. Barefoot, Jeffery C. Basham, Jeffrey C. Leung and Anthony V.
Seaber, (3) Caratec, L.L.C., (4) Cacoosing Partners, L.P., OMI Partners, L.P.,
Triangle Partners, L.P., F. W. Schmidt and Rolf D. Schmidt, and (5) the Company;
and provided, further, that if such Effective Time has not occurred on or prior
to September 30, 1996, any Pre-IPO Initial Grants shall be null, void and of no
further effect without any additional action required pursuant to the terms of
this Plan.
(b) Annual Grants. On each date that the Company holds its annual meeting
-------------
of stockholders, commencing with the 1997 calendar year, each Non-Employee
Director in office immediately after the annual election of directors (other
than directors first elected at such meeting) will receive a grant of a
Nonqualified Stock Option to purchase 5,000 shares of Company Stock. The date
of grant of such annual Grants shall be the date of such annual meeting of
stockholders.
(c) Purchase Price. The purchase price per share of Company Stock subject
--------------
to a Stock Option granted under this Section 6 shall be equal to the Fair Market
Value of a share of Company Stock on the date of grant.
(d) Option Term. The term of each Stock Option granted pursuant to this
-----------
Section 6 shall be ten years.
(e) Exercisability. Options granted under this Section 6 shall be
--------------
exercisable with respect to 50% of the shares on the date of grant, and an
additional 25% on each anniversary of the date of grant until such Option is
fully exercisable.
-7-
<PAGE>
(f) Administration. The provisions of this Section 6 are intended to
--------------
operate automatically and not require administration. However, to the extent
that administrative determinations are required, the provisions of this Section
6 shall be made by the members of the Board who are not eligible to receive
grants under this Section 6, but in no event shall such determinations affect
the eligibility of Grantees, the determination of the purchase price, the timing
of the grants or the number of shares subject to Stock Options granted
hereunder.
(g) Applicability of Plan Provisions. Except as otherwise provided in
--------------------------------
this Section 6, the Nonqualified Stock Options granted to Non-Employee Directors
shall be subject to the provisions of this Plan applicable to Nonqualified Stock
Options granted to other persons, provided however that (i) with respect to the
termination of Stock Options pursuant to the provisions of Section 5(f), the
Committee shall not have discretion to modify the terms of such provisions in
the Grant Letter and (ii) in the event of a Change of Control (as defined in
Section 10), the provisions of Section 11 shall apply to Stock Options granted
pursuant to this Section 6, except that the Committee shall not have discretion
to modify the automatic acceleration provisions.
(h) Amendment. Notwithstanding any other provision of the Plan, this
---------
Section 6 may not be amended more than once every six months, except for
amendments necessary to conform the Plan to changes in the provisions of or the
regulations relating to applicable laws, including the Code or the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
7. Restricted Stock Grants
-----------------------
The Committee may issue or transfer shares of Company Stock to an Employee
or Consultant under a Grant of restricted stock (a "Restricted Stock Grant"),
upon such terms as the Committee deems appropriate. The following provisions
are applicable to Restricted Stock Grants:
(a) General Requirements. Shares of Company Stock issued pursuant to
--------------------
Restricted Stock Grants may be issued for consideration or for no consideration,
at the sole discretion of the Committee. The Committee shall establish
conditions under which restrictions on the transfer of shares of Company Stock
shall lapse over a period of time or according to such other criteria as the
Committee deems appropriate. The period of years during which the Restricted
Stock Grant will remain subject to restrictions will be designated in the Grant
Letter as the "Restriction Period."
(b) Number of Shares. The Committee shall grant to each Grantee a number
----------------
of shares of Company Stock pursuant to a Restricted Stock Grant in such manner
as the Committee determines.
-8-
<PAGE>
(c) Requirement of Employment. If the Grantee ceases to be employed by
-------------------------
the Company (as an Employee or Consultant) during a period designated in the
Grant Letter as the Restriction Period, or if other specified conditions are not
met, the Restricted Stock Grant shall terminate as to all shares covered by the
Grant as to which restrictions on transfer have not lapsed and those shares of
Company Stock must be immediately returned to the Company. The Committee may,
however, provide for complete or partial exceptions to this requirement as it
deems equitable.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
--------------------------------------------------------
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Company Stock to which such Restriction
Period applies except to a Successor Grantee (as defined below) under Section 9.
Each certificate for a share issued or transferred under a Restricted Stock
Grant shall contain a legend giving appropriate notice of the restrictions in
the Grant. The Grantee shall be entitled to have the legend removed from the
stock certificate covering any of the shares subject to restrictions when all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. During the Restriction
--------------------------------------
Period unless the Committee determines otherwise, the Grantee shall have the
right to vote shares subject to the Restricted Stock Grant and to receive any
dividends or other distributions paid on such shares, subject to any
restrictions deemed appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed under the Restricted
---------------------
Stock Grant shall lapse upon the expiration of the applicable Restriction Period
and the satisfaction of any conditions imposed by the Committee. The Committee
may determine, as to any or all Restricted Stock Grants, that all the
restrictions shall lapse without regard to any Restriction Period. All
restrictions under all outstanding Restricted Stock Grants shall automatically
and immediately lapse upon a Change of Control, unless, in cases not covered by
Section 10(f), the Committee in its sole discretion determines that the
restrictions shall not lapse upon a Change of Control. The Committee may make
such determination prior to the Change of Control or, if the Committee making
such determination following a Change of Control is comprised of the same
members as served on the Committee immediately prior to such Change of Control,
within five days following such Change of Control.
8. Stock Appreciation Rights
-------------------------
(a) General Requirements. The Committee may grant stock appreciation
--------------------
rights ("SARs") to any Grantee in tandem with any Stock Option, for all or a
portion of the applicable Stock Option, either at the time the Stock Option is
granted or at any time thereafter while the Stock Option remains outstanding;
provided, however, that in the case of an Incentive Stock Option, such rights
may be granted only at the time of the Grant of such Stock Option. Unless the
Committee determines otherwise, the base price
-9-
<PAGE>
of each SAR shall be equal to the greater of (i) the exercise price of the
related Stock Option or (ii) the Fair Market Value of a share of Company Stock
as of the date of Grant of such SAR.
(b) Number of SARs. The number of SARs granted to a Grantee which shall
--------------
be exercisable during any given period of time shall not exceed the number of
shares of Company Stock which the Grantee may purchase upon the exercise of the
related Stock Option during such period of time. Upon the exercise of a Stock
Option, the SARs relating to the Company Stock covered by such Stock Option
shall terminate. Upon the exercise of the SAR's, the related Stock Option shall
terminate to the extent of an equal number of shares of Company Stock.
(c) Value of SARs. Upon a Grantee's exercise of some or all of the
-------------
Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount
equal to the value of the stock appreciation for the number of SARs exercised,
payable in cash, Company Stock or a combination thereof. The stock appreciation
for an SAR is the amount by which the Fair Market Value of the underlying
Company Stock on the date of exercise of the SAR exceeds the base price of the
SAR as described in subsection (a).
(d) Form of Payment. At the time of such exercise, the Grantee shall have
---------------
the right to elect the portion of the amount to be received that shall consist
of cash and the portion that shall consist of shares of Company Stock, which for
purposes of calculating the number of shares of Company stock to be received,
shall be valued at their Fair Market Value on the date of exercise of such SARs.
The Committee shall have the right to disapprove a Grantee's election to receive
cash in full or partial settlement of the SARs exercised and to require that
shares of Company Stock be delivered in lieu of cash. If shares of Company
Stock are to be received upon exercise of an SAR, cash shall be delivered in
lieu of any fractional share.
(e) Certain Restrictions. An SAR is exercisable only during the period
--------------------
when the Stock Option to which it is related is also exercisable. A SAR may not
be exercised for cash by an officer or director of the Company who is subject to
Section 16 of the Exchange Act, except in accordance with Rule 16b-3 of the
Exchange Act.
9. Transferability of Grants
-------------------------
Only the Grantee or his or her authorized representative may exercise
rights under a Grant. Such persons may not transfer those rights except by will
or by the laws of descent and distribution or, with respect to Grants other than
Incentive Stock Options, if permitted under Rule 16b-3 of the Exchange Act (to
the extent applicable) and if permitted in any specific case by the Committee in
its sole discretion pursuant to a qualified domestic relations order (as defined
under the Code or Title I of ERISA or the regulations thereunder). When a
Grantee dies, the representative or other person entitled to succeed to the
rights of the Grantee ("Successor Grantee") may exercise such
-10-
<PAGE>
rights. A Successor Grantee must furnish proof satisfactory to the Company of
his or her right to receive the Grant under the Grantee's will or under the
applicable laws of descent and distribution.
Notwithstanding the foregoing, the Committee may provide, in a Grant
Letter, that a Grantee may transfer Nonqualified Stock Options to his or her
children, grandchildren or spouse or to one or more trusts for the benefit of
such family members or to partnerships in which such family members are the only
partners (a "Family Transfer"), provided that the Grantee receives no
consideration for a Family Transfer and the Grant Letters relating to
Nonqualified Stock Options transferred in a Family Transfer continue to be
subject to the same terms and conditions that were applicable to such
Nonqualified Stock Options immediately prior to the Family Transfer.
10. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d) of the Exchange Act), but excluding Rolf D. Schmidt and F. William
Schmidt or any entity controlled by either or both of them, becomes the
beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50.1% of the
common stock of the Company or the combined voting power of the Company's then
outstanding securities;
(b) A liquidation or dissolution of the Company, or a sale (excluding
transfers to subsidiaries) of all or substantially all of the Company's assets
occurs; or
(c) During any period of two consecutive years, individuals who, at
the beginning of such period, constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's stockholders, of at least two-thirds of the
directors who were not directors at the beginning of such period was approved by
a vote of at least two-thirds of the directors then still in office who were
either directors at the beginning of the period or who, in connection with their
election or nomination, received the foregoing two-thirds approval.
11. Consequences of a Change of Control
-----------------------------------
(a) Notice. Unless the Committee determines otherwise:
------
(i) If a Change of Control described in Section 10(a) or (b) will
occur, then, not later than 10 days after the approval by the stockholders of
the Company (or approval by the Board, if stockholder action is not required) of
such Change of Control,
-11-
<PAGE>
the Company shall give each Optionee with any outstanding Stock Options written
notice of such proposed Change of Control.
(ii) If a Change of Control described in Section 10(a) may occur
without approval by the stockholders (or approval by the Board) and does so
occur, or if a Change of Control described in Section 10(c) occurs, then, not
later than 10 days after such Change of Control, the Company shall give each
Optionee with any outstanding Stock Options written notice of the Change of
Control.
(b) Election Period. In connection with the Change of Control and
---------------
effective only upon such Change of Control, unless the Committee determines
otherwise, each Grantee shall thereupon have the right, within 20 days after
such written notice is sent by the Company (the "Election Period"), to make an
election as described in Subsection (c) with respect to all of his or her
outstanding Stock Options (whether the right to exercise such Stock Options has
then accrued or the right to exercise such Stock Options will occur or has
occurred upon the Change of Control).
(c) Election Right. The Committee shall determine, in its sole
--------------
discretion, whether Grantees will have either or both of the rights described
below. During the Election Period, unless the Committee determines otherwise,
each Grantee shall have the right to elect:
(i) To exercise in full any installments of such Stock Options not
previously exercised, or
(ii) To surrender all or part of such outstanding Stock Options, in
exchange for a payment by the Company, in cash or Company Stock as determined by
the Committee, in an amount equal to the excess over the purchase price of the
then Fair Market Value of the shares of Company Stock subject to the Grantee's
outstanding Stock Options; provided, however, that in the case of a Stock Option
held by a Grantee who is subject to Section 16(b) of the Exchange Act, any such
surrender or payment shall be made on such date as the Committee shall determine
consistent with Rule 16b-3 under the Exchange Act.
(d) Termination of Stock Options. If a Grantee does not make a timely
----------------------------
election in accordance with Subsection (c) in connection with a Change of
Control where the Company is not the surviving corporation (or survives only as
a subsidiary of another corporation), the Grantee's Stock Options shall
terminate as of the Change of Control. Notwithstanding the foregoing, a Stock
Option will not terminate if assumed by the surviving or acquiring corporation,
or its parent, upon a merger or consolidation and, with respect to an Incentive
Stock Option, the assumption of the Option occurs under circumstances which are
not deemed a modification of the Option within the meaning of sections 424(a)
and 424(h)(3)(A) of the Code.
-12-
<PAGE>
(e) Accounting and Tax Limitations. Notwithstanding the foregoing:
------------------------------
(i) If the right described in Subsection (c)(ii) would make the
applicable Change of Control ineligible for pooling of interest accounting
treatment under APB No. 16 or make such Change of Control ineligible for desired
tax treatment with respect to such Change of Control and, but for those
provisions, the Change of Control would otherwise qualify for such treatment,
the Grantee shall receive shares of Company Stock with a Fair Market Value equal
to the cash that would otherwise be payable pursuant to Subsection (c)(ii) in
substitution for such cash, and
(ii) If the termination of the Stock Options described in Subsection
(d) would make the applicable Change of Control ineligible for pooling of
interest accounting treatment under APB No. 16 and, but for such provision, the
Change of Control would otherwise qualify for such treatment, each affected
Grantee shall receive a replacement or substitute stock option issued by the
surviving or acquiring corporation.
(f) Other Limitations. Notwithstanding any other provision of this
-----------------
Sedtion 11, if a Change of Control described in Section 10(a) will occur, or if
a Change of Control described in Section 10(b) will occur and the Company will
not be the surviving corporation, then (i) all outstanding Stock Options shall
be exercisable, (ii) the restrictions on all outstanding Restricted Stock shall
lapse, (iii) the Committee notice required by Subsection (a) shall be mandatory
and (iv) the Grantee shall have the right to make the election called for in
Subsection (c), subject to the provisions of Subsections (d) and (e) and further
subject to the Committee's right to permit only the election under Subsection
(c)(i).
12. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that any amendment that increases the aggregate number (or
individual limit for any single Grantee) of shares of Company Stock that may be
issued or transferred under the Plan (other than by operation of Section 3(b)),
or modifies the requirements as to eligibility for participation in the Plan,
shall be subject to approval by the stockholders of the Company and provided,
further, that the Board shall not amend the Plan without stockholder approval if
such approval is required by Rule 16b-3 of the Exchange Act or section 162(m) of
the Code.
(b) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date unless terminated earlier
by the Board or unless extended by the Board with the approval of the
stockholders.
-13-
<PAGE>
(c) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 20(b). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Grant. Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 20(b) or may be amended by agreement of the
Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
13. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
14. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Consultant or other person
to any claim or right to be granted a Grant under this Plan. Neither this Plan
nor any action taken hereunder shall be construed as giving any individual any
rights to be retained by or in the employ of the Company or any other employment
rights.
15. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
16. Withholding of Taxes
--------------------
(a) Required Withholding. The Company shall have the right to deduct from
--------------------
all Grants paid in cash, or from other wages paid to the Grantee, any federal,
state or local taxes required by law to be withheld with respect to such cash
awards and, in the case of Grants paid in Company Stock, the Grantee or other
person receiving such shares shall be required to pay to the Company the amount
of any such taxes which the Company is required to withhold with respect to such
Grants or the Company shall have
-14-
<PAGE>
the right to deduct from other wages paid by the Company the amount of any
withholding due with respect to such Grants.
(b) Election to Withhold Shares. A Grantee may make an election to
---------------------------
satisfy the Company income tax withholding obligation with respect to a Stock
Option, SAR or Restricted Stock by having shares withheld up to an amount that
does not exceed the Grantee's maximum marginal tax rate for federal (including
FICA), state and local tax liabilities. Such election must be in the form and
manner prescribed by the Committee and is subject to the prior approval of the
Committee. If the Grantee is a director or officer who is subject to Section 16
of the Exchange Act, such election must be irrevocable and must be made six
months prior to the date on which the Stock Option or SAR is exercised or the
restrictions lapse, as the case may be, except as otherwise permitted under Rule
16b-3 of the Exchange Act.
17. Requirements for Issuance of Shares
-----------------------------------
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in writing
to comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be applicable under such laws, regulations and other obligations of the
Company, including any requirement that a legend or legends be placed thereon.
18. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
19. Effective Date of the Plan.
--------------------------
Subject to the approval of the Company's stockholders, this Plan shall be
effective on May 28, 1996.
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<PAGE>
20. Miscellaneous
-------------
(a) Substitute Grants. The Committee may make a Grant to an employee of
-----------------
another corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant made by such corporation ("Substituted Stock
Incentives"). The terms and conditions of the substitute grant may vary from
the terms and conditions required by the Plan and from those of the Substituted
Stock Incentives. The Committee shall prescribe the provisions of the
substitute grants.
(b) Compliance with Law. The Plan, the exercise of Stock Options and the
-------------------
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation.
The Committee may also adopt rules regarding the withholding of taxes on
payments to Grantees. The Committee may, in its sole discretion, agree to limit
its authority under this Section.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
------------------
rights as a stockholder with respect to any shares of Company Stock covered by a
Grant until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Letters issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the State of Delaware.
-16-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of May 31, 1996, is
by and between Tri-Point Medical Corporation, a Delaware corporation (the
"Company"), and Robert V. Toni ("Employee").
WHEREAS, the Company and Employee desire to enter into an agreement to
provide for Employee's employment by the Company, upon the terms and conditions
set forth herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
TERMS
-----
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
1.1 EMPLOYMENT TERM. The term of this Agreement (the "Employment Term")
---------------
shall commence as of May 1, 1996 and shall continue until May 31, 1999 (unless
earlier terminated in accordance with this Agreement) or extended in accordance
with the following sentence. The Employment Term shall automatically be extended
for successive one-year terms, subject to the termination provisions hereof,
unless either party notifies the other, in writing, at least sixty (60) days
prior to the end of the then current Employment Term that the Agreement is to be
terminated.
1.2 DUTIES AND RESPONSIBILITIES.
---------------------------
1.2.1 During the Employment Term, Employee shall serve as President
and Chief Executive Officer of the Company and shall perform all duties and
accept all responsibilities incidental to such position or as otherwise may be
reasonably assigned to him by the Company's Board of Directors (the "Board").
1.2.2 Employee represents to the Company that, except for the
employment agreement dated November 1, 1994 between him and Sharpoint
Development Corporation, which agreement is being terminated as of the date
hereof, he is not subject to, and agrees that he will not hereafter during the
Employment Term become subject to, any employment agreement, non-competition
covenant, non-disclosure agreement or other agreement, covenant, understanding
or restriction which would prohibit Employee from fully performing his duties
and responsibilities hereunder, or which would otherwise in any manner, directly
or indirectly, limit or adversely affect the duties and responsibilities which
may now or in the future be assigned to Employee by the Board.
1.3 EXTENT OF SERVICE. During the Employment Term, Employee agrees to use
-----------------
his best efforts to carry out his duties and responsibilities under Section
1.2.1 hereof and, consistent with the other provisions of this Agreement, to
devote his full time, attention and energy thereto
<PAGE>
during normal business hours. Except as provided in Section 4 hereof, the
foregoing shall not be construed as preventing Employee from making investments
in other businesses or enterprises, provided that Employee agrees not to become
engaged in any other business, charitable or community activity which may
materially interfere with his ability to discharge his duties and
responsibilities to the Company.
1.4 BASE SALARY. For all the services rendered by Employee hereunder, the
-----------
Company shall pay Employee an annual salary at the rate of $215,000 for each
full year of the Employment Term, plus such additional amounts, if any, as may
be approved by the Board or its Compensation Committee (the "Committee") (as
such amount may be increased from time to time hereunder, the "Base Salary"),
payable in installments at such times as the Company customarily pays its other
senior officers (but in no event less often than monthly). Employee's Base
Salary shall be reviewed by the Board or the Committee at the end of each
calendar year to determine if an increase is appropriate for the next calendar
year pursuant to its normal performance review policies for executives, taking
into account Employee's performance and increases in the cost of living. The
Company shall be entitled to make proper withholdings from Employee's Base
Salary as required by law or agreed to by Employee.
1.5 BENEFITS. During the Employment Term, Employee shall be (a) entitled
--------
to the benefits described in Exhibit 1.5 and to participate in such retirement,
-----------
profit sharing, group insurance, life insurance, long-term disability,
medical/dental and any other fringe benefit plans, if any, as may be authorized
from time to time by the Board in its sole discretion for officers of the
Company generally, and (b) entitled to four weeks of paid vacation, in addition
to customary holidays and personal days in accordance with the Company's normal
personnel policies. Accrued and unused vacation may be carried forward into the
subsequent year only if approved in writing by the Board or the Committee.
1.6 INCENTIVE COMPENSATION. Employee shall be entitled to participate in
----------------------
such incentive compensation or bonus plans, if any, as may be established from
time to time in respect of each complete fiscal year during the Employment Term
by the Board or the Committee in their sole discretion, the terms and provisions
of which shall also be in the sole discretion of the Board or the Committee. In
addition, with respect to each calendar year during the Employment Term,
Employee will be entitled to receive an annual bonus, payable no later than 100
days after the end of such calendar year, in a minimum amount equal to 20% of
his Base Salary and a maximum amount equal to 60% of his Base Salary, based on
performance milestones significant to the progress of the Company to be
established by the Board upon the recommendation of the Committee based upon
criteria to be submitted to the Committee by the end of the first calendar
quarter of each year by the Chief Executive Officer. The current applicable
performance milestones are attached hereto as Exhibit 1.6 and will be in effect
-----------
until December 31, 1996.
1.7 STOCK OPTIONS. In consideration for Employee's execution of this
-------------
Agreement, the Committee has granted to Employee, as of the date of execution
hereof ("Execution Date"), subject to the execution and delivery of this
Agreement, a nonqualified stock option to purchase
-2-
<PAGE>
66,600 shares of Common Stock of the Company pursuant to the Company's Equity
Compensation Plan and a stock option agreement in the form used generally by the
Company, a copy of which is attached hereto as Exhibit 1.7. Notwithstanding
-----------
anything herein to the contrary, Employee's rights and entitlements with respect
to such options will be governed by the terms of such stock option agreement and
Equity Compensation Plan.
1.8 EXPENSES. The Company shall reimburse Employee on a timely basis for
--------
all ordinary and necessary out-of-pocket business expenses incurred in
connection with the discharge of his duties and responsibilities hereunder
during the Employment Term in accordance with the Company's expense approval
procedures then in effect and upon presentation to the Company of an itemized
account and written proof of such expenses.
2. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that by
------------------------
reason of employment by and service to the Company, he has had and will continue
to have access to financial, proprietary and other confidential information of
the Company and its affiliates, including, without limitation, information and
knowledge pertaining to products and services offered, research ideas, methods
and results, innovations, designs, ideas, plans, trade secrets, proprietary
information, distribution and sales methods and systems, sales and profit
figures, customer and client lists, and relationships between the Company and
its affiliates, distributors, customers, clients, suppliers and other who have
business dealings with the Company and its affiliates ("Confidential
Information"). Employee acknowledges that such Confidential Information is a
valuable and unique asset and covenants that he will not, either during or after
the term of this Agreement, disclose any such Confidential Information to any
person for any reason whatsoever without the prior written authorization of the
Board, unless such information is in the public domain through no fault of
Employee or except: (a) as may be required by law with prior notice to the
Company; or (b) in the course of his employment hereunder and solely in
furtherance of the interests of the Company and its affiliates.
3. DEVELOPMENTS. All developments, including inventions, whether patentable
------------
or otherwise, trade secrets, discoveries, improvements, ideas and writings which
either directly or indirectly relate to or may be useful in the business of the
Company or any of its affiliates (the "Developments") which Employee, either by
himself or in conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Employment Term or at
any time thereafter during which he is employed by the Company, shall become and
remain the sole and exclusive property of the Company. Employee hereby assigns,
transfers and conveys, and agrees to so assign, transfer and convey, all of his
right, title and interest in and to any and all such Developments and to
disclose fully as soon as practicable, in writing, all such Developments to the
Board. At any time and from time to time, upon the request and at the expense of
the Company, Employee will execute and deliver any and all instruments,
documents and papers, give evidence and do any and all other acts which, in the
opinion of counsel for the Company, are or may be necessary or desirable to
document such transfer or to enable the Company to file and prosecute
applications for and to acquire, maintain and enforce any and all patents,
trademark registrations or copyrights under United States or foreign law with
respect to any such Developments or to obtain any extension, validation, re-
-3-
<PAGE>
issue, continuance or renewal of any such patent, trademark or copyright. The
Company will be responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such proceedings and will
reimburse Employee for all reasonable expenses incurred by him in compliance
with the provisions of this Section.
4. NON-COMPETITION.
---------------
4.1 During the Employment Term and for a period of two years thereafter,
Employee will not, without prior written consent of the Board, directly or
indirectly, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise with or use or permit his name to be used in connection
with, any business or enterprise engaged within any state of the United States,
the District of Columbia or any foreign jurisdiction in any business that
competes with the business of the Company business as in effect either during
the Employment Term or on the date Employee's employment terminates, as
applicable. It is recognized by Employee that the business of the Company and
Employee's connection therewith is or will be international in scope, and that
geographical limitations on this non-competition covenant and the non-
solicitation covenant set forth in Section 5 are therefore not appropriate.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934, provided that such ownership represents a passive
investment and that neither the Employee nor any group of persons including
Employee in any way, either directly or indirectly, manages or exercises control
of any such corporation, guarantees any of its financial obligations, otherwise
takes part in its business, other than exercising his rights as a shareholder,
or seeks to do any of the foregoing.
5. NO SOLICITATION. Employee agrees that during the Employment Term and for a
---------------
period of two years thereafter, Employee will not, either directly or
indirectly, (i) call on or solicit any person, firm, corporation or other entity
who or which at the time of the termination of Employee's employment was, or
within one year prior thereto had been, a customer of the Company or any of its
affiliates or (ii) solicit the employment of any person who was employed by the
Company or any of its affiliates on a full or part-time basis at the time of
Employee's termination of employment, unless such person (a) was involuntarily
discharged by the Company or such affiliate, or (b) voluntarily terminated his
relationship with the Company or such affiliate prior to Employee's termination
of employment.
6. EQUITABLE RELIEF.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 2,
3, 4 and 5 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its affiliates, that the Company would not have
entered into this Agreement in the absence of such
-4-
<PAGE>
restrictions, and that any violation of any provision of those Sections may
result in irreparable injury to the Company and its affiliates (each of which
shall be deemed a third party beneficiary of such restriction). Employee
represents that his experience and capabilities are such that the restrictions
contained in Sections 4 and 5 hereof will not prevent Employee from obtaining
employment or otherwise earning a living at the same general level of economic
benefit as anticipated by this Agreement. Employee represents and acknowledges
that (a) he has been advised by the Company to consult his own legal counsel in
respect of this Agreement, and (b) that he has had full opportunity, prior to
execution of this Agreement, to review thoroughly this Agreement with his
counsel.
6.2 Employee agrees that each of the Company and its affiliates shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of proving actual damages, as well as to an equitable accounting of all
earnings, profits and other benefits arising from any violation of Section 2, 3,
4 or 5 hereof, which rights shall be cumulative and in addition to any other
rights or remedies to which the Company or any affiliate may be entitled. In the
event that any provisions of Section 2, 3, 4 or 5 hereof should ever be
adjudicated to exceed time, geographic, service or other limitations permitted
by applicable law in any jurisdiction, then such provision shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service, or other
limitations permitted by applicable law.
6.3 Employee and the Company irrevocably and unconditionally (i) agree
that any suit, action or other legal proceeding arising out of this Agreement,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may be
brought in any court of competent jurisdiction in the State of North Carolina,
provided that any suit, action or other legal proceeding brought against the
Company shall be brought and adjudicated in the United States District Court for
the Eastern District of North Carolina or, if such court will not accept
jurisdiction, in any court of competent civil jurisdiction sitting in Wake
County, North Carolina, (ii) consent to the jurisdiction of any such court in
any such suit, action or proceeding and (iii) waive any objection which Employee
or the Company may have to the laying of venue of any such suit, action or
proceeding in any such court. Employee and the Company also irrevocably and
unconditionally consent to the service of any process, pleading, notices or
other papers in any manner permitted by the notice provisions hereof.
6.4 Employee agrees that he will provide, and that the Company may
similarly provide, a copy of Sections 2, 3, 4, and 5 of this Agreement to any
business or enterprise (i) which he may directly or indirectly own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing, control or control of, or (ii) with which he may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which he may use
or permit his name to be used; provided, however, that this provision shall not
apply in respect of Sections 4 and 5 of this Agreement after expiration of the
time periods set forth therein.
-5-
<PAGE>
7. TERMINATION. This Agreement shall terminate prior to the expiration of the
-----------
Employment Term upon the occurrence of any one of the following events:
7.1 DISABILITY. The Company may terminate this Agreement if Employee is
----------
unable fully to perform his duties and responsibilities hereunder to the full
extent required by the Board by reason of illness, injury or incapacity for six
(6) consecutive months, or for more than six (6) months in the aggregate during
any period of twelve (12) calendar months, during which time he shall continue
to be compensated as provided in Section 1 hereof. In such event, the Company
shall have no further liability or obligation to Employee for compensation or
other benefits under this Agreement except (i) as may be provided under any
disability benefit plan or other employee benefit plan and program which may be
in effect and in which he participated, and (ii) Employee shall be entitled to
receive a pro rata portion of the incentive compensation pursuant to Section 1.6
in respect of the year during which Employee first became disabled.. The right
and benefits of Employees under any such employee benefit plans and programs
will be determined in accordance with the terms and provisions of such plans and
programs. Employee agrees, in the event of any dispute under this Section 7.1,
to submit to a physical examination by an independent, licensed physician
selected by the Board.
7.2 DEATH. This Agreement shall terminate if Employee dies during the
-----
Employment Term. In such event, the Company shall pay to Employee's executors,
legal representatives or administrators an amount equal to the installment of
his Base Salary set forth in Section 1.4.1 hereof for the month in which he
dies, all accrued incentive compensation pursuant to Section 1.6 and and a pro
rata portion of the incentive compensation pursuant to Section 1.6 in respect of
the year during which Employee died, and, thereafter, the Company shall have no
further liability or obligation under this Agreement to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, except as may be provided under any employee benefit plan
or compensation program which may be in effect for employees of the Company and
in which he participated. The rights and benefits of Employee under any such
employee benefit plans and programs will be determined in accordance with the
terms and provisions of such plans and programs.
7.3 CAUSE. The Company may terminate this Agreement, at any time, for
-----
"cause". For purposes of the Agreement, Employee's employment may be terminated
for "cause" if: (a) he engages in gross misconduct, or dishonesty (which in
either case results in material harm to the Company); (b) materially fails to
perform or observe any of the terms or provisions of this Agreement (c) fails to
carry out reasonable directives of the Board in accordance with Section 1.2; or
(d) is convicted of a felony or is involved in substance abuse; provided,
however, that "cause" shall not include bad judgment or any act or omission
reasonably believed by Employee in good faith to have been in or not opposed to
the best interests of the Company, and provided further, however, that in any
event, Employee shall be given written notice by the Board that the Company
intends to terminate Employee's employment for cause, which written notice shall
specify the act or acts on the basis of which the Company intends so to
terminate Employee's employment, and Employee shall then be given the
opportunity, within fifteen (15) days of his receipt of such notice, to have a
meeting with the Board to discuss such act or acts. If the basis
-6-
<PAGE>
of such written notice is an act or acts other than an act or acts described in
clause (d) of the preceding sentence, Employee will be given seven (7) days
after such meeting within which to cease or correct the performance (or
nonperformance) or to cure the harm giving rise to such written notice and, upon
failure of Employee within such seven (7) day period to cease or correct same,
Employee's employment by the Company shall automatically terminate hereunder for
cause. If Employee ceases or cures to the satisfaction of the Board of
Directors, the Employee's employment agreement shall continue in accordance with
the terms hereof. Upon any such termination or removal, Employee shall be
entitled to receive Base Salary under Section 1.4, incentive compensation under
Section 1.6 and all other benefits and compensation as described herein for a
period of eighteen (18) months thereafter.
7.4 CHANGE IN CONTROL TERMINATION.
-----------------------------
7.4.1 For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if:
(a) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d) of the Exchange Act), but excluding Rolf D. Schmidt and F.W.
Schmidt or any entity controlled by either or both of them, becomes the
beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50.1% of the
common stock of the Company or the combined voting power of the Company's then
outstanding securities;
(b) A liquidation or dissolution of the Company, or a sale
(excluding transfers to subsidiaries) of all or substantially all of the
Company's assets occurs; or
(c) During any period of two consecutive years, individuals
who, at the beginning of such period, constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, or at least two-thirds of
the directors who were not directors at the beginning of such period was
approved by a vote of at least two-thirds of the directors then still in office
who were either directors at the beginning of the period or who, in connection
with their election or nomination, received the foregoing two-thirds approval.
7.4.2 After the occurrence of a Change in Control, Employee shall be
entitled to receive payment and benefits pursuant to this Agreement if, after
the occurrence of a Change in Control, his employment with the Company is
terminated under any of the following circumstances: (a) the Company terminates
Employee's employment for reasons other than "Cause," "Disability," or death; or
(b) the Employee terminates his employment with the Company for "Good Reason."
For purposes of this Agreement, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions: (i) an adverse
change in the Employee's status, title, position or responsibilities from that
in effect immediately prior to the Change in Control; (ii) a reduction in the
Employee's salary; (iii) the
-7-
<PAGE>
Company's requiring the Employee to relocate beyond a twenty-five (25) mile
radius from Raleigh, North Carolina; (iv) any purported termination of
Employee's employment for cause or disability without grounds therefor; (v) any
material breach by the Company of any provision of this Agreement; or (vi) the
failure of the Company to obtain an agreement, satisfactory to the Employee,
from any successor or assign of the Company to assume and agree to perform this
Agreement.
7.4.3 In the event that Employee's employment with the Company
terminates under any of the circumstances described in Section 7.4.2 above,
Employee shall be entitled to receive all of the following: (a) All accrued
compensation and any pro rata incentive compensation Employee may have earned up
--- ----
to the date of termination; (b) A continuation for three years from date of
termination of Employee's then current annual salary, and incentive compensation
and benefits hereunder. The Company shall maintain in full force and effect, for
three (3) years after the date of termination, all benefit plans and programs in
which Employee was entitled to participate immediately prior to the date of
termination, provided that Employee's continued participation is possible under
the general terms and provisions of such plans and programs. Employee's
continued participation in such plans and programs shall be at no greater cost
to Employee than the cost he bore for such participation immediately prior to
the date of termination. If Employee's participation in any such plan or program
is barred, the Company shall arrange upon comparable terms, and at no greater
cost to Employee than the cost he bore for such plans and programs prior to the
date of termination, to provide Employee with benefits substantially similar to
those which he is entitled to receive under any such plan or program.
7.5 OTHER TERMINATIONS.
------------------
7.5.1 Employee may terminate this Agreement upon ten (10) days' prior
written notice to the Company if the Company fails to fulfill any of the
material terms and provisions hereof including the failure to pay Employee any
amounts payable hereunder within ten (10) business days after the same shall be
due and payable. In the event of such termination, Employee shall be entitled to
receive payment of his Base Salary, all incentive compensation pursuant to
Section 1.6 and all other benefits and compensation to which he would have been
entitled under this Agreement until the end of the Employment term.
7.5.2 Employee may voluntarily terminate this Agreement upon thirty
(30) days' prior written notice for any reason; provided, however, that no
further payments shall be due under this Agreement in that event except that
Employee shall be entitled to all accrued compensation and a pro rata portion of
--- ----
all incentive compensation for the year in which termination occurs, and any
benefits due under any compensation or benefit plan including those listed in
Section 1 hereof provided by the Company for officers generally or otherwise.
8. WORKING FACILITIES. The Employee shall be provided with an office,
------------------
stenographic and technical help and such other facilities and services as may be
suitable to Employee's position in accordance with manpower plan approved by the
Board.
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<PAGE>
9. LOCATION. Employee shall not be required, without his consent, to render
--------
services at any place other than the area of Raleigh, North Carolina; however;
Employee may be asked to travel in connection with the Company's business as
reasonably appropriate for the performance of his duties.
10. PROFESSIONAL DUES AND CONTINUING EDUCATION. The Company agrees to
------------------------------------------
reimburse the Employee for reasonable professional dues and continuing education
expenses necessary to maintain applicable certifications upon approval by the
Board.
11. INDEMNIFICATION. The Company shall indemnify the Employee, to the maximum
---------------
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by him 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 of any subsidiary or
affiliate of the Company.
12. SURVIVAL. Notwithstanding the termination of this Agreement, the Company's
--------
obligations under Sections 1.4, 1.5, 1.6, 1.7, 1.8, 6.3, 7 and 11 and Employee's
obligations under Sections 2, 3, 4, 5, 6, and 7 shall survive and remain in full
force and effect.
13. GOVERNING LAW. This Agreement shall be governed by and interpreted under
-------------
the laws of the State of North Carolina without giving effect to any conflict of
law provisions.
14. NOTICES. All notices and other communications hereunder or in connection
-------
herewith shall be in writing and shall be deemed to have been given when
delivered by hand or reputable express delivery service, mailed by certified or
registered mail, return receipt requested, or sent by fax to the party as
follows (provided that notice of change of address shall be deemed given only
when received):
If to the Company, to: Tri-Point Medical Corporation
5265 Capital Boulevard
Raleigh, North Carolina 27604
Fax: (919) 876-7874
Attn: Chairman of the Board
If to Employee, to: Robert V. Toni
9208 Ransworth Way
Raleigh, NC 27615
or to such other names or addresses as the Company or Employee, as the case
may be, shall designate by notice to the other person in the manner
specified in this Section.
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<PAGE>
15. MISCELLANEOUS.
-------------
15.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties hereto with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment approved by the Board and executed on the Company's behalf by
a duly authorized officer.
15.2 All of the terms of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, executors,
administrators, legal representatives, successors and assigns of the parties
hereto, (including without limitation, any person, partnership, company or
corporation which may acquire substantially all of the Company's assets or
business or with or into which the Company may be merged, liquidated,
consolidated or otherwise combined), except that the duties and responsibilities
of Employee hereunder are of a personal nature and shall not be assignable or
delegatable in whole or in part by Employee.
15.3 If any provision of this Agreement or application thereof to anyone or
any circumstances is held invalid or unenforceable in any jurisdiction, the
remainder of this Agreement, and the application of such provision to such
person or entity or such circumstance in any other jurisdiction or to other
persons, entities or circumstances in any jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement are severable.
15.4 No remedy conferred upon the Company or Employee by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission by the
Company or Employee exercising any right, remedy or power hereunder or existing
at law or in equity shall be construed as a waiver thereof, and any such right,
remedy or power may be exercised by the Company or Employee from time to time
and as often as may be deemed expedient or necessary by the Company or Employee
in its sole discretion.
15.5 All section headings are for convenience only. This Agreement may be
executed in several counterparts, each of which shall be original. It shall not
be necessary in marking proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
15.6 If either party should file a lawsuit against the other to enforce any
right such party has hereunder, the prevailing party shall also be entitled to
recover a reasonable attorney's fee and costs of suit in addition to other
relief awarded such prevailing party.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
TRI-POINT MEDICAL CORPORATION
By: ______________________________
Rolf D. Schmidt, Chairman of the Board
_________________________________
Robert V. Toni
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<PAGE>
EXHIBIT 1.5
-----------
EMPLOYEE'S BENEFITS
-------------------
MEDICAL/DENTAL INSURANCE. The Company will provide, at no charge, medical and
- ------------------------
dental insurance for Employee and his dependents, including deductible expenses.
LIFE INSURANCE. The Company will provide life insurance based upon Employee's
- --------------
salary or position. The amount of an employee's coverage is four times annual
salary.
ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) INSURANCE. The Company will provide
- ---------------------------------------------------
AD&D insurance for Employee. This program pays a benefit if Employee dies or is
seriously injured as a direct result of an accident. The benefits received vary
according to the nature of the injury and the Employee's salary or position.
SALARY CONTINUATIONS. Salary continuation takes effect after Employee has been
- --------------------
absent from work for more than three continuous weeks due to medical reasons.
Employee earns one month of salary continuation at normal pay up to a maximum of
six months or until LTD insurance begins, whichever occurs first. Certification
by a physician is required prior to any salary continuation payment.
LONG-TERM DISABILITY. Employee is eligible for long-term disability (LTD) after
- --------------------
being accepted by insurance company. LTD payments begin after six months of
disability and are based on a certain portion of normal pay up to a certain
maximum dollar amount per month.
-12-
<PAGE>
EXHIBIT 1.6
-----------
PERFORMANCE MILESTONES FOR 1996 BONUS
-------------------------------------
1. Execute Supply & Distribution Agreement with Ethicon.
2. Successfully consummate either private placement or public offering of
equity.
3. In order to support Ethicon Launch of TraumaSeal(TM) in Canada, be in a
position by end of third quarter to produce 30,000 units per week.
4. Position manufacturing for the initiation of a second shift operation to
produce TraumaSeal(TM) by the beginning of fourth quarter.
5. Qualify North Safety Packaging as the second source vendor for
TraumaSeal(TM) packaging by fourth quarter.
6. Execute lease for new facility.
7. Submit TraumaSeal(TM) PMA to FDA.
8. Engage European C.R.O. to assist in creating the plan for obtaining C.E.
Mark.
9. Identify animal model for absorbable formulation biocompatibility testing.
10. Engage animal model consultant/contractor.
11. Begin biocompatibility testing for absorbable formulations.
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of May 31, 1996, is
by and between Tri-Point Medical Corporation, a Delaware corporation (the
"Company"), and J. Blount Swain ("Employee").
WHEREAS, the Company and Employee desire to enter into an agreement to
provide for Employee's employment by the Company, upon the terms and conditions
set forth herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
TERMS
-----
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
1.1 EMPLOYMENT TERM. The term of this Agreement (the "Employment Term")
---------------
shall commence as of May 1, 1996 and shall continue until May 31, 1999 (unless
earlier terminated in accordance with this Agreement) or extended in accordance
with the following sentence. The Employment Term shall automatically be extended
for successive one-year terms, subject to the termination provisions hereof,
unless either party notifies the other, in writing, at least sixty (60) days
prior to the end of the then current Employment Term that the Agreement is to be
terminated.
1.2 DUTIES AND RESPONSIBILITIES.
---------------------------
1.2.1 During the Employment Term, Employee shall serve as Vice
President-Finance and Chief Financial Officer of the Company and shall perform
all duties and accept all responsibilities incidental to such position or as
otherwise may be reasonably assigned to him by the Company's Chief Executive
Officer or its Board of Directors (the "Board").
1.2.2 Employee represents to the Company that, except for the
employment agreement dated November 1, 1994 between him and Sharpoint
Development Corporation, which agreement is being terminated as of the date
hereof, he is not subject to, and agrees that he will not hereafter during the
Employment Term become subject to, any employment agreement, non-competition
covenant, non-disclosure agreement or other agreement, covenant, understanding
or restriction which would prohibit Employee from fully performing his duties
and responsibilities hereunder, or which would otherwise in any manner, directly
or indirectly, limit or adversely affect the duties and responsibilities which
may now or in the future be assigned to Employee by the Company's Chief
Executive Officer or the Board.
1.3 EXTENT OF SERVICE. During the Employment Term, Employee agrees to
-----------------
use his best efforts to carry out his duties and responsibilities under Section
1.2.1 hereof and, consistent
<PAGE>
with the other provisions of this Agreement, to devote his full time, attention
and energy thereto during normal business hours. Except as provided in Section 4
hereof, the foregoing shall not be construed as preventing Employee from making
investments in other businesses or enterprises, provided that Employee agrees
not to become engaged in any other business, charitable or community activity
which may materially interfere with his ability to discharge his duties and
responsibilities to the Company.
1.4 BASE SALARY. For all the services rendered by Employee hereunder,
-----------
the Company shall pay Employee an annual salary at the rate of $138,450 for each
full year of the Employment Term, plus such additional amounts, if any, as may
be approved by the Board or its Compensation Committee (the "Committee") (as
such amount may be increased from time to time hereunder, the "Base Salary"),
payable in installments at such times as the Company customarily pays its other
senior officers (but in no event less often than monthly). Employee's Base
Salary shall be reviewed by the Board or the Committee at the end of each
calendar year to determine if an increase is appropriate for the next calendar
year pursuant to its normal performance review policies for executives, taking
into account Employee's performance and increases in the cost of living. The
Company shall be entitled to make proper withholdings from Employee's Base
Salary as required by law or agreed to by Employee.
1.5 BENEFITS. During the Employment Term, Employee shall be (a) entitled
--------
to the benefits described in Exhibit 1.5 and to participate in such retirement,
-----------
profit sharing, group insurance, life insurance, long-term disability,
medical/dental and any other fringe benefit plans, if any, as may be authorized
from time to time by the Board in its sole discretion for officers of the
Company generally, and (b) entitled to four weeks of paid vacation, in addition
to customary holidays and personal days in accordance with the Company's normal
personnel policies. Accrued and unused vacation may be carried forward into the
subsequent year only if approved in writing by the Committee, Board or Chief
Executive Officer of the Company.
1.6 INCENTIVE COMPENSATION. Employee shall be entitled to participate in
----------------------
such incentive compensation or bonus plans, if any, as may be established from
time to time in respect of each complete fiscal year during the Employment Term
by the Board or the Committee in their sole discretion, the terms and provisions
of which shall also be in the sole discretion of the Board or the Committee. In
addition, with respect to each calendar year during the Employment Term,
Employee will be entitled to receive an annual bonus, payable no later than 100
days after the end of such calendar year, in a minimum amount equal to 20% of
his Base Salary and a maximum amount equal to 60% of his Base Salary, based on
performance milestones significant to the progress of the Company to be
established by the Board upon the recommendation of the Committee based upon
criteria to be submitted to the Committee by the end of the first calendar
quarter of each year by the Chief Executive Officer. The current applicable
performance milestones are attached hereto as Exhibit 1.6 and will be in effect
-----------
until December 31, 1996.
1.7 STOCK OPTIONS. In consideration for Employee's execution of this
-------------
Agreement, the Committee has granted to Employee, as of the date of execution
hereof ("Execution Date"),
-2-
<PAGE>
subject to the execution and delivery of this Agreement, a nonqualified stock
option to purchase 43,050 shares of Common Stock of the Company pursuant to the
Company's Equity Compensation Plan and a stock option agreement in the form used
generally by the Company, a copy of which is attached hereto as Exhibit 1.7.
-----------
Notwithstanding anything herein to the contrary, Employee's rights and
entitlements with respect to such options will be governed by the terms of such
stock option agreement and Equity Compensation Plan.
1.8 EXPENSES. The Company shall reimburse Employee on a timely basis for
--------
all ordinary and necessary out-of-pocket business expenses incurred in
connection with the discharge of his duties and responsibilities hereunder
during the Employment Term in accordance with the Company's expense approval
procedures then in effect and upon presentation to the Company of an itemized
account and written proof of such expenses.
2. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that by
------------------------
reason of employment by and service to the Company, he has had and will continue
to have access to financial, proprietary and other confidential information of
the Company and its affiliates, including, without limitation, information and
knowledge pertaining to products and services offered, research ideas, methods
and results, innovations, designs, ideas, plans, trade secrets, proprietary
information, distribution and sales methods and systems, sales and profit
figures, customer and client lists, and relationships between the Company and
its affiliates, distributors, customers, clients, suppliers and other who have
business dealings with the Company and its affiliates ("Confidential
Information"). Employee acknowledges that such Confidential Information is a
valuable and unique asset and covenants that he will not, either during or after
the term of this Agreement, disclose any such Confidential Information to any
person for any reason whatsoever without the prior written authorization of the
Board, unless such information is in the public domain through no fault of
Employee or except: (a) as may be required by law with prior notice to the
Company; or (b) in the course of his employment hereunder and solely in
furtherance of the interests of the Company and its affiliates.
3. DEVELOPMENTS. All developments, including inventions, whether patentable
------------
or otherwise, trade secrets, discoveries, improvements, ideas and writings which
either directly or indirectly relate to or may be useful in the business of the
Company or any of its affiliates (the "Developments") which Employee, either by
himself or in conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Employment Term or at
any time thereafter during which he is employed by the Company, shall become and
remain the sole and exclusive property of the Company. Employee hereby assigns,
transfers and conveys, and agrees to so assign, transfer and convey, all of his
right, title and interest in and to any and all such Developments and to
disclose fully as soon as practicable, in writing, all such Developments to the
Board. At any time and from time to time, upon the request and at the expense of
the Company, Employee will execute and deliver any and all instruments,
documents and papers, give evidence and do any and all other acts which, in the
opinion of counsel for the Company, are or may be necessary or desirable to
document such transfer or to enable the Company to file and prosecute
applications for and to acquire, maintain and enforce any and all patents,
trademark registrations or copyrights under United States or
-3-
<PAGE>
foreign law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse Employee for all reasonable expenses incurred by
him in compliance with the provisions of this Section.
4. NON-COMPETITION.
---------------
4.1 During the Employment Term and for a period of two years thereafter,
Employee will not, without prior written consent of the Board, directly or
indirectly, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise with or use or permit his name to be used in connection
with, any business or enterprise engaged within any state of the United States,
the District of Columbia or any foreign jurisdiction in any business that
competes with the business of the Company business as in effect either during
the Employment Term or on the date Employee's employment terminates, as
applicable. It is recognized by Employee that the business of the Company and
Employee's connection therewith is or will be international in scope, and that
geographical limitations on this non-competition covenant and the non-
solicitation covenant set forth in Section 5 are therefore not appropriate.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934, provided that such ownership represents a passive
investment and that neither the Employee nor any group of persons including
Employee in any way, either directly or indirectly, manages or exercises control
of any such corporation, guarantees any of its financial obligations, otherwise
takes part in its business, other than exercising his rights as a shareholder,
or seeks to do any of the foregoing.
5. NO SOLICITATION. Employee agrees that during the Employment Term and for a
---------------
period of two years thereafter, Employee will not, either directly or
indirectly, (i) call on or solicit any person, firm, corporation or other entity
who or which at the time of the termination of Employee's employment was, or
within one year prior thereto had been, a customer of the Company or any of its
affiliates or (ii) solicit the employment of any person who was employed by the
Company or any of its affiliates on a full or part-time basis at the time of
Employee's termination of employment, unless such person (a) was involuntarily
discharged by the Company or such affiliate, or (b) voluntarily terminated his
relationship with the Company or such affiliate prior to Employee's termination
of employment.
6. EQUITABLE RELIEF.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 2,
3, 4 and 5 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its
-4-
<PAGE>
affiliates, that the Company would not have entered into this Agreement in the
absence of such restrictions, and that any violation of any provision of those
Sections may result in irreparable injury to the Company and its affiliates
(each of which shall be deemed a third party beneficiary of such restriction).
Employee represents that his experience and capabilities are such that the
restrictions contained in Sections 4 and 5 hereof will not prevent Employee from
obtaining employment or otherwise earning a living at the same general level of
economic benefit as anticipated by this Agreement. Employee represents and
acknowledges that (a) he has been advised by the Company to consult his own
legal counsel in respect of this Agreement, and (b) that he has had full
opportunity, prior to execution of this Agreement, to review thoroughly this
Agreement with his counsel.
6.2 Employee agrees that each of the Company and its affiliates shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of proving actual damages, as well as to an equitable accounting of all
earnings, profits and other benefits arising from any violation of Section 2, 3,
4 or 5 hereof, which rights shall be cumulative and in addition to any other
rights or remedies to which the Company or any affiliate may be entitled. In the
event that any provisions of Section 2, 3, 4 or 5 hereof should ever be
adjudicated to exceed time, geographic, service or other limitations permitted
by applicable law in any jurisdiction, then such provision shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service, or other
limitations permitted by applicable law.
6.3 Employee and the Company irrevocably and unconditionally (i) agree
that any suit, action or other legal proceeding arising out of this Agreement,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may be
brought in any court of competent jurisdiction in the State of North Carolina,
provided that any suit, action or other legal proceeding brought against the
Company shall be brought and adjudicated in the United States District Court for
the Eastern District of North Carolina or, if such court will not accept
jurisdiction, in any court of competent civil jurisdiction sitting in Wake
County, North Carolina, (ii) consent to the jurisdiction of any such court in
any such suit, action or proceeding and (iii) waive any objection which Employee
or the Company may have to the laying of venue of any such suit, action or
proceeding in any such court. Employee and the Company also irrevocably and
unconditionally consent to the service of any process, pleading, notices or
other papers in any manner permitted by the notice provisions hereof.
6.4 Employee agrees that he will provide, and that the Company may
similarly provide, a copy of Sections 2, 3, 4, and 5 of this Agreement to any
business or enterprise (i) which he may directly or indirectly own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing, control or control of, or (ii) with which he may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which he may use
or permit his name to be used; provided, however, that this provision shall not
apply in respect of Sections 4 and 5 of this Agreement after expiration of the
time periods set forth therein.
-5-
<PAGE>
7. TERMINATION. This Agreement shall terminate prior to the expiration of the
-----------
Employment Term upon the occurrence of any one of the following events:
7.1 DISABILITY. The Company may terminate this Agreement if Employee is
----------
unable fully to perform his duties and responsibilities hereunder to the full
extent required by the Board by reason of illness, injury or incapacity for six
(6) consecutive months, or for more than six (6) months in the aggregate during
any period of twelve (12) calendar months, during which time he shall continue
to be compensated as provided in Section 1 hereof. In such event, the Company
shall have no further liability or obligation to Employee for compensation or
other benefits under this Agreement except (i) as may be provided under any
disability benefit plan or other employee benefit plan and program which may be
in effect and in which he participated, and (ii) Employee shall be entitled to
receive a pro rata portion of the incentive compensation pursuant to Section 1.6
in respect of the year during which Employee first became disabled.. The right
and benefits of Employees under any such employee benefit plans and programs
will be determined in accordance with the terms and provisions of such plans and
programs. Employee agrees, in the event of any dispute under this Section 7.1,
to submit to a physical examination by an independent, licensed physician
selected by the Board.
7.2 DEATH. This Agreement shall terminate if Employee dies during the
-----
Employment Term. In such event, the Company shall pay to Employee's executors,
legal representatives or administrators an amount equal to the installment of
his Base Salary set forth in Section 1.4.1 hereof for the month in which he
dies, all accrued incentive compensation pursuant to Section 1.6 and and a pro
rata portion of the incentive compensation pursuant to Section 1.6 in respect of
the year during which Employee died, and, thereafter, the Company shall have no
further liability or obligation under this Agreement to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, except as may be provided under any employee benefit plan
or compensation program which may be in effect for employees of the Company and
in which he participated. The rights and benefits of Employee under any such
employee benefit plans and programs will be determined in accordance with the
terms and provisions of such plans and programs.
7.3 CAUSE. The Company may terminate this Agreement, at any time, for
-----
"cause". For purposes of the Agreement, Employee's employment may be terminated
for "cause" if: (a) he engages in gross misconduct, or dishonesty (which in
either case results in material harm to the Company); (b) materially fails to
perform or observe any of the terms or provisions of this Agreement (c) fails to
carry out reasonable directives of the Chief Executive Officer of the Company or
the Board in accordance with Section 1.2; or (d) is convicted of a felony or is
involved in substance abuse; provided, however, that "cause" shall not include
bad judgment or any act or omission reasonably believed by Employee in good
faith to have been in or not opposed to the best interests of the Company, and
provided further, however, that in any event, Employee shall be given written
notice by the Board that the Company intends to terminate Employee's employment
for cause, which written notice shall specify the act or acts on the basis of
which the Company intends so to terminate Employee's employment, and Employee
shall then be given the opportunity, within fifteen (15) days of his receipt of
such notice, to have a meeting
-6-
<PAGE>
with the Board to discuss such act or acts. If the basis of such written notice
is an act or acts other than an act or acts described in clause (d) of the
preceding sentence, Employee will be given seven (7) days after such meeting
within which to cease or correct the performance (or nonperformance) or to cure
the harm giving rise to such written notice and, upon failure of Employee within
such seven (7) day period to cease or correct same, Employee's employment by the
Company shall automatically terminate hereunder for cause. If Employee ceases or
cures to the satisfaction of the Board of Directors, the Employee's employment
agreement shall continue in accordance with the terms hereof. Upon any such
termination or removal, Employee shall be entitled to receive Base Salary under
Section 1.4, incentive compensation under Section 1.6 and all other benefits and
compensation as described herein for a period of twelve (12) months thereafter.
7.4 CHANGE IN CONTROL TERMINATION.
-----------------------------
7.4.1 For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if:
(a) As a result of a tender offer, stock purchase, other
stock acquisition, merger, consolidation, recapitalization, reverse split, or
sale or transfer of assets, any person or group (as such terms are used in and
under Section 13(d) of the Exchange Act), but excluding Rolf D. Schmidt and F.W.
Schmidt or any entity controlled by either or both of them, becomes the
beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50.1% of the
common stock of the Company or the combined voting power of the Company's then
outstanding securities;
(b) A liquidation or dissolution of the Company, or a sale
(excluding transfers to subsidiaries) of all or substantially all of the
Company's assets occurs; or
(c) During any period of two consecutive years, individuals
who, at the beginning of such period, constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, or at least two-thirds of
the directors who were not directors at the beginning of such period was
approved by a vote of at least two-thirds of the directors then still in office
who were either directors at the beginning of the period or who, in connection
with their election or nomination, received the foregoing two-thirds approval.
7.4.2 After the occurrence of a Change in Control, Employee shall be
entitled to receive payment and benefits pursuant to this Agreement if, after
the occurrence of a Change in Control, his employment with the Company is
terminated under any of the following circumstances: (a) the Company terminates
Employee's employment for reasons other than "Cause," "Disability," or death; or
(b) the Employee terminates his employment with the Company for "Good Reason."
For purposes of this Agreement, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions: (i) an adverse
change in the Employee's status, title, position or responsibilities from that
in effect
-7-
<PAGE>
immediately prior to the Change in Control; (ii) a reduction in the Employee's
salary; (iii) the Company's requiring the Employee to relocate beyond a twenty-
five (25) mile radius from Raleigh, North Carolina; (iv) any purported
termination of Employee's employment for cause or disability without grounds
therefor; (v) any material breach by the Company of any provision of this
Agreement; or (vi) the failure of the Company to obtain an agreement,
satisfactory to the Employee, from any successor or assign of the Company to
assume and agree to perform this Agreement.
7.4.3 In the event that Employee's employment with the Company
terminates under any of the circumstances described in Section 7.4.2 above,
Employee shall be entitled to receive all of the following: (a) All accrued
compensation and any pro rata incentive compensation Employee may have earned up
--- ----
to the date of termination; (b) A continuation for three years from date of
termination of Employee's then current annual salary, and incentive compensation
and benefits hereunder. The Company shall maintain in full force and effect, for
three (3) years after the date of termination, all benefit plans and programs in
which Employee was entitled to participate immediately prior to the date of
termination, provided that Employee's continued participation is possible under
the general terms and provisions of such plans and programs. Employee's
continued participation in such plans and programs shall be at no greater cost
to Employee than the cost he bore for such participation immediately prior to
the date of termination. If Employee's participation in any such plan or program
is barred, the Company shall arrange upon comparable terms, and at no greater
cost to Employee than the cost he bore for such plans and programs prior to the
date of termination, to provide Employee with benefits substantially similar to
those which he is entitled to receive under any such plan or program.
7.5 OTHER TERMINATIONS.
------------------
7.5.1 Employee may terminate this Agreement upon ten (10) days'
prior written notice to the Company if the Company fails to fulfill any of the
material terms and provisions hereof including the failure to pay Employee any
amounts payable hereunder within ten (10) business days after the same shall be
due and payable. In the event of such termination, Employee shall be entitled to
receive payment of his Base Salary, all incentive compensation pursuant to
Section 1.6 and all other benefits and compensation to which he would have been
entitled under this Agreement until the end of the Employment term.
7.5.2 Employee may voluntarily terminate this Agreement upon thirty
(30) days' prior written notice for any reason; provided, however, that no
further payments shall be due under this Agreement in that event except that
Employee shall be entitled to all accrued compensation and a pro rata portion of
--- ----
all incentive compensation for the year in which termination occurs, and any
benefits due under any compensation or benefit plan including those listed in
Section 1 hereof provided by the Company for officers generally or otherwise.
8. WORKING FACILITIES. The Employee shall be provided with an office,
------------------
stenographic and technical help and such other facilities and services as may be
suitable to Employee's position in accordance with manpower plan approved by the
Board.
-8-
<PAGE>
9. LOCATION. Employee shall not be required, without his consent, to render
--------
services at any place other than the area of Raleigh, North Carolina; however;
Employee may be asked to travel in connection with the Company's business as
reasonably appropriate for the performance of his duties.
10. PROFESSIONAL DUES AND CONTINUING EDUCATION. The Company agrees to
------------------------------------------
reimburse the Employee for reasonable professional dues and continuing education
expenses necessary to maintain applicable certifications upon approval by the
Company's Chief Executive Officer or the Board.
11. INDEMNIFICATION. The Company shall indemnify the Employee, to the maximum
---------------
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by him 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 of any subsidiary or
affiliate of the Company.
12. SURVIVAL. Notwithstanding the termination of this Agreement, the Company's
--------
obligations under Sections 1.4, 1.5, 1.6, 1.7, 1.8, 6.3, 7 and 11 and Employee's
obligations under Sections 2, 3, 4, 5, 6, and 7 shall survive and remain in full
force and effect.
13. GOVERNING LAW. This Agreement shall be governed by and interpreted under
-------------
the laws of the State of North Carolina without giving effect to any conflict of
law provisions.
14. NOTICES. All notices and other communications hereunder or in connection
-------
herewith shall be in writing and shall be deemed to have been given when
delivered by hand or reputable express delivery service, mailed by certified or
registered mail, return receipt requested, or sent by fax to the party as
follows (provided that notice of change of address shall be deemed given only
when received):
If to the Company, to: Tri-Point Medical Corporation
5265 Capital Boulevard
Raleigh, North Carolina 27604
Fax: (919) 876-7874
Attn: Chairman of the Board
If to Employee, to: J. Blount Swain
2813 Croix Place
Raleigh, NC 27614
or to such other names or addresses as the Company or Employee, as the case
may be, shall designate by notice to the other person in the manner
specified in this Section.
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<PAGE>
15. MISCELLANEOUS.
-------------
15.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties hereto with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment approved by the Board and executed on the Company's behalf by
a duly authorized officer.
15.2 All of the terms of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, executors,
administrators, legal representatives, successors and assigns of the parties
hereto, (including without limitation, any person, partnership, company or
corporation which may acquire substantially all of the Company's assets or
business or with or into which the Company may be merged, liquidated,
consolidated or otherwise combined), except that the duties and responsibilities
of Employee hereunder are of a personal nature and shall not be assignable or
delegatable in whole or in part by Employee.
15.3 If any provision of this Agreement or application thereof to anyone
or any circumstances is held invalid or unenforceable in any jurisdiction, the
remainder of this Agreement, and the application of such provision to such
person or entity or such circumstance in any other jurisdiction or to other
persons, entities or circumstances in any jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement are severable.
15.4 No remedy conferred upon the Company or Employee by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission by the
Company or Employee exercising any right, remedy or power hereunder or existing
at law or in equity shall be construed as a waiver thereof, and any such right,
remedy or power may be exercised by the Company or Employee from time to time
and as often as may be deemed expedient or necessary by the Company or Employee
in its sole discretion.
15.5 All section headings are for convenience only. This Agreement may be
executed in several counterparts, each of which shall be original. It shall not
be necessary in marking proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
15.6 If either party should file a lawsuit against the other to enforce
any right such party has hereunder, the prevailing party shall also be entitled
to recover a reasonable attorney's fee and costs of suit in addition to other
relief awarded such prevailing party.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
TRI-POINT MEDICAL CORPORATION
By: ___________________________________
Rolf D. Schmidt, Chairman of the Board
_______________________________________
J. Blount Swain
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<PAGE>
EXHIBIT 1.5
-----------
EMPLOYEE'S BENEFITS
-------------------
MEDICAL/DENTAL INSURANCE. The Company will provide, at no charge, medical and
- ------------------------
dental insurance for Employee and his dependents, including deductible expenses.
LIFE INSURANCE. The Company will provide life insurance based upon Employee's
- --------------
salary or position. The amount of an employee's coverage is four times annual
salary.
ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) INSURANCE. The Company will provide
- ---------------------------------------------------
AD&D insurance for Employee. This program pays a benefit if Employee dies or is
seriously injured as a direct result of an accident. The benefits received vary
according to the nature of the injury and the Employee's salary or position.
SALARY CONTINUATIONS. Salary continuation takes effect after Employee has been
- --------------------
absent from work for more than three continuous weeks due to medical reasons.
Employee earns one month of salary continuation at normal pay up to a maximum of
six months or until LTD insurance begins, whichever occurs first. Certification
by a physician is required prior to any salary continuation payment.
LONG-TERM DISABILITY. Employee is eligible for long-term disability (LTD) after
- --------------------
being accepted by insurance company. LTD payments begin after six months of
disability and are based on a certain portion of normal pay up to a certain
maximum dollar amount per month.
-12-
<PAGE>
EXHIBIT 1.6
-----------
PERFORMANCE MILESTONES FOR 1996 BONUS
-------------------------------------
1. Execute Supply & Distribution Agreement with Ethicon.
2. Successfully consummate either private placement or public offering of
equity.
3. In order to support Ethicon Launch of TraumaSeal(TM) in Canada, be in a
position by end of third quarter to produce 30,000 units per week.
4. Position manufacturing for the initiation of a second shift operation to
produce TraumaSeal(TM) by the beginning of fourth quarter.
5. Qualify North Safety Packaging as the second source vendor for
TraumaSeal(TM) packaging by fourth quarter.
6. Execute lease for new facility.
7. Submit TraumaSeal(TM) PMA to FDA.
8. Engage European C.R.O. to assist in creating the plan for obtaining C.E.
Mark.
9. Identify animal model for absorbable formulation biocompatibility testing.
10. Engage animal model consultant/contractor.
11. Begin biocompatibility testing for absorbable formulations.
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of May 31, 1996, is
by and between Tri-Point Medical Corporation, a Delaware corporation (the
"Company"), and Jeffrey G. Clark ("Employee").
WHEREAS, the Company and Employee desire to enter into an agreement to
provide for Employee's employment by the Company, upon the terms and conditions
set forth herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
TERMS
-----
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
1.1 EMPLOYMENT TERM. The term of this Agreement (the "Employment Term")
---------------
shall commence as of May 1, 1996 and shall continue until May 31, 1999 (unless
earlier terminated in accordance with this Agreement) or extended in accordance
with the following sentence. The Employment Term shall automatically be
extended for successive one-year terms, subject to the termination provisions
hereof, unless either party notifies the other, in writing, at least sixty (60)
days prior to the end of the then current Employment Term that the Agreement is
to be terminated.
1.2 DUTIES AND RESPONSIBILITIES.
---------------------------
1.2.1 During the Employment Term, Employee shall serve as Vice
President-Research and Development of the Company and shall perform all duties
and accept all responsibilities incidental to such position or as otherwise may
be reasonably assigned to him by the Company's Chief Executive Officer or its
Board of Directors (the "Board").
1.2.2 Employee represents to the Company that, except for the
employment agreement dated November 1, 1994 between him and Sharpoint
Development Corporation, which agreement is being terminated as of the date
hereof, he is not subject to, and agrees that he will not hereafter during the
Employment Term become subject to, any employment agreement, non-competition
covenant, non-disclosure agreement or other agreement, covenant, understanding
or restriction which would prohibit Employee from fully performing his duties
and responsibilities hereunder, or which would otherwise in any manner, directly
or indirectly, limit or adversely affect the duties and responsibilities which
may now or in the future be assigned to Employee by the Company's Chief
Executive Officer or the Board.
1.3 EXTENT OF SERVICE. During the Employment Term, Employee agrees to use
-----------------
his best efforts to carry out his duties and responsibilities under Section
1.2.1 hereof and, consistent with the other provisions of this Agreement, to
devote his full time, attention and energy thereto
<PAGE>
during normal business hours. Except as provided in Section 4 hereof, the
foregoing shall not be construed as preventing Employee from making investments
in other businesses or enterprises, provided that Employee agrees not to become
engaged in any other business, charitable or community activity which may
materially interfere with his ability to discharge his duties and
responsibilities to the Company.
1.4 BASE SALARY. For all the services rendered by Employee hereunder, the
-----------
Company shall pay Employee an annual salary at the rate of $127,200 for each
full year of the Employment Term, plus such additional amounts, if any, as may
be approved by the Board or its Compensation Committee (the "Committee") (as
such amount may be increased from time to time hereunder, the "Base Salary"),
payable in installments at such times as the Company customarily pays its other
senior officers (but in no event less often than monthly). Employee's Base
Salary shall be reviewed by the Board or the Committee at the end of each
calendar year to determine if an increase is appropriate for the next calendar
year pursuant to its normal performance review policies for executives, taking
into account Employee's performance and increases in the cost of living. The
Company shall be entitled to make proper withholdings from Employee's Base
Salary as required by law or agreed to by Employee.
1.5 BENEFITS. During the Employment Term, Employee shall be (a) entitled
--------
to the benefits described in Exhibit 1.5 and to participate in such retirement,
-----------
profit sharing, group insurance, life insurance, long-term disability,
medical/dental and any other fringe benefit plans, if any, as may be authorized
from time to time by the Board in its sole discretion for officers of the
Company generally, and (b) entitled to four weeks of paid vacation, in addition
to customary holidays and personal days in accordance with the Company's normal
personnel policies. Accrued and unused vacation may be carried forward into the
subsequent year only if approved in writing by the Committee, Board or Chief
Executive Officer of the Company.
1.6 INCENTIVE COMPENSATION. Employee shall be entitled to participate in
----------------------
such incentive compensation or bonus plans, if any, as may be established from
time to time in respect of each complete fiscal year during the Employment Term
by the Board or the Committee in their sole discretion, the terms and provisions
of which shall also be in the sole discretion of the Board or the Committee. In
addition, with respect to each calendar year during the Employment Term,
Employee will be entitled to receive an annual bonus, payable no later than 100
days after the end of such calendar year, in a minimum amount equal to 20% of
his Base Salary and a maximum amount equal to 60% of his Base Salary, based on
performance milestones significant to the progress of the Company to be
established by the Board upon the recommendation of the Committee based upon
criteria to be submitted to the Committee by the end of the first calendar
quarter of each year by the Chief Executive Officer. The current applicable
performance milestones are attached hereto as Exhibit 1.6 and will be in effect
-----------
until December 31, 1996.
1.7 STOCK OPTIONS. In consideration for Employee's execution of this
-------------
Agreement, the Committee has granted to Employee, as of the date of execution
hereof ("Execution Date"), subject to the execution and delivery of this
Agreement, a nonqualified stock option to purchase
-2-
<PAGE>
40,100 shares of Common Stock of the Company pursuant to the Company's Equity
Compensation Plan and a stock option agreement in the form used generally by the
Company, a copy of which is attached hereto as Exhibit 1.7. Notwithstanding
-----------
anything herein to the contrary, Employee's rights and entitlements with respect
to such options will be governed by the terms of such stock option agreement and
Equity Compensation Plan.
1.8 EXPENSES. The Company shall reimburse Employee on a timely basis for
--------
all ordinary and necessary out-of-pocket business expenses incurred in
connection with the discharge of his duties and responsibilities hereunder
during the Employment Term in accordance with the Company's expense approval
procedures then in effect and upon presentation to the Company of an itemized
account and written proof of such expenses.
2. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that by
------------------------
reason of employment by and service to the Company, he has had and will continue
to have access to financial, proprietary and other confidential information of
the Company and its affiliates, including, without limitation, information and
knowledge pertaining to products and services offered, research ideas, methods
and results, innovations, designs, ideas, plans, trade secrets, proprietary
information, distribution and sales methods and systems, sales and profit
figures, customer and client lists, and relationships between the Company and
its affiliates, distributors, customers, clients, suppliers and other who have
business dealings with the Company and its affiliates ("Confidential
Information"). Employee acknowledges that such Confidential Information is a
valuable and unique asset and covenants that he will not, either during or after
the term of this Agreement, disclose any such Confidential Information to any
person for any reason whatsoever without the prior written authorization of the
Board, unless such information is in the public domain through no fault of
Employee or except: (a) as may be required by law with prior notice to the
Company; or (b) in the course of his employment hereunder and solely in
furtherance of the interests of the Company and its affiliates.
3. DEVELOPMENTS. All developments, including inventions, whether patentable
------------
or otherwise, trade secrets, discoveries, improvements, ideas and writings which
either directly or indirectly relate to or may be useful in the business of the
Company or any of its affiliates (the "Developments") which Employee, either by
himself or in conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Employment Term or at
any time thereafter during which he is employed by the Company, shall become and
remain the sole and exclusive property of the Company. Employee hereby assigns,
transfers and conveys, and agrees to so assign, transfer and convey, all of his
right, title and interest in and to any and all such Developments and to
disclose fully as soon as practicable, in writing, all such Developments to the
Board. At any time and from time to time, upon the request and at the expense
of the Company, Employee will execute and deliver any and all instruments,
documents and papers, give evidence and do any and all other acts which, in the
opinion of counsel for the Company, are or may be necessary or desirable to
document such transfer or to enable the Company to file and prosecute
applications for and to acquire, maintain and enforce any and all patents,
trademark registrations or copyrights under United States or foreign law with
respect to any such Developments or to obtain any extension, validation, re-
-3-
<PAGE>
issue, continuance or renewal of any such patent, trademark or copyright. The
Company will be responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such proceedings and will
reimburse Employee for all reasonable expenses incurred by him in compliance
with the provisions of this Section.
4. NON-COMPETITION.
---------------
4.1 During the Employment Term and for a period of two years thereafter,
Employee will not, without prior written consent of the Board, directly or
indirectly, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise with or use or permit his name to be used in connection
with, any business or enterprise engaged within any state of the United States,
the District of Columbia or any foreign jurisdiction in any business that
competes with the business of the Company business as in effect either during
the Employment Term or on the date Employee's employment terminates, as
applicable. It is recognized by Employee that the business of the Company and
Employee's connection therewith is or will be international in scope, and that
geographical limitations on this non-competition covenant and the non-
solicitation covenant set forth in Section 5 are therefore not appropriate.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934, provided that such ownership represents a passive
investment and that neither the Employee nor any group of persons including
Employee in any way, either directly or indirectly, manages or exercises control
of any such corporation, guarantees any of its financial obligations, otherwise
takes part in its business, other than exercising his rights as a shareholder,
or seeks to do any of the foregoing.
5. NO SOLICITATION. Employee agrees that during the Employment Term and for a
---------------
period of two years thereafter, Employee will not, either directly or
indirectly, (i) call on or solicit any person, firm, corporation or other entity
who or which at the time of the termination of Employee's employment was, or
within one year prior thereto had been, a customer of the Company or any of its
affiliates or (ii) solicit the employment of any person who was employed by the
Company or any of its affiliates on a full or part-time basis at the time of
Employee's termination of employment, unless such person (a) was involuntarily
discharged by the Company or such affiliate, or (b) voluntarily terminated his
relationship with the Company or such affiliate prior to Employee's termination
of employment.
6. EQUITABLE RELIEF.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 2,
3, 4 and 5 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its affiliates, that the Company would not have
entered into this Agreement in the absence of such
-4-
<PAGE>
restrictions, and that any violation of any provision of those Sections may
result in irreparable injury to the Company and its affiliates (each of which
shall be deemed a third party beneficiary of such restriction). Employee
represents that his experience and capabilities are such that the restrictions
contained in Sections 4 and 5 hereof will not prevent Employee from obtaining
employment or otherwise earning a living at the same general level of economic
benefit as anticipated by this Agreement. Employee represents and acknowledges
that (a) he has been advised by the Company to consult his own legal counsel in
respect of this Agreement, and (b) that he has had full opportunity, prior to
execution of this Agreement, to review thoroughly this Agreement with his
counsel.
6.2 Employee agrees that each of the Company and its affiliates shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of proving actual damages, as well as to an equitable accounting of all
earnings, profits and other benefits arising from any violation of Section 2, 3,
4 or 5 hereof, which rights shall be cumulative and in addition to any other
rights or remedies to which the Company or any affiliate may be entitled. In
the event that any provisions of Section 2, 3, 4 or 5 hereof should ever be
adjudicated to exceed time, geographic, service or other limitations permitted
by applicable law in any jurisdiction, then such provision shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service, or other
limitations permitted by applicable law.
6.3 Employee and the Company irrevocably and unconditionally (i) agree
that any suit, action or other legal proceeding arising out of this Agreement,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may be
brought in any court of competent jurisdiction in the State of North Carolina,
provided that any suit, action or other legal proceeding brought against the
Company shall be brought and adjudicated in the United States District Court for
the Eastern District of North Carolina or, if such court will not accept
jurisdiction, in any court of competent civil jurisdiction sitting in Wake
County, North Carolina, (ii) consent to the jurisdiction of any such court in
any such suit, action or proceeding and (iii) waive any objection which Employee
or the Company may have to the laying of venue of any such suit, action or
proceeding in any such court. Employee and the Company also irrevocably and
unconditionally consent to the service of any process, pleading, notices or
other papers in any manner permitted by the notice provisions hereof.
6.4 Employee agrees that he will provide, and that the Company may
similarly provide, a copy of Sections 2, 3, 4, and 5 of this Agreement to any
business or enterprise (i) which he may directly or indirectly own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing, control or control of, or (ii) with which he may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which he may use
or permit his name to be used; provided, however, that this provision shall not
apply in respect of Sections 4 and 5 of this Agreement after expiration of the
time periods set forth therein.
-5-
<PAGE>
7. TERMINATION. This Agreement shall terminate prior to the expiration of the
-----------
Employment Term upon the occurrence of any one of the following events:
7.1 DISABILITY. The Company may terminate this Agreement if Employee is
----------
unable fully to perform his duties and responsibilities hereunder to the full
extent required by the Board by reason of illness, injury or incapacity for six
(6) consecutive months, or for more than six (6) months in the aggregate during
any period of twelve (12) calendar months, during which time he shall continue
to be compensated as provided in Section 1 hereof. In such event, the Company
shall have no further liability or obligation to Employee for compensation or
other benefits under this Agreement except (i) as may be provided under any
disability benefit plan or other employee benefit plan and program which may be
in effect and in which he participated, and (ii) Employee shall be entitled to
receive a pro rata portion of the incentive compensation pursuant to Section 1.6
in respect of the year during which Employee first became disabled.. The right
and benefits of Employees under any such employee benefit plans and programs
will be determined in accordance with the terms and provisions of such plans and
programs. Employee agrees, in the event of any dispute under this Section 7.1,
to submit to a physical examination by an independent, licensed physician
selected by the Board.
7.2 DEATH. This Agreement shall terminate if Employee dies during the
-----
Employment Term. In such event, the Company shall pay to Employee's executors,
legal representatives or administrators an amount equal to the installment of
his Base Salary set forth in Section 1.4.1 hereof for the month in which he
dies, all accrued incentive compensation pursuant to Section 1.6 and and a pro
rata portion of the incentive compensation pursuant to Section 1.6 in respect of
the year during which Employee died, and, thereafter, the Company shall have no
further liability or obligation under this Agreement to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, except as may be provided under any employee benefit plan
or compensation program which may be in effect for employees of the Company and
in which he participated. The rights and benefits of Employee under any such
employee benefit plans and programs will be determined in accordance with the
terms and provisions of such plans and programs.
7.3 CAUSE. The Company may terminate this Agreement, at any time, for
-----
"cause". For purposes of the Agreement, Employee's employment may be terminated
for "cause" if: (a) he engages in gross misconduct, or dishonesty (which in
either case results in material harm to the Company); (b) materially fails to
perform or observe any of the terms or provisions of this Agreement (c) fails to
carry out reasonable directives of the Chief Executive Officer of the Company or
the Board in accordance with Section 1.2; or (d) is convicted of a felony or is
involved in substance abuse; provided, however, that "cause" shall not include
bad judgment or any act or omission reasonably believed by Employee in good
faith to have been in or not opposed to the best interests of the Company, and
provided further, however, that in any event, Employee shall be given written
notice by the Board that the Company intends to terminate Employee's employment
for cause, which written notice shall specify the act or acts on the basis of
which the Company intends so to terminate Employee's employment, and Employee
shall then be given the opportunity, within fifteen (15) days of his receipt of
such notice, to have a meeting
-6-
<PAGE>
with the Board to discuss such act or acts. If the basis of such written notice
is an act or acts other than an act or acts described in clause (d) of the
preceding sentence, Employee will be given seven (7) days after such meeting
within which to cease or correct the performance (or nonperformance) or to cure
the harm giving rise to such written notice and, upon failure of Employee within
such seven (7) day period to cease or correct same, Employee's employment by the
Company shall automatically terminate hereunder for cause. If Employee ceases
or cures to the satisfaction of the Board of Directors, the Employee's
employment agreement shall continue in accordance with the terms hereof. Upon
any such termination or removal, Employee shall be entitled to receive Base
Salary under Section 1.4, incentive compensation under Section 1.6 and all other
benefits and compensation as described herein for a period of twelve (12) months
thereafter.
7.4 CHANGE IN CONTROL TERMINATION.
-----------------------------
7.4.1 For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if:
(a) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d) of the Exchange Act), but excluding Rolf D. Schmidt and F.W.
Schmidt or any entity controlled by either or both of them, becomes the
beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50.1% of the
common stock of the Company or the combined voting power of the Company's then
outstanding securities;
(b) A liquidation or dissolution of the Company, or a sale
(excluding transfers to subsidiaries) of all or substantially all of the
Company's assets occurs; or
(c) During any period of two consecutive years, individuals
who, at the beginning of such period, constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, or at least two-thirds of
the directors who were not directors at the beginning of such period was
approved by a vote of at least two-thirds of the directors then still in office
who were either directors at the beginning of the period or who, in connection
with their election or nomination, received the foregoing two-thirds approval.
7.4.2 After the occurrence of a Change in Control, Employee shall be
entitled to receive payment and benefits pursuant to this Agreement if, after
the occurrence of a Change in Control, his employment with the Company is
terminated under any of the following circumstances: (a) the Company terminates
Employee's employment for reasons other than "Cause," "Disability," or death; or
(b) the Employee terminates his employment with the Company for "Good Reason."
For purposes of this Agreement, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions: (i) an adverse
change in the Employee's status, title, position or responsibilities from that
in effect
-7-
<PAGE>
immediately prior to the Change in Control; (ii) a reduction in the Employee's
salary; (iii) the Company's requiring the Employee to relocate beyond a twenty-
five (25) mile radius from Raleigh, North Carolina; (iv) any purported
termination of Employee's employment for cause or disability without grounds
therefor; (v) any material breach by the Company of any provision of this
Agreement; or (vi) the failure of the Company to obtain an agreement,
satisfactory to the Employee, from any successor or assign of the Company to
assume and agree to perform this Agreement.
7.4.3 In the event that Employee's employment with the Company
terminates under any of the circumstances described in Section 7.4.2 above,
Employee shall be entitled to receive all of the following: (a) All accrued
compensation and any pro rata incentive compensation Employee may have earned up
--- ----
to the date of termination; (b) A continuation for three years from date of
termination of Employee's then current annual salary, and incentive compensation
and benefits hereunder. The Company shall maintain in full force and effect,
for three (3) years after the date of termination, all benefit plans and
programs in which Employee was entitled to participate immediately prior to the
date of termination, provided that Employee's continued participation is
possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the date of termination. If Employee's participation in
any such plan or program is barred, the Company shall arrange upon comparable
terms, and at no greater cost to Employee than the cost he bore for such plans
and programs prior to the date of termination, to provide Employee with benefits
substantially similar to those which he is entitled to receive under any such
plan or program.
7.5 OTHER TERMINATIONS.
------------------
7.5.1 Employee may terminate this Agreement upon ten (10) days' prior
written notice to the Company if the Company fails to fulfill any of the
material terms and provisions hereof including the failure to pay Employee any
amounts payable hereunder within ten (10) business days after the same shall be
due and payable. In the event of such termination, Employee shall be entitled
to receive payment of his Base Salary, all incentive compensation pursuant to
Section 1.6 and all other benefits and compensation to which he would have been
entitled under this Agreement until the end of the Employment term.
7.5.2 Employee may voluntarily terminate this Agreement upon thirty
(30) days' prior written notice for any reason; provided, however, that no
further payments shall be due under this Agreement in that event except that
Employee shall be entitled to all accrued compensation and a pro rata portion of
--- ----
all incentive compensation for the year in which termination occurs, and any
benefits due under any compensation or benefit plan including those listed in
Section 1 hereof provided by the Company for officers generally or otherwise.
8. WORKING FACILITIES. The Employee shall be provided with an office,
------------------
stenographic and technical help and such other facilities and services as may be
suitable to Employee's position in accordance with manpower plan approved by the
Board.
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<PAGE>
9. LOCATION. Employee shall not be required, without his consent, to render
--------
services at any place other than the area of Raleigh, North Carolina; however;
Employee may be asked to travel in connection with the Company's business as
reasonably appropriate for the performance of his duties.
10. PROFESSIONAL DUES AND CONTINUING EDUCATION. The Company agrees to
------------------------------------------
reimburse the Employee for reasonable professional dues and continuing education
expenses necessary to maintain applicable certifications upon approval by the
Company's Chief Executive Officer or the Board.
11. INDEMNIFICATION. The Company shall indemnify the Employee, to the maximum
---------------
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by him 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 of any subsidiary or
affiliate of the Company.
12. SURVIVAL. Notwithstanding the termination of this Agreement, the Company's
--------
obligations under Sections 1.4, 1.5, 1.6, 1.7, 1.8, 6.3, 7 and 11 and Employee's
obligations under Sections 2, 3, 4, 5, 6, and 7 shall survive and remain in full
force and effect.
13. GOVERNING LAW. This Agreement shall be governed by and interpreted under
-------------
the laws of the State of North Carolina without giving effect to any conflict of
law provisions.
14. NOTICES. All notices and other communications hereunder or in connection
-------
herewith shall be in writing and shall be deemed to have been given when
delivered by hand or reputable express delivery service, mailed by certified or
registered mail, return receipt requested, or sent by fax to the party as
follows (provided that notice of change of address shall be deemed given only
when received):
If to the Company, to: Tri-Point Medical Corporation
5265 Capital Boulevard
Raleigh, North Carolina 27604
Fax: (919) 876-7874
Attn: Chairman of the Board
If to Employee, to: Jeffrey G. Clark
908 Bennington Drive
Raleigh, NC 27615
or to such other names or addresses as the Company or Employee, as the case
may be, shall designate by notice to the other person in the manner
specified in this Section.
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<PAGE>
15. MISCELLANEOUS.
-------------
15.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties hereto with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment approved by the Board and executed on the Company's behalf by
a duly authorized officer.
15.2 All of the terms of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, executors,
administrators, legal representatives, successors and assigns of the parties
hereto, (including without limitation, any person, partnership, company or
corporation which may acquire substantially all of the Company's assets or
business or with or into which the Company may be merged, liquidated,
consolidated or otherwise combined), except that the duties and responsibilities
of Employee hereunder are of a personal nature and shall not be assignable or
delegatable in whole or in part by Employee.
15.3 If any provision of this Agreement or application thereof to anyone
or any circumstances is held invalid or unenforceable in any jurisdiction, the
remainder of this Agreement, and the application of such provision to such
person or entity or such circumstance in any other jurisdiction or to other
persons, entities or circumstances in any jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement are severable.
15.4 No remedy conferred upon the Company or Employee by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission by the
Company or Employee exercising any right, remedy or power hereunder or existing
at law or in equity shall be construed as a waiver thereof, and any such right,
remedy or power may be exercised by the Company or Employee from time to time
and as often as may be deemed expedient or necessary by the Company or Employee
in its sole discretion.
15.5 All section headings are for convenience only. This Agreement may be
executed in several counterparts, each of which shall be original. It shall not
be necessary in marking proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
15.6 If either party should file a lawsuit against the other to enforce
any right such party has hereunder, the prevailing party shall also be entitled
to recover a reasonable attorney's fee and costs of suit in addition to other
relief awarded such prevailing party.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
TRI-POINT MEDICAL CORPORATION
By: _________________________________
Rolf D. Schmidt, Chairman of the Board
_________________________________
Jeffrey G. Clark
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<PAGE>
EXHIBIT 1.5
-----------
EMPLOYEE'S BENEFITS
-------------------
MEDICAL/DENTAL INSURANCE. The Company will provide, at no charge, medical and
- ------------------------
dental insurance for Employee and his dependents, including deductible expenses.
LIFE INSURANCE. The Company will provide life insurance based upon Employee's
- --------------
salary or position. The amount of an employee's coverage is four times annual
salary.
ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) INSURANCE. The Company will provide
- ---------------------------------------------------
AD&D insurance for Employee. This program pays a benefit if Employee dies or is
seriously injured as a direct result of an accident. The benefits received vary
according to the nature of the injury and the Employee's salary or position.
SALARY CONTINUATIONS. Salary continuation takes effect after Employee has been
- --------------------
absent from work for more than three continuous weeks due to medical reasons.
Employee earns one month of salary continuation at normal pay up to a maximum of
six months or until LTD insurance begins, whichever occurs first. Certification
by a physician is required prior to any salary continuation payment.
LONG-TERM DISABILITY. Employee is eligible for long-term disability (LTD) after
- --------------------
being accepted by insurance company. LTD payments begin after six months of
disability and are based on a certain portion of normal pay up to a certain
maximum dollar amount per month.
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<PAGE>
EXHIBIT 1.6
-----------
PERFORMANCE MILESTONES FOR 1996 BONUS
-------------------------------------
1. Execute Supply & Distribution Agreement with Ethicon.
2. Successfully consummate either private placement or public offering of
equity.
3. In order to support Ethicon Launch of TraumaSeal(TM) in Canada, be in a
position by end of third quarter to produce 30,000 units per week.
4. Position manufacturing for the initiation of a second shift operation to
produce TraumaSeal(TM) by the beginning of fourth quarter.
5. Qualify North Safety Packaging as the second source vendor for
TraumaSeal(TM) packaging by fourth quarter.
6. Execute lease for new facility.
7. Submit TraumaSeal(TM) PMA to FDA.
8. Engage European C.R.O. to assist in creating the plan for obtaining C.E.
Mark.
9. Identify animal model for absorbable formulation biocompatibility testing.
10. Engage animal model consultant/contractor.
11. Begin biocompatibility testing for absorbable formulations.
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of May 31, 1996, is
by and between Tri-Point Medical Corporation, a Delaware corporation (the
"Company"), and Joe B. Barefoot ("Employee").
WHEREAS, the Company and Employee desire to enter into an agreement to
provide for Employee's employment by the Company, upon the terms and conditions
set forth herein;
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
TERMS
-----
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
----------
accepts such employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
1.1 EMPLOYMENT TERM. The term of this Agreement (the "Employment Term")
---------------
shall commence as of May 1, 1996 and shall continue until May 31, 1999 (unless
earlier terminated in accordance with this Agreement) or extended in accordance
with the following sentence. The Employment Term shall automatically be extended
for successive one-year terms, subject to the termination provisions hereof,
unless either party notifies the other, in writing, at least sixty (60) days
prior to the end of the then current Employment Term that the Agreement is to be
terminated.
1.2 DUTIES AND RESPONSIBILITIES.
---------------------------
1.2.1 During the Employment Term, Employee shall serve as Vice
President-Quality Assurance and Regulatory Affairs of the Company and shall
perform all duties and accept all responsibilities incidental to such position
or as otherwise may be reasonably assigned to him by the Company's Chief
Executive Officer or its Board of Directors (the "Board").
1.2.2 Employee represents to the Company that, except for the
employment agreement dated November 1, 1994 between him and Sharpoint
Development Corporation, which agreement is being terminated as of the date
hereof, he is not subject to, and agrees that he will not hereafter during the
Employment Term become subject to, any employment agreement, non-competition
covenant, non-disclosure agreement or other agreement, covenant, understanding
or restriction which would prohibit Employee from fully performing his duties
and responsibilities hereunder, or which would otherwise in any manner, directly
or indirectly, limit or adversely affect the duties and responsibilities which
may now or in the future be assigned to Employee by the Company's Chief
Executive Officer or the Board.
1.3 EXTENT OF SERVICE. During the Employment Term, Employee agrees to use
-----------------
his best efforts to carry out his duties and responsibilities under Section
1.2.1 hereof and, consistent with the other provisions of this Agreement, to
devote his full time, attention and energy thereto
<PAGE>
during normal business hours. Except as provided in Section 4 hereof, the
foregoing shall not be construed as preventing Employee from making investments
in other businesses or enterprises, provided that Employee agrees not to become
engaged in any other business, charitable or community activity which may
materially interfere with his ability to discharge his duties and
responsibilities to the Company.
1.4 BASE SALARY. For all the services rendered by Employee hereunder, the
-----------
Company shall pay Employee an annual salary at the rate of $95,850 for each full
year of the Employment Term, plus such additional amounts, if any, as may be
approved by the Board or its Compensation Committee (the "Committee") (as such
amount may be increased from time to time hereunder, the "Base Salary"), payable
in installments at such times as the Company customarily pays its other senior
officers (but in no event less often than monthly). Employee's Base Salary
shall be reviewed by the Board or the Committee at the end of each calendar year
to determine if an increase is appropriate for the next calendar year pursuant
to its normal performance review policies for executives, taking into account
Employee's performance and increases in the cost of living. The Company shall
be entitled to make proper withholdings from Employee's Base Salary as required
by law or agreed to by Employee.
1.5 BENEFITS. During the Employment Term, Employee shall be (a) entitled
--------
to the benefits described in Exhibit 1.5 and to participate in such retirement,
-----------
profit sharing, group insurance, life insurance, long-term disability,
medical/dental and any other fringe benefit plans, if any, as may be authorized
from time to time by the Board in its sole discretion for officers of the
Company generally, and (b) entitled to four weeks of paid vacation, in addition
to customary holidays and personal days in accordance with the Company's normal
personnel policies. Accrued and unused vacation may be carried forward into the
subsequent year only if approved in writing by the Committee, Board or Chief
Executive Officer of the Company.
1.6 INCENTIVE COMPENSATION. Employee shall be entitled to participate in
----------------------
such incentive compensation or bonus plans, if any, as may be established from
time to time in respect of each complete fiscal year during the Employment Term
by the Board or the Committee in their sole discretion, the terms and provisions
of which shall also be in the sole discretion of the Board or the Committee. In
addition, with respect to each calendar year during the Employment Term,
Employee will be entitled to receive an annual bonus, payable no later than 100
days after the end of such calendar year, in a minimum amount equal to 20% of
his Base Salary and a maximum amount equal to 60% of his Base Salary, based on
performance milestones significant to the progress of the Company to be
established by the Board upon the recommendation of the Committee based upon
criteria to be submitted to the Committee by the end of the first calendar
quarter of each year by the Chief Executive Officer. The current applicable
performance milestones are attached hereto as Exhibit 1.6 and will be in effect
-----------
until December 31, 1996.
1.7 STOCK OPTIONS. In consideration for Employee's execution of this
-------------
Agreement, the Committee has granted to Employee, as of the date of execution
hereof ("Execution Date"), subject to the execution and delivery of this
Agreement, a nonqualified stock option to purchase
-2-
<PAGE>
30,458 shares of Common Stock of the Company pursuant to the Company's Equity
Compensation Plan and a stock option agreement in the form used generally by the
Company, a copy of which is attached hereto as Exhibit 1.7. Notwithstanding
-----------
anything herein to the contrary, Employee's rights and entitlements with respect
to such options will be governed by the terms of such stock option agreement and
Equity Compensation Plan.
1.8 EXPENSES. The Company shall reimburse Employee on a timely basis for
--------
all ordinary and necessary out-of-pocket business expenses incurred in
connection with the discharge of his duties and responsibilities hereunder
during the Employment Term in accordance with the Company's expense approval
procedures then in effect and upon presentation to the Company of an itemized
account and written proof of such expenses.
2. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that by
------------------------
reason of employment by and service to the Company, he has had and will continue
to have access to financial, proprietary and other confidential information of
the Company and its affiliates, including, without limitation, information and
knowledge pertaining to products and services offered, research ideas, methods
and results, innovations, designs, ideas, plans, trade secrets, proprietary
information, distribution and sales methods and systems, sales and profit
figures, customer and client lists, and relationships between the Company and
its affiliates, distributors, customers, clients, suppliers and other who have
business dealings with the Company and its affiliates ("Confidential
Information"). Employee acknowledges that such Confidential Information is a
valuable and unique asset and covenants that he will not, either during or after
the term of this Agreement, disclose any such Confidential Information to any
person for any reason whatsoever without the prior written authorization of the
Board, unless such information is in the public domain through no fault of
Employee or except: (a) as may be required by law with prior notice to the
Company; or (b) in the course of his employment hereunder and solely in
furtherance of the interests of the Company and its affiliates.
3. DEVELOPMENTS. All developments, including inventions, whether patentable
------------
or otherwise, trade secrets, discoveries, improvements, ideas and writings which
either directly or indirectly relate to or may be useful in the business of the
Company or any of its affiliates (the "Developments") which Employee, either by
himself or in conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Employment Term or at
any time thereafter during which he is employed by the Company, shall become and
remain the sole and exclusive property of the Company. Employee hereby assigns,
transfers and conveys, and agrees to so assign, transfer and convey, all of his
right, title and interest in and to any and all such Developments and to
disclose fully as soon as practicable, in writing, all such Developments to the
Board. At any time and from time to time, upon the request and at the expense
of the Company, Employee will execute and deliver any and all instruments,
documents and papers, give evidence and do any and all other acts which, in the
opinion of counsel for the Company, are or may be necessary or desirable to
document such transfer or to enable the Company to file and prosecute
applications for and to acquire, maintain and enforce any and all patents,
trademark registrations or copyrights under United States or foreign law with
respect to any such Developments or to obtain any extension, validation, re-
-3-
<PAGE>
issue, continuance or renewal of any such patent, trademark or copyright. The
Company will be responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such proceedings and will
reimburse Employee for all reasonable expenses incurred by him in compliance
with the provisions of this Section.
4. NON-COMPETITION.
---------------
4.1 During the Employment Term and for a period of two years thereafter,
Employee will not, without prior written consent of the Board, directly or
indirectly, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise with or use or permit his name to be used in connection
with, any business or enterprise engaged within any state of the United States,
the District of Columbia or any foreign jurisdiction in any business that
competes with the business of the Company business as in effect either during
the Employment Term or on the date Employee's employment terminates, as
applicable. It is recognized by Employee that the business of the Company and
Employee's connection therewith is or will be international in scope, and that
geographical limitations on this non-competition covenant and the non-
solicitation covenant set forth in Section 5 are therefore not appropriate.
4.2 The foregoing restriction shall not be construed to prohibit the
ownership by Employee of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934, provided that such ownership represents a passive
investment and that neither the Employee nor any group of persons including
Employee in any way, either directly or indirectly, manages or exercises control
of any such corporation, guarantees any of its financial obligations, otherwise
takes part in its business, other than exercising his rights as a shareholder,
or seeks to do any of the foregoing.
5. NO SOLICITATION. Employee agrees that during the Employment Term and for a
---------------
period of two years thereafter, Employee will not, either directly or
indirectly, (i) call on or solicit any person, firm, corporation or other entity
who or which at the time of the termination of Employee's employment was, or
within one year prior thereto had been, a customer of the Company or any of its
affiliates or (ii) solicit the employment of any person who was employed by the
Company or any of its affiliates on a full or part-time basis at the time of
Employee's termination of employment, unless such person (a) was involuntarily
discharged by the Company or such affiliate, or (b) voluntarily terminated his
relationship with the Company or such affiliate prior to Employee's termination
of employment.
6. EQUITABLE RELIEF.
----------------
6.1 Employee acknowledges that the restrictions contained in Sections 2,
3, 4 and 5 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its affiliates, that the Company would not have
entered into this Agreement in the absence of such
-4-
<PAGE>
restrictions, and that any violation of any provision of those Sections may
result in irreparable injury to the Company and its affiliates (each of which
shall be deemed a third party beneficiary of such restriction). Employee
represents that his experience and capabilities are such that the restrictions
contained in Sections 4 and 5 hereof will not prevent Employee from obtaining
employment or otherwise earning a living at the same general level of economic
benefit as anticipated by this Agreement. Employee represents and acknowledges
that (a) he has been advised by the Company to consult his own legal counsel in
respect of this Agreement, and (b) that he has had full opportunity, prior to
execution of this Agreement, to review thoroughly this Agreement with his
counsel.
6.2 Employee agrees that each of the Company and its affiliates shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of proving actual damages, as well as to an equitable accounting of all
earnings, profits and other benefits arising from any violation of Section 2, 3,
4 or 5 hereof, which rights shall be cumulative and in addition to any other
rights or remedies to which the Company or any affiliate may be entitled. In
the event that any provisions of Section 2, 3, 4 or 5 hereof should ever be
adjudicated to exceed time, geographic, service or other limitations permitted
by applicable law in any jurisdiction, then such provision shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service, or other
limitations permitted by applicable law.
6.3 Employee and the Company irrevocably and unconditionally (i) agree
that any suit, action or other legal proceeding arising out of this Agreement,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may be
brought in any court of competent jurisdiction in the State of North Carolina,
provided that any suit, action or other legal proceeding brought against the
Company shall be brought and adjudicated in the United States District Court for
the Eastern District of North Carolina or, if such court will not accept
jurisdiction, in any court of competent civil jurisdiction sitting in Wake
County, North Carolina, (ii) consent to the jurisdiction of any such court in
any such suit, action or proceeding and (iii) waive any objection which Employee
or the Company may have to the laying of venue of any such suit, action or
proceeding in any such court. Employee and the Company also irrevocably and
unconditionally consent to the service of any process, pleading, notices or
other papers in any manner permitted by the notice provisions hereof.
6.4 Employee agrees that he will provide, and that the Company may
similarly provide, a copy of Sections 2, 3, 4, and 5 of this Agreement to any
business or enterprise (i) which he may directly or indirectly own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing, control or control of, or (ii) with which he may be
connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise, or in connection with which he may use
or permit his name to be used; provided, however, that this provision shall not
apply in respect of Sections 4 and 5 of this Agreement after expiration of the
time periods set forth therein.
-5-
<PAGE>
7. TERMINATION. This Agreement shall terminate prior to the expiration of the
-----------
Employment Term upon the occurrence of any one of the following events:
7.1 DISABILITY. The Company may terminate this Agreement if Employee is
----------
unable fully to perform his duties and responsibilities hereunder to the full
extent required by the Board by reason of illness, injury or incapacity for six
(6) consecutive months, or for more than six (6) months in the aggregate during
any period of twelve (12) calendar months, during which time he shall continue
to be compensated as provided in Section 1 hereof. In such event, the Company
shall have no further liability or obligation to Employee for compensation or
other benefits under this Agreement except (i) as may be provided under any
disability benefit plan or other employee benefit plan and program which may be
in effect and in which he participated, and (ii) Employee shall be entitled to
receive a pro rata portion of the incentive compensation pursuant to Section 1.6
in respect of the year during which Employee first became disabled.. The right
and benefits of Employees under any such employee benefit plans and programs
will be determined in accordance with the terms and provisions of such plans and
programs. Employee agrees, in the event of any dispute under this Section 7.1,
to submit to a physical examination by an independent, licensed physician
selected by the Board.
7.2 DEATH. This Agreement shall terminate if Employee dies during the
-----
Employment Term. In such event, the Company shall pay to Employee's executors,
legal representatives or administrators an amount equal to the installment of
his Base Salary set forth in Section 1.4.1 hereof for the month in which he
dies, all accrued incentive compensation pursuant to Section 1.6 and and a pro
rata portion of the incentive compensation pursuant to Section 1.6 in respect of
the year during which Employee died, and, thereafter, the Company shall have no
further liability or obligation under this Agreement to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him, except as may be provided under any employee benefit plan
or compensation program which may be in effect for employees of the Company and
in which he participated. The rights and benefits of Employee under any such
employee benefit plans and programs will be determined in accordance with the
terms and provisions of such plans and programs.
7.3 CAUSE. The Company may terminate this Agreement, at any time, for
-----
"cause". For purposes of the Agreement, Employee's employment may be terminated
for "cause" if: (a) he engages in gross misconduct, or dishonesty (which in
either case results in material harm to the Company); (b) materially fails to
perform or observe any of the terms or provisions of this Agreement (c) fails to
carry out reasonable directives of the Chief Executive Officer of the Company or
the Board in accordance with Section 1.2; or (d) is convicted of a felony or is
involved in substance abuse; provided, however, that "cause" shall not include
bad judgment or any act or omission reasonably believed by Employee in good
faith to have been in or not opposed to the best interests of the Company, and
provided further, however, that in any event, Employee shall be given written
notice by the Board that the Company intends to terminate Employee's employment
for cause, which written notice shall specify the act or acts on the basis of
which the Company intends so to terminate Employee's employment, and Employee
shall then be given the opportunity, within fifteen (15) days of his receipt of
such notice, to have a meeting
-6-
<PAGE>
with the Board to discuss such act or acts. If the basis of such written notice
is an act or acts other than an act or acts described in clause (d) of the
preceding sentence, Employee will be given seven (7) days after such meeting
within which to cease or correct the performance (or nonperformance) or to cure
the harm giving rise to such written notice and, upon failure of Employee within
such seven (7) day period to cease or correct same, Employee's employment by the
Company shall automatically terminate hereunder for cause. If Employee ceases
or cures to the satisfaction of the Board of Directors, the Employee's
employment agreement shall continue in accordance with the terms hereof. Upon
any such termination or removal, Employee shall be entitled to receive Base
Salary under Section 1.4, incentive compensation under Section 1.6 and all other
benefits and compensation as described herein for a period of twelve (12) months
thereafter.
7.4 CHANGE IN CONTROL TERMINATION.
-----------------------------
7.4.1 For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if:
(a) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d) of the Exchange Act), but excluding Rolf D. Schmidt and F.W.
Schmidt or any entity controlled by either or both of them, becomes the
beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50.1% of the
common stock of the Company or the combined voting power of the Company's then
outstanding securities;
(b) A liquidation or dissolution of the Company, or a sale
(excluding transfers to subsidiaries) of all or substantially all of the
Company's assets occurs; or
(c) During any period of two consecutive years, individuals who,
at the beginning of such period, constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's shareholders, or at least two-thirds of the
directors who were not directors at the beginning of such period was approved by
a vote of at least two-thirds of the directors then still in office who were
either directors at the beginning of the period or who, in connection with their
election or nomination, received the foregoing two-thirds approval.
7.4.2 After the occurrence of a Change in Control, Employee shall be
entitled to receive payment and benefits pursuant to this Agreement if, after
the occurrence of a Change in Control, his employment with the Company is
terminated under any of the following circumstances: (a) the Company terminates
Employee's employment for reasons other than "Cause," "Disability," or death; or
(b) the Employee terminates his employment with the Company for "Good Reason."
For purposes of this Agreement, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions: (i) an adverse
change in the Employee's status, title, position or responsibilities from that
in effect
-7-
<PAGE>
immediately prior to the Change in Control; (ii) a reduction in the Employee's
salary; (iii) the Company's requiring the Employee to relocate beyond a twenty-
five (25) mile radius from Raleigh, North Carolina; (iv) any purported
termination of Employee's employment for cause or disability without grounds
therefor; (v) any material breach by the Company of any provision of this
Agreement; or (vi) the failure of the Company to obtain an agreement,
satisfactory to the Employee, from any successor or assign of the Company to
assume and agree to perform this Agreement.
7.4.3 In the event that Employee's employment with the Company
terminates under any of the circumstances described in Section 7.4.2 above,
Employee shall be entitled to receive all of the following: (a) All accrued
compensation and any pro rata incentive compensation Employee may have earned up
--- ----
to the date of termination; (b) A continuation for three years from date of
termination of Employee's then current annual salary, and incentive compensation
and benefits hereunder. The Company shall maintain in full force and effect,
for three (3) years after the date of termination, all benefit plans and
programs in which Employee was entitled to participate immediately prior to the
date of termination, provided that Employee's continued participation is
possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the date of termination. If Employee's participation in
any such plan or program is barred, the Company shall arrange upon comparable
terms, and at no greater cost to Employee than the cost he bore for such plans
and programs prior to the date of termination, to provide Employee with benefits
substantially similar to those which he is entitled to receive under any such
plan or program.
7.5 OTHER TERMINATIONS.
------------------
7.5.1 Employee may terminate this Agreement upon ten (10) days' prior
written notice to the Company if the Company fails to fulfill any of the
material terms and provisions hereof including the failure to pay Employee any
amounts payable hereunder within ten (10) business days after the same shall be
due and payable. In the event of such termination, Employee shall be entitled
to receive payment of his Base Salary, all incentive compensation pursuant to
Section 1.6 and all other benefits and compensation to which he would have been
entitled under this Agreement until the end of the Employment term.
7.5.2 Employee may voluntarily terminate this Agreement upon thirty
(30) days' prior written notice for any reason; provided, however, that no
further payments shall be due under this Agreement in that event except that
Employee shall be entitled to all accrued compensation and a pro rata portion of
--- ----
all incentive compensation for the year in which termination occurs, and any
benefits due under any compensation or benefit plan including those listed in
Section 1 hereof provided by the Company for officers generally or otherwise.
8. WORKING FACILITIES. The Employee shall be provided with an office,
------------------
stenographic and technical help and such other facilities and services as may be
suitable to Employee's position in accordance with manpower plan approved by the
Board.
-8-
<PAGE>
9. LOCATION. Employee shall not be required, without his consent, to render
--------
services at any place other than the area of Raleigh, North Carolina; however;
Employee may be asked to travel in connection with the Company's business as
reasonably appropriate for the performance of his duties.
10. PROFESSIONAL DUES AND CONTINUING EDUCATION. The Company agrees to
------------------------------------------
reimburse the Employee for reasonable professional dues and continuing education
expenses necessary to maintain applicable certifications upon approval by the
Company's Chief Executive Officer or the Board.
11. INDEMNIFICATION. The Company shall indemnify the Employee, to the maximum
---------------
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by him 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 of any subsidiary or
affiliate of the Company.
12. SURVIVAL. Notwithstanding the termination of this Agreement, the Company's
--------
obligations under Sections 1.4, 1.5, 1.6, 1.7, 1.8, 6.3, 7 and 11 and Employee's
obligations under Sections 2, 3, 4, 5, 6, and 7 shall survive and remain in full
force and effect.
13. GOVERNING LAW. This Agreement shall be governed by and interpreted under
-------------
the laws of the State of North Carolina without giving effect to any conflict of
law provisions.
14. NOTICES. All notices and other communications hereunder or in connection
-------
herewith shall be in writing and shall be deemed to have been given when
delivered by hand or reputable express delivery service, mailed by certified or
registered mail, return receipt requested, or sent by fax to the party as
follows (provided that notice of change of address shall be deemed given only
when received):
If to the Company, to: Tri-Point Medical Corporation
5265 Capital Boulevard
Raleigh, North Carolina 27604
Fax: (919) 876-7874
Attn: Chairman of the Board
If to Employee, to: Joe B. Barefoot
2113 Treverton Place
Raleigh, NC 27609
or to such other names or addresses as the Company or Employee, as the case
may be, shall designate by notice to the other person in the manner
specified in this Section.
-9-
<PAGE>
15. MISCELLANEOUS.
-------------
15.1 This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties hereto with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment approved by the Board and executed on the Company's behalf by
a duly authorized officer.
15.2 All of the terms of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, executors,
administrators, legal representatives, successors and assigns of the parties
hereto, (including without limitation, any person, partnership, company or
corporation which may acquire substantially all of the Company's assets or
business or with or into which the Company may be merged, liquidated,
consolidated or otherwise combined), except that the duties and responsibilities
of Employee hereunder are of a personal nature and shall not be assignable or
delegatable in whole or in part by Employee.
15.3 If any provision of this Agreement or application thereof to anyone
or any circumstances is held invalid or unenforceable in any jurisdiction, the
remainder of this Agreement, and the application of such provision to such
person or entity or such circumstance in any other jurisdiction or to other
persons, entities or circumstances in any jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement are severable.
15.4 No remedy conferred upon the Company or Employee by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission by the
Company or Employee exercising any right, remedy or power hereunder or existing
at law or in equity shall be construed as a waiver thereof, and any such right,
remedy or power may be exercised by the Company or Employee from time to time
and as often as may be deemed expedient or necessary by the Company or Employee
in its sole discretion.
15.5 All section headings are for convenience only. This Agreement may be
executed in several counterparts, each of which shall be original. It shall not
be necessary in marking proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
15.6 If either party should file a lawsuit against the other to enforce
any right such party has hereunder, the prevailing party shall also be entitled
to recover a reasonable attorney's fee and costs of suit in addition to other
relief awarded such prevailing party.
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
TRI-POINT MEDICAL CORPORATION
By: _________________________________
Rolf D. Schmidt, Chairman of the Board
_____________________________________
Joe B. Barefoot
-11-
<PAGE>
EXHIBIT 1.5
-----------
EMPLOYEE'S BENEFITS
-------------------
MEDICAL/DENTAL INSURANCE. The Company will provide, at no charge, medical and
- ------------------------
dental insurance for Employee and his dependents, including deductible expenses.
LIFE INSURANCE. The Company will provide life insurance based upon Employee's
- --------------
salary or position. The amount of an employee's coverage is four times annual
salary.
ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) INSURANCE. The Company will provide
- ---------------------------------------------------
AD&D insurance for Employee. This program pays a benefit if Employee dies or is
seriously injured as a direct result of an accident. The benefits received vary
according to the nature of the injury and the Employee's salary or position.
SALARY CONTINUATIONS. Salary continuation takes effect after Employee has been
- --------------------
absent from work for more than three continuous weeks due to medical reasons.
Employee earns one month of salary continuation at normal pay up to a maximum of
six months or until LTD insurance begins, whichever occurs first. Certification
by a physician is required prior to any salary continuation payment.
LONG-TERM DISABILITY. Employee is eligible for long-term disability (LTD) after
- --------------------
being accepted by insurance company. LTD payments begin after six months of
disability and are based on a certain portion of normal pay up to a certain
maximum dollar amount per month.
-12-
<PAGE>
EXHIBIT 1.6
-----------
PERFORMANCE MILESTONES FOR 1996 BONUS
-------------------------------------
1. Execute Supply & Distribution Agreement with Ethicon.
2. Successfully consummate either private placement or public offering of
equity.
3. In order to support Ethicon Launch of TraumaSeal(TM) in Canada, be in a
position by end of third quarter to produce 30,000 units per week.
4. Position manufacturing for the initiation of a second shift operation to
produce TraumaSeal(TM) by the beginning of fourth quarter.
5. Qualify North Safety Packaging as the second source vendor for
TraumaSeal(TM) packaging by fourth quarter.
6. Execute lease for new facility.
7. Submit TraumaSeal(TM) PMA to FDA.
8. Engage European C.R.O. to assist in creating the plan for obtaining C.E.
Mark.
9. Identify animal model for absorbable formulation biocompatibility testing.
10. Engage animal model consultant/contractor.
11. Begin biocompatibility testing for absorbable formulations.
-13-
<PAGE>
CONSULTING AGREEMENT
--------------------
THIS IS A CONSULTING AGREEMENT dated as of May 31, 1996 between Tri-Point
Medical Corporation, a Delaware corporation (the "Company"), and Steven A.
Kriegsman, of Pacific Palisades, California (the "Consultant").
Background
----------
The Company is currently contemplating an initial public offering to be
underwritten by Lehman Brothers and Sands Brothers & Co., Ltd. of its common
stock and believes that, if successful, it will need professional services to
assist in the transition from a privately-held company to a public company, as
well as with the implementation of its development plans. Consultant is
experienced in such matters and has agreed to provide advice to the Company
relating thereto.
Terms
-----
NOW, THEREFORE, in consideration of the mutual premises herein contained
and intending to be legally bound hereby, the parties agree as follows:
1. Consulting Services.
-------------------
1.1 Duties. The Company hereby engages the Consultant, subject to the
------
terms and conditions of this Agreement, to serve as a consultant to provide
financial and corporate development consulting services to the Company relating
to new business development, strategic planning and assistance with strategic
alliances ("Consulting Services"). Consultant hereby accepts such engagement
and agrees to provide the Consulting Services as provided herein, all of which
services shall be performed conscientiously and to the full extent of
Consultant's ability. The Consultant shall perform such duties as are assigned
to him from time to time by the Board of Directors or the Chief Executive
Officer of the Company. Consultant shall provide consultation as requested by
the Company, at the times and on the occasions requested by the Company. During
the Consulting Term, Consultant shall at all times comply with all reasonable
policies and procedures adopted by the Company, including without limitation the
procedures and policies adopted by the Company regarding conflicts of interest
and confidentiality of the Company's business information.
1.2 Consulting Term. The term for which Consultant shall provide the
---------------
Consulting Services (the "Consulting Term") shall commence at the Effective Time
(as defined below) and end on the earlier of (i) the fifth anniversary of the
Effective Time, (ii)
<PAGE>
the death or disability of Consultant, or (iii) the termination of Consultant's
services for Cause (as defined below). The "Effective Time" shall be the day
immediately following the closing by the Company of an initial public offering
underwritten by Lehman Brothers and Sands Brothers & Co., Ltd.
1.3 Independent Contractor. During the Consulting Term, Consultant shall
----------------------
provide consulting services to the Company as an independent contractor and not
as an employee of the Company. Consultant shall at all times during the
Consulting Term act as an independent contractor and during such period nothing
hereunder shall create or imply a relationship of employer-employee between the
Company and Consultant.
1.4 No Conflict. The Consultant represents and warrants to the
-----------
Company that he is not a party to any employment agreement, non-competition
covenant, non-disclosure agreement or other agreement, covenant, understanding
or restriction which would prohibit the Consultant from executing this Agreement
and performing fully his duties and responsibilities hereunder, or which would
in any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future during the Consulting Term be
assigned to the Consultant by the Company or the scope of assistance to which he
may now or in the future during the Consulting Term provide to the Company.
Consultant will indemnify and hold harmless the Company from and with respect to
any liability, damage or cost, including reasonable attorneys' fees, arising out
of any breach of the foregoing representation and warranty.
1.5 Extent of Service. During the Consulting Term, Consultant agrees to
-----------------
devote such time, attention and energy as is necessary to fulfill his duties and
responsibilities as a consultant under this Section 1.
1.6 Required Travel. Except with the Consultant's consent, the Company
---------------
will not require Consultant to travel outside of Los Angeles County, California
more than five (5) days in each calendar quarter. The Company will give
Consultant reasonable notice of any travel requirements and will agree to use
its best efforts to agree on mutually agreeable travel schedules for any
required travel.
2. Compensation.
------------
2.1 For all services rendered by Consultant as a consultant to the Company
during the Consulting Term, the Company shall pay Consultant annual compensation
of $120,000, payable monthly on the last day of each month.
2.2 As of the Effective Time, the Company will grant to Consultant
nonqualified stock options to purchase 50,000 shares of common stock of the
Company. The option shall be exercisable at the rate of 20% of the option on
the date of grant, and provided that this Agreement has not been previously
terminated for Cause (as defined below), an additional 20% of the option on each
of the first four anniversary dates thereof. The exercise price of the option
will be the offering price of the Common Stock in the IPO
-2-
<PAGE>
less $3, and the term of the stock option will be 10 years. The grant will be
made pursuant to the Company's Equity Compensation Plan and a stock option
agreement in the form used generally by the Company.
2.3 During the Consulting Term, Consultant shall be solely responsible for
the payment of all federal, state and local taxes or contributions imposed or
required under unemployment insurance, social security and income tax laws that
pertain to the compensation paid or benefits provided to Consultant for his
performance of consulting services.
2.4 Consultant agrees that, to the extent there are any tax consequences
arising from the payments made or options granted by the Company pursuant to
this section, he shall be exclusively responsible for any payment of federal and
state taxes on such payments and options. Consultant further agrees to
indemnify, hold harmless and defend the Company against any and all claims or
liabilities that may be asserted by any governmental taxing authority, including
payment of attorney's fees, charges, assessments, interest, penalties or
liabilities arising out of or with respect to any tax liabilities relating to
payments made or options granted to Consultant pursuant to this section.
2.5 Consultant shall be responsible for all ordinary and necessary
expenses incurred by Consultant in connection with performing services under
this Agreement, except the Company shall be responsible for all reasonable and
necessary travel expenses for travel from the Consultant's home to or from
anywhere outside of Los Angeles County, California, where such travel was
requested in writing by the Company.
3. Termination.
-----------
3.1 Unless earlier terminated, this Agreement will terminate automatically
upon the expiration of the Consulting Term. This Agreement shall terminate
automatically and become null and void and of no further force and effect if the
Effective Time shall not have occurred by September 30, 1996.
3.2 The Company may terminate this Agreement for "Cause" by written notice
to Consultant. For the purposes of this Agreement, "Cause" shall mean (i)
theft, fraud or embezzlement by Consultant; (ii) conviction of Consultant of a
felony involving moral turpitude; or (iii) any default of Consultant's
obligations hereunder which is not cured within thirty days after written
notification thereof to Consultant. In the event of termination under this
Section 3.2, Consultant shall be entitled only to amounts accrued prior to the
date of termination.
3.3 Disability. In the event that Consultant is unable fully to perform
----------
his duties and responsibilities hereunder by reason of illness, injury or
incapacity, the Company will continue to pay to Consultant when due the unpaid
installments of his compensation set forth in Section 2.1 for the remainder of
the Consulting Term as if the Consulting Term had not been terminated under
Section 1.2.
3.4 Death. In the event that the Consultant dies during the Consulting
-----
Term, the Company shall continue to pay to his
-3-
<PAGE>
executors, legal representatives or administrators when due the unpaid
installments of his compensation set forth in Section 2.1 for the remainder
------
of the Consulting Term as if the Consulting Term had not been terminated under
Section 1.2. The Company may obtain life insurance on the life of
Consultant to fund such obligation.
4. Confidential Information. Consultant recognizes and acknowledges that by
------------------------
reason of his engagement by and service to the Company, he has had and will
continue to have access to financial, proprietary and other confidential
information of the Company and its affiliates, including, without limitation,
information and knowledge pertaining to products and services offered, research
ideas, methods and results, innovations, designs, ideas, plans, trade secrets,
proprietary information, distribution and sales methods and systems, sales and
profit figures, customer and client lists, and relationships between the Company
and its affiliates, distributors, customers, clients, suppliers and others who
have business dealings with the Company and its affiliates ("Confidential
Information"). Consultant acknowledges that such Confidential Information is a
valuable and unique asset and covenants that he will not, either during or after
the term of this Agreement, disclose any such Confidential Information to any
person for any reason whatsoever without the prior written authorization of the
Board, unless such information is in the public domain through no fault of
Consultant or except: (a) as may be required by law with prior notice to the
Company; or (b) in the course of his employment hereunder and solely in
furtherance of the interests of the Company and its affiliates.
5. Developments. All developments, including inventions, whether patentable
------------
or otherwise, trade secrets, discoveries, improvements, ideas and writings which
either directly or indirectly relate to or may be useful in the business of the
Company or any of its affiliates (the "Developments") which Consultant, either
by himself or in conjunction with any other person or persons, shall conceive,
make, develop, acquire or acquire knowledge of during the Consulting Term or at
any time thereafter during which he is employed by the Company, shall become and
remain the sole and exclusive property of the Company. Consultant hereby
assigns, transfers and conveys, and agrees to so assign, transfer and convey,
all of his right, title and interest in and to any and all such Developments and
to disclose fully as soon as practicable, in writing, all such Developments to
the board of directors of the Company. At any time and from time to time, upon
the request and at the expense of the Company, Consultant will execute and
deliver any and all instruments, documents and papers, give evidence and do any
and all other acts which, in the opinion of counsel for the Company, are or may
be necessary or desirable to document such transfer or to enable the Company to
file and prosecute applications for and to acquire, maintain and enforce any and
all patents, trademark registrations or copyrights under United States
-4-
<PAGE>
or foreign law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse Consultant for all reasonable expenses incurred
by him in compliance with the provisions of this Section.
6. Equitable Relief.
----------------
6.1 Consultant acknowledges that the restrictions contained in Sections 4
and 5 hereof are reasonable and necessary to protect the legitimate interests of
the Company and its affiliates, that the Company would not have entered into
this Agreement in the absence of such restrictions, and that any violation of
any provision of those Sections may result in irreparable injury to the Company
and its affiliates (each of which shall be deemed a third party beneficiary of
such restriction).
6.2 Consultant agrees that each of the Company and its affiliates shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of proving actual damages, as well as to an equitable accounting of all
earnings, profits and other benefits arising from any violation of Section 4 or
5 hereof, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company or any affiliate may be entitled.
6.3 Consultant irrevocably and unconditionally (i) agrees that any suit,
action or other legal proceeding seeking equitable relief under this Section 6,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may be
brought in any court of competent jurisdiction in the State of North Carolina or
any other court of competent jurisdiction, provided that any suit, action or
other legal proceeding brought against the Company shall be brought and
adjudicated in the United States District Court for the Eastern District of
North Carolina or, if such court will not accept jurisdiction, in any court of
competent civil jurisdiction sitting in Wake County, North Carolina, (ii)
consents to the non-exclusive jurisdiction of any such court in any such suit,
action or proceeding and (iii) waives any objection which Consultant may have to
the laying of venue of any such suit, action or proceeding in any such court.
Consultant also irrevocably and unconditionally consents to the service of any
process, pleading, notices or other papers in any manner permitted by the notice
provisions of Section 9 hereof.
-5-
<PAGE>
7. Governing Law. This Agreement shall be governed by and interpreted under
-------------
the laws of the State of North Carolina without giving effect to any conflict of
law provisions.
8. Dispute Resolution.
------------------
8.1 If any matter or dispute arises under this Agreement that can not be
resolved by the parties hereto, other than the seeking of equitable relief
pursuant to Section 6 hereof, it shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
except as modified by this section. The number of arbitrators shall be one (1).
The arbitration proceeding shall be conducted in the English language. Any
arbitration proceeding shall be brought in Raleigh, North Carolina or Los
Angeles, California, unless the parties agree in writing to conduct the
arbitration in another location.
8.2 The arbitration decision shall be binding and not be appealable to any
court in any jurisdiction. The prevailing party may enter such decision in any
court having competent jurisdiction.
8.3 Each party shall pay its own expenses of arbitration and the expenses
of the arbitrator shall be equally shared except that if, in the opinion of the
arbitrator, any claim by a party hereto or any defense or objection thereto by
the other party was unreasonable, the arbitrator may in its discretion assess
as part of the award all or any part of the arbitration expenses of the other
party (including reasonable attorneys' fees) and expenses of the arbitrator
against the party raising such unreasonable claim, defense or objection.
9. Notices. All notices and other communications hereunder or in connection
-------
herewith shall be in writing and shall be deemed to have been given when
delivered by hand or reputable express delivery service, mailed by certified or
registered mail, return receipt requested, or sent by fax to the party as
follows (provided that notice of change of address shall be deemed given only
when received):
If to the Company, to: Tri-Point Medical Corporation
5265 Capital Boulevard
Raleigh, North Carolina 27604
Fax: (919) 790-1041
If to Consultant, to: Steven A. Kriegsman
866 Iliff Street
Pacific Palisades, CA 90272
Fax: (310) 459-1935
-6-
<PAGE>
or to such other names or addresses as the Company or Consultant, as the
case may be, shall designate by notice to the other person in the manner
specified in this Section.
10. Miscellaneous. This Agreement (i) constitutes the entire agreement, and
-------------
supersedes any prior agreements relating to the subject matter hereof; (ii) may
be modified only in a writing duly executed by the parties hereto and Consultant
and the Company acknowledge that the effect of this provision is that no oral
modifications of any nature whatsoever to this Agreement shall be permitted; and
(iii) shall be binding upon and inure to the benefit of and be enforceable by
the respective heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto, except that the duties and
responsibilities of Consultant as set forth in Section 1 of this Agreement are
of a personal nature and shall not be assignable or delegable in whole or in
part by Consultant.
11. Survival. Notwithstanding any termination of this Agreement, Consultant's
--------
obligations under Sections 4 and 5 of this Agreement shall survive and remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
TRI-POINT MEDICAL CORPORATION
By:
--------------------------
Robert V. Toni, President
-----------------------------
Steven A. Kriegsman
-7-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS IS A REGISTRATION RIGHTS AGREEMENT dated as of May 31, 1996 between
Tri-Point Medical Corporation, a Delaware corporation (the "Company"), and
Caratec, L.L.C., a North Carolina limited liability company ("LLC").
BACKGROUND
----------
Pursuant to the Contribution and Exchange Agreement ("Exchange Agreement")
dated as of the date hereof among Sharpoint Development Corporation, LLC, the
Company and others, LLC will transfer to the Company its partnership interest in
Tri-Point Medical L.P. in exchange for the issuance to LLC of 1,776,250 shares
of the common stock of the Company (together with any shares issued with respect
thereto, the "Shares"). In connection therewith, the Company desires to grant
to LLC, and LLC desires to receive, certain registration rights with respect to
the Shares.
TERMS
-----
In consideration of the foregoing and the mutual promises herein contained,
and intending to be legally bound hereby, the parties agree as follows:
1. EFFECTIVENESS. The rights granted to LLC under Section 2 of this Agreement
-------------
will become effective only upon the consummation of the contribution and
exchange contemplated by Section 1 of the Exchange Agreement, and this Agreement
will terminate upon any termination of the Exchange Agreement which occurs prior
to the consummation of such contribution and exchange.
2. REGISTRATION OF SHARES.
----------------------
2.1 REGISTRATION ON DEMAND. LLC will have the right, on two occasions
----------------------
during the five-year period commencing 180 days after the Company has completed
an initial public offering of its common stock, to require the Company to file a
registration statement on Form S-3 ("Registration Statement") with the
Securities and Exchange Commission to register the resale of all or any portion
of the Shares, or if Form S-3 is not available, to otherwise effect the
registration under the Securities Act of 1933, as amended ("Securities Act"), of
such Shares. The Company shall not be obligated to file and cause to become
effective (i) any registration statement within a period of four months after
the date of a request for registration pursuant to this Section 2.1 if, at the
time of such request, the filing of such registration statement would, as
determined in good faith by a majority of the board of directors of the Company,
be seriously detrimental to the Company or its shareholders or adversely affect
a material Company financing project or a material proposed or pending
acquisition, merger or other similar corporate transaction to which the Company
is or expects to be a party, provided that in the case of this clause (i), such
right of the Company to delay a request for registration may be exercised by the
Company not more than once
<PAGE>
in any one-year period; (ii) within a period of six months after the filing of a
registration statement pursuant to this Section 2.1.1; or (iii) which would
register resales of Shares having aggregate gross proceeds of less than
$100,000.
2.2 PIGGY-BACK REGISTRATION. If the Company at any time proposes to
-----------------------
register any of its securities under the Securities Act (other than a
registration effected on either Form S-4 or S-8) for the purpose of selling such
securities to the public whether for its own account or for the account of any
of its security holders or both, the Company shall each such time give written
notice to LLC of its intention so to do. Upon the written request by LLC given
within fifteen (15) days after such notice (which request shall state the number
of Shares to be disposed of and, if such offering is not underwritten, the
intended method of disposition of such shares by LLC), the Company will use best
efforts to cause promptly all Shares of which registration is requested to be
registered or qualified under the Securities Act or any other applicable federal
or state law or regulation so as to permit the sale or other disposition thereof
in accordance with LLC's written request. If the registration is to be effected
in connection with an underwritten offering,
2.2.1 LLC shall be required to sell the Shares through the
underwriter;
2.2.2 LLC (together with the Company) shall enter into an
underwriting agreement with the managing underwriter in the form customarily
used by such underwriter; and
2.2.3 if the managing underwriter thereof determines that the total
number of shares of the Common Stock to be sold in such offering should be
limited due to market conditions or otherwise, the reduction in the total number
of shares offered shall be made by first excluding any shares of selling
stockholders who are not holders of contractual rights to have such shares
registered under the Securities Act, and then, if necessary, by excluding pro
rata (based on the number of shares held by each of such security holders) the
shares to be sold by LLC and the holders of other contractual rights to have
such shares registered pursuant to agreements comparable to this Section 2.2
before any reduction is made in the total number of shares to be sold pursuant
thereto by the Company or by a holder exercising contractual demand registration
rights comparable to those provided in Section 2.1.
2.3 ABOUT REGISTRATION.
------------------
2.3.1 The Company shall pay all Registration Expenses (as defined
below) in connection with any registration, qualification or compliance
hereunder, and LLC shall pay all Selling Expenses (as defined below) and other
expenses that are not Registration Expenses relating to the Shares resold by
LLC. "Registration Expenses" shall mean all expenses, except for Selling
Expenses, incurred by the Company in complying with the registration provisions
of this Agreement, including without limitation all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses and the expense of any
special audits
2
<PAGE>
incident to or required by any such registration. "Selling Expenses" shall mean
all selling commissions, underwriting fees and stock transfer taxes applicable
to the Shares and all fees and disbursements of counsel for LLC.
2.3.2 In the case of any registration effected by the Company
pursuant to these registration provisions, the Company will use its best efforts
to (i) prepare and file with the SEC such amendments and supplements to the
registration statement and the prospectus used in connection with the
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of the Shares; (ii) keep
effective and maintain any registration or qualification for such period (not
exceeding 180 days) as may be reasonably necessary to effect such sale or
dispostion in accordance with LLC's written request; (iii)furnish such number of
prospectuses and other documents incident thereto, including any amendment of or
supplement to the prospectus, as LLC from time to time may reasonably request;
(iv) provide a transfer agent and registrar for all Shares registered pursuant
to the registration statement and a CUSIP number for all such Shares; (v) file
the documents required of the Company and otherwise use its best efforts to
maintain requisite blue sky clearance in (A) all jurisdictions in which any of
the Shares is originally sold and (B) all other states specified in writing by
LLC, provided as to clause (B), however, that the Company shall not be required
to qualify to do business or consent to service of process in any state in which
it is not now so qualified or has not so consented, and (vi) list such shares on
each securities exchange or over-the-counter market on which shares of Common
Stock are then listed.
2.3.3 LLC shall furnish to the Company such
information regarding it and the distribution proposed by LLC as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance described herein. LLC shall
represent that such information is true and complete.
2.4 INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
2.4.1 The Company agrees to indemnify and hold harmless LLC and its
directors, officers and equity holders from and against any losses, claims,
damages, expenses or liabilities (or actions or proceedings in respect thereof)
(collectively, "Losses") to which LLC or such directors, officers and equity
holders may become subject (under the Securities Act or otherwise) insofar as
such Losses arise out of, or are based upon, (i) any untrue statement of a
material fact contained in or omission of a material fact from a registration
statement (including any preliminary or final prospectus contained therein, and
any amendments or supplements thereto, and any filings and information
incorporated therein by reference and any related registration statement,
qualification, notification and the like), in each case on the effective date
thereof, (ii) any failure or alleged failure by the Company to fulfill any
undertaking included in such registration statement, or (iii) any violation or
alleged violation by the Company of the Securities Act or any rule or regulation
promulgated thereunder or any state securities laws or regulations applicable to
the
3
<PAGE>
Company in connection with any such registration, qualification or compliance.
The Company will, as incurred, reimburse LLC for any legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim; provided, however, that the Company shall not be
-------- -------
liable in any such case to the extent that such Loss arises out of or is based
upon (i) an untrue statement made in reliance upon and in conformity with
information furnished to the Company by or on behalf of LLC for use in
preparation of such registration statement or documents or (ii) any untrue
statement in any prospectus that is corrected in any subsequent prospectus that
was delivered to LLC prior to the pertinent sale or sales by LLC.
2.4.2 LLC agrees to indemnify and hold harmless the Company and its
directors, officers and equity holders from and against any Losses to which the
Company or such directors, officers or equity holders may become subject (under
the Securities Act or otherwise) insofar as such Losses arise out of or are
based upon any claim by a third party asserting (i) an untrue statement made in
such registration statement in reliance upon and in conformity with information
furnished to the Company by or on behalf of LLC for use in preparation of such
registration statement, or (ii) any untrue statement in any prospectus that is
corrected in any subsequent prospectus that was delivered to LLC prior to the
pertinent sale or sales by LLC. LLC will, as incurred, reimburse the Company for
any legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim, provided that LLC
shall not be liable in any case to the extent that such Loss arises out of or is
based upon any untrue statement included in any prospectus which statement has
been corrected, in writing, by LLC and delivered to the Company before the sale
from which such Loss occurred.
2.4.3 Promptly after receipt by any indemnified person of a notice of
a claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 2.4, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. The omission by any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 2.4 except to the
extent that such indemnifying party is damaged as a result of the failure to
give notice. After notice from the indemnifying person to such indemnified
person of the indemnifying person's election to assume the defense thereof, the
indemnifying person shall not be liable to such indemnified person for any legal
expenses subsequently incurred by such indemnified person in connection with the
defense thereof; provided that if there exists or shall exist a conflict of
interest that would make it inappropriate in the reasonable judgment of the
indemnified person for the same counsel to represent both the indemnified person
and such indemnifying person or any affiliate or associate thereof, the
indemnified person shall be entitled to retain its own counsel at the expense of
such indemnifying person.
4
<PAGE>
2.4.4 If the indemnification provided for in this Section 2.4 is
unavailable to or insufficient to hold harmless an indemnified party in respect
of any Losses, then the indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such Losses based upon such
party's relative fault, as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or other failure or
alleged failure or violation or alleged violation relates to information
supplied by the Company on the one hand or LLC on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, omission, failure or violation. The parties agree that
it would not be just and equitable if contribution pursuant to this Section
2.4.4 were determined by pro rata allocation or by any method of allocation
which does not take account of the equitable considerations referred to above.
The amount paid or payable by an indemnified party as a result of the Losses
referred to above in this Section 2.4.4 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating, defending or preparing to defend any relevant action, proceeding
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
2.4.5 The obligations of the Company and LLC under this Section 2.4
shall be in addition to any liability which the Company and LLC may otherwise
have and shall extend, upon the same terms and conditions, to each person, if
any, who controls the indemnified party within the meaning of the Securities
Act.
2.4.6 Notwithstanding anything to the contrary contained herein, LLC
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Shares were actually sold to the public in the
relevant transaction, less Selling Expenses, exceeds the amount of any damages
which LLC has otherwise been required to pay by reason of such untrue or
allegedly untrue statement or omission or alleged omission.
2.5 TRANSFER OF REGISTRATION RIGHTS. The right to sell Shares pursuant to
-------------------------------
a Registration Statement described herein may not be assigned or transferred by
LLC, except in whole to an Affiliate. For the purpose of this Section,
"Affiliate" shall mean any entity which controls, is controlled or is under
common control with LLC.
2.6 RULE 144 REQUIREMENTS. If the Company becomes subject to the
---------------------
reporting requirements of either Section 13 or Section 15(d) of the Exchange
Act, the Company will use its best efforts to file with the SEC such information
as the SEC may require thereunder; and in such event, the Company shall use its
best efforts to take all action as may be required as a condition to the
availability of Rule 144 under the Securities Act (or any successor exemptive
rule hereinafter in effect). The Company shall furnish to LLC upon request a
written statement executed by the Company as to the steps it has taken to comply
with the current public information requirements of Rule 144.
5
<PAGE>
2.7 EXPIRATION OF REGISTRATION RIGHTS. Notwithstanding anything to the
---------------------------------
contrary contained herein, the registration rights granted hereunder and the
Company's obligations under this Section 2 will expire on the earlier of (i) the
expiration of the five-year period commencing 180 days after the Company has
completed an initial public offering of its common stock, and (ii) the date on
which all of the Shares can be sold freely without restriction under the
Securities Act.
3. NOTICES. All notices and other communications hereunder shall be in
-------
writing (whether or not a writing is expressly required hereby), and shall be
deemed to have been given (i) if hand delivered or sent by an express mail
service or by courier, then if and when delivered to and received by the
respective parties at the below addresses (or at such other address as a party
may hereafter designate for itself by notice to the other party as required
hereby), or (ii) if mailed, then on the next business day following the date on
which such communication is deposited in the United States mails, by first class
certified mail, return receipt requested, postage prepaid, and addressed to the
respective parties at the below addresses (or at such other address as a party
may hereafter designate for itself by notice to the other party as required
hereby):
If to the Company, to:
Tri-Point Medical Corporation
5266 Capital Boulevard
Raleigh, NC 27604
Attn: Robert V. Toni, President
Fax: (919) 790-1041
with a copy to:
Debra J. Poul, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
Fax: (215) 963-5299
If to LLC, to:
Caratec, L.L.C.
c/0 Richard W. Reichow
206 Erskine Court
Cary, North Carolina 27511
Fax: (919) 469-0640
with a copy to:
6
<PAGE>
Larry E. Robbins, Esq.
Wyrick, Robbins, Yates & Ponton L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Fax: (919) 781-4865
4. MISCELLANEOUS.
-------------
4.1 GOVERNING LAW; PARTIES IN INTEREST. This Agreement shall be governed
----------------------------------
by the laws of the State of Delaware, without regard to the conflicts of laws
thereof, and shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
4.2 COUNTERPARTS. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth all of the
----------------------------
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, relating to the subject matter hereof,
except as contained herein. This Agreement may not be changed orally but only
by an agreement in writing, duly executed by or on behalf of the party or
parties against whom enforcement of any waiver, change, modification, consent or
discharge is sought.
4.4 SEVERABILITY. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, it shall to the extent practicable be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
4.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
--------------------
power or remedy accruing to the Company or LLC upon any breach, default or
noncompliance of LLC or the Company under this Agreement, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of any similar
breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on the
part of the Company or LLC of any breach, default or noncompliance under this
Agreement or any waiver on the Company's or LLC's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and LLC,
shall be cumulative and not alternative.
7
<PAGE>
4.6 REMEDIES. Without limiting the remedies available to any of the
---------
parties hereto, each of the parties hereto stipulates and agrees that damages at
law will be an insufficient remedy in the event that any party violates the
terms of this Agreement, and each of the parties hereto further agrees that each
of the other parties hereto may apply for and have injunctive or other equitable
relief in any court of competent jurisdiction to restrain the breach or
threatened breach of, or otherwise specifically to enforce, the terms of this
Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
TRI-POINT MEDICAL CORPORATION
By:__________________________
Robert V. Toni
President
CARATEC, L.L.C.
By:__________________________
8
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS IS A REGISTRATION RIGHTS AGREEMENT dated as of May 31, 1996 among Tri-
Point Medical Corporation, a Delaware corporation (the "Company"), and Cacoosing
Partners, L.P., OMI Partners, L.P., Triangle Partners, L.P., F. William Schmidt,
Rolf D. Schmidt (together, the "SDC Shareholders") and Robert V. Toni, J. Blount
Swain, Jeffrey G. Clark and Joe B. Barefoot (together, the "Employee
Shareholders").
BACKGROUND
----------
Pursuant to the Contribution and Exchange Agreement ("Exchange Agreement")
dated as of the date hereof among the Company, the Employee Shareholders, the
SDC Shareholders and others, the Employee Shareholders and the SDC Shareholders
will receive, in the case of the SDC Shareholders, 5,453,750 shares (the "SDC
Shares") and in the case of the Employee Shareholders, 2,370,000 shares (the
"Employee Shares") of the common stock of the Company. In connection therewith,
the Company desires to grant to the SDC Shareholders and the Employee
Shareholders certain registration rights with respect to the Shares.
TERMS
-----
In consideration of the foregoing and the mutual promises herein contained,
and intending to be legally bound hereby, the parties agree as follows:
1. EFFECTIVENESS. The rights granted to the Employee Shareholders and the SDC
-------------
Shareholders under Section 2 of this Agreement will become effective only upon
the consummation of the contribution and exchange contemplated by Section 1 of
the Exchange Agreement, and this Agreement will terminate upon any termination
of the Exchange Agreement which occurs prior to the consummation of such
contribution and exchange.
2. REGISTRATION OF SHARES.
----------------------
2.1 REGISTRATION ON DEMAND BY SDC SHAREHOLDERS. Each of the SDC
------------------------------------------
Shareholders shall have the right, on two occasions any time after the
expiration of six months after the Company has completed an initial public
offering of its common stock, to require the Company to use its best efforts to
file a registration statement on Form S-3 ("Registration Statement") with the
Securities and Exchange Commission to register the resale of all or any portion
of such SDC Shareholder's Shares, or if Form S-3 is not available, to otherwise
effect the registration under the Securities Act of 1933, as amended
("Securities Act"), of such Shares. The Company shall not be obligated to file
and cause to become effective any registration statement within a period of four
months after the date of a request for registration pursuant to this Section 2.1
if, at the time of such request, the filing of such registration statement
would, as determined in good faith by a majority of the board of directors of
the Company, be seriously detrimental to the Company or its
<PAGE>
shareholders or adversely affect a material financing project or a material
proposed or pending acquisition, merger or other similar corporate transaction
to which the Company is or expects to be a party, provided that such right of
the Company to delay a request for registration may be exercised by the Company
not more than once in any one-year period.
2.2 REGISTRATION ON DEMAND BY EMPLOYEE SHAREHOLDERS. Each Employee
-----------------------------------------------
Shareholder, will have the right, on one occasion any time after the later of
(i) the expiration of six months after the Company has completed an initial
public offering of its common stock or (ii) the termination of his employment
with the Company, to require the Company to use its best efforts to file a
registration statement on Form S-3 ("Registration Statement") with the
Securities Exchange Commission to register the resale of the Shares, or if Form
S-3 is not available, to otherwise effect the registration under the Securities
Act of 1933, as amended ("Securities Act"), of the Shares. The Company shall not
be obligated to file and cause to become effective any registration statement
within a period of four months after the date of a request for registration
pursuant to this Section 2.1 if, at the time of such request, the filing of such
registration statement would, as determined in good faith by a majority of the
Board, be seriously detrimental to the Company or its shareholders or adversely
affect a material financing project or a material proposed or pending
acquisition, merger or other similar corporate transaction to which the Company
is or expects to be a party, provided that such right of the Company to delay a
request for registration may be exercised by the Company not more than once in
any one-year period.
2.3 PIGGYBACK REGISTRATION. If the Company at any time proposes to
----------------------
register any of its securities under the Securities Act (other than a
registration effected on either Form S-4 or S-8) for the purpose of selling such
securities to the public whether for its own account or for the account of any
of its security holders or both, the Company shall each such time give written
notice to the SDC Shareholders and Employee Shareholders of its intention so to
do. Upon the written request by any Shareholder given within fifteen (15) days
after such notice (which request shall state the number of Shares to be disposed
of and, if such offering is not underwritten, the intended method of disposition
of such shares by such Shareholder), the Company will use best efforts to cause
promptly all Shares of which registration is requested to be registered or
qualified under the Securities Act or any other applicable federal or state law
or regulation so as to permit the sale or other disposition thereof in
accordance with LLC's written request. If the registration is to be effected in
connection with an underwritten offering,
2.3.1 Such Shareholder shall be required to sell the Shares through
the underwriter;
2.3.2 Such Shareholder (together with the Company) shall enter into
an underwriting agreement with the managing underwriter in the form customarily
used by such underwriter; and
2
<PAGE>
2.3.3 if the managing underwriter thereof determines that the total
number of shares of the Common Stock to be sold in such offering should be
limited due to market conditions or otherwise, the reduction in the total number
of shares offered shall be made by first excluding any shares of selling
stockholders who are not holders of contractual rights to have such shares
registered under the Securities Act, and then, if necessary, by excluding pro
rata (based on the number of shares held by each of such security holders) the
shares to be sold by such Shareholder and the holders of other contractual
rights to have such shares registered pursuant to agreements comparable to this
Section 2.1.2 before any reduction is made in the total number of shares to be
sold pursuant thereto by the Company.
2.4 ABOUT REGISTRATION.
------------------
2.4.1 The Company shall pay all Registration Expenses (as defined
below) in connection with any registration, qualification or compliance
hereunder, and the holder of shares being sold hereunder ("Selling Shareholder")
shall pay all Selling Expenses (as defined below) and other expenses that are
not Registration Expenses relating to the securities ("Registrable Securities")
resold by such Selling Shareholder. "Registration Expenses" shall mean all
expenses, except for Selling Expenses, incurred by the Company in complying with
the registration provisions of this Agreement, including without limitation all
federal and state registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses and the expense of any special audits incident to or
required by any such registration. "Selling Expenses" shall mean all selling
commissions, underwriting fees and stock transfer taxes applicable to the
Registrable Securities and all fees and disbursements of counsel for a Selling
Shareholder.
2.4.2 In the case of any registration effected by the Company pursuant to
these registration provisions, the Company will use its best efforts to (i)
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of the Registrable Securities and
keep such Registration Statement effective until the securities covered by such
Registration Statement have been sold, but in no event longer than 180 days;
(ii) furnish such number of prospectuses and other documents incident thereto,
including any amendment of or supplement to the prospectus, as a Selling
Shareholder from time to time may reasonably request; (iii) provide a transfer
agent and registrar for all Registrable Securities registered pursuant to the
Registration Statement and a CUSIP number for all such Registrable Securities,
in each case not later than the effective date of such registration; and (iv)
file the documents required of the Company and otherwise use its best efforts to
maintain requisite blue sky clearance in (A) all jurisdictions in which any of
the Shares is originally sold and (B) all other states specified in writing by a
Selling Shareholder, provided as to clause (B), however, that the Company shall
not be required
3
<PAGE>
to qualify to do business or consent to service of process in any state in which
it is not now so qualified or has not so consented.
2.4.3 Each Selling Shareholder shall furnish to the Company such
information regarding it and the distribution proposed by such Selling
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance described herein. Such Selling Shareholder shall represent that such
information is true and complete.
2.5 EXPIRATION OF REGISTRATION RIGHTS. Notwithstanding anything to the
---------------------------------
contrary contained herein, the registration rights granted hereunder and the
Company's obligations under this Section 2 will expire on the earlier of (i) the
expiration of the five-year period commencing 180 days after the Company has
completed an initial public offering of its common stock, and (ii) the date on
which all of the Shares can be sold freely without restriction under the
Securities Act.
2.6 INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
2.6.1 The Company agrees to indemnify and hold harmless each Selling
Shareholder and its directors and officers from and against any losses, claims,
expenses, damages or liabilities (or actions or proceedings in respect thereof)
("Losses") to which such Selling Shareholder or such directors and officers may
become subject (under the Securities Act or otherwise) insofar as such Losses
arise out of, or are based upon, any claim by a third party asserting any untrue
statement of a material fact or omission of a material fact contained in a
Registration Statement (including any preliminary or final prospectus contained
therein, and any amendments or supplements thereto, and any filings and
information incorporated therein by reference), in each case on the effective
date thereof, or arise out of any failure by the Company to fulfill any
undertaking included in such Registration Statement, and the Company will, as
incurred, reimburse such Selling Shareholder for any legal and other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim; provided, however, that the Company shall not be
-------- -------
liable in any such case to the extent that such loss, claim, damage or liability
arises out of or is based upon (i) an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Selling Shareholder for use in
preparation of such Registration Statement or (ii) any untrue statement in any
prospectus that is corrected in any subsequent prospectus that was delivered to
such Selling Shareholders prior to the pertinent sale or sales by Selling
Shareholder.
2.6.2 Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless the Company and its directors and officers from and
against any Losses to which the Company or such directors and officers may
become subject (under the Securities Act or otherwise) insofar as such Losses
arise out of, or are based upon any claim by a third party asserting (i) an
untrue statement made in such Registration Statement in
4
<PAGE>
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Selling Shareholder for use in preparation of
such Registration Statement, provided that such Selling Shareholder shall not be
liable in any such case for any untrue statement included in any prospectus
which statement has been corrected, in writing, by such Selling Shareholder and
delivered to the Company before the sale from which such loss occurred or (ii)
any untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the purchaser prior to the pertinent sale or
sales by such Shareholder, and such Selling Shareholder will, as incurred,
reimburse the Company for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim, provided that no Selling Shareholder's liability under this Section 2.6.2
shall exceed such Selling Shareholder's net proceeds from the sale of
Registrable Securities in the relevant transaction.
2.6.3 Promptly after receipt by any indemnified person of a notice of
a claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 2.6, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. After notice from the
indemnifying person to such indemnified person of the indemnifying person's
election to assume the defense thereof, the indemnifying person shall not be
liable to such indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense thereof; provided that
if there exists or shall exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the indemnified person for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person.
2.6.4 If the indemnification provided for in this Section 2.6 is
unavailable to or insufficient to hold harmless an indemnified party in respect
of any Losses referred to therein, then the indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of such
Losses based upon such party's relative fault, as well as any other relevant
equitable considerations. the relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or such Selling
Shareholder on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by an indemnified party as a result of the Losses
referred to above in this Section 2.3.4 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating, defending or preparing to defend any relevant action,
5
<PAGE>
proceeding or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
2.6.5 The obligations of the Company and each Selling Shareholder
under this Section 2.3 shall be in addition to any liability which the Company
and such Selling Shareholder may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls the Company or such
Selling Shareholder within the meaning of the Securities Act.
2.6.6 Notwithstanding anything to the contrary contained herein, no
Selling Shareholder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities were
actually sold to the public by such Selling Shareholder in the relevant
transaction, less Selling Expenses, exceeds the amount of any damages which such
Selling Shareholder has otherwise been required to pay by reason of such untrue
or allegedly untrue statement or omission or alleged omission.
2.7 TRANSFER OF REGISTRATION RIGHTS. The right to sell Registrable
-------------------------------
Securities pursuant to a Registration Statement described herein may not be
assigned or transferred by a Selling Shareholder, except to an Affiliate. For
the purpose of this Section, "Affiliate" shall mean any entity which controls,
is controlled or is under common control with such Selling Shareholder.
3. NOTICES. All notices and other communications hereunder shall be in
-------
writing (whether or not a writing is expressly required hereby), and shall be
deemed to have been given (i) if hand delivered or sent by an express mail
service or by courier, then if and when delivered to and received by the
respective parties at the below addresses (or at such other address as a party
may hereafter designate for itself by notice to the other party as required
hereby), or (ii) if mailed, then on the next business day following the date on
which such communication is deposited in the United States mails, by first class
certified mail, return receipt requested, postage prepaid, and addressed to the
respective parties at the below addresses (or at such other address as a party
may hereafter designate for itself by notice to the other party as required
hereby):
If to the Company, to:
Tri-Point Medical Corporation
5266 Capital Boulevard
Raleigh, NC 27604
Attn: Robert V. Toni, President
Fax: (202) 737-9329
If to the SDC Shareholders, to:
6
<PAGE>
F. William Schmidt
205 Sweltzer Road
Sinking Springs, PA 19608
FAX: 610-374-7872
and to:
Rolf D. Schmidt
534 Ridge Avenue
Ephrata, PA 17522
FAX: 717-733-0150
If to Robert V. Toni, to:
Robert V. Toni
9208 Ransworth Way
Raleigh, NC 27615
If to J. Blount Swain, to:
J. Blount Swain
2813 Croix Place
Raleigh, NC 27614
If to Jeffrey G. Clark, to:
Jeffrey G. Clark
908 Bennington Drive
Raleigh, NC 27615
If to Joe B. Barefoot, to:
Joe B. Barefoot
2113 Treverton Place
Raleigh, NC 27609
4. MISCELLANEOUS.
-------------
4.1 GOVERNING LAW; PARTIES IN INTEREST. This Agreement shall be governed
----------------------------------
by the laws of the State of Delaware, without regard to the conflicts of laws
thereof, and shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
4.2 COUNTERPARTS. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7
<PAGE>
4.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth all of the
----------------------------
promises, covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as contained herein. This Agreement
may not be changed orally but only by an agreement in writing, duly executed by
or on behalf of the party or parties against whom enforcement of any waiver,
change, modification, consent or discharge is sought.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
TRI-POINT MEDICAL CORPORATION
By:___________________________
Robert V. Toni
President
SDC SHAREHOLDERS
CACOOSING PARTNERS, L.P.
By:___________________________
Rolf D. Schmidt
General Partner
OMI PARTNERS, L.P.
By:___________________________
Rolf D. Schmidt
General Partner
By:___________________________
F. W. Schmidt
General Partner
Signatures continued on next page
8
<PAGE>
TRIANGLE PARTNERS, L.P.
By:___________________________
F. W. Schmidt
General Partner
______________________________
Rolf D. Schmidt
______________________________
F. W. Schmidt
EMPLOYEE SHAREHOLDERS
______________________________
Robert V. Toni
______________________________
J. Blount Swain
______________________________
Jeffrey G. Clark
______________________________
Joe B. Barefoot
9
<PAGE>
CONTRIBUTION AND EXCHANGE AGREEMENT
-----------------------------------
This Contribution and Exchange Agreement is entered into as of the
31st day of May, 1996 by and among (1) Sharpoint Development Corporation, a
Pennsylvania corporation ("SDC") which is the general partner of Tri-Point
Medical L.P., a Delaware limited partnership ("LP"), (2) Robert V. Toni, J.
Blount Swain, Jeffrey G. Clark, Joe B. Barefoot, Jeffery C. Basham, Jeffrey C.
Leung and Anthony V. Seaber, each of whom is an employee limited partner of LP
(individually, an "Employee Limited Partner," and collectively, the "Employee
Limited Partners"), (3) Caratec, L.L.C., a North Carolina limited liability
company ("LLC") which is a limited partner of LP, holding the limited
partnership interest in LP previously owned by CRX Medical, Inc., a North
Carolina corporation ("CRX"), (4) Cacoosing Partners, L.P., a Pennsylvania
limited partnership, OMI Partners, L.P., a Pennsylvania limited partnership,
Triangle Partners, L.P., a Pennsylvania limited partnership, F. W. Schmidt and
Rolf D. Schmidt, each of which or whom is an assignee from either SDC or a prior
assignee of SDC of part of SDC's economic interest in LP (individually, an
"Economic Interest Assignee," and collectively, the "Economic Interest
Assignees") (SDC, the Employee Limited Partners, LLC and the Economic Interest
Assignees are hereinafter sometimes referred to individually as a
"Partner/Assignee" and collectively as the "Partners/Assignees"), and (5) Tri-
Point Medical Corporation, a Delaware corporation ("TMC") and successor to the
business of LP, with reference to the following recitals:
A. SDC, the Employee Limited Partners and CRX are parties to an
Amended and Restated Limited Partnership Agreement of Tri-Point Medical L.P.
dated as of March 25, 1996 (the "LP Agreement").
B. This Agreement is being entered into in connection with the
anticipated initial firm commitment underwritten public offering of common
stock, par value $0.01 per share, of TMC ("TMC Common Stock"), with Lehman
Brothers and Sands Brothers & Co., Ltd. acting as the representatives of the
underwriters (the "TMC IPO").
C. The Partners/Assignees and TMC have agreed that, simultaneously
with the execution and delivery by TMC of a firm commitment underwriting
agreement in connection with the TMC IPO (the "Effective Time"), each
Partner/Assignee will contribute, sell, assign and transfer to TMC his or its
entire partnership or economic interest in LP in exchange for TMC Common Stock,
all as hereinafter described.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
<PAGE>
1. Contribution and Exchange. As of the Effective Time, and without
-------------------------
further action by any Partner/Assignee, TMC or any other person, each
Partner/Assignee does hereby contribute, sell, assign and transfer to TMC his or
its entire partnership or economic interest in LP, as the case may be, and does
hereby also release LP from all obligations owing to such Partner/Assignee and
from all claims which such Partner/Assignee ever had or now has against LP of
any nature (including any debt obligations of LP to any Partner/Assignee),
except that LP and TMC shall, subsequent to the Effective Time, remain
responsible for any unpaid non-liquidating distributions owed to LLC as the
successor in interest to CRX under Section 10.1(a) of the LP Agreement through
the last business day immediately preceding the Effective Time. In exchange for
such contribution and transfer of partnership and economic interests and release
of obligations and claims, TMC shall at the Effective Time issue TMC Common
Stock to the Partners/Assignees, as follows:
<TABLE>
<CAPTION>
Number of Shares of
Name of TMC Common Stock
Partner/Assignee To Be Issued
---------------- -------------------
<S> <C>
Sharpoint Development
Corporation 0
Robert V. Toni 720,000
J. Blount Swain 480,000
Jeffrey G. Clark 480,000
Joe B. Barefoot 360,000
Jeffery C. Basham 210,000
Jeffrey C. Leung 60,000
Anthony V. Seaber 60,000
Caratec, L.L.C. 1,776,250
Cacoosing Partners, L.P. 2,246,945
OMI Partners, L.P. 599,912
Triangle Partners, L.P. 2,246,945
F. W. Schmidt 179,974
Rolf D. Schmidt 179,974
</TABLE>
2. Representations and Warranties of the Partners/ Assignees. SDC
---------------------------------------------------------
represents and warrants to TMC that it has been a partner in LP since LP's
formation in May 1990. LLC represents and warrants to TMC that it has been a
partner in LP since May 21, 1996, and that LLC received its interest in LP from
CRX through a transfer approved by SDC, such interest in LP being held by CRX
since LP's formation in May 1990. Each Employee Limited Partner represents and
warrants to TMC that he has been an employee limited partner in LP since
December 31, 1995, that his admission as an employee limited partner on that
date resulted from a prior commitment by LP to him and that he is or was a key
employee of TMC or LP or both. Each Economic Interest Assignee represents and
warrants to TMC that he or it received his or its economic interest in LP by
assignment from either SDC
-2-
<PAGE>
or a prior assignee of SDC and that, collectively, the Economic Interest
Assignees own all of the economic interest of SDC under the LP Agreement. Each
Partner/Assignee also represents and warrants to TMC that he or it (a) has the
power to execute, deliver and perform this Agreement, (b) has duly executed and
delivered this Agreement and, in the case of SDC and LLC, that such execution
and delivery as well as their performance hereunder have been duly authorized by
all required board of director, shareholder, manager and member action, and (c)
does not need the consent or approval of any third party to consummate the
transactions described herein.
3. Representations, Warranties and Covenants of TMC. TMC
------------------------------------------------
represents and warrants to each Partner/Assignee that (a) it has the power to
execute, deliver and perform this Agreement, (b) it has duly executed and
delivered this Agreement and that such execution and delivery as well as its
performance hereunder have been duly authorized by all required board of
director action (no stockholder action being required), (c) it does not need the
consent or approval of any third party to consummate the transactions described
herein, and (d) at the Effective Time, there will be 9,600,000 shares of TMC
Common Stock outstanding, being those shares referred to in Section 1 above, and
that there will be no options, warrants or other rights to purchase, or
securities convertible into, TMC Common Stock except for the options to purchase
550,000 shares of TMC Common Stock which are listed on Exhibit A hereto. If, at
the Effective Time, the outstanding shares of TMC Common Stock and the shares
subject to existing options, warrants, or other rights to purchase, including by
conversion from another security, exceed 10,150,000 (excluding the TMC Common
Stock to be issued in the TMC IPO), LLC shall automatically receive additional
TMC Common Stock, for no further consideration, in an amount sufficient for LLC
to hold 17.5% of the fully-diluted, pre-TMC IPO capitalization of TMC.
4. Disclosures Concerning TMC. Each Partner/Assignee acknowledges
--------------------------
that TMC is the successor to the business of LP, and each Partner/Assignee
further acknowledges that he or it has been and is generally familiar with the
financial condition, business and prospects of LP and TMC, including the
anticipated TMC IPO.
5. Restrictions on Transfer of TMC Stock. Each Partner/Assignee
-------------------------------------
acknowledges that he or it is acquiring the TMC Common Stock to be received by
him or it in the contribution and exchange transaction referred to in Section 1
above solely for his or its own account and not with a view to or in connection
with the distribution thereof. Each Partner/Assignee understands that such TMC
Common Stock is not registered under the Securities Act of 1933, as amended (the
"Act") or under any state securities law, that it represents "restricted
securities" as defined in the Securities and Exchange Commission's Rule 144
under the Act and that it may not be sold, transferred or otherwise disposed of
-3-
<PAGE>
without compliance with state securities laws and registration under the Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering such TMC Common Stock or an available exemption from
registration under the Act, such TMC Common Stock must be held indefinitely and
that each Partner/Assignee must therefore bear the economic risk of his or its
investment indefinitely. In particular, each Partner/ Assignee is aware that the
TMC Common Stock to be received by him or it hereunder may not be sold pursuant
to Rule 144 promulgated under the Act unless all of the conditions of that Rule
are met. Among the conditions for use of Rule 144 (unless Rule 144(k) is then
available) is the availability of current information to the public about TMC.
Notwithstanding anything to the contrary herein contained, TMC has
simultaneously herewith executed a Registration Rights Agreement with LLC, and
TMC hereby agrees that LLC may include in the TMC IPO that number of shares of
TMC Common Stock, the aggregate cash proceeds of which to be paid by the
underwriters to LLC will be at least $3,300,000.
6. Stock Certificate Legend. Each certificate representing TMC
------------------------
Common Stock to be issued to a Partner/Assignee under this Agreement shall bear
the following legend:
THE STOCK EVIDENCED BY THIS CERTIFICATE HAS BEEN ACQUIRED
FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAW. SUCH STOCK MAY NOT BE OFFERED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL
TO THE HOLDER, WHICH COUNSEL MUST BE, AND THE FORM AND
SUBSTANCE OF WHICH OPINION ARE, SATISFACTORY TO THE ISSUER,
SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION,
TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR
IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS.
7. Termination. This Agreement shall terminate and become null and
-----------
void if the Effective Time and the contribution and exchange contemplated by
Section 1 above shall not have occurred by September 30, 1996.
8. Counterparts. This Agreement may be executed in any number of
------------
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
-4-
<PAGE>
taken together shall have been executed and delivered by the parties, including
delivery by telefax. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts.
9. Governing Law. This Agreement shall be governed by and
-------------
interpreted and enforced in accordance with the laws of the State of Delaware
without giving effect to any conflict of law principles.
IN WITNESS WHEREOF, the Partners/Assignees and TMC have executed and
delivered this Agreement as of the date first above written.
SHARPOINT DEVELOPMENT CORPORATION
By:________________________________
F. W. Schmidt, President
EMPLOYEE LIMITED PARTNERS
___________________________________
Robert V. Toni
___________________________________
J. Blount Swain
___________________________________
Jeffrey C. Clark
___________________________________
Joe B. Barefoot
___________________________________
Jeffery C. Basham
[signatures continued on pages 6 and 7]
-5-
<PAGE>
___________________________________
Jeffrey C. Leung
___________________________________
Anthony V. Seaber
CARATEC, L.L.C.
By:________________________________
Richard W. Reichow, Manager
ECONOMIC INTEREST ASSIGNEES
CACOOSING PARTNERS, L.P.
By:________________________________
Rolf D. Schmidt, General Partner
OMI PARTNERS, L.P.
By:________________________________
Rolf D. Schmidt, General Partner
By:________________________________
F. W. Schmidt, General Partner
TRIANGLE PARTNERS, L.P.
By:________________________________
F. W. Schmidt, General Partner
[signatures continued on page 7]
-6-
<PAGE>
___________________________________
F. W. Schmidt
___________________________________
Rolf D. Schmidt
TRI-POINT MEDICAL CORPORATION
By:________________________________
Robert V. Toni, President
-7-
<PAGE>
Exhibit A to Contribution and Exchange Agreement
------------------------------------------------
<TABLE>
<CAPTION>
NAME OPTION SHARES
- ---- -------------
Employees
- ---------
<S> <C>
Toni, Bob 66,600
Swain, Blount 43,050
Clark, Jeff 40,100
Barefoot, Joe 30,458
Leung, Jeff 19,962
Volers, Tony 20,255
Tanski, Paul 16,865
McCleary, Theresa 13,846
Ward, Benny 16,365
Stephens, Tom 9,827
Phan, Tuan 10,981
Hedgpeth, Dan 9,827
Hickey, Tim 10,290
Rivera, Andrea 12,947
Raper, O.W. 8,754
Stephenson, Anne 6,577
Atchley, Mary Jo 6,423
Lewis, Diane 6,923
Morales, Carlos 8,746
Genovese-B, Debra 5,774
Prince, Lori 3,667
West, Eursela 4,936
Davis, Kann 4,553
Sardeson, Scott 3,499
Ball, David 5,432
Froass, Cindy 3,826
Long, John 3,475
Neill, Greg 2,975
Cavanaugh, Tom 2,975
Holland, James 3,475
Pulliam, Sylvia 3,385
Berube, Billie 3,232
-------
410,000
Directors
- ---------
Larelli, Mike 25,000
Thurman, Randy 25,000
Carey, Dennis 25,000
------
75,000
Others
- ------
Kriegsman 50,000
Seaber, Tony 10,000
Quinn, Jim 5,000
------
65,000
</TABLE>
-8-
<PAGE>
Consent of Independent Accountants
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
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
June 3, 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 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 19,698 4,090,839
<SECURITIES> 0 0
<RECEIVABLES> 266,253 112,785
<ALLOWANCES> 0 0
<INVENTORY> 119,158 83,705
<CURRENT-ASSETS> 432,027 4,358,994
<PP&E> 417,887 419,793
<DEPRECIATION> (142,083) (142,515)
<TOTAL-ASSETS> 907,995 4,835,329
<CURRENT-LIABILITIES> 826,765 2,347,820
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 907,995 4,835,329
<SALES> 1,380,081 162,173
<TOTAL-REVENUES> 1,380,081 3,662,173
<CGS> 530,546 135,743
<TOTAL-COSTS> 530,546 135,743
<OTHER-EXPENSES> 6,976,220 1,564,710
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 845,356 133,500
<INCOME-PRETAX> (6,972,041) 1,828,220
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,972,041) 1,828,220
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,972,041) 1,828,220
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
