<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1996
REGISTRATION NO. 333-6661
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MEDI-JECT CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 3841 41-1350192
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
1840 BERKSHIRE LANE
MINNEAPOLIS, MINNESOTA 55441
(612) 553-1102
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
FRANKLIN PASS, M.D.
MEDI-JECT CORPORATION
1840 BERKSHIRE LANE
MINNEAPOLIS, MINNESOTA 55441
(612) 553-1102
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
COPIES TO:
J. ANDREW HERRING JOEL I. PAPERNIK
AMY E. LANGE SQUADRON, ELLENOFF, PLESENT &
DORSEY & WHITNEY LLP SHEINFELD, LLP
220 SOUTH SIXTH STREET 551 FIFTH AVENUE
MINNEAPOLIS, MINNESOTA 55402-1498 NEW YORK, NEW YORK 10176
(612) 340-2600 (212) 661-6500
---------------
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 earliest 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
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH PROPOSED MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) FEE (3)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,750,000 shares $10.00 $27,500,000 $9,483
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Warrants to purchase
Common Stock
to be issued to the
Representatives....... 220,000 warrants $.001 $220 $1
</TABLE>
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(1) Including 330,000 shares of Common Stock issuable upon exercise of an
option which the Underwriters may exercise to cover over-allotments, if
any, and 220,000 shares issuable upon exercise of a Warrant to be issued
to the Representatives in connection with the offering.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(3) Previously paid.
---------------
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 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<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 SEPTEMBER 24, 1996
2,200,000 SHARES
LOGO
COMMON STOCK
All of the 2,200,000 shares of Common Stock offered hereby are being offered
by Medi-Ject Corporation ("Medi-Ject" or the "Company").
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $8.00 and $10.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "MEDJ."
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS"
COMMENCING ON PAGE 6 AND "DILUTION" ON PAGE 16.
-------------
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.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share
. . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $
- -----------------------------------------------------------------------------------------------------------------
Total (3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $
</TABLE>
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(1) Excludes five-year warrants to purchase 220,000 shares of Common Stock at
an exercise price equal to 120% of the initial public offering price, to be
issued to the Representatives at closing for nominal consideration. The
Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be $ payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 330,000 additional shares of Common Stock solely to cover over-
allotments, if any, on the same terms and conditions as the shares offered
hereby. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
-------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Rodman & Renshaw, Inc., New York, New
York, on or about , 1996.
-------------
RODMAN & RENSHAW, INC. R. J. STEICHEN & COMPANY
The date of this Prospectus is , 1996
<PAGE>
[Picture of Medi-Jector VI-B system with vial, adapter, and disposable front-
end chamber]
FRONT-END
VIAL ADAPTER CHAMBER INJECTOR
The Medi-Jector VI-B system shown above is a hand-held, spring-powered
device that injects drugs from a front-end chamber through the skin without a
needle as a narrow, high pressure stream of liquid approximately 7/1000ths of
an inch in diameter.
[Picture of Medi-Jector VI-B system and
pen-like Medi-Jector system, each held in
hand.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Medi-Jector(R) is a registered trademark of the Company. This Prospectus
also includes trade names, trademarks and registered trademarks of companies
other than the Company.
The picture at left shows both
the Medi-Jector VI-B system and
the Company's future generation
pen-like Medi-Jector system.
The Medi-Jector VI-B system is
an improved version of the
Company's current Medi-Jector VI
system which will include the
disposable plastic front-end
chamber pictured above. The Medi-
Jector VI-B system is expected to
be commercially introduced in
late 1996 or early 1997. Although
the device on the right shows
current plans for the pen-like
system, the design has not yet
been finalized. The actual
system, when and if finally
developed, could differ from the
Company's current plans. There
can be no assurance that this
system will be commercially
introduced, or that the resulting
system will have an appearance
similar to that depicted.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements and notes appearing elsewhere in
this Prospectus. Unless otherwise indicated, all financial and share
information set forth in this Prospectus (i) has been adjusted to reflect the
conversion of all outstanding Convertible Preferred Stock into Common Stock
upon the effectiveness or the closing of this offering, (ii) reflects a 1-for-
1.313 reverse stock split of the Common Stock effected on August 6, 1996, (iii)
assumes an initial public offering price of $9.00 per share, the midpoint of
the range set forth on the cover page of this Prospectus and (iv) assumes no
exercise of the Underwriters' over-allotment option. Unless the context
requires otherwise, all references in this Prospectus to "Medi-Ject" or the
"Company" refer to Medi-Ject Corporation. This Prospectus contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such differences include, but are
not limited to, those discussed under the heading "Risk Factors," which
investors should consider carefully.
THE COMPANY
Medi-Ject Corporation is a drug delivery company focused on developing,
manufacturing and marketing needle-free injection systems for the self-
administration of a wide range of parenteral (injectable) drugs. The Company's
product, the Medi-Jector system, is a hand-held, spring-powered device that
injects drugs from a front-end chamber through the skin without a needle as a
narrow, high pressure stream of liquid approximately 7/1000ths of an inch in
diameter. The Medi-Jector system eliminates the need to pierce the skin with a
sharp needle and manipulate a plunger with the needle inserted through the
skin. Therefore, many people perceive injections with the Medi-Jector system to
be less threatening than injections with a needle. Today's Medi-Jector systems
are smaller, easier to use, less expensive and more comfortable than previous
needle-free injection systems. The Company believes that the key to widespread
market acceptance of its needle-free injection systems depends upon continued
improvements in these areas.
The Company believes that individuals who require self-injection will benefit
from the Medi-Jector system because it (i) eliminates the need to pierce
themselves with needles for each injection, which should lead to increased
compliance with a prescribed injection regimen and consequently reduce health
complications, (ii) provides the ability to inject themselves discreetly and
(iii) eliminates the need for sharps disposal of used needles. In addition,
healthcare industry providers and payors may benefit from the decrease in long-
term costs of patient care which may result from improved patient compliance.
Furthermore, based upon discussions with pharmaceutical companies, the Company
believes that those companies are motivated to provide improved drug delivery
methods in an attempt to differentiate their products in the marketplace and
improve patient compliance, which may result in increased sales and larger
market share.
The Company has entered into licensing and development agreements with multi-
national pharmaceutical and medical device companies covering the design and
manufacture of customized injection systems for specific drug therapies. In
addition to agreements with pharmaceutical companies, including those with
Ferring NV, JCR Pharmaceuticals Co., Ltd., Schwarz Pharma AG, Teva
Pharmaceuticals Co., Ltd. and GeneMedicine, Inc., the Company has entered into
a strategic alliance with Becton Dickinson and Company ("Becton Dickinson").
The goal of this alliance is the joint development and commercialization of
new, less expensive and more user friendly injectors which embody proprietary,
advanced technology. The Company will design and manufacture the injectors, and
Becton Dickinson will design and manufacture the consumable components for the
systems. Becton Dickinson has the right to market the injectors and the
consumable components worldwide for use initially with insulin and potentially
with other drugs. Medi-Ject and Becton Dickinson will collaborate on the
development and manufacture of customized versions of the system and share
revenues from sales of injectors and consumables to pharmaceutical companies
and any revenue generated from licensing milestone payments, development fees
and royalties. See "Business--Collaborative Agreements."
3
<PAGE>
The Company's focus is on the market for the delivery of self-administered
parenteral drugs, the largest, most developed portion of which consists of the
delivery of insulin. In the United States, over 3.2 million people inject
insulin for the treatment of diabetes, resulting in an estimated 2.3 billion
injections annually, and the Company believes that the number of insulin
injections will increase with time as the result of new diabetes management
approaches which recommend more frequent use. Other parenteral drugs that
presently are self-administered and are or may be suitable for injection with
the Medi-Jector system include therapies for the treatment of multiple
sclerosis, migraine headaches, growth retardation, impotence, female
infertility, AIDS and hepatitis. The Company also believes that other existing
parenteral drugs will be self-administered in the future and that additional
parenteral drugs that are under development will be deemed appropriate for
self-administration.
In 1993, the Company hired a new management team with the goal of
revitalizing and redefining the Company's strategic direction. Since that time,
the Company has focused on entering into collaborative arrangements with
pharmaceutical and medical device companies, and has increased its product
development efforts to emphasize ease of use and to reduce the cost of its
products to make them more competitive in the marketplace. The Company's goal
is to establish its needle-free injectors as the drug delivery method of choice
for the self-administration of a wide range of parenteral drugs. The Company's
strategic plan for accomplishing this goal consists of (i) developing improved
proprietary injection systems, (ii) generating an income stream from consumable
components, (iii) collaborating with pharmaceutical and medical device
manufacturers to leverage off of their marketing capabilities and (iv) focusing
on delivery systems for high-priced pharmaceuticals.
The Company's offices are located at 1840 Berkshire Lane, Minneapolis,
Minnesota 55441, and its telephone number is (612) 553-1102. The Company was
incorporated in Minnesota in 1979.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company......... 2,200,000 shares
Common Stock to be Outstanding After the
Offering.................................... 6,925,633 shares (1)
Use of Proceeds............................. For capital expenditures, primarily the
improvement
of the Company's manufacturing and assembly
capability; market development activities;
research and development; and working
capital and other general corporate
purposes.
Proposed Nasdaq National Market Symbol...... "MEDJ"
</TABLE>
- --------
(1) Excludes 2,966,810 shares consisting of (i) 481,690 shares issuable upon
exercise of outstanding options granted under the Company's 1993 Stock
Option Plan and (ii) 2,485,120 shares issuable upon exercise of outstanding
options and warrants granted to third parties. The terms of an option to
purchase 380,808 shares of Common Stock held by Becton Dickinson (the
"Becton Dickinson Option") provide that such option will expire upon the
closing of an initial public offering of the Company's Common Stock at a
public offering price of not less than $7.88 per share and gross proceeds
of not less than $10 million. Becton Dickinson has notified the Company of
its intent to exercise the Becton Dickinson Option immediately prior to and
contingent upon the closing of this offering in the event the public
offering price is at least $7.88 per share. See "Description of Capital
Stock" and "Certain Transactions--Becton Dickinson."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ---------------
1993 1994 1995 1995 1996
------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................... $ 1,058 $ 1,518 $ 1,654 $ 831 $ 814
Licensing and product develop-
ment........................... 125 470 921 410 686
------- -------- -------- ------ -------
Revenues....................... 1,183 1,988 2,575 1,241 1,500
------- -------- -------- ------ -------
Cost of sales................... 409 631 1,049 465 502
Research and development........ 146 401 1,195 607 1,093
General and administrative...... 615 868 978 628 672
Sales and marketing............. 485 1,128 1,146 450 467
------- -------- -------- ------ -------
Operating expenses............. 1,655 3,028 4,368 2,150 2,734
------- -------- -------- ------ -------
Net operating loss.............. (472) (1,040) (1,793) (909) (1,233)
Net other income (expense)...... (28) (26) (89) (21) 49
------- -------- -------- ------ -------
Net loss........................ $ (500) $ (1,066) $ (1,882) $ (930) $(1,184)
======= ======== ======== ====== =======
Pro forma net loss per common $ (0.36) $ (0.19)
share (1)...................... ======== =======
Pro forma weighted average com-
mon shares outstanding (1)..... 5,180 6,354
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED (2)
-------- ---------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 2,233 $ 20,148
Working capital...................................... 1,699 19,614
Total assets......................................... 3,705 21,620
Long-term liabilities, less current maturities....... 54 54
Accumulated deficit.................................. (10,486) (10,486)
Total shareholders' equity (3)....................... 2,544 20,459
</TABLE>
- --------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
(2) Adjusted to reflect receipt by the Company of estimated net proceeds from
the issuance of 2,200,000 shares at an assumed public offering price of
$9.00 per share and the application of such proceeds. See "Use of Proceeds"
and "Capitalization."
(3) Reflects the conversion of all outstanding Convertible Preferred Stock into
Common Stock, described in Note 13 of Notes to Financial Statements.
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution. In evaluating an
investment in the Common Stock being offered hereby, investors should consider
carefully, among other matters, the following risk factors, as well as the
other information contained in this Prospectus.
UNCERTAINTY OF MARKET ACCEPTANCE; LIMITED CURRENT MARKET FOR NEEDLE-FREE
INJECTION SYSTEMS
The Company's success will depend upon increasing market acceptance of its
needle-free injection systems as an alternative to needle injections. During
the approximately 15 years since their initial commercial introduction, the
Company's needle-free injection systems have had only limited success
competing with traditional needles and syringes because, the Company believes,
of the size, cost and complexity of use and maintenance of the Company's
injectors and the relatively small number of parenteral drugs that have been
self-administered. In order to increase market acceptance, the Company
believes that it must successfully develop improvements in the design and
functionality of future needle-free injection systems that will reduce their
cost and increase their appeal to users, thereby making these systems
desirable despite their premium cost over traditional disposable needles and
syringes. Projected improvements in functionality and design may not
adequately address the actual or perceived complexity of using the Company's
needle-free injection systems or adequately reduce their cost. In addition,
the Company believes that its future success is dependent upon its ability to
enter into additional collaborative agreements with drug and medical device
manufacturers for the use of its needle-free injection systems with new and
existing parenteral drugs. There can be no assurance that the Company will be
successful in these efforts or that its needle-free injection systems will
ever gain sufficient market acceptance to sustain profitable operations. See
"Business--Strategy," "--Target Markets" and "--Products and Technology."
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has had a history of operating losses and, at June 30, 1996, had
an accumulated shareholders' deficit of approximately $10.5 million. Net
losses for the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996 were $500,319, $1,066,462, $1,882,459 and $1,184,178,
respectively. The Company expects to continue to incur net losses at least
through 1997, as it introduces new and improved needle-free injection systems
while undertaking research and development, regulatory approval and commercial
introduction activities related to new uses for its needle-free injection
systems. There can be no assurance that the Company will achieve or sustain
profitability in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH DEVELOPING NEW PRODUCTS
The Company believes that its future success is in part dependent upon the
development and commercial introduction of needle-free injection systems that
incorporate improvements in design and functionality to reduce their cost and
increase their appeal to users. In the United States, Japan and certain
European countries, the Company's needle-free Medi-Jector system has been
approved only for the injection of insulin and human growth hormone. The
Company's future success depends to a significant degree on its ability to
obtain regulatory approval for and commercialize the use of its needle-free
injection systems for other parenteral drugs. However, the Company has not yet
completed research and development work or obtained regulatory approval for
such improved systems or for use with any drugs other than insulin and human
growth hormone. There can be no assurance that any development work will
ultimately be successful or that unforeseen difficulties will not occur in
research and development, clinical testing, regulatory submissions and
approval, product manufacturing and commercial scale up, marketing, or product
distribution related to any such improved systems or new uses. Any such
occurrence could materially delay the commercialization of such improved
systems or new uses or prevent their market introduction entirely. See "--Need
to Comply with Government Regulations" and "Business."
6
<PAGE>
RISKS OF RELATIONSHIP WITH BECTON DICKINSON AND COMPANY
The Company's ability to introduce improved and less expensive needle-free
injection systems will depend in part on the success of its collaborative
effort with Becton Dickinson to develop a smaller needle-free injector with a
disposable, single-use front-end chamber. This effort is governed by the terms
of a Development and License Agreement between the Company and Becton
Dickinson (the "Becton Dickinson Agreement"), under which the Company is
responsible for developing the injector body and Becton Dickinson is
responsible for developing the front-end chamber for the system. Until January
1, 1999, Becton Dickinson may terminate the Becton Dickinson Agreement without
cause by providing six months' written notice and after January 1, 1999, by
providing 12 months' written notice. Since the Company expects that the
majority of the funding for its development efforts on the new, smaller
injector will be derived from payments to be made by Becton Dickinson under
the Becton Dickinson Agreement and since responsibility for developing the
front-end chamber lies with Becton Dickinson, any termination of the Becton
Dickinson Agreement would adversely affect the timing and the likelihood of
ultimate success of these development efforts. In addition, under the Becton
Dickinson Agreement, Medi-Ject granted Becton Dickinson the exclusive,
worldwide right to sell a proposed new injector for use with insulin and any
other injector that is not designed or calibrated for use with a specific drug
made by a specific drug company and that is intended to be distributed
primarily through pharmacies for non-professional use. Prior to developing a
system for use with any specific drug, the Company and Becton Dickinson must
mutually agree on whether or not such system will be of the type covered by
Becton Dickinson's exclusive sales rights. See "Business--Collaborative
Agreements," "--Products and Technology" and "Certain Transactions--Becton
Dickinson."
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company believes that the introduction and broad acceptance of its
systems is in part dependent upon the success of its current and any future
development and licensing arrangements with pharmaceutical and medical device
companies covering the development, manufacture or use of the Medi-Jector
system with specific parenteral drug therapies. The Company anticipates,
consistent with past practice, that under these arrangements the
pharmaceutical or medical device company will assist in the development of
systems for such drug therapies and collect or sponsor the collection of the
appropriate data for submission for regulatory approval of the use of the
Medi-Jector system with the licensed drug therapy. The pharmaceutical or
medical device company also will be responsible for distribution and marketing
of the systems for these drug therapies either worldwide or in specific
territories. The Company currently is a party to seven such agreements. There
can be no assurance that the Company will be successful in executing
additional agreements with pharmaceutical or medical device companies or that
existing or future agreements will result in the sale of the Company's needle-
free injection systems. As a result of these arrangements, the Company is
dependent upon the development, data collection and marketing efforts of such
pharmaceutical and medical device companies. The amount and timing of
resources such pharmaceutical and medical device companies devote to these
efforts are not within the control of the Company, and such pharmaceutical and
medical device companies could make material decisions regarding these efforts
that could adversely affect the Company's future financial condition and
results of operations. In addition, factors that adversely impact the
introduction and level of sales of any drug covered by such licensing
arrangements, including competition within the pharmaceutical and medical
device industries, the timing of FDA or other approvals and intellectual
property litigation (such as that surrounding Bio-Technology General
Corporation's human growth hormone, which has delayed the introduction of the
use of the Medi-Jector system with human growth hormone in the United States),
will also negatively affect the Company's sales of Medi-Jector systems for
those uses. See "Business--Target Markets," "--Collaborative Agreements," "--
Products and Technology" and "--Marketing."
LIMITED MANUFACTURING EXPERIENCE; RISKS ASSOCIATED WITH NEW MATERIALS, NEW
ASSEMBLY PROCEDURES AND INCREASED PRODUCTION LEVELS
The Company's past assembly, testing and manufacturing experience has
related primarily to the assembly of products from machined stainless steel
and composite components in limited quantities. The Company's
7
<PAGE>
planned future needle-free injection systems necessitate significant changes
and additions to the Company's manufacturing and assembly process to
accommodate new plastic components and a new injection power source. These
systems must be manufactured in compliance with regulatory requirements, in a
timely manner and in sufficient quantities while maintaining quality and
acceptable manufacturing costs. In addition, the Company's plans call for
significantly increased levels of production and a shift to performing more
manufacturing functions internally rather than relying on third-party
suppliers, which will require the Company to expand beyond its current
facilities. In the course of these changes and additions to its manufacturing
and production methods, the Company may encounter difficulties, including
problems involving yields, quality control and assurance, product reliability,
manufacturing costs, existing and new equipment, component supplies and
shortages of personnel, any of which could result in significant delays in
production. There can be no assurance that the Company will be able to produce
and manufacture successfully the Company's future needle-free injection
systems. Any failure to do so would negatively impact the Company's business,
financial condition and results of operations. See "Business--Manufacturing."
DEPENDENCE ON THIRD-PARTY DEVELOPMENT EFFORTS
The Company relies heavily on outside consultants for its technology
development and engineering work, and the Company's ability to introduce new
systems and improvements to its existing systems is dependent on their
efforts. There can be no assurance that the Company's current consultants will
produce the necessary work product in a timely fashion or at all, or that the
Company could find suitable replacements if the services of such consultants
were to become unavailable. "Business--Products and Technology."
COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE
The Company's current competition is primarily from traditional hypodermic
needles and syringes which are used for the vast majority of injections
administered today. In order to make needles and syringes easier and safer to
use, certain companies have developed syringes with hidden needles, spring-
powered needle injectors and injectors with sheathed needles. In addition to
competing with these types of traditional hypodermic needles and syringes, the
Company's needle-free injection systems also compete with other needle-free
injection devices. Currently, competition in the needle-free injection market
is limited to small companies with modest financial and other resources, but
the barriers to entry are currently low and additional competitors may enter
the needle-free injection systems market, including companies with
substantially greater resources and experience than the Company. There can be
no assurance that the Company will be able to compete effectively against its
current or potential competitors in the needle-free injection market, or that
such competitors will not succeed in developing or marketing products that
will be more accepted in such market. Competition in this market could also
force the Company to reduce the prices of its systems below currently planned
levels, thereby adversely affecting the Company's revenues and future
profitability.
In general, injection is used only with drugs for which other drug delivery
methods are not possible, in particular with biopharmaceutical proteins (drugs
derived from living organisms, such as insulin and human growth hormone) that
cannot currently be delivered orally, transdermally (through the skin) or
pulmonarily (through the lungs). Many companies, both large and small
(including Becton Dickinson), are engaged in research and development efforts
on novel techniques aimed at delivering such drugs without injection. The
successful development and commercial introduction of such a non-injection
technique would likely have a material adverse effect on the Company's
business, financial condition, results of operations and general prospects.
See "Business--Competition."
NEED TO COMPLY WITH GOVERNMENT REGULATIONS
Government regulation in the United States and certain foreign countries is
a significant factor in the Company's business. In the United States, the Food
and Drug Administration (the "FDA") has principal jurisdiction over products
that are used for human injection. Certain clearances are required from the
FDA before medical devices, such as the Company's needle-free injection
systems and their use with new drug therapies,
8
<PAGE>
can be marketed. The FDA regulatory process in the United States may delay the
marketing of new systems for lengthy periods and impose substantial additional
costs. Moreover, FDA marketing clearance regulations depend heavily on
administrative interpretation, and there can be no assurance that
interpretations made by the FDA or other regulatory bodies, with possible
retroactive effect, will not adversely affect the Company. There can be no
assurance that the Company will be able to obtain clearance of any future
Company systems or any expanded uses of current or future Company systems in a
timely manner or at all. In addition, even if obtained, FDA clearances are
subject to continual review, and if the FDA believes that the Company is not
in compliance with applicable requirements, it can institute proceedings to
detain or seize the Company's systems, require a recall, suspend production,
distribution, marketing and sales, enjoin future violations and assess civil
and criminal penalties against the Company, its directors, officers or
employees. The FDA may also suspend or withdraw market approval for the
Company's systems or require the Company to repair, replace or refund the cost
of any system manufactured or distributed by the Company. The Company must
also demonstrate compliance with current Good Manufacturing Practices ("GMP")
regarding quality control and manufacturing procedures. Compliance with these
requirements requires the Company to expend time, resources and effort in the
areas of production and quality control for itself and for its contract
manufacturers. If violations of the applicable regulations are noted during
FDA inspections, the continued marketing of any systems manufactured by the
Company may be halted or adversely affected.
Sales of medical devices outside the United States are subject to United
States export requirements and foreign regulatory requirements. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time and requirements to obtain approval by a foreign country may
differ substantially from those required for FDA approval. There can be no
assurance that the Company will be able to obtain regulatory approvals or
clearances for its products in foreign countries. See "Business--Government
Regulation" and "--Manufacturing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates that the proceeds of this offering, together with
cash on hand, interest expected to be earned thereon and anticipated revenues
will be sufficient to finance the Company's operations at least through 1997,
although there can be no assurance that additional capital will not be
required sooner. In order to meet its needs beyond this period, the Company
may be required to raise additional funds through public or private
financings. Such financings may not be available when needed on terms
acceptable to the Company or at all. Moreover, any additional equity
financings may be dilutive to purchasers in this offering, and any debt
financing may involve restrictive covenants. An inability to raise such funds
when needed might require the Company to delay, scale back or eliminate some
or all of its planned system enhancements, market expansion and research and
development activities, and might require the Company to cease operations
entirely. In such event, all expenditures to date as well as expenditures from
the proceeds of this offering might not be recoverable. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
DEPENDENCE ON PROPRIETARY TECHNOLOGY RIGHTS
The Company's success will depend in part on its ability to protect its
proprietary rights and to operate without infringing on the proprietary rights
of third parties. In appropriate circumstances, the Company may apply for
patent protection for uses, processes, products and systems that it develops.
The Company currently owns two United States patents and one United States
design patent and has filed eight United States patent applications, one of
which has been recently allowed, one Taiwanese patent application and one
Patent Cooperation Treaty application. There can be no assurance that any of
the Company's current or future patent applications will result in issued
patents, that the scope of any current or future patents will prevent
competitors from introducing competitive products or that any of the Company's
current or future patents would be held valid or enforceable if challenged.
Patenting medical devices involves complex legal and factual questions and
there is no consistent policy regarding the breadth of claims which issue
pertaining to such technologies; the ultimate scope and validity of patents
issued to the Company or to its competitors are thus unknown. In addition,
9
<PAGE>
there can be no assurance that measures taken by the Company to protect its
unpatented proprietary rights will be sufficient to protect these rights
against third parties. Likewise, there can be no assurance that others will
not independently develop or otherwise acquire unpatented technologies or
products similar or superior to those of the Company.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and the Company
may in the future be required to defend its intellectual property rights
against infringement, duplication and discovery by third parties or to defend
itself against third-party claims of infringement. Likewise, disputes may
arise in the future with respect to ownership of technology developed by
consultants or under research or development agreements with pharmaceutical
companies, or with respect to the ownership of technology developed by
employees who were previously employed by other companies. Any such disputes
or related litigation could result in substantial costs to, and a diversion of
effort by, the Company. An adverse determination could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from or pay royalties to third parties or require the Company to develop
appropriate alternative technology. There can be no assurance that any such
licenses would be available on acceptable terms or at all, or that the Company
could develop alternate technology at an acceptable price or at all. Any of
these events could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Products and
Technology" and "--Patents."
RISKS ASSOCIATED WITH THIRD-PARTY REIMBURSEMENT OF END USERS
Sales of the Company's current and proposed systems in certain markets are
dependent in part on the availability of adequate reimbursement from third-
party healthcare payors. Currently, insurance companies and other third-party
payors reimburse the cost of needle-free injectors on a case-by-case basis and
may refuse reimbursement if they do not perceive benefits to their use in a
particular case. Third-party payors are increasingly challenging the pricing
of medical products and services, and there can be no assurance that such
third-party payors will not in the future increasingly reject claims for
coverage of the cost of needle-free injections. In addition, there can be no
assurance that adequate levels of reimbursement will be available to enable
the Company to achieve or maintain market acceptance of its systems or
maintain price levels sufficient to realize profitable operations.
Furthermore, there is a possibility of increased government control or
influence over a broad range of healthcare expenditures in the future. Any
such trend could negatively impact the market for the Company's needle-free
injection systems.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS
The systems currently sold by the Company contain a number of customized
steel components manufactured by third-party suppliers, and the most recently
introduced model Medi-Jector system contains certain plastic components the
molds for which are located at the facilities of the Company's plastics
suppliers. In addition, certain of the Company's planned systems will contain
plastic disposable front-end chambers which Becton Dickinson has the exclusive
right to manufacture for the Company under the Becton Dickinson Agreement.
Regulatory requirements applicable to medical device manufacturing can make
substitution of suppliers costly and time-consuming. In the event that the
Company could not obtain adequate quantities of these components from its
suppliers, there can be no assurance that the Company would be able to access
alternative sources of such components within a reasonable period of time, on
acceptable terms or at all. In particular, if the Company were required to
change suppliers for its current plastic components, it would need either to
move the necessary molds or to obtain new molds, either of which would entail
significant delay. Similarly, if Becton Dickinson declined to supply the
Company with disposable front-end chambers for its proposed systems, while the
Company has the right to obtain a license to use Becton Dickinson's
technology, it is unlikely that the Company could manufacture such components
as inexpensively as Becton Dickinson. The unavailability of adequate
quantities, the inability to develop alternative sources, a reduction or
interruption in supply or a significant increase in the price of components
could have a material adverse effect on the Company's ability to manufacture
and market its products. See "Business--Manufacturing."
10
<PAGE>
RISK OF PRODUCT LIABILITY; LIMITATIONS OF INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product liability
claims in the event that an end user is adversely affected by use or misuse of
its systems, and the Company has in the past experienced such claims. The
Company currently carries a product liability insurance policy with an
aggregate limit of $5,000,000. As the result either of adverse claim
experience or of medical device or insurance industry trends, however, the
Company may in the future have difficulty in obtaining product liability
insurance or be forced to pay very high premiums, and there can be no
assurance that insurance coverage will continue to be available on
commercially reasonable terms or at all. In addition, there can be no
assurance that insurance will adequately cover any product liability claim
against the Company. A successful product liability or other claim with
respect to uninsured liabilities or in excess of insured liabilities could
have a material adverse effect on the Company's business, financial condition
and operations. See "Business--Liability Insurance."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market in the Common
Stock will develop or be sustained upon completion of this offering or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives of the
Underwriters and may not be indicative of the prices that will prevail in the
public market. See "Underwriting."
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter, in part because of changes in consumer buying patterns, aggressive
competition, the timing of the recognition of licensing or development fee
payments and the timing of, and costs related to, any future system or new
drug use introductions. The Company's operating results for any particular
quarter are not necessarily indicative of any future results. The
uncertainties associated with the introduction of any new system or drug use
and with general market trends may limit management's ability to forecast
short-term results of operations accurately. Fluctuations caused by variations
in quarterly operating results or the Company's failure to meet analysts'
projections or public expectations as to results may adversely affect the
market price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POSSIBLE STOCK PRICE VOLATILITY
The trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to events or factors, many of which are beyond the
Company's control. These could include, without limitation (i) quarter to
quarter variations in the Company's operating results, (ii) announcements by
the Company or its competitors regarding the results of regulatory approval
filings, clinical trials or testing, (iii) developments or disputes concerning
proprietary rights, (iv) technological innovations or new commercial products,
(v) material changes in the Company's collaborative arrangements and (vi)
general conditions in the medical technology industry. Moreover, the stock
market has experienced extreme price and volume fluctuations, which have
particularly affected the market prices of many medical technology and device
companies and which have often been unrelated to the operating performance of
such companies.
RELIANCE ON KEY PERSONNEL
The success of the Company is highly dependent, in part, on its ability to
attract and retain highly qualified personnel, including senior management and
scientific personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be successful in attracting and
retaining key personnel in the future. Any failure to do so could adversely
affect the Company. See "Business--Employees."
CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER PROVISIONS
Upon completion of this offering, certain of the Company's officers,
directors and principal shareholders will beneficially own in the aggregate
approximately 6,078,841 shares of the Company's outstanding Common
11
<PAGE>
Stock (including shares subject to outstanding options and warrants). If these
shareholders vote together as a group, they will be able to substantially
influence the business and affairs of the Company, including the election of
individuals to the Company's Board of Directors (the "Board of Directors"),
and to otherwise affect the outcome of certain actions that require
shareholder approval, including the adoption of amendments to the Company's
articles of incorporation, and certain mergers, sales of assets and other
business acquisitions or dispositions.
Upon completion of this offering, the Company will have authorized 1,000,000
shares of undesignated preferred stock, $.01 par value, which may be issued by
the Board of Directors on such terms, and with such rights, preferences and
designations, as the Board of Directors may determine without further
shareholder action. In addition, upon completion of this offering, the
Company's Board of Directors will be classified and directors will serve for
staggered terms. Finally, the Company is subject to certain provisions of the
Minnesota Business Corporation Act that limit the voting rights of shares
acquired in certain acquisitions and restrict certain business combinations.
Some or all of the foregoing factors could have the effect of discouraging
certain attempts to acquire the Company which could deprive the Company's
shareholders of opportunities to sell their shares of Common Stock at prices
higher than prevailing market prices. See "Principal Shareholders,"
"Description of Capital Stock--Preferred Stock" and "--Anti-Takeover
Provisions of the Minnesota Business Corporation Act."
POSSIBLE ADVERSE MARKET EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price
of the Common Stock or the future ability of the Company to raise capital
through an offering of its equity securities. Of the 6,925,633 shares of
Common Stock to be outstanding upon completion of this offering, the 2,200,000
shares offered hereby will be eligible for immediate sale in the public market
without restriction unless they are held by "affiliates" of the Company within
the meaning of Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 4,725,633 shares of Common Stock will be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. Of these, an aggregate of 4,293,378 shares are owned by the
Company's directors, officers and certain of its shareholders who, together
with the Company, have agreed that they will not sell, directly or indirectly,
any Common Stock without the prior consent of Rodman & Renshaw, Inc. for a
period of 180 days from the date of this Prospectus. Of the shares not subject
to this agreement, 125,008 shares will be eligible for immediate sale without
restriction pursuant to Rule 144(k) on the effective date of this offering,
381 shares will be eligible for sale, subject to compliance with the volume
limitations and other restrictions of Rule 144, 90 days after the effective
date of this offering, and 306,866 shares will become eligible for sale under
Rule 144 after the expiration of the two-year holding periods from the dates
of acquisition, which end between December 29, 1996 and May 31, 1998.
Beginning on the 181st day after the date of this Prospectus, when the
agreements not to sell shares expire, an additional 1,850,562 of the shares
may become eligible for sale without restriction pursuant to Rule 144(k), an
additional 929,757 of the shares will become eligible for sale, subject to
compliance with the volume limitations and other restrictions of Rule 144, and
the remaining 1,513,059 shares will become eligible for sale under Rule 144
after the expiration of the two-year holding periods from the dates of
acquisition, which end between December 29, 1996 and February 28, 1998. In the
event the Becton Dickinson Option is exercised, there will be an additional
380,808 shares eligible for resale under Rule 144 beginning two years after
the closing of this offering. In addition, certain shareholders and holders of
warrants and options, who in the aggregate beneficially own 5,049,440 shares
of Common Stock, have the right, subject to certain conditions, to include
their shares in future registration statements relating to the Company's
securities and to cause the Company to register for public sale certain Common
Stock owned by them. See "Certain Transactions--Becton Dickinson," "Shares
Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of $6.09. Investors
may also experience additional dilution as a result of the exercise of
outstanding stock options and warrants. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby are estimated to be approximately $17.9 million
($20.7 million if the Underwriters' over-allotment option is exercised in
full), after deducting the underwriting discounts and estimated offering
expenses and assuming an initial public offering price of $9.00 per share.
The Company anticipates that the net proceeds of this offering will be used
to fund approximately (i) $5.0 million of capital expenditures, primarily in
connection with the improvement of the Company's manufacturing and assembly
capability, (ii) $4.0 million of market development activities, including
increased customer service and support for the marketing efforts of
pharmaceutical and medical device companies with which the Company has
collaborative arrangements and (iii) $4.0 million of research and development
dedicated to the development of improved needle-free injector systems.
The balance of the net proceeds will be used for working capital and other
general corporate purposes. The Company may also use a portion of the net
proceeds to acquire technologies, products or businesses compatible with the
Company's existing business, although the Company has no current arrangements,
commitments or understandings in this regard. These amounts are estimates, and
the amount and timing of the expenditures for these purposes will depend upon
numerous factors, including the status of the Company's product development
efforts, the nature and timing of future licensing, development or other
collaborative agreements, the timing of regulatory approvals, competition,
manufacturing activities, market acceptance of the Company's products and
other factors. The Company believes that the net proceeds from this offering,
combined with cash on hand, interest expected to be earned thereon and
anticipated revenues will be sufficient to meet its needs at least through
1997.
Pending the use of the net proceeds, the Company plans to invest the funds
in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has not paid any dividends since its inception and for the
foreseeable future intends to follow a policy of retaining all of its
earnings, if any, to finance the development and continued expansion of its
business. There can be no assurance that the Company will ever pay dividends.
The payment of dividends, if any, in the future will be at the discretion of
the Board of Directors and will depend on the Company's earnings, financial
condition, capital requirements and other relevant factors.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1996 (i) on a pro forma basis giving effect to the conversion of all
outstanding shares of Convertible Preferred Stock into Common Stock and (ii)
on a pro forma as adjusted basis to reflect the issuance and sale of the
2,200,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $9.00 per share and the application of the estimated net
proceeds therefrom.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities, less current maturities........... $ 54 $ 54
Shareholders' equity:
Preferred Stock, undesignated as to series, $.01 par
value, 1,000,000 shares authorized pro forma and pro
forma as adjusted; no shares issued and outstanding pro
forma or pro forma as adjusted......................... -- --
Common Stock, $.01 par value, 17,000,000 shares
authorized; 4,725,633 shares issued and outstanding pro
forma; 6,925,633 shares issued and outstanding, pro
forma as adjusted (1) (2).............................. 47 69
Additional paid-in capital.............................. 12,983 30,876
Accumulated deficit..................................... (10,486) (10,486)
-------- --------
Total shareholders' equity............................. 2,544 20,459
-------- --------
Total capitalization................................. $ 2,598 $ 20,513
======== ========
</TABLE>
- --------
(1) Excludes 2,966,810 shares consisting of (i) 481,690 shares issuable upon
exercise of outstanding options granted under the Company's 1993 Stock
Option Plan and (ii) 2,485,120 shares issuable upon exercise of
outstanding options and warrants granted to third parties. Becton
Dickinson has notified the Company of its intent to exercise the Becton
Dickinson Option to purchase 380,808 shares of Common Stock immediately
prior to and contingent upon the closing of this offering in the event the
public offering price is at least $7.88 per share. See "Description of
Capital Stock" and "Certain Transactions--Becton Dickinson."
(2) Reflects the conversion of all outstanding Convertible Preferred Stock
into Common Stock, described in Note 13 of Notes to Financial Statements.
14
<PAGE>
DILUTION
The Company's pro forma net tangible book value as of June 30, 1996 was
$2,226,364, or approximately $0.47 per share. Pro forma net tangible book
value per share as of June 30, 1996, represents total assets, less intangible
assets and total liabilities, divided by the number of shares outstanding,
after giving effect to a subsequent 1-for-1.313 reverse stock split and the
conversion of all outstanding shares of Convertible Preferred Stock into
Common Stock. Without taking into account any changes in such net tangible
book value per share after June 30, 1996, other than to give effect to the
sale of the 2,200,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $9.00 per share and the receipt of the net
proceeds of such sale after deducting underwriting discounts and commissions
and estimated expenses payable by the Company, the pro forma net tangible book
value as of June 30, 1996 would have been $20,141,364, or $2.91 per share.
This represents an immediate increase in net tangible book value of $2.44 per
share to existing shareholders and an immediate dilution to new investors of
$6.09 per share, or 67.7%. The following table sets forth this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Pro forma net tangible book value per share at June 30, 1996....... $0.47
Increase per share attributable to new investors................... 2.44
-----
Pro forma net tangible book value per share at June 30, 1996, as
adjusted.......................................................... 2.91
-----
Dilution in net tangible book value per share to new investors..... $6.09
=====
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share of Common Stock after this offering would be
$3.15 per share, which would result in dilution to new investors of $5.85 per
share, or 64.9%.
The following table summarizes, as of June 30, 1996, the differences between
existing shareholders and new investors with respect to the total number of
shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid (assuming an initial public offering
price of $9.00 share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders (1). 4,725,633 68.2% $13,030,342 39.7% $2.76
New investors............. 2,200,000 31.8 19,800,000 60.3 9.00
--------- ----- ----------- -----
Total................... 6,925,633 100.0% $32,830,342 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes 2,966,810 shares consisting of (i) 481,690 shares issuable upon
exercise of outstanding options granted under the Company's 1993 Stock
Option Plan and (ii) 2,485,120 shares issuable upon exercise of
outstanding options and warrants granted to third parties. Becton
Dickinson has notified the Company of its intent to exercise the Becton
Dickinson Option to purchase 380,808 shares of Common Stock immediately
prior to and contingent upon the closing of this offering in the event the
public offering price is at least $7.88 per share.
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements and notes thereto included elsewhere in this Prospectus.
The statement of operations data for the years ended December 31, 1993, 1994
and 1995, and the balance sheet data at December 31, 1994 and 1995 are derived
from, and are qualified by reference to, the audited financial statements
included elsewhere in this Prospectus and should be read in conjunction with
those financial statements and notes thereto. The statement of operations data
for the years ended December 31, 1991 and 1992 and the balance sheet data at
December 31, 1991, 1992 and 1993 are derived from unaudited financial
statements not included herein. The selected financial data as of and for the
six months ended June 30, 1995 and 1996 have been derived from unaudited
financial statements of the Company which, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial information set forth therein. The
results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire year
ending December 31, 1996.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales ................. $1,067 $1,058 $1,058 $ 1,518 $ 1,654 $ 831 $ 814
Licensing and product -- -- 125 470 921 410 686
development .......... ------ ------ ------ ------- ------- ------ -------
Revenues.............. 1,067 1,058 1,183 1,988 2,575 1,241 1,500
------ ------ ------ ------- ------- ------ -------
Cost of sales.......... 290 356 409 631 1,049 465 502
Research and develop-
ment.................. -- -- 146 401 1,195 607 1,093
General and administra-
tive.................. 480 462 615 868 978 628 672
Sales and marketing.... 345 349 485 1,128 1,146 450 467
------ ------ ------ ------- ------- ------ -------
Operating expenses.... 1,115 1,167 1,655 3,028 4,368 2,150 2,734
------ ------ ------ ------- ------- ------ -------
Net operating loss..... (48) (109) (472) (1,040) (1,793) (909) (1,233)
Net other income (ex- (60) (50) (28) (26) (89) (21) 49
pense)................ ------ ------ ------ ------- ------- ------ -------
Net loss .............. $ (108) $ (159) $ (500) $(1,066) $(1,882) $ (930) $(1,184)
====== ====== ====== ======= ======= ====== =======
Pro forma net loss per
common share $ (0.36) $ (0.19)
(unaudited) (1)....... ======= =======
Pro forma weighted
average common shares
outstanding
(unaudited) (1)....... 5,180 6,354
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------- AT JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................. $ 170 $ 55 $ 649 $ 646 $ 36 $ 2,233
Working capital (defi-
cit).................. (622) (37) 197 108 (650) 1,699
Total assets........... 373 267 894 1,361 1,240 3,705
Long-term liabilities,
less current maturi-
ties.................. -- 363 190 299 136 54
Accumulated deficit.... (5,694) (5,846) (6,353) (7,419) (9,302) (10,486)
Total shareholders' eq-
uity (deficit)........ (548) (329) 119 252 (74) 2,544
</TABLE>
- --------
(1) Computed on the basis described in Note 1 of the Notes to Financial
Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Selected
Financial Data and the financial statements and notes thereto included
elsewhere in this Prospectus. This Prospectus, including the following
discussion, contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed under the
heading "Risk Factors."
GENERAL
Medi-Ject Corporation designs, manufactures and markets needle-free
injection systems. In 1993, the Company hired a new management team with the
goal of revitalizing and redefining the Company's strategic direction. Since
that time, product development efforts have increased, emphasizing reductions
in the cost of the Company's systems to make them more competitive in the
marketplace. In addition, marketing efforts have been focused on increasing
sales in the domestic insulin market and on expanding the use of needle-free
injection systems for parenteral drugs other than insulin. As part of this
effort to encourage broader use of needle-free injection systems, the Company
began entering into technology and product license agreements to sell the
Medi-Jector system. The licensing and development income from these agreements
has been used primarily to fund increased product development efforts. This
development effort has resulted in a new generation of the Medi-Jector system,
the Medi-Jector VI system, which incorporates molded plastic components rather
than tooled steel components and was introduced in July 1995, and an
innovative needle-free injection technology that is the subject of eight
United States patent applications.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues increased to approximately $1,500,000 in the first six months of
1996 from approximately $1,241,000 in the first six months of 1995, an
increase of approximately 21%. This increase was primarily the result of
increased licensing and product development fees. Sales of injectors, parts,
supplies and repairs declined to approximately $814,000 in the first six
months of 1996 from approximately $831,000 in the first six months of 1995, a
decrease of approximately 2%. This decrease resulted from a decrease in the
number of injectors sold (1,512 in the first six months of 1995 and 1,363 in
the first six months of 1996). The average selling price per injector also
decreased from $404 to $389 due to an increase in the number of injectors sold
to pharmacies at wholesale prices. The decrease was partially offset by an
increase in sales of parts, supplies and repairs. Licensing and product
development fees increased to approximately $686,000 in the first six months
of 1996 from $410,000 in the first six months of 1995, an increase of 67%. The
increase in fee income reflects the execution of the Becton Dickinson
Agreement in January 1996. The Company expects that licensing and product
development fee income will tend to fluctuate on a quarter to quarter basis,
depending on a number of factors, including the timing of the execution of new
development and licensing agreements and the timing, nature and size of fee
payments to be made under existing and new agreements. In addition, since the
Company in general does not recognize project-based fee income until related
development work has been performed, quarterly results will fluctuate with the
timing of the Company's research and development efforts.
Cost of sales increased to approximately $502,000 in the first six months of
1996 from approximately $465,000 in the first six months of 1995, an increase
of approximately 8%. The increase in cost of sales was due to an increase in
per unit manufacturing costs and an increase in sales of replacement parts,
supplies and repairs. The Company expects that per injector manufacturing
costs will decrease as volumes increase.
Research and development expenses increased to approximately $1,093,000 in
the first six months of 1996 from approximately $607,000 in the first six
months of 1995, an increase of approximately 80%. This increase
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was primarily attributable to research and development expenditures related to
the Company's collaboration with Becton Dickinson, which is being funded in
large part by Becton Dickinson under the Becton Dickinson Agreement.
General and administrative expenses increased to approximately $672,000 in
the first six months of 1996 from approximately $628,000 in the first six
months of 1995, an increase of approximately 7%. The largest component of this
increase was legal expenses related to the negotiation of the Becton Dickinson
Agreement.
Sales and marketing expenses increased to approximately $467,000 in the
first six months of 1996 from approximately $450,000 in the first six months
of 1995, an increase of approximately 4%. This increase was primarily the
result of a general increase in spending on domestic sales activities.
The Company had net other income of approximately $49,000 in the first six
months of 1996 compared to net other expense of approximately $21,000 in the
first six months of 1995. The change was the result of increased cash on hand
following the sale of equity securities to Becton Dickinson in January 1996.
In addition, the Company realized income of approximately $8,000 in the first
six months of 1996 from the sale of certain equipment.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues increased to approximately $2,575,000 in 1995 from approximately
$1,988,000 in 1994, an increase of approximately 30%. This increase was
primarily the result of a growth in licensing and product development fees.
Sales of injectors, parts, supplies and repairs increased to approximately
$1,654,000 in 1995 from approximately $1,518,000 in 1994, an increase of
approximately 9%. This increase was attributable to an increase in the number
of injectors sold, to 3,110 in 1995 from 2,636 in 1994, largely for use with
human growth hormone, and an increase of approximately $126,000 in sales of
parts, supplies and repairs offset by a decrease in the average unit selling
price from $465 in 1994 to $397 in 1995. Licensing and product development
fees increased to approximately $921,000 in 1995 from $470,000 in 1994, an
increase of approximately 96%. This increase was the result of the additional
license and development agreements entered into during 1995 with Bio-
Technology General Corporation, JCR Pharmaceuticals Co., Ltd. and
GeneMedicine, Inc., and increased revenue earned under license and development
agreements executed in prior periods.
Cost of sales increased to approximately $1,049,000 in 1995 from
approximately $631,000 in 1994, an increase of approximately 66%. This
increase was due in large part to nonrecurring expenses associated with the
commercial introduction of the Medi-Jector VI system and the fact that a
larger number of units were sold.
Research and development expenses increased to approximately $1,195,000 in
1995 from approximately $401,000 in 1994, an increase of approximately 198%.
This increase was the result of an increased number of research and
development projects at the Company.
General and administrative expenses increased to approximately $978,000 in
1995 from approximately $868,000 in 1994, an increase of approximately 13%.
This increase related primarily to increased salary and employee benefits
expenses and expenses relating to a larger support staff.
Sales and marketing expenses increased to approximately $1,146,000 in 1995
from approximately $1,128,000 in 1994, an increase of approximately 2%.
Interest income remained relatively constant at approximately $16,000 in
both 1995 and 1994. Interest and other expense increased to approximately
$106,000 in 1995 from approximately $42,000 in 1994, an increase of
approximately 152%. This increase was largely attributable to a non-cash
expense in 1995 relating to certain modifications to the terms of an investor
option agreement.
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Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues increased to approximately $1,988,000 in 1994 from approximately
$1,183,000 in 1993, an increase of approximately 68%. Sales increased to
approximately $1,518,000 in 1994 from approximately $1,058,000 in 1993, an
increase of approximately 43%. This increase was the result of an increase in
the number of injectors sold to 2,636 in 1994 from 1,399 in 1993, largely
because the Company decreased the prices of its systems in the domestic
insulin market from an average selling price of $574 in 1993 to $465 in 1994
and began to market its systems in Europe and Japan for use with human growth
hormone. Product development and licensing fees increased to $470,000 in 1994
from $125,000 in 1993, an increase of approximately 276%. This increase was
the result of the license and development agreement entered into during 1994
with Schwarz Pharma AG, and revenue under the Ferring NV license and
development agreement entered into in 1993.
Cost of sales increased to approximately $631,000 in 1994 from approximately
$409,000 in 1993, an increase of approximately 54%. This increase was driven
primarily by the increase in the number of units produced and sold. The cost
to manufacture injectors decreased from 1993 to 1994 as a result of the
increased volume.
Research and development expense increased to approximately $401,000 in 1994
from approximately $146,000 in 1993, an increase of approximately 175%. This
increase was the result of increased research and development work related to
the Medi-Jector VI system (which was introduced in 1995) and to other systems.
General and administrative expenses increased to approximately $868,000 in
1994 from approximately $615,000 in 1993, an increase of approximately 41%.
This increase was attributable primarily to the hiring of additional
management and support personnel and increased rent expenses.
Sales and marketing expenses increased to approximately $1,128,000 in 1994
from approximately $485,000 in 1993, an increase of approximately 133%. This
increase was driven by increased advertising expenditures, the addition of new
sales and marketing personnel and an increase generally in marketing-related
expenditures.
Interest income increased to approximately $16,000 in 1994 from
approximately $3,000 in 1993, an increase of approximately 433%, as a result
of higher average cash balances resulting from private equity financings
completed during the year. Interest and other expense increased to
approximately $42,000 in 1994 from approximately $30,000 in 1993, an increase
of approximately 40%, as a result of debt financings completed in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through private sales of equity and
debt securities, loans, revenues from product sales and licensing and
development fees. From September 1993 through the second quarter of 1996, the
Company realized net proceeds of approximately $7.6 million from private sales
of its equity securities. Among other things, these funds were used to
increase sales and marketing and research and development efforts. In January
1996, the Company received gross proceeds of approximately $3.1 million from a
private sale to Becton Dickinson of shares of convertible preferred stock
(which will convert into 761,615 shares of Common Stock upon the closing of
this offering), options to purchase additional shares of convertible preferred
stock (which will convert into an option to purchase 380,808 shares of Common
Stock at an exercise price of $4.60 per share) and warrants to purchase
additional shares of convertible preferred stock (which will convert into
warrants to purchase 1,904,037 shares of Common Stock at $5.91 per share).
Becton Dickinson has indicated its intent to exercise its option immediately
prior to and contingent upon the closing of this offering in the event the
public offering price is at least $7.88 per share. The Company intends to use
these funds, together with monthly contract development income from Becton
Dickinson and from pharmaceutical company licensees, for the development of
the proposed smaller injector and for the addition of new drug therapies. See
"Business--Products and Technology" and "Certain Transactions."
The Company's long term capital requirements will depend on numerous
factors, including the status of the Company's collaborative arrangements, the
progress of the Company's research and development programs and
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the receipt of revenues from the sales of the Company's products. Cash and
cash equivalents were $2.2 million at June 30, 1996. The Company believes that
the net proceeds to the Company from this offering, combined with cash on
hand, interest expect to be earned thereon and anticipated revenues, will meet
its needs at least through 1997. In order to meet its needs beyond this
period, the Company may be required to raise additional funds through public
or private financings, including equity financings.
The Company has not generated taxable income through June 30, 1996, and at
such date it had an accumulated deficit of approximately $10.5 million.
INCOME TAX LOSS CARRYFORWARDS
At June 30, 1996, the Company had approximately $10.1 million of net
operating loss carryforwards that may be available to offset future taxable
income for federal income tax purposes. These net operating loss carryforwards
begin to expire in 1996. In addition to its net operating loss carryforwards,
at June 30, 1996, the Company had approximately $117,000 in research and
development tax credit carryforwards which begin to expire in 1997.
Under Section 382 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, a change in ownership of greater than 50% of a company
within a three-year period can result in an annual limitation on such
company's ability to utilize net operating loss carryforwards from tax periods
prior to the change in ownership. The annual limitation may be increased for
any built-in gains recognized within five years of the date of the change in
ownership. The Company's January 1996 sale of capital stock to Becton
Dickinson resulted in a "change in ownership" of the Company, and future
utilization of the Company's net operating loss carryforwards will be limited
to approximately $1.1 million per year. If the Company were to undergo a
further "change in ownership," this limitation might be changed. As a result
of the annual limitation, a portion of the Company's carryforwards may expire
before ultimately becoming available to reduce potential federal income tax
liabilities. See "Certain Transactions."
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BUSINESS
OVERVIEW
Medi-Ject is a drug delivery company focused on developing, manufacturing
and marketing needle-free injection systems for the self-administration of a
wide range of parenteral (injectable) drugs. The Company's product, the Medi-
Jector system, is a hand-held, spring-powered device that injects drugs from a
front-end chamber through the skin without a needle as a narrow, high pressure
stream of liquid approximately 7/1000ths of an inch in diameter. The Medi-
Jector system eliminates the need to pierce the skin with a sharp needle and
manipulate a plunger with the needle inserted through the skin. Therefore many
people perceive injections with the Medi-Jector system to be less threatening
than injections with a needle. Today's Medi-Jector systems are smaller, easier
to use, less expensive and more comfortable than previous needle-free
injection systems. The Company believes that the key to widespread market
acceptance of its needle-free injection systems depends upon continued
improvements in these areas.
The Company believes that individuals who require self-injection will
benefit from the Medi-Jector system because it (i) eliminates the need to
pierce themselves with needles for each injection, which should lead to
increased compliance with a prescribed injection regimen and consequently
reduce health complications, (ii) provides the ability to inject themselves
discreetly and (iii) eliminates the need for sharps disposal of used needles.
In addition, healthcare industry providers and payors may benefit from the
decrease in long-term costs of patient care which may result from improved
patient compliance. Furthermore, based upon discussions with pharmaceutical
companies, the Company believes that those companies are motivated to provide
improved drug delivery methods in an attempt to differentiate their products
in the marketplace and improve patient compliance, which may result in
increased sales and larger market share. Although the single largest
indication for self-injection is the administration of insulin for the
treatment of diabetes, the number of drugs associated with frequent self-
injection is increasing as novel biopharmaceuticals are introduced and
individuals previously managed in the hospital are now cared for in the home.
Medi-Ject was a pioneer in the development of portable needle-free injection
systems. Prior to the development of portable systems, needle-free injection
systems were powered by large air compressors and their use was limited to
mass vaccination by the military or school health programs. These injectors
were painful in comparison to today's injectors. The Company's first
commercial injector was five times as heavy as its current injector, which
weighs eight ounces. Acceptance of the Company's needle-free injection systems
has gradually expanded as functionality and ease of use have improved and the
purchase price has been reduced.
INDUSTRY TRENDS
Historically, with the exception of the self-administration of insulin,
parenteral drug administration was limited to hospitals, doctors' offices and
clinics. Liquid injectable medicines came packaged in single or multi-dose
vials. Healthcare professionals filled disposable syringes with the
medication, injected the patient and discarded the used syringe. Advances in
pharmacology have resulted in an increasing number of drugs that require
frequent injections over long periods of time. These drugs have provided
dramatic therapeutic effects for conditions that in the past resisted more
conventional medications.
Although the availability of these drugs provides new treatment
opportunities, the Company believes that the requirement to inject the drugs
has and will continue to hinder their acceptance and reduce patient
compliance. The Company believes that most individuals view piercing their
skin with a needle as unpleasant. In addition, individuals are often reluctant
to use needles in public because needles are frequently associated with
illegal drug use and cause fear of accidental needle sticks in others. These
and other factors can deter patients from fully complying with their doctor-
prescribed injection regimens. The failure to administer all prescribed
injections can lead to increased health complications for the patient,
decreased drug sales for pharmaceutical companies and increased healthcare
costs for payors. In addition, needles require special disposal and therefore
must be carried after use until they can be discarded in a special sharps
container.
These factors have led pharmaceutical manufacturers to explore many
alternative delivery technologies, including novel needle injectors (for
example, sheathed and spring-powered needle injectors), transdermal
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patches, controlled release oral delivery methods and inhalation devices. In
Western Europe, pharmaceutical and medical product companies, including Becton
Dickinson, market pen-like needle injection systems. Patients have
demonstrated a willingness to pay a premium for these systems over traditional
needles and syringes. The Company believes, however, that injection will
continue as the major delivery method because many of these drugs are protein
biopharmaceuticals which are destroyed in the gastrointestinal tract, do not
readily penetrate the skin or are not effectively absorbed through the lungs.
In addition to the increase in the number of drugs requiring self-injection,
changes in the frequency of insulin injections for the treatment of diabetes
also may contribute to an increase in the number of self-injections. For many
years, standard treatment protocol was for insulin to be administered once or
twice daily for the treatment of diabetes. However, according to a recent
study, tightly controlling the disease by, among other things, administration
of insulin as many as four to six times a day, can decrease its debilitating
effects. The Company believes that as the benefits of tightly controlling
diabetes become more widely known, the number of insulin injections self-
administered by individuals with diabetes will increase. The need to increase
the number of insulin injections given per day may also lead additional
patients to seek an alternative to traditional needles and syringes.
While the Company currently is not pursuing drug applications administered
by healthcare professionals, needle-free injection systems may be attractive
to hospitals, doctors' offices and clinics, and the Company may explore such
applications in the future. The issues raised by accidental needle sticks and
disposal of used syringes have led to the development of syringes with
sheathed needles and have led hospitals to give injections through intravenous
tubing to reduce the number of contaminated needles. The Company believes that
needle-free injection systems may be attractive to healthcare professionals as
a further means to reduce accidental needle sticks and the burdens of
disposing of contaminated needles. Becton Dickinson has the option to
distribute Medi-Jector systems to hospitals worldwide.
MARKET OPPORTUNITY
An estimated nine to 12 billion needles and syringes are sold annually
worldwide according to industry sources. The Company believes that a
significant portion of these are used for the administration of drugs that
could be delivered using the Company's Medi-Jector system but that only a
small percentage of individuals who self-administer drugs currently use
needle-free injection systems.
The Company's focus is on the market for the delivery of self-administered
parenteral drugs, the largest, most developed portion of which consists of the
delivery of insulin. In the United States, over 3.2 million people inject
insulin for the treatment of diabetes, resulting in an estimated 2.3 billion
injections annually, and the Company believes that the number of insulin
injections will increase with time as the result of new diabetes management
approaches which recommend more frequent use. Other parenteral drugs that are
presently self-administered and may be suitable for injection with the Medi-
Jector system include therapies for the treatment of multiple sclerosis,
migraine headaches, growth retardation, impotence, female infertility, AIDS
and hepatitis. The Company also believes that other existing parenteral drugs
will be self-administered in the future and that additional parenteral drugs
that are under development will be deemed appropriate for self-administration.
STRATEGY
The Company's goal is to establish its needle-free injectors as the drug
delivery method of choice for the self-administration of a wide range of
parenteral drugs. The Company believes that the key to this goal is the
development and marketing of a new generation of needle-free injectors that
are less expensive and more user friendly than existing needle-free injection
systems. The Company's strategic plan for accomplishing this goal consists of:
Developing Proprietary Technologies. To address the need for improved
injector systems, the Company initiated a product development program in 1993.
The Company believes that the design improvements resulting
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from these efforts can reduce production costs and lower sales prices. Central
to this program is a new proprietary injection power source, the gas spring.
The gas spring injectors will be smaller, operate more intuitively and may
give more comfortable injections.
Generating an Income Stream from Consumable Components. In addition to sales
of injectors, the Company intends to generate revenue from the ongoing sale of
disposable front-end chambers, which soon will replace the current stainless
steel chambers.
Collaborating with Pharmaceutical and Medical Device Companies. To achieve
more rapid distribution of and capture a portion of the value added by the
Company's delivery system, the Company has chosen to pursue licensing and
development agreements with pharmaceutical and medical device companies. The
Company anticipates that these pharmaceutical and medical device companies
will promote and sell the Medi-Jector systems. Using this approach will enable
the Company to reduce its marketing expenses and leverage off of the marketing
strength and expertise of the other companies.
Focusing on Proprietary Pharmaceuticals. The Company has focused on entering
into agreements covering high-priced drugs, largely biopharmaceuticals, which
may cost many thousands of dollars per year. The Company believes that
pharmaceutical companies that perceive a problem with patient compliance have
in many instances demonstrated a willingness to fund the development of
alternatives to traditional needle injection. As new injectors become
available at reduced costs, the Company will address distribution strategies
for less expensive drugs.
PRODUCTS AND TECHNOLOGY
Current Needle-Free Injection Systems
The Company's current Medi-Jector system consists of a coil spring
mechanism, a dosage meter, a steel front-end chamber and a plastic adapter.
This injector is used by arming the spring mechanism, filling the medication
chamber and then setting the pressure level for an optimally effective and
comfortable injection. The coil spring is armed by turning the two overlapping
tubes in the power pack to shorten the coil spring. The unit is then filled by
placing a plastic adapter on a drug vial, turning the power pack body in the
opposite direction to pull the medication into the front-end chamber until the
proper dosage is displayed in the dosage window and removing the vial and
adapter assembly. The pressure is adjusted by again turning the winding grip.
An injection is given by holding the Medi-Jector system perpendicular to the
skin in a location appropriate for the injection and pressing the trigger
button. The most common injection sites are the upper arm, upper thigh,
buttocks or the side of the torso. It is recommended that the steel front-end
chamber on current models be cleaned after two weeks of use.
Based in part upon the results of focus group studies performed by the
Company, it believes that injections using a Medi-Jector system are more
comfortable than injections using a needle because there is no need to pierce
the skin with a sharp needle and manipulate a plunger with the needle inserted
through the skin. In addition, the Company believes injections can be
administered more discreetly using a Medi-Jector system than with a needle and
syringe. Although both types of injections can be and are performed in public,
many people are reluctant to use needles in public because needles are
frequently associated with illegal drug use and cause fear of accidental
needle sticks in others.
The first lightweight Medi-Jector system, the Medi-Jector EZ system, was
introduced by the Company in 1987. Although the Medi-Jector EZ system provided
significant advantages over previous needle-free injection systems, it was
fabricated from stainless steel parts, which are expensive to manufacture.
In July 1995, the Company introduced the Medi-Jector VI system which
replaced the stainless steel body of the Medi-Jector EZ system with a
composite plastic body. This change will allow the Company to reduce
manufacturing costs as unit volumes increase. The composite body also provides
a natural lubricity which
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reduces friction and therefore the effort required to arm the coil spring. The
Medi-Jector VI system, which is approximately 7 3/4 inches long and weighs
approximately eight ounces, also incorporated additional design changes to
improve functionality.
New Product Research and Development
The Company continues to improve its existing products while developing new
products and technology. Specifically, it is now developing a novel injector
power source which it anticipates will form the basis of a new generation of
pen-like injectors. In addition, the Company is customizing its injectors in
collaboration with pharmaceutical and medical device companies for use with a
broader range of parenteral drugs. These development efforts are focused on
making Medi-Jector systems more attractive to users by eliminating the
periodic cleaning requirements, reducing the size of the system, making the
system easier to arm and lowering the cost barrier for new users.
Pen-Like Injectors. The Company believes that a major obstacle to widespread
market acceptance of needle-free injection systems has been the lack of a
suitably compact and easy to use power source. Although the Company has
reduced the size and complexity of its coil spring injectors, the Company
believes further reduction in size or improvement in ease of use of systems
using a coil spring are not feasible. Other companies have developed and
marketed injectors powered by CO/2/ cartridges, but these systems do not
provide any advantage in size and are complex and costly to manufacture.
To overcome this obstacle, the Company is developing a novel and proprietary
power source, the gas spring. The Company's gas spring is a permanently
charged gas cylinder that is smaller than a coil spring with comparable
capabilities, allowing the development of smaller systems. A rubber seal
surrounds a central rod, preventing the gas from escaping and allowing it to
be reused thousands of times. The spring is armed by pushing the rod into the
cylinder and compressing the gas in the cylinder. When the rod is released, it
springs forward with the energy stored from arming. Medi-Ject built its first
prototype gas spring injector in 1994 and filed a patent application shortly
after the successful testing of the technology. Use of the Company's
proprietary gas spring will allow its needle-free injection systems to be
easier to arm and reduced in size (anticipated to be approximately 7 3/4
inches long, seven ounces in weight and 30% smaller in diameter than the Medi-
Jector VI system) and may result in more comfortable injections.
Plastic Front-End Chambers. The Company plans to replace the steel front-end
chamber of the current Medi-Jector system with a multi-use disposable plastic
front-end chamber in its next generation Medi-Jector system, the Medi-Jector
VI-B system, which it expects to introduce in late 1996 or early 1997. The
Company believes that one of the reasons its needle-free injection systems
have not gained widespread market acceptance is the inconvenience of cleaning
the systems every two weeks. The disposable front-end chamber will eliminate
the need to perform this cleaning process and increase ease of use. In
addition, use of this plastic front-end chamber will allow the Company to
further reduce the manufacturing costs of the Medi-Jector system.
The Company expects that each front-end chamber will be labeled for use for
14 injections, subject to FDA approval. The Company currently anticipates that
the retail selling price of the Medi-Jector VI-B unit (excluding the
disposable front-end chamber) will be reduced by 20% to 30% from the price of
the current version (which includes the steel front-end chamber). The total
annual cost to the end user of disposable front-end chambers and related
supplies is anticipated to increase from approximately $50 per year for
disposable supplies used with the current system to approximately $200 to $250
per year, depending upon the final cost per unit (based upon an average of two
injections per day). Although the total cost to use the Medi-Jector VI-B
system over time will be more than with models that do not require disposable
front-end chambers, the Company believes that lowering the initial purchase
price of a Medi-Jector system will encourage more individuals to make the
initial investment in the injector and increase market acceptance.
In addition, the Company plans to introduce a single-use disposable plastic
front-end chamber for use with its new generation pen-like injectors. The
Company believes that the single-use disposable chamber will be priced
competitively but at a premium compared to disposable syringes, and that it
will offer users sterility and increased convenience.
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The disposable front-end chambers to be used with the Medi-Jector system
should not require special disposal. Because a used front-end chamber will not
pierce the skin, the risk of cross-infection from discarded front-end chambers
is reduced significantly over the risk associated with needles.
Application Specific Systems. In addition to pen-like injectors for insulin,
the Company, in collaboration with Becton Dickinson and other pharmaceutical
and medical device companies, is in the process of developing customized pen-
like needle-free injection systems for specific drug applications. Modified
injectors currently are being developed for use in gene therapy, the treatment
of erectile dysfunction, and the treatment of multiple sclerosis.
Research and Development Programs. The Company manages four outside product
development programs relating to the further development of (i) the gas
spring, (ii) an electronic dosage display, (iii) an electric arming system and
(iv) the miniaturization of its systems. In addition, over the past year, the
Company has expanded its internal development efforts by hiring additional
technical personnel, purchasing laboratory equipment and dedicating facility
space to internal product development efforts. Product development currently
is the largest single category of Company expenditure, in part supported by
fees under license and development agreements. The Company has expended
approximately $146,000, $401,000, $1,195,000 and $1,093,000 on research and
development efforts during fiscal years 1993, 1994 and 1995 and the six month
period ended June 30, 1996, respectively. Of these amounts, approximately
$125,000, $470,000, $921,000 and $686,000, respectively, were funded by third-
party sponsored development programs and licensing fees.
TARGET MARKETS
The Company intends to target the following markets for use of the Medi-
Jector system. To date, the Medi-Jector system has only been approved for use
in the United States, Japan and certain European countries for the
administration of insulin and human growth hormone.
Insulin
Approximately 3.2 million people take insulin daily for the control of high
blood sugar observed in individuals with diabetes according to the National
Institutes of Health. Most of these individuals take two injections daily,
often combining short acting insulin and long acting insulin. In the United
States, the vast majority of insulin users use disposable plastic syringes and
needles, while in Western Europe and Japan, in addition to disposable plastic
syringes, patients use pen-like injectors that hold small vial cartridges of
insulin and use small needles. The management of Type I (insulin dependent)
diabetes has been found to be benefitted by a more disciplined approach to
glucose management, including, among other things, more frequent injections,
which have been proven to reduce long-term complications such as heart
disease, strokes, neuropathy (degeneration of the nervous system), kidney
failure and loss of vision. As a result, some individuals with diabetes take
four to six injections daily. Needle-free injectors have been available to and
used by diabetes patients with a serious aversion to needles for many years
and for these patients, cost and complexity are not significant barriers to
use. The Company believes that another, much larger group of individuals, not
seriously averse to needles yet still reluctant to piercing themselves, find
it difficult to comply with injection regimens and would benefit from the
Company's new, less costly and more user friendly needle-free technology.
Human Growth Hormone
Approximately 52,000 children worldwide receive frequent injections of human
growth hormone for the treatment of growth retardation according to industry
sources. The disease may be diagnosed as early as age three, with injections
administered until bone maturity is reached at age seventeen or beyond. The
hormone drug used for the treatment of this condition costs an estimated
$20,000 or more at the wholesale level annually. Despite the use of pen-like
needle injection systems which are more convenient to use than traditional
needles, compliance with the prescribed injection regimen continues to be a
problem. A study in Germany found that 36% of children on human growth hormone
therapy did not fully comply with the therapy using needle
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injections. In addition, a study performed in the Netherlands showed that most
children in the study preferred to have their human growth hormone
administered using a Medi-Jector system rather than a pen-like needle
injector. A small number of pharmaceutical companies currently hold a
significant percentage of the worldwide human growth hormone market. The
Company believes that its needle-free injector system offers a marketing
advantage to the pharmaceutical companies with which it has agreements
relating to human growth hormone.
Erectile Dysfunction
Studies estimate the number of men in the United States suffering from
impotence at over fifteen million. The causes, earlier thought to be mainly
psychogenic, are now thought to be most often a natural result of aging, or a
complication of diabetes, urogenital surgery or other physiological causes.
Over ten years ago, it was observed that penile injections of vasoactive
(blood vessel relaxing) drugs caused temporary erections sufficient to allow
satisfactory sexual intercourse. The first drug approved for such use in the
United States was the generic drug prostaglandin E/1/. However, the Company
believes that use of this drug has been hindered because penile self-injection
is difficult and viewed as unpleasant by most men. As a result, drug companies
are seeking both local and oral alternative drug delivery methods to avoid the
problems of needle injection. The Company believes that its needle-free
injection technology may provide an attractive alternative to needles.
Gene Therapy
Gene therapy involves the injection of replacement genes into the body
instead of biopharmaceutical protein drugs. In recent years, investigators
have been successful in inserting missing genes directly into the body for
therapeutic purposes. For example, theoretically, an intramuscular injection
of genes of Factor VIII (the blood component necessary for proper clotting)
which is missing in individuals with hemophilia, could produce sufficient
levels of Factor VIII to prevent excessive bleeding. Gene therapy is also
being tested as a more effective method of vaccination. At least one published
study suggests that gene delivery with a needle-free injector results in
higher blood levels of the protein drug or antibodies to vaccines in animals.
Multiple Sclerosis
Multiple sclerosis is a progressive neurological disease where, most
commonly, nerve function loss occurs following an acute episode of peripheral
nerve damage. The cause of the disease is obscure, but recent studies have
demonstrated that at least three drugs reduce the number of acute episodes.
Each of the drugs is a protein or mixture of proteins and requires frequent
injections, ranging from daily to weekly. One of these drugs, Betaseron, has
been available in the United States for over one year, and the Company
believes that many individuals using Betaseron are having difficulty with the
prescribed injection regimen due to needle aversion. As a result, the Company
believes that administration of these drugs would benefit from needle-free
injection systems. Approximately 100,000 individuals in the United States are
candidates for treatment with such drugs.
Other Target Markets
The Company has targeted other parenteral drugs that are regularly self-
administered. These include narcotic analgesics, the anticoagulant heparin
used to prevent blood clots, hormones used in the treatment of female
infertility, biopharmaceuticals used to treat hepatitis or to elevate red and
white blood cell production following chemotherapy or for the treatment of
AIDS.
Although the Company has chosen to focus initially on self-injection
opportunities, similar opportunities exist in hospitals, doctors' offices,
clinics, nursing homes and hospices. Certain opportunities may address the
concern for well being, such as the vaccination of small children, and others
may be prompted by the danger of accidental needle sticks in high risk
environments, such as the emergency room of the hospital.
26
<PAGE>
COLLABORATIVE AGREEMENTS
The Company's business development efforts are focused on entering into
collaborative agreements with pharmaceutical companies. The table below
summarizes certain elements of the Company's current agreements.
<TABLE>
<CAPTION>
VOLUME AND
COMPANY MARKET TYPE OF INJECTION
------- ------ --------------------
<S> <C> <C>
Becton Dickinson and Insulin
Company (1)............. 0.5 ml subcutaneous
Ferring NV............... Growth Hormone 0.5 ml subcutaneous
(Worldwide except United States,
Canada, Japan and Korea)
JCR Pharmaceuticals Co., Growth Hormone 0.5 ml subcutaneous
Ltd..................... (Japan)
Bio-Technology General Growth Hormone 0.5 ml subcutaneous
Corporation............. (United States)
Schwarz Pharma AG........ Prostaglandin E/1/ 1.0 ml intrapenile
(Erectile Dysfunction)
GeneMedicine, Inc........ Gene Therapy 0.5 ml intramuscular
Teva Pharmaceutical Copaxone(R) 1.0 ml subcutaneous
Industries Ltd.......... (Multiple Sclerosis)
</TABLE>
- --------
(1) Becton Dickinson has (i) worldwide distribution rights to injectors for
use with insulin and certain other potential future drugs, (ii) an option
for distribution rights for injection systems used by healthcare
professionals and (iii) manufacturing rights to the disposable front-end
chambers for any indication.
Becton Dickinson Agreement
The Company entered into a Development and License Agreement with Becton
Dickinson in January 1996. Under the agreement, Becton Dickinson is required
to pay to the Company periodic development fees for the development of a pen-
sized insulin injector. Becton Dickinson obtained (i) a worldwide license to
distribute the new, smaller pen-like injectors for use with insulin and
potentially certain other drugs and (ii) the exclusive right to manufacture a
disposable front-end chamber for such injector and for injectors to be
developed for use in the administration of such other drugs. Medi-Ject
retained the right to manufacture the injectors. Both companies have certain
rights to share in future revenues generated from injector and disposable
front-end chamber sales. In connection with this transaction, Becton Dickinson
purchased convertible preferred stock and options and warrants to purchase
preferred stock from the Company. See "Certain Transactions--Becton
Dickinson."
Ferring Agreement
The Company entered into an agreement with Ferring NV ("Ferring") in
December 1993. Pursuant to this agreement, the Company developed and granted
Ferring exclusive rights to use, market and distribute a Medi-Jector system to
be used in conjunction with human growth hormone worldwide with the exception
of the United States, Canada, Japan and Korea. Ferring distributes human
growth hormone manufactured by Bio-Technology General Corporation ("Bio-
Technology General") in Europe. The Company received an initial development
fee at the time the agreement was executed and additional licensing fees are
to be paid to the Company by Ferring at the time of regulatory approval of the
product in certain countries. The Company has retained its rights as the
exclusive manufacturer and supplier of the Medi-Jector system as modified
pursuant to this agreement. Ferring first launched the Medi-Jector system in
Germany in October 1994, and subsequently in certain other European countries.
Ferring has purchased injectors from the Company on a regular basis and has
contributed research funding for the modification of the system to meet
certain European regulatory requirements. Approximately 400 children are using
the Medi-Jector system and have received the Medi-Jector system and training
from Ferring without charge. The agreement has a term of ten years from the
date the product is introduced in France, Germany, Italy and Spain and may be
extended at Ferring's option for additional periods of two years. The
agreement may be terminated by Ferring at any time prior to the receipt of all
approvals necessary to market the injector in each of these countries.
27
<PAGE>
JCR Agreement
In February 1995, the Company entered into an exclusive license agreement
with JCR Pharmaceuticals, Ltd. ("JCR") for the use, marketing and distribution
of the Medi-Jector system with human growth hormone in Japan. The Company has
retained the exclusive right to manufacture the Medi-Jector system under the
agreement. Recently, JCR has entered into the human growth hormone market,
after licensing the drug from Bio-Technology General. JCR has distributed
approximately 250 injectors for use with human growth hormone. The agreement
is for a period of ten years, and may be extended at the option of JCR for
additional two year periods.
Bio-Technology General Agreement
The Company entered into an agreement with Bio-Technology General in June
1995. Pursuant to this agreement, the Company developed and granted Bio-
Technology General the exclusive rights to use, market and distribute a Medi-
Jector system to be used in conjunction with its human growth hormone in the
United States in exchange for a licensing fee, research fee payments and
ongoing royalty payments. The Company has retained its rights as the exclusive
manufacturer and supplier of the Medi-Jector system as modified pursuant to
this agreement. The Medi-Jector system was approved for use with the Bio-
Technology General human growth hormone by the FDA in April 1996, but the sale
of Bio-Technology General human growth hormone in the United States is
currently prohibited by a federal injunction issued in late 1995 as a result
of an unresolved patent infringement suit brought by Genentech, Inc. Bio-
Technology General and Medi-Ject are currently considering various options in
connection with the status of this agreement in light of the injunction.
Schwarz Pharma Agreement
The Company entered into an agreement with Schwarz Pharma AG ("Schwarz") in
October 1994. Pursuant to this agreement, the Company is to develop and grant
Schwarz the exclusive right to use, market and distribute a Medi-Jector system
for use in conjunction with prostaglandin of the E series for any human
ailment, and any other drug for the treatment of erectile dysfunction. The
Company received an initial fee at the time the agreement was executed and
additional fees are to be paid at the time of reaching certain milestones in
the development. The preliminary design of an injector for this purpose has
been completed and human clinical testing is expected to begin in 1996. Data
on efficacy, pain and tissue damage will be collected prior to finalizing the
design of the injector. Clinical trials of the injector are planned to
determine the occurrence of any adverse effects which commonly occur as a
result of frequent penile needle usage. The Company has retained its rights as
the exclusive manufacturer and supplier of the Medi-Jector system as modified
pursuant to this agreement. The agreement may be terminated by either party
prior to the first commercial sale of product under the agreement and is
otherwise for a period of five years following the first commercial sale or
until the expiration of all patent coverage for the covered product, and may
be extended for additional three year terms upon mutual agreement of the
parties.
GeneMedicine Agreement
The Company entered into an agreement with GeneMedicine, Inc.
("GeneMedicine") in July 1995. GeneMedicine and the Company agreed to
collaborate in the development of an injector to deliver gene constructs to
muscle and solid tissue in humans. The Company received an initial fee at the
time the agreement was executed and additional funds for research support were
paid to the Company at regular intervals thereafter. GeneMedicine may secure
rights to distribute the injector for certain gene therapies in exchange for
licensing fees, and both companies will share in fees and sales revenues
generated by licenses to other gene therapy companies. The Company has
retained its rights as the exclusive manufacturer and supplier of the Medi-
Jector system as modified pursuant to this agreement. The agreement may be
terminated by either party upon sixty days' written notice.
Teva Agreement
The Company entered into an agreement with Teva Pharmaceutical Industries
Ltd. ("Teva") in May 1996. Teva has obtained a non-exclusive license to
distribute a Medi-Jector system to be modified specifically for the
28
<PAGE>
administration of the Teva drug, Copaxone(R), for the treatment of multiple
sclerosis. Copaxone(R) is the subject of a currently pending FDA new drug
application. Teva has agreed to support the product development work required
to modify the injector for Copaxone(R) administration. The Company has
retained its rights as the exclusive manufacturer and supplier of the Medi-
Jector system as modified pursuant to this agreement. The agreement has an
initial term of ten years and will be extended for additional two year terms
unless either party notifies the other of its intention to terminate the
agreement at least six months prior to the expiration of the current term.
PATENTS
The Company actively seeks, when appropriate, protection for its products
and proprietary information by means of United States and foreign patents and
trademarks. In addition, the Company relies on trade secrets and confidential
contractual agreements to protect certain proprietary information and
products. The Company currently holds two United States patents relating to
the drug vial adapter and the front-end chamber, one United States design
patent relating to the appearance of the Medi-Jector system and has eight
United States patent applications pending, one of which has been recently
allowed, one Patent Cooperation Treaty application and one Taiwanese patent
application relating to the gas spring energy source and aspects of its use.
Much of the Company's technology is being developed on its behalf by
independent outside contractors. To protect the rights of its proprietary
know-how and technology, Company policy requires all employees and consultants
with access to proprietary information to execute confidentiality agreements
prohibiting the disclosure of confidential information to anyone outside of
the Company. These agreements also require disclosure and assignment to the
Company of discoveries and inventions made by such individuals while devoted
to Company sponsored activities. Companies with which the Company has entered
into development agreements have the right to certain technology developed in
connection with such agreements.
The Company has obtained the rights to certain technology and makes
milestone payments to the inventors of certain core technology. See "Risk
Factors--Dependence on Proprietary Technology Rights."
MANUFACTURING
The Company operates a manufacturing facility in compliance with current GMP
established by the FDA. Injector parts are manufactured by third-party
suppliers and assembled at the Company's facility in Plymouth, Minnesota.
Disposable vial adapters are either assembled at the Company's facility or by
third parties. Quality control and final packaging are performed on site. A
strong effort has been directed toward reducing component part costs and
accelerating assembly procedures, and the Company anticipates a need to invest
in automated assembly equipment as volumes increase in the future. Becton
Dickinson has the right to manufacture the disposable plastic components of
the gas spring systems for the Company in exchange for royalty payments and
certain profit sharing arrangements. See "Risk Factors--Dependence on
Relationship with Becton Dickinson," "--Dependence on Single Source Suppliers"
and "Certain Transactions."
MARKETING
The Company's strategy is to leverage off of the marketing strength,
existing distribution systems and expertise of the pharmaceutical and medical
device companies with which it collaborates by relying on them to promote and
sell its needle-free injection systems together with the products they
manufacture. The Company anticipates that under these collaborative
arrangements, it will manufacture and supply the needle-free injection
technology for specific drug applications to the pharmaceutical company which
will market the system for use with its drugs. In some instances
pharmaceutical companies may choose to give the injection systems and
disposable components to users without charge as an inducement to customers to
use their products. Becton Dickinson has informed the Company that it intends
to distribute the insulin injection system to be developed under the Becton
Dickinson Agreement through an existing distribution system.
29
<PAGE>
The Company currently sells most Medi-Jector systems through a pharmacy
distribution system consisting of approximately 3,100 pharmacies and pharmacy
distributors. Pharmacies marketing the Company's products display sales
literature describing the Medi-Jector system. Often, individuals with diabetes
call the Company directly for additional information regarding the product and
its uses. The Company's sales personnel explain the need for a doctor's
prescription and advise on methods of filing for insurance reimbursement.
Additionally, a small national advertising program in lay journals generates
additional inquiries. Such inquiries are either referred by the Company to
local pharmacies, or may result in mail order sales. The Company also sells a
small number of Medi-Jector systems to exclusive distributors outside the
United States.
Training is supported by a video and manual that accompany each product
purchased. However, approximately 75% of buyers seek additional help over the
telephone through the Company's customer service department. The Company
employs two nurses to provide training and support for customers through this
channel. The customer service 800 number is prominently displayed on each
injector. The Company plans, coincident with the introduction of the multi-use
disposable front-end chamber, to enlist diabetes nurse educators to promote
and train prospective users. This program will involve placing demonstrator
injectors in selected clinics with the suggestion that individuals, especially
those just beginning insulin therapy, be presented with the choice of needle-
free drug delivery.
The most common retail price of an injector (which can be used over a period
of several years) is $595, and disposable adapters cost approximately $50
annually. This compares to an annual cost of approximately $140 to use two
syringes with needles daily. The Company anticipates that the retail price of
future generation Medi-Jector systems will be less than the current retail
price, and that additional revenues will be generated by sales of multi-use
and single-use disposable plastic front-end chambers when they are introduced.
COMPETITION
Competition in the drug delivery market is intensifying. The Company faces
competition from traditional needle syringes, newer pen-like and sheathed
needle syringes and other needle-free injection systems as well as alternative
drug delivery methods including oral, transdermal and pulmonary delivery
systems. The vast majority of injections currently are administered using
needles. Because injection is typically only used when other drug delivery
methods are not feasible, the Company's needle-free injection systems may be
made obsolete by the development or introduction of drugs or drug delivery
methods which do not require injection for the treatment of conditions
currently targeted by the Company. In addition, because the Company intends to
enter into collaborative arrangements with pharmaceutical companies, the
Company's competitive position will depend upon the competitive position of
the pharmaceutical company with which it collaborates for each drug
application.
While competition in the needle-free injection market currently is limited
to small companies with modest financial resources, the barriers to entry are
not great and the Company anticipates additional competition from companies
with greater financial, commercial, personnel and development resources in the
future. Two companies, Health-Mor Personal Care Corp. and Vitajet Corporation,
currently sell coil spring injectors to the United States insulin market. The
products of these companies resemble earlier versions of the Medi-Jector
system and sell at prices ranging from $600 to over $800.
Another company, Bioject, Inc., has sold a CO/2/ powered injector since
1993. The injector is designed for and used almost exclusively for
vaccinations in doctors' offices or public clinics. Bioject has announced that
it has a contract with a pharmaceutical company to develop a self-injection
system for use with drugs for the treatment of multiple sclerosis.
Even though the Company expects the needle-free injection market to expand,
improvements continue to be made in needle syringes, including syringes with
hidden needles and pen-like needle injectors. The Company expects that it will
compete with existing needle injection methods as well as new needle injection
methods yet to be developed.
30
<PAGE>
GOVERNMENT REGULATION
The Company's products and manufacturing operations are subject to extensive
government regulations, both in the United States and abroad. In the United
States, the FDA administers the FDA Act and has adopted regulations, including
those governing the introduction of new medical devices, the observation of
certain standards and practices with respect to the manufacturing and labeling
of medical devices, the maintenance of certain records and the reporting of
device-related deaths, serious injuries and certain malfunctions to the FDA.
Manufacturing facilities and certain Company records are also subject to FDA
inspections. The FDA has broad discretion in enforcing the FDA Act and the
regulations thereunder, and noncompliance can result in a variety of
regulatory steps ranging from warning letters, product detentions, device
alerts or field corrections to mandatory recalls, seizures, injunctive actions
and civil or criminal actions or penalties.
Drug delivery systems such as the Company's injectors may be approved or
cleared for sale as a medical device or may be evaluated as part of the drug
approval process in connection with a new drug application ("NDA"). To the
extent permitted under the FDA Act and current FDA policy, the Company intends
to seek the required approvals and clearance for the use of its new injectors,
as modified for use in specific drug applications such as gene therapy, the
treatment of erectile dysfunction, and the treatment of multiple sclerosis,
under the medical device rather than under the new drug provisions of the FDA
Act. There can be no assurance, however, that any of these new injectors will
be classified as medical devices.
Products regulated as medical devices may not be commercially distributed in
the United States unless they have been cleared or approved by the FDA, unless
otherwise exempted. There are two methods for obtaining such clearance or
approvals. Certain products qualify for a premarket notification under Section
510(k) of the FDA Act ("510(k) notification") of the manufacturer's intention
to commence marketing the product. The manufacturer must, among other things,
establish in the 510(k) notification that the product to be marketed is
substantially equivalent to another legally marketed product (that is, that it
has the same intended use and that it is as safe and effective as a legally
marketed device and does not raise questions of safety and effectiveness that
are different from those associated with the legally marketed device).
Marketing may commence when the FDA issues a letter finding substantial
equivalence to such a legally marketed device. The FDA may require, in
connection with a 510(k) notification, that it be provided with animal and/or
human test results. If a medical device does not qualify for the 510(k)
procedure, the manufacturer must file a premarket approval ("PMA") application
under Section 515 of the FDA Act. A PMA must show that the device is safe and
effective and is generally a much more complex submission than a 510(k)
notification, typically requiring more extensive prefiling testing and a
longer FDA review process. The Company believes that its Medi-Jector systems
regulated as medical devices are eligible for clearance through the 510(k)
notification process, although there can be no assurance that the FDA will not
require a PMA in the future.
In addition to submission when a device is being introduced into the market
for the first time, a 510(k) notification is also required when the
manufacturer makes a change or modification to an already marketed device that
could significantly affect safety or effectiveness, or where there is a major
change or modification in the intended use or in the manufacture of the
device. When any change or modification is made in a device or its intended
use, the manufacturer is expected to make the initial determination as to
whether the change or modification is of a kind that would necessitate the
filing of a new 510(k) notification. The FDA's regulations provide only
limited guidance in making this determination.
If the FDA concludes that any or all of the Company's new injectors must be
handled under the new drug provisions of the FDA Act, substantially greater
regulatory requirements and approval times will be imposed. Use of a modified
new product with a previously unapproved new drug will be likely to be handled
as part of the NDA for the new drug itself. Under these circumstances, the
device component will be handled as a drug accessory and will be approved, if
ever, only when the NDA itself is approved. The Company's injector may be
required to be approved as part of the drug delivery system under a
supplemental NDA for use with previously approved drugs. Under these
circumstances, the Company's device could be used with the drug only if and
when the supplemental NDA is approved for this purpose. It is possible that,
for some or even all drugs, the FDA may
31
<PAGE>
take the position that a drug-specific approval must be obtained through a
full NDA or supplemental NDA before the device may be labeled for use with
that drug. There can be no assurance that those approvals will be obtained in
a timely manner or at all.
To the extent that the Company's modified injectors are handled as drug
accessories or part of a drug delivery system, rather than as medical devices,
they are subject to all of the requirements that apply to new drugs. These
include drug GMP requirements, drug adverse reaction reporting requirements,
and all of the restrictions that apply to drug labeling and advertising. In
general, the drug requirements under the FDA Act are more onerous and strict
than medical device requirements. These requirements could have a substantial
adverse impact on the profitability of the Company. Similar requirements apply
to systems regulated as medical devices.
The Company received 510(k) marketing clearance from the FDA allowing the
Company to market the Medi-Jector EZ system in February 1987, the Medi-Jector
V system in October 1988 and for the use of the Medi-Jector system to
administer Bio-Technology General's human growth hormone in April 1996. The
Company determined that a new 510(k) notification was not required in
connection with the commercial introduction of the Medi-Jector VI system which
incorporates a change to a plastic component body, although there can be no
assurance that the FDA will not require a 510(k) notification in the future.
The Company submitted a 510(k) notification regarding the use of plastic
front-end chambers with the Medi-Jector VI-B system in July 1996. In addition,
the Company expects in the future to submit 510(k) notifications with regard
to further device design improvements and uses with additional drug therapies.
There can be no assurance that the FDA will grant timely 510(k) clearance for
any such system or use, or that the FDA will not require the submission of a
PMA with respect to any such system or use.
The FDA Act also regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate current GMP compliance. These regulations require, among other
things, that (i) the manufacturing process must be regulated and controlled by
the use of written procedures and (ii) the ability to produce devices which
meet the manufacturer's specifications must be validated by extensive and
detailed testing of every aspect of the process. They also require
investigation of any deficiencies in the manufacturing process, the products
produced or record-keeping. Further, the FDA's interpretation and enforcement
of these requirements has been increasingly strict in recent years and seems
likely to be even more stringent in the future. The FDA monitors compliance
with these requirements by requiring manufacturers to register with the FDA
and by conducting periodic FDA inspections of manufacturing facilities. If the
inspector observes conditions that might be violative of the GMP, the
manufacturer must correct those conditions or explain them satisfactorily.
Failure to adhere to GMP requirements would cause the devices produced to be
considered in violation of the FDA Act and subject to FDA enforcement action
that might include physical removal of the Company's devices from the
marketplace.
The FDA's Medical Device Reporting Regulation requires that the Company
provide information to the FDA on the occurrence of any death or serious
injuries alleged to have been associated with the use of the Company's
products, as well as any product malfunction that would likely cause or
contribute to a death or serious injury if the malfunction were to recur. In
addition, FDA regulations prohibit a device from being marketed for unapproved
or uncleared indications. If the FDA believed that the Company was not in
compliance with these regulations, it could institute proceedings to detain or
seize the Company's devices, issue a recall, seek injunctive relief or assess
civil and criminal penalties against the Company or its executive officers,
directors or employees.
The Company is subject to the Occupational Safety and Health Act ("OSHA")
and other federal, state and local laws and regulations relating to such
matters as safe working conditions, manufacturing practices, environmental
protection and disposal of hazardous or potentially hazardous substances.
There can be no assurance that the Company will not be required to incur
significant costs to comply with such laws, regulations or policies in the
future, or that such laws, regulations or policies will not increase the costs
of producing the Companys devices or otherwise have a material adverse effect
upon the Company's ability to do business.
32
<PAGE>
Laws and regulations regarding the manufacture, sale and use of medical
devices are subject to change and depend heavily on administrative
interpretations. There can be no assurance that future changes in regulations
or interpretations made by the FDA, OSHA or other regulatory bodies, will not
adversely affect the Company.
Sales of medical devices outside of the United States are subject to foreign
legal and regulatory requirements. The Company's Medi-Jector EZ systems have
been approved for sale only in certain foreign jurisdictions. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time required to obtain approval by a foreign country may be
longer or shorter than that required for FDA approval, and the requirements
may differ. The Company relies upon the companies marketing its injectors in
foreign countries to obtain the necessary regulatory approvals for sales of
its injectors in those countries. Generally, devices having an effective
510(k) clearance or PMA may be exported without further FDA authorization. FDA
authorization is generally required in order to export other medical devices.
The Company is in the process of implementing ISO 9002, a certification
showing that the Company's procedures and manufacturing facilities comply with
standards for quality assurance and manufacturing process control. Such
certification, along with European Medical Device Directive certification
would evidence compliance with the requirements enabling the Company to affix
the CE Mark to its current products. The CE Mark denotes conformity with
European standards for safety and allows certified devices to be placed on the
market in all European Union ("EU") countries. After June 1998, medical
devices may not be sold in EU countries unless they display the CE Mark. There
is no assurance that the Company will obtain the right to affix the CE Mark
prior to such time.
PROPERTY
The Company leases approximately 9,000 square feet of office, manufacturing
and warehouse space in Plymouth, a suburb of Minneapolis, Minnesota. The lease
expiration date is April 1997. The Company believes its facilities will be
sufficient to meet its requirements through such time and is exploring options
for alternative space.
EMPLOYEES
As of June 30, 1996, the Company employed 30 full-time employees, of whom
six were engaged in administration, eight were engaged in sales and marketing,
four were engaged in research and development, three were engaged in business
development and customer service and nine were engaged in manufacturing. None
of the Company's employees are represented by any labor union or other
collective bargaining unit. The Company believes that its relations with its
employees are good.
LIABILITY INSURANCE
The business of the Company entails the risk of product liability claims.
Although the Company has not experienced any material product liability claims
to date, any such claims could have a material adverse impact on the Company.
The Company maintains product liability insurance with coverage of $1 million
per occurrence and an annual aggregate maximum of $5 million. The Company
evaluates its insurance requirements on an ongoing basis. There can be no
assurance that product liability claims will be covered by such insurance or
will not exceed such insurance coverage limits or that such insurance will be
available on commercially reasonable terms or at all.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Franklin Pass, M.D...... 60 President, Chief Executive Officer and Chairman
of the Board of Directors
Mark S. Derus........... 40 Vice President, Finance, Chief Financial
Officer and Secretary
Todd Leonard............ 37 Vice President, Sales and Marketing
Peter Sadowski, Ph.D. .. 49 Vice President, Product Development
Fred L. Shapiro, M.D. .. 61 Director
Louis C. Cosentino,
Ph.D. ................. 52 Director
Kenneth Evenstad........ 52 Director
Geoffrey Guy............ 42 Director
Norman A. Jacobs........ 58 Director
Peter Sjostrand......... 49 Director
</TABLE>
The following is a brief summary of the business experience of each of the
executive officers and directors of the Company:
Franklin Pass, M.D., joined the Company as a director and consultant in
January 1992, and has served as the Company's President, Chief Executive
Officer and Chairman of the Board of Directors since February 1993. From 1990
to 1992, Dr. Pass served as President of International Agricultural
Investments, Ltd., an agricultural technology consulting and investment
company. Dr. Pass, a physician and scientist, was Director of the Division of
Dermatology at Albert Einstein College of Medicine from 1967 to 1973, the
Secretary and Treasurer of the American Academy of Dermatology from 1978 to
1981 and the co-founder and Chief Executive Officer of Molecular Genetics,
Inc., now named MGI Pharma, Inc., from 1979 to 1986. He is the author of more
than 40 published medical and scientific articles. Dr. Pass serves on the
board of directors of Ringer Corporation, a producer of lawn and garden care
products.
Mark S. Derus joined the Company in December 1993 as Vice President,
Finance, Chief Financial Officer and Secretary. Mr. Derus served as a director
of the Company from 1992 until he joined the Company as an employee in 1993.
From 1986 to December 1993, Mr. Derus was Vice President, Finance of Cherry
Tree Investments, Inc., a venture capital company that invests in early stage
ventures.
Todd Leonard joined the Company in April 1993 as Vice President, Business
Development, and has served as Vice President, Sales and Marketing since April
1996. From 1991 to 1993, Mr. Leonard served as a Senior Licensing Specialist
in the Office of Technology Transfer at the National Institutes of Health.
Peter Sadowski, Ph.D., joined the Company in March 1994 as Vice President,
Product Development. From October 1992 to February 1994, Dr. Sadowski served
as Manager, Product Development for GalaGen, Inc., a biopharmaceutical
company. From 1988 to 1992, he was Vice President, Research and Development
for American Biosystems, Inc., a medical device company. Dr. Sadowski holds a
Ph.D. in microbiology.
Fred L. Shapiro, M.D., joined the Board of Directors in September 1992 and
is a member of the Compensation Committee of the Board of Directors. Dr.
Shapiro is currently a consultant to Hennepin Faculty Associates, the Hennepin
County Medical Center faculty's health maintenance organization in
Minneapolis, Minnesota, of which he was President from 1983 to his retirement
in 1995. Dr. Shapiro is a nephrologist who has authored or co-authored more
than 100 published medical and scientific articles. Dr. Shapiro is also a
director and co-founder of Minntech Corporation ("Minntech"), a company that
designs and manufactures dialysis equipment.
34
<PAGE>
Louis C. Cosentino, Ph.D., joined the Board of Directors in January 1995 and
is a member of the Audit Committee of the Board of Directors. Dr. Cosentino
was a co-founder of Minntech in 1975, and has served as its President and
Chief Executive Officer since that time. Dr. Cosentino holds a Ph.D. in
biomedical engineering and has authored or co-authored nine scientific
publications.
Kenneth Evenstad joined the Board of Directors in May 1993. Since 1969 Mr.
Evenstad has been the Chairman and Chief Executive Officer of Upsher-Smith
Laboratories, Inc., a private pharmaceutical company specializing in branded
generic cardiovascular drugs. Mr. Evenstad is trained as a pharmacist.
Geoffrey Guy joined the Board of Directors in November 1993 and is a member
of the Compensation Committee of the Board of Directors. Dr. Guy was a co-
founder in 1985 of Ethical Holdings plc ("Ethical"), a company that develops
new transdermal and oral drug delivery systems and has served as its Chief
Executive Officer since that time. Dr. Guy has been Ethical's Chairman of the
Board since 1992. Dr. Guy holds a Diploma of Pharmaceutical Medicine from the
British Royal College of Physicians.
Norman A. Jacobs joined the Board of Directors in January 1996. Since 1990,
Mr. Jacobs has been the President of Becton Dickinson Transdermal Systems, a
division of Becton Dickinson, and in 1996 he also became President of Becton
Dickinson's Advanced Injection Systems, a recently formed division of Becton
Dickinson. Mr. Jacobs serves on the board of directors of Seragen, Inc., a
biopharmaceutical company.
Peter Sjostrand joined the Board of Directors in December 1995 and is a
member of the Audit and Compensation Committees of the Board of Directors. Dr.
Sjostrand is a board member of Pharma Vision, a Swiss investment company. From
1975 to 1993, he served in various capacities with the Astra Group, a Swedish
pharmaceutical firm, most recently as deputy board member, Executive Vice
President and Chief Financial Officer. Dr. Sjostrand holds a Swedish medical
degree. Dr. Sjostrand also serves on the board of directors of S-E Banken
Fonder AB, a group of Swedish-based investment funds and Tryggh Hansa, a major
insurance company in Sweden.
Under the terms of the Company's Second Amended and Restated Articles of
Incorporation which will become effective upon the closing of this offering,
the directors will be divided into three classes, with the term of one class
expiring each year. As the term of each class expires, the successors to the
directors in that class will be elected for a term of three years. The Company
believes that classification of the Board of Directors will help to ensure the
continuity and stability of the Company's business strategies and policies as
determined by the Board of Directors. The terms of Mr. Evenstad and Dr.
Cosentino will expire at the Annual Meeting of Shareholders in fiscal 1997,
the terms of Drs. Guy and Shapiro will expire at the Annual Meeting of
Shareholders in fiscal 1998, and the terms of Drs. Pass and Sjostrand and Mr.
Jacobs will expire at the Annual Meeting of Shareholders in fiscal 1999.
Vacancies on the Board of Directors and newly created directorships can be
filled by vote of the majority of the directors then in office.
Dr. Guy was elected to the Board of Directors as the designee of Ethical
under an agreement between Ethical and the Company. The relevant section of
the agreement with Ethical will terminate upon the closing of this offering.
Mr. Jacobs was elected as the designee of Becton Dickinson under an agreement
between Becton Dickinson and the Company. The relevant terms of the agreement
with Becton Dickinson provide that, so long as Becton Dickinson controls,
directly or indirectly, not less than 5% of the capital stock of the Company,
the Company shall use its best efforts to nominate and elect to the Board of
Directors a person designated by Becton Dickinson and that the Board of
Directors shall consist of at least a majority of members who are not employed
by the Company. In the event that a person designated by Becton Dickinson
shall not be a member of the Board of Directors, Becton Dickinson shall be
entitled to notice of and to attend all meetings of the Board of Directors and
its committees and shall receive all information distributed to the directors
at the same time as the directors and shall receive the same notice of
meetings as the directors. These provisions of the agreement with Becton
Dickinson will continue in force following the closing of this offering. Both
Dr. Guy and Mr. Jacobs will continue to serve as directors upon completion of
this offering.
The Company's executive officers are elected by the Board of Directors and
serve until the next election of officers or until their successors are
elected or appointed and qualify.
35
<PAGE>
COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Compensation Committee makes recommendations concerning
executive salaries and incentive compensation for employees of the Company,
subject to ratification by the full Board of Directors, and administers the
Company's 1993 Stock Option Plan and the Company's 1996 Stock Option Plan. The
Audit Committee reviews the results and scope of the audit and other services
provided by the Company's independent auditors, as well as the Company's
accounting principles and its system of internal controls, and reports the
results of its review to the full Board of Directors and to management.
DIRECTORS' COMPENSATION
The Company has not in the past paid cash directors' fees and does not
intend to do so after the closing of this offering. All directors may be
reimbursed for expenses actually incurred in attending meetings of the Board
of Directors and its committees. In the past, the Board of Directors has made
annual discretionary grants of options to purchase shares of Common Stock
under the Company's 1993 Stock Option Plan to all members of the Board of
Directors. The size of these grants has varied from year to year.
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation awarded to
or earned by the Chief Executive Officer for each of the last three fiscal
years. No other executive officer of the Company earned a salary and bonus in
excess of $100,000 during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
---------------------------------- ------------
SECURITIES
UNDERLYING
NAME AND STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER (1) OPTIONS COMPENSATION
- ------------------ ---- -------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Franklin Pass, M.D. ... 1995 $175,000 $ -- $5,174 45,697 $ --
President, Chief 1994 150,000 20,000 3,879 -- 1,200(2)
Executive Officer and 1993(3) 103,661 -- -- 76,161 --
Chairman of the Board
of Directors
</TABLE>
- --------
(1) Represents premiums paid for disability and life insurance policies with
coverage limits in excess of those provided under the Company's employee
insurance policy.
(2) Implied compensation associated with a grant of 19,040 shares of Common
Stock.
(3) Dr. Pass became the Company's President, Chief Executive Officer and
Chairman of the Board of Directors in February 1993.
36
<PAGE>
The following table summarizes options granted during the year ended
December 31, 1995 to the Chief Executive Officer.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED (1) IN 1995 PER SHARE DATE 5% 10%
- ---- ----------- ---------- --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Franklin Pass, M.D...... 45,697 32.1% $3.28 1/1/00 $ 32,301 $ 69,562
</TABLE>
- --------
(1) Incentive stock option granted pursuant to the 1993 Stock Option Plan on
January 3, 1995. Such option vests as to all shares covered on December
31, 1996.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission (the
"SEC") and do not represent the Company's estimate or projection of the
Company's future Common Stock prices. These amounts represent certain
assumed rates of appreciation only. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock and
overall stock market conditions. The amounts reflected in this table may
not necessarily be achieved.
The following table summarizes the value of options held at December 31,
1995, by the Chief Executive Officer. The Chief Executive Officer did not
exercise any options during 1995.
AGGREGATED OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1995 AT DECEMBER 31, 1995(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ---------------------------- -------------------------
<S> <C> <C>
Franklin Pass, M.D....... 68,595/53,312 $482,097/$364,959
</TABLE>
- --------
(1) Value is based on the difference between an assumed initial public
offering price of $9.00 per share and the exercise price of such options.
EMPLOYMENT AGREEMENT WITH DR. PASS
In January 1995, the Company entered into an employment agreement with Dr.
Pass (the "Pass Employment Agreement"). The Pass Employment Agreement provides
for a base salary of $175,000 for 1995 and, as to subsequent years, for a base
salary to be mutually agreed upon between the Company and Dr. Pass prior to
the beginning of each year. For 1996, the parties have agreed that Dr. Pass'
base salary is $192,500. The Pass Employment Agreement also contains
provisions regarding participation in benefits plans, repayment of expenses,
participation in projects and ventures involving the Company and third parties
(which is permitted), protection of confidential information and ownership of
intellectual property. In addition, the Pass Employment Agreement contains
covenants that Dr. Pass will not compete with the Company during the term of
his employment and that he will not solicit or interfere with the Company's
customers, suppliers or employees during the term of his employment and for a
period of two years thereafter. The Pass Employment Agreement had an initial
term through December 31, 1995, which term is automatically extended for
successive one-year periods unless either party objects by written notice at
least 90 days prior to the end of the current term. The Pass Employment
Agreement may be terminated prior to the end of the initial term or any
extension thereof if Dr. Pass dies; if the Board of Directors of the Company
determines that Dr. Pass has become disabled (as defined), has breached the
Pass Employment Agreement in any material respect and Dr. Pass has not cured
or cannot cure such breach within 30 days after delivery of written notice of
such breach or has engaged in willful
37
<PAGE>
and material misconduct; or if Dr. Pass is terminated by the Company, with or
without cause, following not less than 90 days' prior written notice.
The Company maintains a $1,000,000 key person life insurance policy on Dr.
Pass, payable to the Company.
EMPLOYEE STOCK OPTION PLANS
Under the Company's 1993 Stock Option Plan, as amended (the "1993 Plan"),
and the Company's 1996 Stock Option Plan, as amended (the "1996 Plan" and,
together with the 1993 Plan, the "Plans"), full- and part-time employees of
the Company or of its future subsidiary corporations and directors,
consultants and independent contractors of the Company or of its future
subsidiary corporations are eligible to receive options to purchase Common
Stock. The 1993 Plan is administered by the Compensation Committee and the
1996 Plan is administered by the Board of Directors. The Plans provide for the
grant of both incentive stock options intended to qualify for preferential tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended,
and nonqualified stock options that do not qualify for such treatment. The
exercise price of all incentive stock options granted under the Plans shall be
as determined by the Compensation Committee, but shall not be less than 100%
of the fair market value of the Common Stock on the date of grant; the
exercise price of nonqualified stock options shall be as determined by the
Compensation Committee. Only employees are eligible for the grant of incentive
stock options.
A total of 495,050 and 500,000 shares of Common Stock have been reserved for
issuance under the 1993 Plan and the 1996 Plan, respectively. As of June 30,
1996, the Company had outstanding options to purchase an aggregate of 481,690
shares with a weighted average exercise price of $2.54 per share under the
1993 Plan and no shares under the 1996 Plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws and the statutes of the State of Minnesota require the
Company to indemnify any director, officer, employee or agent who was or is a
party to any threatened, pending or completed action, suit or proceedings,
whether civil, criminal, administrative or investigative, against certain
liabilities and expenses incurred in connection with the action, suit or
proceeding, except where such persons have not acted in good faith or did not
reasonably believe that the conduct was in the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be available to directors, officers or other persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
38
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock, as of June 1, 1996, after giving effect to a 1-
for-1.313 reverse stock split effected on August 6, 1996, and the conversion
of the outstanding shares of Convertible Preferred Stock into Common Stock
upon the effectiveness or closing of this offering, before giving effect to
the sale by the Company of the 2,200,000 shares of Common Stock hereby and as
adjusted to reflect such sale, by (i) each person who is known by the Company
to beneficially own more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) the executive officer named in the Summary
Compensation Table above and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED (1)
AMOUNT AND NATURE OF ------------------------------
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) BEFORE OFFERING AFTER OFFERING
- ------------------------ ------------------------ --------------- --------------
<S> <C> <C> <C>
Franklin Pass, M.D. (2). 177,636 3.7% 2.5%
Fred L. Shapiro, M.D.
(3).................... 67,408 1.4 *
Louis C. Cosentino,
Ph.D. (4).............. 15,234 * *
Kenneth Evenstad (5).... 14,092 * *
Peter Sjostrand (6)..... 7,617 * *
Geoffrey Guy (7)........ 7,618 * *
Norman A. Jacobs (8).... -- -- --
Becton Dickinson and
Company (9)............ 3,046,460 43.5 33.1
Ethical Holdings plc
(10)................... 1,224,198 25.9 17.7
Cherry Tree Ventures I
and II (11)............ 820,810 17.3 11.8
Enskilda
Kapitalforvaltning
(12)................... 542,994 11.5 7.8
All executive officers
and directors as a
group (10 persons)
(13)................... 408,597 8.2% 5.7%
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days of June 1, 1996, are deemed outstanding for computing the
percentage of the person holding such options but are not deemed
outstanding for computing the percentage of any other person. This table
does not reflect any shares that these existing shareholders may acquire
in this offering. Except as indicated by footnote, the Company believes
that the persons named in this table, based on information provided by
such persons, have sole voting and investment power with respect to the
shares of Common Stock indicated.
(2) Includes 68,544 shares of Common Stock issuable to Dr. Pass upon the
exercise of outstanding options.
(3) Includes 14,092 shares of Common Stock issuable to Dr. Shapiro upon the
exercise of outstanding options and 22,851 shares issuable to Dr. Shapiro
upon the exercise of outstanding warrants.
(4) Includes 7,617 shares of Common Stock issuable to Dr. Cosentino upon the
exercise of outstanding options.
(5) Includes 14,092 shares of Common Stock issuable to Mr. Evenstad upon the
exercise of outstanding options.
(6) Dr. Sjostrand is a board member of S-E Banken Fonder AB.
(7) Includes 7,618 shares of Common Stock issuable to Dr. Guy upon the
exercise of outstanding options. Dr. Guy is the Chairman and Chief
Executive Officer and an approximately 11% shareholder of Ethical.
(8) Mr. Jacobs is the President of Becton Dickinson Transdermal Systems and of
Advanced Injection Systems, both of which are divisions of Becton
Dickinson.
(9) Includes 380,808 shares of Common Stock issuable to Becton Dickinson upon
the exercise of outstanding options and 1,904,037 shares of Common Stock
issuable to Becton Dickinson upon the exercise of outstanding warrants.
Becton Dickinson has notified the Company of its intent to exercise its
option to purchase 380,808 shares of Common Stock immediately prior to and
contingent upon the closing of this offering in the event the public
offering price is at least $7.88 per share. The address of Becton
Dickinson is 1 Becton Drive, Franklin Lakes, NJ 07417.
(10) The address of Ethical is Corpus Christi House, 9 West Street,
Godmanchester, Huntingdon, Cambs., PE18 8HG, United Kingdom.
(11) Includes 581,418 shares of Common Stock held of record by Cherry Tree
Ventures II, L.P. ("Cherry Tree I") and 208,926 shares of Common Stock
held of record by Cherry Tree Ventures I, L.P. ("Cherry Tree II"). Also
includes 30,466 shares of Common Stock issuable to Cherry Tree II upon
the exercise of outstanding warrants. Tony Christianson and Gordon
Stofer, the general partners of each of Cherry Tree I and Cherry Tree II,
share voting and investment power with respect to the shares of Common
Stock indicated. The address for Cherry Tree I and Cherry Tree II is 3800
West 80th Street, Suite 1400, Bloomington, MN 55431.
(12) The address of Enskilda is c/o Skandinaviska Enskilda Banken,
Jakobsbergsgatan 17, Box 16053, 103 21 Stockholm, Sweden. Enskilda
Kapitalforvaltning is a wholly owned subsidiary of S-E Banken Fonder AB.
(13) Includes 242,381 shares of Common Stock issuable to all directors and
executive officers as a group upon the exercise of outstanding options
and warrants.
39
<PAGE>
CERTAIN TRANSACTIONS
CHERRY TREE II
On April 16 and June 4, 1993, Cherry Tree II loaned the Company an aggregate
of $40,000 pursuant to the terms of loan agreements and related 9% Demand
Promissory Notes; in partial consideration for these loans, Cherry Tree II
received warrants to purchase an aggregate of 30,466 shares of Common Stock at
$1.31 per share, which warrants expire on April 16, 1998 and June 3, 1998. The
principal amount of these loans was converted into 30,465 shares of Series A
Convertible Preferred Stock in November 1993 which was in turn converted into
30,465 shares of Common Stock in January 1996; the Company paid Cherry Tree II
an aggregate of $2,017 interest in cash on these loans.
FRED L. SHAPIRO, M.D.
On April 16 and June 4, 1993, Fred L. Shapiro, M.D., a director of the
Company, loaned the Company an aggregate of $20,000 pursuant to the terms of
loan agreements and related 9% Demand Promissory Notes; in partial
consideration for these loans, Dr. Shapiro received warrants to purchase an
aggregate of 15,234 shares of Common Stock at $1.31 per share, which warrants
expire on April 16, 1998 and June 3, 1998. The Company repaid the principal
amount of these loans, together with an aggregate of $747 in interest, on
October 9, 1993. On August 29, 1994, Dr. Shapiro loaned the Company $100,000
pursuant to the terms of a promissory note due August 29, 1995, bearing
interest at 12% per year; Dr. Shapiro also received a warrant to purchase
7,617 shares of Common Stock at $3.28 per share, which warrant expires on
August 31, 1997. In August 1995, the Company and Dr. Shapiro agreed to extend
the term of the loan and to amend the terms of the loan to permit Dr. Shapiro
to convert the principal amount of the loan into shares of Common Stock. On
February 29, 1996, Dr. Shapiro elected to convert the outstanding principal
amount of this loan into 30,465 shares of Common Stock. The Company paid Dr.
Shapiro an aggregate of $18,000 interest in cash on the loan.
ETHICAL
On September 27, 1993, Ethical and the Company entered into a Preferred
Stock Purchase Agreement pursuant to which Ethical purchased 380,808 shares of
Series B Convertible Preferred Stock for a price of $1.31 per share. At the
same time, the Company and Ethical also entered into (i) an Option Agreement
(the "Ethical Option") pursuant to which Ethical obtained the right to
purchase 761,615 shares of Series B Convertible Preferred Stock at a price of
$1.31 per share (subject to adjustment to $2.62 per share upon the occurrence
of certain events) at any time before the first to occur of March 10, 1995, or
the effectiveness of a registration statement under the Securities Act
registering the Common Stock and (ii) a Technology License and Co-Development
Agreement (the "Ethical License Agreement"). In a letter dated December 10,
1993, Ethical and the Company amended the Ethical Option to provide that the
$1.31 per share price should in all events remain valid as to 380,808 shares
through September 30, 1994. On March 24, 1995, pursuant to the terms of the
Ethical Option, the exercise price was adjusted to $2.62 upon the Company
raising in excess of $1,000,000 through the sale of additional shares of
capital stock at a price of at least $2.62 per share. On September 16, 1994,
Ethical and the Company executed a Waiver and Notice of Exercise Agreement
pursuant to which (i) the parties agreed to waive a 380,808 share minimum
exercise amount provision in the Ethical Option, (ii) the parties agreed to a
152,323 share minimum exercise amount for the Ethical Option, (iii) the
parties agreed to extend the $1.31 per share exercise price on 380,808 shares
subject to the Ethical Option through October 31, 1994 and (iv) Ethical
exercised the Ethical Option as to 152,323 shares of Series B Convertible
Preferred Stock for $1.31 per share. On February 10, 1995, in return for a
commitment by Ethical to exercise $100,000 worth of the Ethical Option under
certain circumstances, the Company and Ethical amended the Ethical Option to
extend its term through September 10, 1995. Ethical exercised the Ethical
Option as to 76,161 shares of Series B Convertible Preferred Stock in February
1995, at a price of $1.31 per share. Pursuant to an Agreement dated September
1, 1995, between Ethical and the Company, (i) the parties agreed to waive the
380,808 share minimum exercise increment in the Ethical Option, (ii) the
Company agreed to extend the Ethical Option through February 29, 1996,
provided that Ethical exercise the Ethical Option as to at least 152,323
shares by September 1, 1995, (iii) Ethical exercised the Ethical Option as to
152,323 shares of Series B Convertible Preferred Stock for $1.64 per share
(with the
40
<PAGE>
Company agreeing to such price) and (iv) the parties agreed that the Company
would have the unilateral right to terminate the Ethical License Agreement at
any time. In January 1996, the Company terminated the Ethical License
Agreement.
On December 22, 1995, Ethical and the Company entered into a Loan Agreement
(the "Ethical Loan") pursuant to which the Company borrowed $312,500 from
Ethical in three installments in December 1995 and January 1996; amounts
outstanding under the Ethical Loan bore interest at the rate of 10% per year.
In connection with the Ethical Loan, the Company and Ethical again amended the
Ethical Option to reduce the per share exercise price on 190,404 of the shares
of Series B Convertible Preferred Stock subject to the Ethical Option from
$2.62 to $1.64 and to extend the term of the Ethical Option through the later
of February 29, 1996, or the repayment date of the Ethical Loan. On February
28, 1996, the Company issued 190,404 shares of Series B Convertible Preferred
Stock to Ethical at a price of $1.64 per share in repayment of all principal
amounts advanced under the Ethical Loan and paid $1,301 interest in cash. On
the same date, Ethical exercised the remainder of the Ethical Option and
purchased 190,404 shares of Series B Convertible Preferred Stock for $2.62 per
share.
As the result of certain anti-dilution protections applicable to the Series
B Convertible Preferred Stock sold to Ethical, these shares will convert upon
the effectiveness of this offering into 1,224,198 shares of Common Stock.
ENSKILDA
On December 28, 1993, the Company and Enskilda entered into a Preferred
Stock Purchase Agreement pursuant to which Enskilda purchased 57,121 shares of
Series B Convertible Preferred Stock at a purchase price of $1.31 per share.
At the same time, the Company and Enskilda orally agreed that Enskilda should
be allowed to purchase an additional 399,848 shares of Series B Convertible
Preferred Stock. On February 1, 1994, the Company and Enskilda entered into a
Preferred Stock Agreement pursuant to which Enskilda purchased 399,848 shares
of Non-Voting Series B Convertible Preferred Stock for $1.31 per share. On
December 29, 1994, Enskilda purchased 30,465 shares of Series B Convertible
Preferred Stock for $3.28 per share as part of a private placement of such
shares. On May 31, 1995, Enskilda purchased 22,848 shares of Series B
Convertible Preferred Stock for $3.28 per share as part of a private placement
of such shares.
As the result of certain anti-dilution protections applicable to the Series
B Convertible Preferred Stock sold to Enskilda, these shares will convert upon
the effectiveness of this offering into 542,992 shares of Common Stock.
BECTON DICKINSON
On January 25, 1996, the Company and Becton Dickinson entered into a
Preferred Stock, Option and Warrant Purchase Agreement pursuant to which
Becton Dickinson purchased 761,615 shares of Series C Convertible Preferred
Stock for $3.94 per share. Becton Dickinson also received, for no additional
consideration, an option (the "Becton Dickinson Option") to purchase 380,808
shares of Series D Convertible Preferred Stock at $4.60 per share and
purchased, for $125,000, a warrant (the "Becton Dickinson Warrant") to
purchase 1,904,037 shares of Series E Convertible Preferred Stock at $5.91 per
share. Under its terms, the Becton Dickinson Option will expire on the date on
which the Company completes this offering provided that the public offering
price per share is at least $7.88 and gross proceeds equal or exceed $10
million. Becton Dickinson has notified the Company of its intent to exercise
the Becton Dickinson Option immediately prior to and contingent upon the
closing of this offering provided that the public offering price is at least
$7.88 per share. All shares of Series C convert 1-for-1 into, and the Becton
Dickinson Option and the Becton Dickinson Warrant will become exercisable for,
shares of Common Stock upon the closing of this offering.
At the same time, the Company and Becton Dickinson entered into a
Development and License Agreement relating to the further development of the
Company's needle-free injection systems and Becton Dickinson's development of
certain disposables for use with the Company's systems. The terms of the
Development and
41
<PAGE>
License Agreement include the grant to Becton Dickinson during the term of the
agreement of an exclusive, worldwide license to (i) sell and use certain of
the Company's needle-free injection systems that are not designed or
calibrated for use with a specific drug made by a specific drug company and
that are intended to be distributed primarily through pharmacies for non-
professional use and (ii) make, have made, use, sell and import single- or
multiple-use disposable front-end chambers or other related drug-containing or
drug-contacting components for use with certain of the Company's needle-free
injection systems. These exclusive rights with respect to the injectors will
continue for a period of at least five years from the date of FDA marketing
clearance of each such injector, and for a longer period if Becton Dickinson
meets certain minimum sales goals set in the Becton Dickinson Agreement.
During such period, the Company will not have the right to sell any such
injector independently. In addition to the systems to be sold by Becton
Dickinson, the Company and Becton Dickinson expect to enter into agreements
with third-party pharmaceutical companies, including development, supply and
license agreements, governing the development and commercial sale of needle-
free injection systems for use only with such third-party pharmaceutical
company's version of a specific drug.
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering the authorized capital stock of the Company
will consist of 17,000,000 shares of Common Stock, $.01 par value, and
1,000,000 shares of preferred stock, $.01 par value, that are undesignated as
to terms and preferences. As of June 30, 1996, there were 4,725,633 shares of
Common Stock outstanding, which were held of record by approximately 91
shareholders, and no shares of undesignated preferred stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors so that the holders of more
than 50% of the outstanding Common Stock can elect all directors. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors of the Company out of funds legally
available therefor and in liquidation proceedings. Holders of Common Stock
have no preemptive or subscription rights and there are no redemption rights
with respect to such shares. The outstanding shares of Common Stock are, and
the shares of Common Stock offered hereby will be, validly issued, fully paid
and nonassessable.
PREFERRED STOCK
All of the Company's outstanding Convertible Preferred Stock will be
converted into Common Stock upon the effectiveness or the closing of this
offering pursuant to its terms. Immediately after the conversion of the
Convertible Preferred Stock into Common Stock, there will be no Convertible
Preferred Stock outstanding and the Company will have authorized 1,000,000
shares of preferred stock that is undesignated as to terms and preferences.
Under Minnesota law and the Company's Second Amended and Restated Articles of
Incorporation to be effective upon the closing of this offering, the Board of
Directors is authorized, without further shareholder action, to issue
preferred stock in one or more classes or series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences, of the preferred stock. Accordingly,
although it has no current intention of doing so, the Board of Directors of
the Company may, without shareholder approval, issue shares of a class or
series of preferred stock with voting and conversion rights which could
adversely affect the voting power and the dividend and other rights of the
holders of Common Stock. In addition, the existence of undesignated preferred
stock may have the effect of discouraging, delaying, deferring or preventing
an attempt, through acquisition of a substantial number of shares of Common
Stock, to acquire control of the Company with a view to effecting a merger,
sale or exchange of assets or a similar transaction. The anti-takeover effects
of the undesignated preferred stock may deny shareholders the receipt of a
premium on their Common Stock and may also have a depressive effect on the
market price of the Common Stock.
42
<PAGE>
WARRANTS AND OPTIONS
As of June 30, 1996, the Company had outstanding options to purchase 481,690
shares of Common Stock that had been issued to employees, directors and
consultants to the Company pursuant to the 1993 Stock Option Plan with a
weighted average exercise price of $2.54 per share. Such options expire
between October 1997 and January 2006. As of June 30, 1996, the Company also
had outstanding warrants and options to purchase a total of 2,485,120 shares
of Common Stock that have been granted to third parties outside of the 1993
Stock Option Plan with a weighted average exercise price of $5.35 per share.
Such third-party warrants and options are all currently exercisable and expire
on dates ranging from February 1997 to January 2006. All agreements embodying
such outstanding third-party warrants and options provide for anti-dilution
adjustments in the event of certain mergers, consolidations, reorganizations,
recapitalizations, stock dividends, stock splits or other changes in the
corporate structure of the Company. Becton Dickinson has notified the Company
of its intent to exercise the Becton Dickinson Option for 380,808 shares of
Common Stock immediately prior to and contingent upon the closing of this
offering in the event the public offering price is at least $7.88 per share.
Holders of third-party warrants and options to purchase approximately
2,287,893 shares of Common Stock are entitled to certain rights to cause the
Company to register the sale of such shares under the Securities Act. See
"Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT
Certain provisions of Minnesota law described below could have an anti-
takeover effect. These provisions are intended to provide management
flexibility, to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage an unsolicited takeover of the Company if
the Board of Directors determines that such a takeover is not in the best
interests of the Company and its shareholders. However, these provisions could
have the effect of discouraging certain attempts to acquire the Company, which
could deprive the Company's shareholders of opportunities to sell their shares
of Common Stock at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Business Corporation Act (the "MBCA")
provides that, unless the acquisition of certain new percentages of voting
control of the Company (in excess of 20%, 33 1/3% or 50%) by an existing
shareholder or other person is approved by a majority of the disinterested
shareholders of the Company, the shares acquired above such new percentage
level of voting control will not be entitled to voting rights. The Company is
required to hold a special shareholders' meeting to vote on any such
acquisition within 55 days after the delivery to the Company by the acquirer
of an information statement describing, among other things, the acquirer and
any plans of the acquirer to liquidate or dissolve the Company and copies of
definitive financing agreements for any financing of the acquisition not to be
provided by funds of the acquirer. If any acquirer does not submit an
information statement to the Company within ten days after acquiring shares
representing a new threshold percentage of voting control of the Company, or
if the disinterested shareholders vote not to approve such an acquisition, the
Company may redeem the shares so acquired by the acquirer at their market
value. Section 302A.671 generally does not apply to a cash offer to purchase
all shares of voting stock of the issuing corporation if such offer has been
approved by a majority vote of disinterested board members of the issuing
corporation.
Section 302A.673 of the MBCA restricts certain transactions between the
Company and a shareholder who becomes the beneficial holder of 10% or more of
the Company's outstanding voting stock (an "interested shareholder") unless a
majority of the disinterested directors of the Company have approved, prior to
the date on which the shareholder acquired a 10% interest, either the business
combination transaction suggested by such a shareholder or the acquisition of
shares that made such a shareholder a statutory interested shareholder. If
such prior approval is not obtained, the statute imposes a four-year
prohibition from the statutory interested shareholder's share acquisition date
on mergers, sales of substantial assets, loans, substantial issuances of stock
and various other transactions involving the Company and the statutory
interested shareholder or its affiliates.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Common Stock will be
Norwest Bank, Minnesota, N.A.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by current shareholders could adversely affect the
price of the Company's Common Stock.
Upon completion of this offering, the Company will have outstanding an
aggregate of 6,925,633 shares of Common Stock, assuming the issuance of the
2,200,000 shares of Common Stock offered hereby. Of the total outstanding
shares of Common Stock, the 2,200,000 shares offered hereby will be freely
tradeable without restriction or further registration under the Securities
Act, unless held by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act (whose sales would be subject to certain
volume limitations and other restrictions described below).
The remaining 4,725,633 shares of Common Stock will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act. Of
these, an aggregate of 4,293,378 shares are owned by the Company's directors,
officers and certain of the Company's shareholders who, together with the
Company, have agreed that they will not sell, directly or indirectly, any
Common Stock without the prior consent of Rodman & Renshaw, Inc. for a period
of 180 days from the date of this Prospectus. Of the shares not subject to
this agreement, 125,008 shares will be eligible for immediate sale without
restriction pursuant to Rule 144(k) on the effective date of this offering,
381 shares will be eligible for sale, subject to compliance with the volume
limitations and other restrictions of Rule 144, 90 days after the effective
date of this offering, and 306,866 shares will become eligible for sale under
Rule 144 after the expiration of the two-year holding periods from the dates
of acquisition, which end between December 29, 1996 and May 31, 1998.
Beginning on the 181st day after the date of this Prospectus, when the
agreements not to sell shares expire, an additional 929,757 of the shares may
become eligible for sale without restriction pursuant to Rule 144(k), an
additional 1,850,562 of the shares will become eligible for sale, subject to
compliance with the volume limitations and other restrictions of Rule 144, and
the remaining 1,513,059 shares will become eligible for sale under Rule 144
after the expiration of the two-year holding periods from the dates of
acquisition, which end between December 29, 1996 and February 28, 1998.
In general, under Rule 144, as currently in effect, if at least two years
have elapsed from the date that shares of Common Stock were acquired from the
Company or an affiliate of the Company, then the holder is entitled to sell in
"brokers' transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares
of Common Stock (69,256 shares immediately after this offering) or (ii)
generally, the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale, subject to certain other limitations and restrictions. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above.
The Company intends to file registration statements under the Securities
Act, covering 495,050 and 500,000 shares of Common Stock reserved for issuance
under, respectively, the 1993 Stock Option Plan and the 1996 Stock Option
Plan. Such registration statements are expected to be filed soon after the
date of this Prospectus and will automatically become effective upon filing.
Accordingly, shares issued under such registration statements upon the
exercise of options will be available for resale in the open market subject to
the agreements not to sell described above. See "Management--Stock Option
Plans."
In addition, after this offering, the holders of 2,761,547 shares of Common
Stock and warrants and options to purchase 2,287,893 shares of Common Stock
(together, the "Registrable Securities") will be entitled to certain rights to
cause the Company to register the sale of such shares under the Securities
Act. After this offering, if the Company proposes to register any of its
securities under the Securities Act for its own account, holders of
Registrable Securities will be entitled to notice of such registration and
will be entitled to include Registrable Securities therein, subject to certain
conditions and exceptions, including the right of the underwriters of any such
offering to limit the number of shares that may be included in such
registration. Certain of the holders
44
<PAGE>
of Registrable Securities have the right to require the Company to prepare and
file a registration statement under the Securities Act at its expense, and the
Company is required to use its best efforts to effect such registration,
subject to certain conditions and limitations; provided, however, that with
respect to certain of the Registrable Securities, the Company shall not be
required to obtain the effectiveness of any such registration statement until
six months after the date of this Prospectus. Furthermore, the Company's
obligation to effect such shareholder-initiated registrations is limited in
number with respect to certain of the Registrable Securities. Registration of
such shares would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by
affiliates of the Company) immediately upon the effectiveness of such
registration. All but 3,048 of these shares are subject to the agreements not
to sell described above.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of Common Stock for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public markets or the
perception that such sales will occur could adversely affect the market price
or the future ability to raise capital through an offering of its equity
securities.
45
<PAGE>
UNDERWRITING
The Underwriters below, for whom Rodman & Renshaw, Inc. ("Rodman") and R. J.
Steichen & Company are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company, the number of shares of
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Rodman & Renshaw, Inc...............................................
R. J. Steichen & Company............................................
---------
Total........................................................... 2,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other considerations. The nature of obligations is such
that they are committed to purchase and pay for all of the above shares of
Common Stock offered hereby if any are purchased.
The Underwriters, through the Representatives, have advised the Company that
they propose to offer the Common Stock initially at the public offering price
set forth on the cover page of this Prospectus; that the Underwriters may
allow to selected dealers a concession of $ per share and that such dealers
may reallow a concession of $ per share to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriters. The Common Stock has been approved for quotation on the
Nasdaq National Market. The Representatives have advised the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.
The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to an aggregate of 330,000 additional shares of Common Stock,
exercisable at the public offering price less the underwriting discount. If
the Underwriters exercise such over-allotment option, then each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof as the number of shares of
Common Stock to be purchased by it as shown in the above table, bears to the
2,200,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby.
In connection with this offering, the Company has agreed to issue and sell
to the Representatives, for nominal consideration, warrants to purchase a
number of shares of Common Stock equal to 10% of the shares of Common Stock
sold in this offering, exclusive of any shares of Common Stock sold pursuant
to the Underwriters' over-allotment option (the "Representatives' Warrants").
The Representatives' Warrants will be initially exercisable at a price per
share equal to 120% of the public offering price, commencing one year from the
date of this Prospectus, and will continue to be exercisable for a period of
four years after such date. The Representatives' Warrants are restricted from
sale, transfer, assignment or hypothecation for a period of 12 months from the
effective date of this offering, except to officers, partners or successors of
the Representatives. The exercise price of the Representatives' Warrants and
the number of shares of Common Stock issuable upon exercise thereof are
subject to adjustment under certain circumstances. The Representatives'
Warrants grant to the holders thereof certain rights regarding the
registration of the Common Stock issuable upon exercise of the
Representatives' Warrants.
46
<PAGE>
The officers, directors and certain shareholders of the Company, who will
beneficially own 4,293,378 shares of Common Stock after the offering, have
agreed that they will not publicly sell or dispose of any shares of Common
Stock for a period of 180 days after the date on which the Registration
Statement is declared effective by the Commission, without the prior written
consent of Rodman. See "Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined
through negotiations between the Company and the Representatives. Among the
factors considered in determining the initial public offering price were
prevailing market and economic conditions, estimates of the business potential
and prospects of the Company, the present state of the Company's business
operations, an assessment of the Company's management and the consideration of
the above factors in relation to the market valuation of companies in related
businesses.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain
legal matters in connection with the sale of the Common Stock offered hereby
will be passed on for the Underwriters by Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, New York, New York.
EXPERTS
The financial statements as of December 31, 1994 and 1995, and for each of
the years in the three-year period ended December 31, 1995, included in this
Prospectus have been audited by KPMG Peat Marwick LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
On December 29, 1995, on the recommendation of the Audit Committee and with
the approval of the Board of Directors, the Company engaged KPMG Peat Marwick
LLP to audit the consolidated financial statements of the Company for the year
ended December 31, 1995. KPMG Peat Marwick LLP has also conducted a reaudit of
the financial statements as of December 31, 1994, and for each of the years in
the two-year period ended December 31, 1994. There were no disagreements
between the Company and Stirtz Bernards Boyden Surdel & Larter Professional
Association ("Stirtz Bernards"), the Company's prior accountants, (whether
resolved to the satisfaction of Stirtz Bernards or not) on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. The audit opinion of Stirtz Bernards for the
years ended December 31, 1993 and 1994 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified as to uncertainty, audit scope,
or accounting principles.
ADDITIONAL INFORMATION
The Company has filed with the SEC in Washington, D.C. a Registration
Statement on Form S-1, including amendments thereto, with respect to the
shares of Common Stock offered hereby has been filed with the SEC. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information pertaining to the Company and the shares of Common Stock offered
hereby, reference is made to the Registration Statement, including the
exhibits, financial statements and schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or any other
document are not necessarily complete, and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
47
<PAGE>
The Registration Statement, including the exhibits and schedules thereto,
may be inspected, without charge, and copies may be obtained, at prescribed
rates, at the public reference facilities of the SEC maintained at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices at 7 World Trade Center, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement may also be obtained by mail at prescribed rates, from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
48
<PAGE>
MEDI-JECT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited) and Pro forma Shareholders' Equity as of June 30, 1996
(unaudited).............................................................. F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995 and the Six Months Ended June 30, 1995 and 1996 (unaudited)......... F-4
Statements of Shareholders' Equity (Deficit) for the Years Ended December
31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1996
(unaudited).............................................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and the Six Months Ended June 30, 1995 and 1996 (unaudited)......... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors Medi-Ject Corporation:
We have audited the accompanying balance sheets of Medi-Ject Corporation
(the Company) as of December 31, 1994 and 1995, and the related statements of
operations, shareholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medi-Ject Corporation as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 7, 1996, except as to Note 13(a) which is as of August 6, 1996
F-2
<PAGE>
MEDI-JECT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 645,667 $ 35,817 $ 2,232,660
Accounts receivable, less
allowance for doubtful ac-
counts of $1,501 for 1994,
$4,125 for 1995, and $4,000
for June 30, 1996.......... 89,303 176,240 128,218
Inventories................. 170,861 280,229 334,535
Prepaid expenses............ 12,318 35,508 110,941
---------- ---------- -----------
918,149 527,794 2,806,354
---------- ---------- -----------
Equipment, furniture and fix-
tures....................... 907,248 1,027,462 1,144,619
Less accumulated deprecia-
tion........................ (464,654) (550,436) (563,685)
---------- ---------- -----------
442,594 477,026 580,934
---------- ---------- -----------
Patent rights................ 0 235,288 317,901
---------- ---------- -----------
$1,360,743 $1,240,108 $ 3,705,189
========== ========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............ $ 160,018 $ 243,281 $ 235,951
Accrued expenses............ 291,039 398,232 248,630
Deferred revenue............ 110,000 148,563 457,024
Capital lease obligations--
current maturities......... 42,455 45,534 42,350
Notes payable--current matu-
rities..................... 206,324 342,457 123,454
---------- ---------- -----------
809,836 1,178,067 1,107,409
---------- ---------- -----------
Long-term liabilities:
Capital leases, less current
maturities................. 85,326 40,109 20,214
Notes payable, less current
maturities................. 213,554 96,097 33,301
---------- ---------- -----------
298,880 136,206 53,515
---------- ---------- -----------
Shareholders' equity (defi-
cit):
Series C convertible pre-
ferred stock: $.01 par; au-
thorized 761,615 shares: 0;
0; and 761,615 issued and
outstanding at December 31,
1994, 1995, and June 30,
1996, respectively......... -- -- 7,616 $ --
Series B convertible pre-
ferred stock: $.01 par; au-
thorized 3,046,459 shares:
1,488,958; 2,090,633; and
2,471,484 issued and out-
standing at December 31,
1994, 1995 and June 30,
1996, respectively......... 14,890 20,906 24,714 --
Series A convertible pre-
ferred stock: $.01 par; au-
thorized 1,218,584 shares:
1,103,867; 1,103,867; and 0
issued and outstanding at
December 31, 1994, 1995 and
June 30, 1996, respective-
ly......................... 11,039 11,039 -- --
Common stock: $.01 par; au-
thorized 7,616,147 shares:
217,722; 218,864;
1,353,785; and 4,725,633
issued and outstanding at
December 31, 1994, 1995,
June 30, 1996, and June 30,
1996 pro forma, respec-
tively .................... 2,177 2,189 13,538 47,256
Additional paid-in capital.. 7,643,361 9,193,600 12,984,474 12,983,086
Accumulated deficit......... (7,419,440) (9,301,899) (10,486,077) (10,486,077)
---------- ---------- ----------- -----------
Total shareholders' equity
(deficit).................. 252,027 (74,165) 2,544,265 2,544,265
---------- ---------- ----------- -----------
$1,360,743 $1,240,108 $ 3,705,189 $ 3,705,189
========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales.................. $1,057,703 $ 1,517,660 $ 1,653,869 $ 831,130 $ 814,244
Licensing and product
development........... 125,000 470,000 920,937 410,000 686,038
---------- ----------- ----------- ---------- -----------
1,182,703 1,987,660 2,574,806 1,241,130 1,500,282
---------- ----------- ----------- ---------- -----------
Operating expenses:
Cost of sales.......... 409,247 630,628 1,048,937 465,277 501,718
Research and develop-
ment.................. 146,061 401,382 1,195,435 606,613 1,093,087
General and administra-
tive.................. 615,035 867,616 977,579 628,046 672,079
Sales and marketing.... 484,939 1,128,232 1,145,894 450,173 466,880
---------- ----------- ----------- ---------- -----------
1,655,282 3,027,858 4,367,845 2,150,109 2,733,764
---------- ----------- ----------- ---------- -----------
Net operating loss...... (472,579) (1,040,198) (1,793,039) (908,979) (1,233,482)
---------- ----------- ----------- ---------- -----------
Other income (expense):
Interest and other in-
come.................. 2,538 15,916 16,486 10,824 69,485
Interest and other ex-
pense................. (30,278) (42,180) (105,906) (31,506) (20,181)
---------- ----------- ----------- ---------- -----------
(27,740) (26,264) (89,420) (20,682) 49,304
---------- ----------- ----------- ---------- -----------
Net loss................ $ (500,319) $(1,066,462) $(1,882,459) $ (929,661) $(1,184,178)
========== =========== =========== ========== ===========
Pro forma per share data
(unaudited) (Note 1):
Net loss per common
share................. $ (0.36) $ (0.19)
=========== ===========
Weighted average common
shares outstanding.... 5,180,186 6,353,706
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------------------------------------------
SERIES C SERIES B SERIES A COMMON STOCK ADDITIONAL
-------------- ------------------ -------------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1992......... -- $ -- -- $ -- 1,073,402 $ 10,734 229,216 $ 2,292 $ 5,511,019 $ (5,852,659)
Common stock:
Stock incentive
awards expired.. -- -- -- -- -- -- (97,696) (977) 977 --
Shares issued as
compensation.... -- -- -- -- -- -- 46,078 461 2,467 --
Series A:
Conversion of
notes payable... -- -- -- 30,465 305 -- -- 39,695 --
Series B:
Shares issued
for cash........ -- -- 761,615 7,616 -- -- -- -- 992,385 --
Offering costs.. -- -- -- -- -- -- -- -- (95,274) --
Net loss........ -- -- -- -- -- -- -- -- -- (500,319)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, December
31, 1993......... -- -- 761,615 7,616 1,103,867 11,039 177,598 1,776 6,451,269 (6,352,978)
Common stock:
Shares issued as
compensation.... -- -- -- -- -- -- 37,310 373 2,029 --
Shares issued
for cash........ -- -- -- -- -- -- 2,814 28 200 --
Series B:
Exercise of
stock options... -- -- 552,171 5,522 -- -- -- -- 719,478 --
Shares issued
for cash........ -- -- 175,172 1,752 -- -- -- -- 548,248 --
Offering costs.. -- -- -- -- -- -- -- -- (77,863) --
Net loss........ -- -- -- -- -- -- -- -- -- (1,066,462)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, December
31, 1994......... -- -- 1,488,958 14,890 1,103,867 11,039 217,722 2,177 7,643,361 (7,419,440)
Common stock:
Exercise of
stock options... -- -- -- -- -- -- 1,142 12 1,548 --
Series B:
Exercise of
stock options... -- -- 228,483 2,284 -- -- -- -- 347,716 --
Shares issued
for cash........ -- -- 373,192 3,732 -- -- -- -- 1,221,268 --
Offering costs.. -- -- -- -- -- -- -- -- (65,383) --
Amendments to
investor option
agreement....... -- -- -- -- -- -- -- -- 45,090 --
Net loss........ -- -- -- -- -- -- -- -- -- (1,882,459)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, December
31, 1995......... -- -- 2,090,633 20,906 1,103,867 11,039 218,864 2,189 9,193,600 (9,301,899)
Conversion of
Series A to com-
mon stock (1)... -- -- -- -- (1,103,867) (11,039) 1,103,867 11,039 -- --
Conversion of
note payable
(1)............. -- -- -- -- -- -- 30,465 305 99,695 --
Shares issued
for reverse
stock split (1). -- -- 43 -- -- -- 589 5 (5) --
Series B: (1)
Exercise of
stock options
and conversion
of
note payable.... -- -- 380,808 3,808 -- -- -- -- 809,822 --
Series C: (1)
Shares issued
for cash........ 761,615 7,616 -- -- -- -- -- -- 2,992,384 --
Offering costs.. -- -- -- -- -- -- -- -- (236,022) --
Series E: (1)
Warrant issued
for cash........ -- -- -- -- -- -- -- -- 125,000 --
Net loss (1).... -- -- -- -- -- -- -- -- -- (1,184,178)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, June 30,
1996 (1)......... 761,615 $7,616 2,471,484 $ 24,714 -- $ -- 1,353,785 $13,538 $12,984,474 $(10,486,077)
======= ====== ========= ======== ========== ======== ========= ======= =========== ============
<CAPTION>
TOTAL
------------
<S> <C>
Balance, December
31, 1992......... $ (328,614)
Common stock:
Stock incentive
awards expired.. --
Shares issued as
compensation.... 2,928
Series A:
Conversion of
notes payable... 40,000
Series B:
Shares issued
for cash........ 1,000,001
Offering costs.. (95,274)
Net loss........ (500,319)
------------
Balance, December
31, 1993......... 118,722
Common stock:
Shares issued as
compensation.... 2,402
Shares issued
for cash........ 228
Series B:
Exercise of
stock options... 725,000
Shares issued
for cash........ 550,000
Offering costs.. (77,863)
Net loss........ (1,066,462)
------------
Balance, December
31, 1994......... 252,027
Common stock:
Exercise of
stock options... 1,560
Series B:
Exercise of
stock options... 350,000
Shares issued
for cash........ 1,225,000
Offering costs.. (65,383)
Amendments to
investor option
agreement....... 45,090
Net loss........ (1,882,459)
------------
Balance, December
31, 1995......... (74,165)
Conversion of
Series A to com-
mon stock (1)... --
Conversion of
note payable
(1)............. 100,000
Shares issued
for reverse
stock split (1). --
Series B: (1)
Exercise of
stock options
and conversion
of
note payable.... 813,630
Series C: (1)
Shares issued
for cash........ 3,000,000
Offering costs.. (236,022)
Series E: (1)
Warrant issued
for cash........ 125,000
Net loss (1).... (1,184,178)
------------
Balance, June 30,
1996 (1)......... $ 2,544,265
============
</TABLE>
- -----
(1) Unaudited.
See accompanying notes to financial statements.
F-5
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (500,319) $(1,066,462) $(1,882,459) $ (929,661) $(1,184,178)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation........... 26,324 36,945 85,960 25,422 69,881
Shares issued as
compensation.......... 2,928 2,402 -- -- --
Amendments to investor
option agreement...... -- -- 45,090 -- --
Changes in operating
assets and
liabilities:
Accounts receivable.... (15,455) (20,639) (86,937) (4,539) 48,022
Inventories............ 15,006 (121,547) (109,368) (145,274) (54,306)
Prepaid expenses....... 7,121 3,542 (23,190) (31,028) (75,433)
Accounts payable....... 42,524 16,854 83,263 (49,197) (7,330)
Deferred revenue....... 43,750 66,250 38,563 (35,000) 308,461
Accrued expenses....... 73,907 90,026 107,193 125,042 (149,602)
---------- ----------- ----------- ----------- -----------
Net cash used in
operating activities... (304,214) (992,629) (1,741,885) (1,044,235) (1,044,485)
---------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchases of equipment,
furniture and
fixtures.............. (39,096) (256,622) (120,392) (64,862) (173,789)
Purchase of patent
rights................ -- -- (235,288) (125,853) (82,613)
---------- ----------- ----------- ----------- -----------
Net cash used in
investing activities.. (39,096) (256,622) (355,680) (190,715) (256,402)
---------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Principal payments on
capital lease
obligations........... (7,194) (26,729) (42,138) (20,225) (23,079)
Proceeds from issuance
of common stock....... -- 228 1,560 1,560 101,130
Proceeds from issuance
of convertible
preferred stock....... 1,000,001 1,275,000 1,575,000 980,000 3,812,500
Warrants issued........ -- -- -- -- 125,000
Proceeds from issuance
of notes payable...... 40,000 100,000 125,000 -- 187,500
Principal payments on
notes payable......... -- (24,967) (106,324) (52,507) (469,299)
Offering costs......... (95,274) (77,863) (65,383) (45,571) (236,022)
---------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 937,533 1,245,669 1,487,715 863,257 3,497,730
---------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 594,223 (3,582) (609,850) (371,693) 2,196,843
Cash and cash
equivalents:
Beginning of period.... 55,026 649,249 645,667 645,667 35,817
---------- ----------- ----------- ----------- -----------
End of period.......... $ 649,249 $ 645,667 $ 35,817 $ 273,974 $ 2,232,660
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is primarily a manufacturer/distributor of needle-free injection
devices and disposables for the injection of insulin and human growth hormone.
Products are sold throughout the United States, Europe, the Middle East, and
Asia.
Interim Financial Information
The financial information presented for the six months ended June 30, 1996
is unaudited. In the opinion of management, this unaudited financial
information contains all adjustments (which consist only of normal, recurring
adjustments) necessary for a fair presentation. Operating results for the six
months ended June 30, 1996 are not necessarily indicative of results that may
be expected for the full year.
Pro Forma Net Loss Per Share
Pro forma net loss per share is computed by dividing the net loss
attributable to common shareholders by the weighted average number of shares
of common stock and common stock equivalents outstanding, after applying the
treasury stock method and after giving effect to the reverse stock split and
the automatic conversion of all outstanding shares of convertible preferred
stock in accordance with the Company's initial public offering (see Note 13).
Pursuant to certain requirements of the Securities and Exchange Commission,
common stock equivalents include the impact of the issuance of stock, options
and warrants (see Note 8) within one year prior to the date of the initial
filing of the Company's initial public offering ("IPO") (see Note 13) at
exercise prices less than the assumed initial public offering price of $9.00
per share, whether or not the effects are antidilutive.
Cash Equivalents
The Company considers highly liquid debt instruments with remaining
maturities of ninety days or less at time of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
a first-in, first-out basis.
Equipment, Furniture, and Fixtures
Equipment, furniture, and fixtures are stated at cost and are depreciated
using the straight-line method over their estimated useful lives.
Sales Recognition
Sales and related costs are recognized upon shipment of product to
customers. Sales are recorded net of provisions for returns and discounts.
F-7
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
Licensing and Product Development Revenue Recognition
Licensing and product development revenue is recognized when underlying
performance criteria for payment have been met and the Company has an
unconditional right to such payment. Depending on a license or product
development agreement's terms, recognition criteria may be satisfied upon
achievement of milestones, passage of time, or product sales by the licensee.
Payments received by the Company in excess of amounts earned are classified as
deferred revenue.
Product Warranty
The Company recognizes the estimated cost of warranty obligations to its
customers at the time the products are shipped.
Research and Development
Company sponsored research and development expenses related to both present
and future products are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying
amounts of existing assets and liabilities and their respective tax bases.
Concentration of Credit Risk
Financial instruments that may subject the Company to concentration of
credit risk consist principally of accounts receivable. This risk is mitigated
by the large number of individual customers and long-standing credit
relationships with the Company's major distributors.
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 these estimates.
New Accounting Pronouncements
For 1996, the Company is required to adopt Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, and SFAS No. 123, Accounting for Stock-
Based Compensation. SFAS No. 121 prescribes accounting and reporting standards
when circumstances indicate that the carrying amount of an asset may not be
recoverable. Initial application of SFAS No. 121 is not expected to result in
recognition of a cumulative effect of a change in accounting principle by the
Company. SFAS No. 123 prescribes accounting and reporting standards for all
stock-based compensation plans. Since the Company intends to elect continued
recognition of certain stock-based compensation using the intrinsic value
method prescribed under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, no effect on the Company's expense recognition
is expected.
F-8
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw material................................... $119,316 $145,603 $178,026
Work-in-process................................ 45,878 80,663 76,208
Finished goods................................. 5,667 53,963 80,301
-------- -------- --------
$170,861 $280,229 $334,535
======== ======== ========
</TABLE>
3. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, USEFUL
1994 1995 1996 LIVES
-------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Office equipment.................. $222,350 $ 262,847 $ 376,489 3-5 years
Production equipment.............. 674,862 753,319 756,834 3-10 years
Displays.......................... 10,036 11,296 11,296 3-5 years
-------- ---------- ----------
$907,248 $1,027,462 $1,144,619
======== ========== ==========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued product warranty and returns........... $ 95,438 $ 71,620 $ 71,620
Payroll........................................ 18,795 29,787 23,706
Accrued patent rights obligation............... -- 96,500 --
Other.......................................... 176,806 200,325 153,304
-------- -------- --------
$291,039 $398,232 $248,630
======== ======== ========
</TABLE>
F-9
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
5. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured notes payable, interest at 10%.. $ -- $ 125,000 $ --
Notes payable, due in aggregate monthly
payments of $11,127 including interest at
10% through October 1997. Notes are
secured by all assets of the Company..... 319,878 213,554 156,755
Unsecured note payable to shareholder/
director, with interest at 12% payable
monthly. Principal is due August 1996.
Convertible into 30,465 shares of common
stock.................................... 100,000 100,000 --
--------- --------- ---------
419,878 438,554 156,755
Current maturities........................ (206,324) (342,457) (123,454)
--------- --------- ---------
Notes payable, less current maturities.... $ 213,554 $ 96,097 $ 33,301
========= ========= =========
Aggregate future maturities are as fol-
lows:
1996..................................... $ 342,457
1997..................................... 96,097
---------
$ 438,554
=========
</TABLE>
6. LEASES
The Company has a noncancelable operating lease for its office and
manufacturing facility that expires in April 1997. This lease requires the
Company to pay all executory costs such as maintenance and insurance.
Rent expense incurred for the years ended December 31, 1993, 1994, and 1995
was $57,924, $102,306, and $107,616, respectively.
The Company is also obligated under noncancelable leases classified as
capital leases. The leases call for aggregate monthly payments of $5,301 with
various expiration dates through September 1999. Equipment, furniture, and
fixtures include $163,506 and $326,186 of cost and $25,791 and $221,341 of
accumulated amortization as of December 31, 1994 and 1995, respectively,
related to these leases.
Future minimum lease payments are as follow as of December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1996..................................................... $ 57,034 $76,729
1997..................................................... 35,220 --
1998..................................................... 7,070 --
1999..................................................... 1,901 --
-------- -------
$101,225 $76,729
=======
Less amount representing interest (at rates ranging from
12% to 20.9%)............................................. 15,582
--------
Present value of minimum capital lease payments......... 85,643
Less current maturities.................................. 45,534
--------
Obligations under capital leases less current maturi-
ties................................................... $ 40,109
========
</TABLE>
F-10
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
7. INCOME TAXES
The Company incurred losses for both book and tax purposes in each of the
three years in the period ended December 31, 1995 and, accordingly, no income
taxes were provided. Effective tax rates differ from statutory federal income
tax rates in the years ended December 31, 1995, 1994, and 1993 as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory federal income
tax rate............... (34.0)% (34.0)% (34.0)%
Valuation allowance in-
crease................. 36.0 36.0 36.0
State income taxes, net
of federal benefit..... (2.0) (2.0) (2.0)
----- ----- -----
0.0% 0.0% 0.0%
===== ===== =====
</TABLE>
Deferred taxes as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory reserve................................. $ 65,100 $ 72,100
Net operating loss carryforward................... 2,462,000 3,123,600
Research credit carryforward...................... 117,000 117,000
Other............................................. 34,900 27,300
----------- -----------
2,679,000 3,340,000
Less valuation allowance........................... (2,679,000) (3,340,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards
("NOL") of approximately $9,000,000 for federal income tax purposes, which
begin to expire in 1996. Additionally, the Company had research credit
carryforwards of approximately $117,000, which begin to expire in 1997.
Pursuant to the Tax Reform Act of 1986, use of the Company's NOL will be
limited because of a cumulative "change of ownership" of more than 50%. This
ownership change occurred as a result of the sale of 1,000,000 shares of
Series C convertible preferred stock on January 25, 1996 (see Note 12).
8. SHAREHOLDERS' EQUITY
Series A Convertible Preferred Stock
The Series A convertible preferred stock carries voting rights, has no
dividend preference over the Company's common stock and a liquidation
preference of $0.641. Each Series A share is convertible into one share of
common stock at the option of the holder and is, under certain circumstances,
automatically converted to common stock (see Note 12).
Series B Convertible Preferred Stock
The Series B convertible preferred stock, which carries voting rights, has
dividend preference over Series A convertible preferred and common stock and a
liquidation preference of $1.31. Each Series B share is convertible into one
share of common stock, subject to certain anti-dilution adjustments.
F-11
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
In January 1994, the Board of Directors established a new Series B non-
voting convertible preferred stock and authorized 761,615 shares for this
class of stock. The Series B non-voting ranks on par with the Series B voting
convertible preferred stock, with regard to dividends and liquidation
preference, and is convertible at the option of the holder into common stock.
In October 1994, the Board of Directors established a new Series B, Class
II, voting convertible preferred stock and authorized 304,646 shares for this
class of stock. The Series B-II has a liquidation preference of $3.28 per
share, and otherwise ranks on par with the Series B voting convertible
preferred stock.
In April 1995, the Board of Directors established a new Series B, Class III,
voting convertible preferred stock and authorized 152,323 shares for this
class of stock. The Series B-III has a liquidation preference of $3.28 per
share, and otherwise ranks on par with the Series B voting convertible
preferred stock.
In August 1995, the Board of Directors established a new Series B, Class IV,
voting convertible preferred stock and authorized 761,162 shares for this
class of stock. The Series B-IV has a liquidation preference of $3.28 per
share, and otherwise ranks on par with the Series B voting convertible
preferred stock.
At December 31, 1995, the total number of shares authorized for all classes
of stock was 13,404,420 shares: 7,616,147 common shares; 1,218,584 Series A
preferred shares; 2,284,844 Series B preferred shares; 761,615 nonvoting
Series B preferred shares; and 1,523,230 preferred shares undesignated as to
class.
Stock Options and Warrants
The Company has issued options and warrants for common stock to various
lenders and others. These options and warrants have exercise prices ranging
from $0.79 to $3.28 per share, are fully exercisable, and expire from August
1996 to December 2003.
The Company also has stock options outstanding for 380,808 shares of its
Series B convertible preferred stock issued in connection with a 1993 stock
purchase agreement. This option agreement, as amended, expired on February 29,
1996. The exercise price is $1.64 per share for 190,404 shares and $2.63 for
the remaining 190,404 shares. Amendments during 1995 to the Series B preferred
option agreement resulted in the recognition of $45,090 in expense. This
expense was associated with decreases in the exercise price of certain options
in exchange for a short-term credit facility, and the cancellation of a
technology license and co-development agreement (see Note 12).
Under the terms of the Company's 1993 Stock Option Plan, incentive stock
options and nonqualified options may be granted to officers, directors,
employees, and consultants. Under this plan, 495,050 shares of common stock
have been reserved. At December 31, 1995, 87,891 shares remain available for
grant.
Stock options granted under the 1993 Stock Option Plan become exercisable
over varying periods and expire up to ten years from date of grant. The option
price for incentive stock options cannot be less than fair market value on the
date of the grant. The option price for nonqualified stock options may be set
by the Board of Directors.
F-12
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
Stock option and warrant activity for the three years ended December 31,
1995 and the six months ended June 30, 1996 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1992...................... 4,570 $26.26-32.83
Granted............................................. 1,038,712 0.79-2.63
Exercised........................................... -- --
Canceled............................................ -- --
--------- ------------
Outstanding at December 31, 1993...................... 1,043,282 0.79-32.83
Granted............................................. 124,995 1.31-1.64
Exercised........................................... (152,323) 1.31
Canceled............................................ (7,236) 0.79-32.83
--------- ------------
Outstanding at December 31, 1994...................... 1,008,718 0.79-1.64
Granted............................................. 214,776 1.31-3.28
Exercised........................................... (229,627) 1.31-1.64
Canceled............................................ (2,057) 3.28
--------- ------------
Outstanding at December 31, 1995...................... 991,810 0.79-3.28
Granted (unaudited)................................. 2,372,677 3.94-5.91
Exercised (unaudited)............................... (380,808) 1.64-2.63
Canceled (unaudited)................................ (16,869) 1.31-2.63
--------- ------------
Outstanding at June 30, 1996 (unaudited).............. 2,966,810 $ 0.79-5.91
========= ============
</TABLE>
As of December 31, 1995 and June 30, 1996, 406,931 and 481,690 (unaudited)
options and 584,879 and 2,485,120 (unaudited) warrants were outstanding,
respectively.
As of December 31, 1995 and June 30, 1996 options for 238,240 and 323,951
(unaudited) shares, and warrants for 584,879 and 2,485,120 (unaudited) shares,
respectively, were exercisable.
9. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan that covers all employees who have
met minimum age and service requirements. Under the plan, eligible employees
may contribute up to 15% of their compensation into the plan. The Company, at
the discretion of the Board of Directors, may contribute elective amounts to
the plan, allocated in proportion to employee contributions to the plan,
employee's salary, or both. No elective contributions have been made for the
years ended December 31, 1993, 1994, and 1995.
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During 1994, the Company entered into capital lease obligations for
equipment of $111,571.
Cash paid for interest during the years ended December 31, 1993, 1994, 1995
and the six months ended June 30, 1996 was $7,119, $67,785, $62,515 and
$20,182 (unaudited), respectively.
On January 25, 1996 and February 29, 1996, notes payable of $312,500 and
$100,000, respectively, were converted into 190,404 shares of Series B
Preferred Stock and 30,465 shares of Common Stock, respectively.
11. SALES
The Company had a foreign customer, a distributor of the Company's products,
who accounted for approximately 0%, 5%, and 18% of sales for the years ended
December 31, 1993, 1994, and 1995, respectively.
F-13
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
Foreign sales by geography were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Europe (primarily Germany).......................... $ 20,877 $ 14,960 $301,277
Other............................................... 127,629 146,649 319,379
-------- -------- --------
Total............................................. $148,506 $161,609 $620,656
======== ======== ========
</TABLE>
Other consists mainly of sales to Asia and South America.
12. SUBSEQUENT EVENTS
On January 25, 1996, the Company sold 761,615 shares of Series C Junior
convertible preferred stock to Becton Dickinson and Company ("Becton
Dickinson") for $3,000,000. In addition, the Company granted Becton Dickinson
an option to purchase 380,808 shares of Series D Junior preferred stock with
an exercise price of $4.60. These options expire on the tenth anniversary of
the agreement or on the first anniversary of an IPO of the Company's stock if
the per share price is less than $7.88 but more than $6.57, or on the IPO date
if the per share price is greater than or equal to $7.88. Warrants for
1,904,037 shares of Series E Junior convertible preferred stock were also
granted at an exercise price of $5.91 for initial consideration of $125,000.
These warrants expire on the tenth anniversary of the agreement or on the
seventh anniversary following an IPO if the per share price is greater than or
equal to $7.88.
In connection with the above transaction the Company entered into a
licensing agreement with Becton Dickinson, which provides Becton Dickinson
exclusive worldwide rights to certain Medi-Ject technology. In exchange for
granting this exclusive right, the Company will receive $100,000 per month for
24 months beginning January 1996 to develop the technology.
On January 25, 1996, the Company converted an unsecured note payable
totaling $312,500 (of which $125,000 is outstanding at year end) into 190,404
shares of Series B convertible preferred stock. In addition, the holder of the
debt purchased an additional 190,404 shares of Series B convertible preferred
stock for proceeds of $500,000 in connection with a stock option exercise.
On January 31, 1996, the Company converted its Series A convertible
preferred stock into common stock. Automatic conversion into common stock of
the Series A was precipitated by the Company's net worth exceeding $1.0
million.
On February 29, 1996 an unsecured note payable to a shareholder totaling
$100,000, which is outstanding at year end, was converted to 30,465 shares of
common stock.
13. ITEMS SUBSEQUENT TO DATE OF AUDITORS' REPORT
(a) Reverse Stock Split
In connection with the Company's IPO, the Board of Directors and
shareholders approved a 1-for-1.313 reverse stock split of its common stock,
effective August 6, 1996. The effect of the stock split has been retroactively
reflected in the accompanying financial statements and notes thereto.
F-14
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)
(b) Initial Public Offering (unaudited)
The Company is in the process of preparing for an IPO of up to 2,530,000
shares of its common stock. Simultaneously with the effective or closing date
of this offering, all outstanding shares of preferred stock (consisting of
2,471,484 shares Series B, and 761,615 shares Series C) will be automatically
converted into an aggregate of 3,371,848 shares of common stock. Included in
the Series B conversion are 138,749 additional shares related to an
antidilution adjustment (see Note 8). The conversion of the Company's
preferred stock to common stock, as described herein, has been reflected in
the pro forma shareholders' equity column of the balance sheet at June 30,
1996.
F-15
<PAGE>
[ART WORK]
Medi-Jector(R) System Operation
- ----
STEP 1: RESET POWER SOURCE
Turn winding grip in
the direction of the arrow to
a complete stop.
- ----
- -----
[Drawing of Medi-Jector system held in
hands with arrow showing direction of
winding.]
- ----
- ----
STEP 2: FILL DRUG CHAMBER
Attach drug vial with adapter and
turn winding grip
until the proper dosage is indicated in the window.
- ----
- -----
[Drawings of Medi-Jector systems held in
hands with arrows showing direction of
winding and vial attachment.]
- ----
- ----
STEP 3: ADJUST PRESSURE AND INJECT
REMOVE DRUG VIAL AND TURN WINDING GRIP TO OPTIMUM COMFORT LEVEL.
INJECT.
- ----
- ----
[Drawing of Medi-Jector system held in
hands with arrow showing direction of
winding.]
[Drawing of Medi-Jector system held against
thigh of individual receiving injection.]
- ----
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUM-
STANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1996 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURI-
TIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DE-
LIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD AL-
LOTMENTS OR SUBSCRIPTIONS.
----------------
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................................................................ 34
Principal Shareholders.................................................... 39
Certain Transactions...................................................... 40
Description of Capital Stock.............................................. 42
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 46
Legal Matters............................................................. 47
Experts................................................................... 47
Additional Information.................................................... 47
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
2,200,000 SHARES
COMMON STOCK
----------
PROSPECTUS
----------
RODMAN & RENSHAW, INC.
R. J. STEICHEN & COMPANY
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following fees and expenses will be paid by the Company in connection
with the issuance and distribution of the securities registered hereby and do
not include underwriting commissions and discounts. All such expenses, except
for the SEC, NASD and Nasdaq fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 9,484
NASD filing fee.................................................... 3,030
Nasdaq Stock Market listing fee.................................... 35,639
Legal fees and expenses............................................ 125,000
Accounting fees and expenses....................................... 45,000
Blue Sky fees and expenses......................................... 15,000
Transfer Agent's and Registrar's fees.............................. 5,000
Printing and engraving expenses.................................... 70,000
Directors' and Officers' Insurance................................. 60,000
Miscellaneous...................................................... 31,847
--------
Total........................................................ $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Statutes provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
Provisions regarding indemnification of officers and directors of the
Company to the extent permitted by Section 302A.521 of the Minnesota Statutes
are contained in the Company's Second Amended and Restated Bylaws as they will
be amended immediately upon closing of the offering (Exhibit 3.4 hereto),
which are incorporated herein by reference.
Under Section 7 of the Underwriting Agreement to be filed as Exhibit 1.1
hereto, the Underwriters have agreed to indemnify, under certain conditions,
the Company, its directors, certain of its officers and persons who control
the Company within the meaning of the Securities Act of 1933, as amended,
against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The information set forth below (i) gives effect to a 1-for-1.313 reverse
split of the Company's capital stock effected on August 6, 1996, and (ii) does
not give effect to the automatic conversion of all shares of Convertible
Preferred Stock into shares of Common Stock prior to or upon the closing of
the offering.
II-1
<PAGE>
Since June 1, 1993, the Company has issued and sold the following securities
that were not registered under the Securities Act of 1933, as amended (the
"Securities Act"):
In June 1993, the Company issued warrants to purchase an aggregate of 53,315
shares of Common Stock at a price of $1.31 per share to three accredited
investors including two existing securityholders, which warrants were issued
in connection with the issuance of 9% Demand Promissory Notes in the aggregate
original principal amount of $80,000.
In September 1993, the Company sold 380,808 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor, at a per
share price of $1.31. In connection with this sale, the Company also issued to
Ethical Holdings plc an option to purchase 761,615 shares of Series B
Convertible Preferred Stock at a price of $1.31 per share (subject to
adjustment to $2.62 per share upon the occurrence of certain events).
In November 1993, the Company issued 381 shares of Common Stock to Lois
Jovanovic Peterson, M.D., a former consultant to the Company, in consideration
of a release and waiver of the Company under a consulting agreement.
In November 1993, the Company sold to Grayson & Associates a warrant to
purchase 19,041 shares of Common Stock at a price of $1.31 per share, which
warrant was sold in consideration of services rendered in connection with the
private placement of shares of Series B Convertible Preferred Stock.
In November 1993, the Company sold 30,465 shares of Series A Convertible
Preferred Stock to Cherry Tree Ventures II, L.P., an accredited investor, in
consideration of conversion of 9% Demand Promissory Notes in the aggregate
principal amount of $40,000.
In November 1993, the Company sold to Physical Sciences, Inc. a warrant to
purchase 33,000 shares of Common Stock at a price of $0.79 per share, which
warrant was issued in consideration of engineering services rendered.
In November and December 1993, the Company sold an aggregate of 380,808
shares of Series B Convertible Preferred Stock to six accredited investors at
a price of $1.31 per share, including 38,081 shares sold in consideration of
conversion of a 9% Demand Promissory Note in the principal amount of $50,000.
In February 1994, the Company sold an aggregate of 399,848 shares of Non-
Voting Series B Convertible Preferred Stock to Enskilda Kapitalforvaltning, an
accredited investor and existing shareholder, for $1.31 per share.
In February 1994, the Company sold to Nordberg Capital, Inc. a warrant to
purchase 22,849 shares of Common Stock at a price of $1.31 per share, which
warrant was sold in consideration of services rendered in connection with the
private placement of shares of Series B Convertible Preferred Stock.
In February 1994, the Company sold to Martha Russell a warrant to purchase
1,905 shares of Common Stock at a price of $1.31 per share, which warrant was
sold in consideration of grant-writing services rendered.
In June 1994, the Company sold 15,233 shares of Non-Voting Series B
Convertible Preferred Stock to Joseph Card, an accredited investor, for $1.64
per share.
In August 1994, the Company sold to Physical Sciences, Inc. a warrant to
purchase 20,314 shares of Common Stock at a price of $1.64 per share, which
warrant was issued in consideration of engineering services rendered.
In August 1994, the Company sold a warrant to purchase 7,617 shares of
Common Stock at a price of $3.28 per share to Fred L. Shapiro, M.D., a
director of the Company, which warrant was issued in connection with a
$100,000 loan from Dr. Shapiro to the Company.
II-2
<PAGE>
In September 1994, the Company sold 152,323 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, at a price of $1.31 per share upon a partial exercise of the
stock option described above.
In November 1994, the Company sold 2,806 shares of Common Stock to Calvert
Social Ventures Partners, L.P., an accredited investor, at a price of $0.081
per share upon the exercise of certain preemptive rights triggered by the
issuance during 1994 of stock grants as compensation to employees of the
Company. In connection with this sale, the Company also issued warrants to
purchase (a) 1,842 shares of Common Stock at a price of $1.31 per share, which
warrant was issued in consideration of $24.18, (b) 567 shares of Common stock
at a price of $3.28 per share, which warrant was issued in consideration of
$7.44, and (c) 1,512 shares of Common Stock at a price of $1.64 per share,
which warrant was issued in consideration of $19.84.
From December 1994 through March 1995, the Company sold an aggregate of
304,665 shares of Series B Convertible Preferred Stock (Class II) to 23
accredited investors, including certain existing shareholders and a director,
at a price of $3.28 per share. In connection with this offering, the Company
issued warrants to purchase an aggregate of 3,048 shares of Common Stock at a
price of $3.28 per share to Delphi Financial Corp. in consideration of its
services as placement agent. (On March 24, 1995, such warrants were
transferred to Robert Fullerton and Michael Trautner, principals of Delphi
Financial Corp.)
In January 1995, the Company sold 762 shares of Common Stock to John L.
Brooks, an employee, at a price of $1.31 per share upon exercise of an
incentive stock option.
In February 1995, the Company sold 381 shares of Common Stock to Deborah A.
Close, an employee, at a price of $1.31 per share upon exercise of an
incentive stock option.
In February 1995, the Company sold 76,161 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, at a price of $1.31 per share upon a partial exercise of the
stock option described above.
In February 1995, the Company sold to Nordberg Capital, Inc. a warrant to
purchase 4,570 shares of Common Stock at a price of $3.28 per share, which
warrant was sold in consideration of $60 and services rendered in connection
with the private placement of shares of Series B Convertible Preferred Stock
(Class II).
In April 1995, the Company sold to Perry Silverman a warrant to purchase 229
shares of Common Stock at a price of $3.28 per share, which warrant was sold
in consideration of $3.00 and services rendered in connection with the private
placement of shares of Series B Convertible Preferred Stock (Class II).
From May 1995 through August 1995, the Company sold an aggregate of 152,335
shares of Series B Convertible Preferred Stock (Class III) to 16 accredited
investors, including existing shareholders, at a price of $3.28 per share.
In September 1995, the Company sold an aggregate of 76,170 shares of Series
B Convertible Preferred Stock (Class IV) to 11 accredited investors, at a
price of $3.28 per share.
In September 1995, the Company sold 152,323 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, at a price of $1.64 per share upon a partial exercise of the
stock option described above.
In January 1996, the Company sold 761,615 shares of Series C Junior
Convertible Preferred Stock to Becton Dickinson and Company, an accredited
investor, at a price of $3.94 per share. In connection with this sale, the
Company granted Becton Dickinson and Company an option to purchase 380,808
shares of Series D Junior Convertible Preferred Stock at a price of $4.60 per
share and the Company sold Becton Dickinson and Company a warrant to purchase
1,904,037 shares of Series E Junior Convertible Preferred Stock at a price of
$5.91 per share for a warrant purchase price of $125,000.
II-3
<PAGE>
In February 1996, the Company sold 30,465 shares of Common Stock to Fred L.
Shapiro, M.D., a director of the Company, in consideration of conversion of a
loan in the principal amount of $100,000.
In February 1996, the Company sold 380,808 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, 190,404 of which shares had a per share price of $1.64 and were
issued in consideration of conversion of all principal amounts advanced under
a $312,500 loan from Ethical to the Company and 190,404 of which shares were
sold at a price of $2.62 per share; all such shares represented the final
partial exercise of the stock option described above.
In May 1996, the Company sold to William Anderson, an employee, 381 shares
of Common Stock at a price of $1.31 per share and 191 shares of Common Stock
at a price of $3.28 per share upon exercise of incentive stock options.
The shares sold to employees upon the exercise of stock options were issued
pursuant to Rule 701 under the Securities Act. The other sales of capital
stock and of warrants and options to purchase capital stock have been made by
the Company in reliance upon Section 4(2) of the Securities Act and Rule 506
thereunder. The Company has relied upon such exemption because it believed
that each of the purchasers had such knowledge and experience in financial and
business matters that it, he or she, as the case may be, was capable of
evaluating the merits and risks of the prospective investment. With respect to
all of such sales, the Company imprinted a legend on the certificates
representing such securities restricting their transfer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Underwriting Agreement.
1.2 Form of Representative's Warrant
3.1(a) Amended and Restated Articles of Incorporation of the Company.
3.2(a) Amended Bylaws of the Company.
3.3(a) Second Amended and Restated Articles of Incorporation of the
Company (as proposed to be effective upon completion of the
offering).
3.4(a) Second Amended and Restated Bylaws of the Company (as proposed to
be effective upon completion of the offering).
4.1(a) Form of Certificate for Common Stock.
4.2(a) Stock Warrant, dated January 25, 1996, issued to Becton Dickinson
and Company.
4.3(a) Stock Option, dated January 25, 1996, issued to Becton Dickinson
and Company.
4.4(a) Warrant, dated March 24, 1995, issued to Robert Fullerton.
4.5(a) Warrant, dated March 24, 1995, issued to Michael Trautner.
4.6(a) Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company (filed herewith as Exhibit 10.7).
5.1(a) Opinion of Dorsey & Whitney LLP.
10.1(a) Office/Warehouse/Showroom Lease, dated January 2, 1995, including
amendments thereto.
10.2(a) Promissory Note, dated August 29, 1994, issued to Fred Shapiro.
10.3(a) Security Agreement, dated September 30, 1994, by and between the
Company and Kelsey Lake Limited Partnership and Kerry Lake
Company, a Limited Partnership.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.4(a) Promissory Note, dated September 30, 1994, issued to Kelsey Lake
Limited Partnership.
10.5(a) Promissory Note, dated September 30, 1994, issued to Kerry Lake
Company, a Limited Partnership.
10.6(a) Loan Agreement, dated as of December 22, 1995, by and between
Ethical Holdings, plc and the Company, including the related
Promissory Note, dated December 22, 1995, issued to Ethical
Holdings, plc.
10.7(a) Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company.
10.8(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Franklin Pass, M.D.
10.9(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Mark Derus.
10.10(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Todd Leonard.
10.11(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Peter Sadowski.
10.12(a) 1993 Stock Option Plan.
10.13(a) Form of incentive stock option agreement for use with 1993 Stock
Option Plan.
10.14(a) Form of nonqualified stock option agreement for use with 1993
Stock Option Plan.
10.15(a) 1996 Stock Option Plan, with form of stock option agreement.
10.16(a) Preferred Stock Purchase Agreement between Enskilda
Kapitalforvaltning and the Company, dated February 1, 1994,
relating to the Company's Non-Voting Series B Convertible
Preferred Stock.
10.17(a) Preferred Stock Purchase Agreement between Enskilda
Kapitalforvaltning and the Company, dated December 28, 1993,
relating to the Company's Series B Convertible Preferred Stock.
10.18(a) Preferred Stock Purchase Agreement between Calvert Social Venture
Partners, L.P. and the Company, dated November 29, 1993,
relating to the Company's Series B Convertible Preferred Stock.
10.19(a) Form of Preferred Stock Purchase Agreement relating to the
Company's Series B Convertible Preferred Stock.
+10.20 Development and License Agreement between Becton Dickinson and
Company and the Company, effective January 1, 1996.
11.1(a) Statement Regarding Computation of Earnings Per Share.
16.1(a) Letter Regarding Change in Certifying Accountant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2(a) Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
24.1(a) Powers of Attorney (included on signature page).
27.1(a) Financial Data Schedule.
</TABLE>
- --------
+ Pursuant to Rule 406 of the Securities Act of 1933, as amended, confidential
portions of Exhibit 10.20 have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
(a) Previously filed.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the
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 Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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
of 1933, 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-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF MINNEAPOLIS, STATE OF MINNESOTA, ON SEPTEMBER 24, 1996.
Medi-Ject Corporation
/s/ Franklin Pass, M.D.
By: _________________________________
FRANKLIN PASS, M.D. PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON SEPTEMBER 24, 1996.
SIGNATURE TITLE
/s/ Franklin Pass, M.D. President, Chief Executive Officer and
- ------------------------------------- Director (principal executive officer)
FRANKLIN PASS, M.D.
/s/ Mark Derus Vice President of Finance, Chief
- ------------------------------------- Financial Officer (principal financial
MARK DERUS and accounting officer)
* Director
- -------------------------------------
LOUIS COSENTINO
* Director
- -------------------------------------
KENNETH EVENSTAD
* Director
- -------------------------------------
GEOFFREY GUY
* Director
- -------------------------------------
NORMAN JACOBS
* Director
- -------------------------------------
FRED SHAPIRO, M.D.
* Director
- -------------------------------------
PETER SJOSTRAND
/s/ Mark Derus
*By: ________________________________
MARK DERUS,
ATTORNEY-IN-FACT
II-7
<PAGE>
Exhibit 1.1
2,200,000 SHARES
MEDI-JECT CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____________, 1996
Rodman & Renshaw, Inc.
R. J. Steichen & Company
c/o Rodman & Renshaw, Inc.
225 Liberty Street
2 World Financial Center
30th Floor
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Ladies and Gentlemen:
Medi-Ject Corporation, a Minnesota corporation (the "Company"), proposes to
sell to you (the "Representatives") and the other underwriters named in Schedule
I attached hereto (the "Underwriters"), for whom you are acting as the
Representatives, an aggregate of 2,200,000 shares (the "Firm Shares") of the
Company's Common Stock, $.01 par value (the "Common Stock"). In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 330,000 shares (the "Option Shares"), of Common Stock for the purpose
of covering over-allotments in connection with the sale of the Firm Shares. The
Firm Shares and the Option Shares are together called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the representations,
warranties and agreements contained in, and subject to the terms and conditions
of, this Agreement:
(a) The Company agrees to issue and sell the Shares to the several
Underwriters and each of the Underwriters agrees, severally and not
jointly, to purchase at the purchase price per share of Common Stock of
$_____ (the "Initial Price"), the aggregate number of Firm Shares set forth
opposite such Underwriter's name in Schedule I attached hereto. The
Underwriters agree to offer the Firm Shares to the public as set forth in
the Prospectus.
(b) The Company grants to the several Underwriters an option to
purchase all or any part of the Option Shares at the Initial Price. The
<PAGE>
number of Option Shares to be purchased by each Underwriter shall be the
same percentage (adjusted by the Representatives to eliminate fractions) of
the total number of Option Shares to be purchased by the Underwriter as
such Underwriter is purchasing of the Firm Shares. Such option may be
exercised only to cover over-allotments in the sales of the Firm Shares by
the Underwriters and may be exercised in whole or in part, but only once,
at any time within 30 days after the date of this Agreement, upon written
notice, or verbal or telephonic notice confirmed by written notice, by the
Representatives to the Company no later than 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date or at least
two business days before any Option Shares Closing Date (as defined below),
as the case may be, setting forth the number of Option Shares to be
purchased and the time and date (if other than the Firm Shares Closing
Date) of such purchase.
(c) On the Firm Shares Closing Date (as defined below), the Company
shall issue and sell to the Representatives, individually and not as
Representatives of the Underwriters, for an aggregate purchase price of
$.001 per warrant, warrants representing the right of the Representatives
to purchase a number of Shares of Common Stock (the "Warrant Shares") equal
to 10.0% of the Firm Shares (which warrants shall be evidenced in the form
set forth as an exhibit to the Registration Statement) (the
"Representatives' Warrants"). The Representatives' Warrants shall be
allocated between each of the Representatives as the Company shall be
advised in writing.
2. Delivery and Payment. Delivery by the Company of the Firm Shares to
the Representatives for the respective accounts of the Underwriters, and payment
of the purchase price by certified or official bank check or checks payable in
New York Clearing House (next day) funds to the Company, shall take place at the
offices of Rodman & Renshaw, Inc., at 225 Liberty Street, 2 World Financial
Center, 30th Floor, New York, New York 10281, at 10:00 a.m., New York City time,
on the third business day following the date on which the public offering of the
Shares commences (unless such date is postponed in accordance with the
provisions of Section 10(b) hereof), or at such time and place on such other
date, not later than 10 business days after the date of this Agreement, as shall
be agreed upon by the Company and the Representatives (such time and date of
delivery and payment are called the "Firm Shares Closing Date"). The public
offering of the Shares shall be deemed to have commenced at the time which is
the earlier of (a) the time, after the Registration Statement (as defined in
Section 4 below) becomes effective, of the release by you for publication of the
first newspaper advertisement which is subsequently published relating to the
Shares or (b) the time, after the Registration Statement becomes effective, when
the Shares are first released by you for offering by the Underwriters or dealers
by letter or telegram.
In the event the option with respect to the Option Shares is exercised,
delivery by the Company of the Option Shares to the Representatives for the
respective accounts of the Underwriters and payment of the purchase price by
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the Company shall take place at the offices of Rodman &
Renshaw, Inc. specified above at the time and on the date (which may be the same
date as, but in no event shall be earlier than, the Firm Shares Closing Date)
specified in the notice referred to in Section 1(b) (such time and date of
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delivery and payment is called the "Option Shares Closing Date"). The Firm
Shares Closing Date and the Option Shares Closing Dates are called,
individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least two
full business days before the Firm Shares Closing Date or the Option Shares
Closing Date, as the case may be, and shall be made available to the
Representatives for checking and packaging, at such place as is designated by
the Representatives, on the full business day before the Firm Shares Closing
Date or the Option Shares Closing Date, as the case may be.
3. Public Offering. The Company understands that the Underwriters
propose to make a public offering of the Shares, as set forth in and pursuant to
the Prospectus (as defined in Section 4 below), as soon after the effective date
of the Registration Statement and the date of this Agreement as the
Representatives deem advisable. The Company hereby confirms that the
Underwriters and dealers have been authorized to distribute or cause to be
distributed each preliminary prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented).
4. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have
filed one or more amendments thereto, on Form S-1 (Registration No.
333-06661), including in such registration statement and each such
amendment a related preliminary prospectus (a "Preliminary
Prospectus"), for the registration of the Shares and the Option
Shares, in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"). The Company may also file a related
registration statement with the Commission pursuant to Rule 462(b)
under the Act for the purpose of registering certain additional
Shares, which registration shall be effective upon filing with the
Commission. As used in this Agreement, the term "Original
Registration Statement" means such registration statement, as amended,
on file with the Commission at the time such registration statement
becomes effective (including the prospectus, financial statements,
exhibits, and all other documents filed as a part thereof or
incorporated by reference directly or indirectly therein), provided
that such registration statement, at the time it becomes effective,
may omit such information as is permitted to be omitted from the
registration statement when it becomes effective pursuant to Rule 430A
of the General Rules and Regulations promulgated under the Act (the
"Regulations"), which information ("Rule 430A Information") shall be
deemed to be included in such Registration Statement when a final
prospectus is filed with the Commission in accordance with Rules 430A
and 424(b)(1) or (4) of the Regulations; the term "Rule 462(b)
Registration Statement" means any registration statement filed with
the Commission pursuant to Rule 462(b) under the Act
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(including the Original Registration Statement and any Preliminary
Prospectus or Prospectus incorporated therein at the time the Original
Registration Statement becomes effective); the term "Registration
Statement" includes both the Original Registration Statement and any
Rule 462(b) Registration Statement; the term "Preliminary Prospectus"
means each prospectus included in the Registration Statement, or any
amendments thereto, before it becomes effective under the Act, the
form of prospectus omitting Rule 430A Information included in the
Registration Statement when it becomes effective, if applicable (the
"Rule 430A Prospectus"), and any prospectus filed by the Company with
your consent pursuant to Rule 424(a) of the Regulations; and the term
"Prospectus" means the final prospectus included as part of the
Registration Statement, except that if the prospectus relating to the
securities covered by the Registration Statement in the form first
filed on behalf of the Company with the Commission pursuant to Rule
424(b) of the Regulations shall differ from such final prospectus, the
term "Prospectus" shall mean the prospectus as filed pursuant to Rule
424(b) from and after the date on which it shall have first been used.
(ii) When the Registration Statement becomes effective, and
at all times subsequent thereto to and including the Closing Dates,
and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer,
and during such longer period until any post-effective amendment
thereto shall become effective, the Registration Statement (and any
post-effective amendment thereto) and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any
amendment or supplement to the Registration Statement or the
Prospectus) will contain all statements which are required to be
stated therein in accordance with the Act and the Regulations, will
comply with the Act and the Regulations, and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and no event will have occurred which should
have been set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not then been set forth in such
an amendment or supplement; if a Rule 430A Prospectus is included in
the Registration Statement at the time it becomes effective, the
Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4) will
contain all Rule 430A Information; and each Preliminary Prospectus, as
of the date filed with the Commission, did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; except that no representation or warranty is
made in this Section 4(a)(ii) with respect to statement or omissions
made in reliance upon and in conformity with written information
furnished to the Company as stated in Section 7(a) with respect to any
Underwriter by or on behalf of such Underwriter through the
Representatives expressly for inclusion in any Preliminary Prospectus,
the Registration
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<PAGE>
Statement, or the Prospectus, or any amendment or supplement thereto.
(iii) If the Company has elected to rely on Rule 462(b),
then (i) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing pursuant to Rule
462(b) and has received confirmation of its receipt and (ii) the
Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under
the Act or the Commission has received payment of such filing fee.
(iv) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing
or suspending the use of any Preliminary Prospectus, the Prospectus,
the Registration Statement, or any amendment or supplement thereto,
refusing to permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Firm Shares or the
Option Shares nor has any of such authorities instituted or threatened
to institute any proceedings with respect to a Stop Order.
(v) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the
Prospectus has been properly described therein. Any contract
agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the
Commission as an exhibit to or has been incorporated as an exhibit by
reference into the Registration Statement.
(vi) The Company has no subsidiary or subsidiaries and does
not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization. The
Company is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of incorporation, with
full corporate power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal, state,
local, foreign and other governmental authorities and all courts and
other tribunals, to own, lease, license, and use its properties and
assets and to carry on its business as now being conducted and in the
manner described in the Prospectus. The Company is duly qualified to
do business and is in good standing in each jurisdiction in which its
ownership, leasing, licensing, or character, location or use of
property and assets or the conduct of its business makes such
qualification necessary.
(vii) The authorized capital stock of the Company consists
of _______________ shares of Common Stock, of which _____________
shares are outstanding; and _____________ shares of preferred stock,
$.01 par value, of the Company of which _____ shares are outstanding.
Each outstanding share of Common Stock has
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been duly and validly authorized and issued, fully paid, and non-
assessable, without any personal liability attaching to the ownership
thereof and has not been issued and is not owned or held in violation
of any preemptive rights of shareholders. There is no commitment,
plan, preemptive right or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, shares of
capital stock of the Company or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as may be properly described in
the Prospectus. There is outstanding no security or other instrument
which by its terms is convertible into or exchangeable for capital
stock of the Company or of any Subsidiary, except as may be properly
described in the Prospectus.
(viii) The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly
present, with respect to the Company, the financial position, the
results of operations, and the other information purported to be shown
therein at the respective dates and for the respective periods to
which they apply. Such financial statements have been prepared in
accordance with generally accepted accounting principles (except to
the extent that certain footnote disclosures regarding any stub period
may have been omitted in accordance with the applicable rules of the
Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") consistently applied throughout the periods involved,
are correct and complete, and are in accordance with the books and
records of the Company. The accountants whose report on the audited
financial statements is filed with the Commission as a part of the
Registration Statement are, and for the periods covered by their
report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants with respect to the
Company within the meaning of the Act and the Regulations. No other
financial statements are required by Form S-1 or otherwise to be
included in the Registration Statement or the Prospectus. There has
at no time been a material adverse change in the financial condition,
results of operations, business, properties, assets, liabilities, or
future prospects of the Company from the latest information set forth
in the Registration Statement or the Prospectus, except as may be
properly described in the Prospectus.
(ix) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or before any public body or board
pending, threatened, or in prospect (or, to the best knowledge of the
Company, any basis therefor) with respect to the Company, or any of
its operations, business, properties, or assets, except as may be
properly described in the Prospectus or such as individually or in the
aggregate do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, assets or
financial condition of the Company. The Company is not involved in
any labor dispute, nor is such dispute threatened, which dispute would
have a material adverse effect upon
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<PAGE>
the operations, business, properties, assets or financial condition of
the Company. The Company is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree
which would have a material adverse effect upon the operations,
business, properties, assets or financial conditions of the Company;
nor is the Company required to take any corrective action in order to
avoid any such violation or default.
(x) The Company has good title to all properties and assets
which the Prospectus indicates are owned by it, and has valid and
enforceable leasehold interests in each item of leased real property
and personal property, free and clear of all liens, security
interests, pledges, charges, encumbrances, and mortgages (except as
may be properly described or as may not be required to be disclosed in
the Prospectus). No real property owned, leased, licensed or used by
the Company lies in an area which is, or to the best knowledge of the
Company is expected to be, subject to zoning, use or building code
restrictions which would prohibit, and no state of facts relating to
the actions or inaction of another person or entity or such person's
or entity's ownership, leasing, licensing or use of any real or
personal property exists or is expected to exist which would prevent,
the continued effective ownership, leasing, licensing or use of such
real property in the business of the Company as presently conducted or
as the Prospectus indicates it contemplates conducting (except as may
be properly described in the Prospectus).
(xi) Neither the Company nor, to the best knowledge of the
Company, any other party is now or is expected by the Company to be in
violation or breach of, or in default with respect to, complying with
any term, obligation or provision of any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of trust, note,
arrangement or understanding which is material to the Company or by
which any of its properties or business may be bound or affected, and
no event has occurred which with notice or lapse of time or both would
constitute such a default (subject to the best knowledge of the
Company with respect to third-party events constituting a default with
the lapse of time or in which any required notice to the Company has
not been given), and each such contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement or
understanding is in full force and is the legal, valid and binding
obligation of the parties thereto and is enforceable as to them
(subject to the best knowledge of the Company with respect to third
parties) in accordance with its terms except as such enforceability
may be limited by bankruptcy, insolvency, reorganization and other
laws affecting creditors' rights generally, and by general limitations
in the availability of equitable remedies. The Company enjoys
peaceful and undisturbed possession under all leases and licenses
under which it is operating. The Company is not a party to or bound
by any contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding, or
subject to any charter or other restriction, which has had or is
expected to have a material adverse effect on
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<PAGE>
the financial condition, results of operations, business, properties,
assets, liabilities or future prospects of the Company. The Company
is not in violation or breach of, or in default with respect to, any
term of its articles of incorporation (or other charter document) or
by-laws or of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation which default or violation with respect to
any franchise, license, permit judgment, decree, order, statute, rule
or regulation would have a material adverse effect on the operations,
business, properties, assets or financial condition of the Company.
(xii) The Company has filed all federal, state, local and
foreign tax returns which are required to be filed through the date
hereof, or has received extensions thereof, and has paid all taxes
shown on such returns and all assessments received by it to the extent
that the same are material and have become due.
(xiii) All patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights,
copyright applications, franchises, and other intangible properties
and assets listed in the Registration Statement under "Business-
Patents" (all of the foregoing being collectively herein called
"Intangibles") that the Company owns, possesses or has pending, or
under which it is licensed, are in good standing and, to the best
knowledge of the Company, uncontested. There is no right under any
Intangible necessary to the business of the Company as presently
conducted or that the Prospectus indicates the Company has that the
Company does not have (except as may be so described in the
Prospectus). The Company has not infringed, is not infringing, and
has not received any notice of infringement with respect to asserted
Intangibles of others. To the best knowledge of the Company, there is
no infringement by others of Intangibles of the Company. To the best
knowledge of the Company, there is no Intangible of others which is
expected to have a material adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities or
future prospects of the Company.
(xiv) Neither the Company nor, to the best knowledge of the
Company, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment. No
transaction has occurred between or among the Company and any of its
officers or directors or any affiliates or affiliates of any such
officer or director, except as described in the Prospectus or as may
be omitted from the Prospectus in accordance with the Regulations.
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<PAGE>
(xv) The Company has all requisite power and authority to
execute, deliver and perform each of this Agreement and the
Representatives' Warrants (collectively, the "Company Documents").
All necessary corporate proceedings of the Company have been duly
taken to authorize the execution, delivery and performance of each of
the Company Documents. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid and
binding obligation of the Company, and is enforceable as to the
Company in accordance with its terms and each of the other Company
Documents have been duly authorized and when executed and delivered by
the Company will be the legal, valid and binding obligation of the
Company enforceable as to the Company in accordance with its terms
(subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally and to
general limitations on the availability of equitable remedies). No
consent, authorization, approval, order, license, certificate or
permit of or from, or declaration or filing with, any federal, state,
local or other governmental authority or any court or other tribunal
is required by the Company for the execution, delivery or performance
by the Company of the Company Documents (except filings under the Act
which have been or will be made before the applicable Closing Date and
such consents consisting only of consents under "blue sky" or
securities laws which have been obtained at or prior to the date of
this Agreement or others as have been made or obtained). No consent
of any party to any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or understanding
to which the Company is a party, or to which any of its respective
properties or assets are subject, is required for the execution,
delivery or performance of the Company Documents, except as have been
obtained, and the execution, delivery and performance of the Company
Documents, will not violate, result in a breach of, conflict with,
accelerate the due date of any payments under, or (with or without the
giving of notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract, agreement,
instrument, lease, license, indenture, mortgage, deed of trust, note,
arrangement, or understanding, or violate or result in a breach of any
term of the certificate of incorporation (or other charter document)
or by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment or decree
binding on the Company or to which any of its operations, business,
properties or assets are subject.
(xvi) The Firm Shares and the Option Shares are duly and
validly authorized. The Firm Shares and the Option Shares, when
delivered in accordance with this Agreement will be duly and validly
issued, fully paid, and non-assessable, without any personal liability
attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of shareholders, optionholders,
warrantholders and any other persons and the Underwriters will receive
good title to the Firm Shares and the Option Shares purchased by them,
respectively, free and clear of all liens, security interests,
pledges, charges, encumbrances, shareholders' agreements and voting
trusts.
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<PAGE>
(xvii) The Warrant Shares are validly authorized and
reserved for issuance and, when issued and delivered upon exercise of
the Representatives' Warrants, will be validly issued, fully paid and
non-assessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any
preemptive rights of shareholders, optionholders, warrantholders and
any other persons and the holders of the Representatives' Warrants
will receive good title to the securities purchased by them,
respectively, free and clear of all liens, security interests,
pledges, charges, encumbrances, shareholders' agreements and voting
trusts.
(xviii) The Firm Shares, the Option Shares, the
Representatives' Warrants, all of the classes of the Common Stock and
the Preferred Stock conform to all statements relating thereto
contained in the Registration Statement or the Prospectus.
(xix) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
and except as may otherwise be properly described therein, there has
not been any material adverse change in the assets or properties,
business or results of operations or financial condition of the
Company, whether or not arising from transactions in the ordinary
course of business; the Company has not sustained any material loss or
interference with its business or properties from fire, explosion,
earthquake, flood or other calamity, whether or not covered by
insurance; since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected in the
Prospectus, the Company has not undertaken any liability or
obligation, direct or contingent, except for liabilities or
obligations undertaken in the ordinary course of business and except
in connection with the issuance and sale of the Shares; and, except as
reflected in the Prospectus, the Company has not (A) issued any
securities or incurred any liability or obligation, primary or
contingent, for borrowed money, (B) entered into any transaction not
in the ordinary course of business, or (C) declared or paid any
dividend or made any distribution on any of its capital stock or
redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or otherwise acquire any shares of its capital stock.
(xx) Neither the Company nor, to the best knowledge of the
Company, any of its officers, directors or affiliates (as defined in
the Regulations), has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by
this Agreement, any action designed to stabilize or manipulate the
price of any security of the Company, or which has caused or resulted
in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Firm
Shares or the Option Shares.
(xxi) The Company has obtained from each of its executive
officers and directors, his or her enforceable written
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<PAGE>
agreement, in form and substance satisfactory to counsel for the
Underwriters, that for a period of 180 days from the date on which the
public offering of the Shares commences he or she will not, without
the prior written consent of Rodman & Renshaw, Inc. ("Rodman"), on
behalf of the Underwriters, offer, pledge, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or other securities of the
Company (or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of
Common Stock or other securities of the Company, including, without
limitation, any shares of Common Stock issuable under any employee
stock options), beneficially owned by him or her.
(xxii) The Company is not, and does not intend to conduct
its business in a manner in which it would become, an "investment
company" as defined in Section 3(a) of the Investment Company Act of
1940 (the "Investment Company Act").
(xxiii) All offers and sales of the Company's capital
stock, prior to the date hereof, were at all relevant times exempt
from the registration requirements of the Act, and were the subject of
an available exemption from the registration requirements of all
applicable state securities or blue sky laws.
(xxiv) No person or entity has the right to require
registration of shares of Common Stock or other securities of the
Company because of the filing or effectiveness of the Registration
Statement, except such persons or entities from whom written waivers
of such rights have been received prior to the date hereof.
(xxv) Except as may be set forth in the Prospectus, the
Company has not incurred any liability for a fee, commission or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
(xxvi) No transaction has occurred between or among the
Company or any of the Subsidiaries and any of their respective
officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in
the Registration Statement and the Prospectus.
(xxvii) The Company has, and at each Closing Date will
have, made all filings required to be made by it under the Exchange
Act, and such filings, at the time they were made, complied in all
material respects with the requirements of the Exchange Act, and the
rules and regulations thereunder, and did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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(xxviii) The Common Stock, including the Shares, is
authorized for quotation on the Nasdaq National Market upon official
notice of issuance.
(xxix) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any
person or affiliate of any person located in Cuba. If, at any time
after the date that the Registration Statement is declared effective
with the Commission or with the Florida Department of Banking and
Finance (the "Florida Department"), whichever date is later, and prior
to the end of the period referred to in the first clause of Section
4(ii) hereof, the Company commences engaging in business with the
government of Cuba or with any person or affiliate of any person
located in Cuba, the Company will so inform the Florida Department
within ninety days after such commencement of business in Cuba, and
during the period referred to in Section 4(ii) hereof will inform the
Florida Department within ninety days after any change occurs with
respect to previously reported information.
5. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject in the
Representatives' sole discretion, to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(a)(i) of this Agreement; if the Original
Registration Statement or any amendment thereto filed prior to the Firm
Closing Date has not been declared effective as of the time of execution
hereof, the Original Registration Statement or such amendment and, if the
Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration
Statement shall be effective not later than the earlier of (i) 11:00 a.m.
New York time, on the date on which the amendment to the registration
statement originally filed with respect to the Shares or to the
Registration Statement, as the case may be, containing information
regarding the public offering price of the Shares has been filed with the
Commission, and (ii) the time confirmations are sent or given as specified
by Rule 462(b)(2) or, with respect to the Original Registration Statement,
such later time and date as shall have been consented to by the
Representatives.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information
on the part of the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Representatives.
(c) The representations and warranties of the Company contained in
this Agreement and in the certificate delivered pursuant to Section 5(d)
shall be true and correct when made and on and as of each Closing Date as
if made on such date and the Company shall have performed all
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covenants and agreements and satisfied all the conditions contained in this
Agreement required to be performed or satisfied by it at or before such
Closing Date.
(d) The Representatives shall have received on each Closing Date, a
certificate, addressed to the Representatives and dated such Closing Date,
executed on behalf of the Company by the chief executive officer and the
chief financial officer of the Company to the effect that the persons
executing such certificate have carefully examined the Registration
Statement, the Prospectus and this Agreement and that the representations
and warranties of the Company in this Agreement are true and correct on and
as of such Closing Date with the same effect as if made on such Closing
Date and the Company has performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be
performed or satisfied by it at or prior to such Closing Date.
(e) The Representatives shall have received at the time this Agreement
is executed and on each Closing Date a signed letter from KPMG Peat Marwick
LLP addressed to the Representatives and dated, respectively, the date of
this Agreement and each such Closing Date, in form and scope reasonably
satisfactory to the Representatives, with reproduced copies or signed
counterparts thereof for each of the Underwriters confirming that they are
independent accountants within the meaning of the Act and the Regulations,
that the response to Item 10 of the Registration Statement is correct in so
far as it relates to them and stating in effect that:
(i) in its opinion the audited financial statements and
financial statement schedules included or incorporated by reference in
the Registration Statement and the Prospectus and reported on by it
comply as to form in all material respects with the applicable
accounting requirements of the Act, the Exchange Act and the related
published rules and regulations thereunder;
(ii) on the basis of a reading of the amounts included in
the Registration Statement and the Prospectus under the heading
"Selected Financial Data" which would not necessarily reveal matters
of significance with respect to the comments set forth in such letter,
a reading of the minutes of the meetings of the shareholders and
directors of the Company, and inquiries of certain officials of the
Company who have responsibility for financial and accounting matters
of the Company as to transactions and events subsequent to the date of
the latest audited financial statements, except as disclosed in the
Registration Statement and the Prospectus, nothing came to their
attention which caused them to believe that:
(A) the amounts in "Selected Financial Data," and included
or incorporated by reference in the Registration Statement and
the Prospectus do not agree with the corresponding amounts in the
audited financial statements from which such amounts were
derived; or
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<PAGE>
(B) with respect to the Company, there were, at a specified
date not more than five business days prior to the date of the
letter, any decreases in net sales, income before income taxes
and net income or any increases in long-term debt of the Company
or any decreases in the capital stock, working capital or the
shareholders' equity in the Company, as compared with the amounts
shown on the Company's audited Balance Sheet for the fiscal year
ended March 31, 1996 included in the Registration Statement or
the audited Statement of Operations, for such year; and
(iii) they have performed certain other procedures as a
result of which they determined that information of an accounting,
financial or statistical nature (which is limited to accounting,
financial or statistical information derived from the general
accounting records of the Company) set forth in the Registration
Statement and the Prospectus and reasonably specified by the
Representatives agrees with the accounting records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the date
of such letter.
(f) The Representatives shall have received on each Closing Date from
Dorsey & Whitney LLP, counsel for the Company, an opinion, addressed to the
Representatives and dated such Closing Date, and in form and scope
satisfactory to counsel for the Underwriters, with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect
that:
(i) The Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of
Minnesota and has duly elected directors, held its first meeting of
the board of directors, adopted by-laws, elected officers and received
payment of any statutory minimum amount for capital stock pursuant to
the Minnesota Business Corporation Act. The Company has full
corporate power and authority to own, lease, license and use its
properties and assets and to conduct its business in the manner
described in the Prospectus. To the knowledge of such counsel, the
Company has no subsidiary and does not control, directly or
indirectly, any corporation, partnership, joint venture, association
or other business organization. The Company is duly qualified to do
business and is in good standing, in each state where the failure to
be so qualified could have a material adverse effect on the operating
condition (financial and otherwise) or business of the Company.
(ii) The Company has authorized, issued and outstanding
capital stock as set forth under the caption "Capitalization" in the
Prospectus. The certificates evidencing the Shares are in due and
proper legal form under the Minnesota Business Corporation Act. Each
outstanding share of Common Stock has been duly authorized and validly
issued and is fully paid and
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non-assessable, without any personal liability attaching solely to the
ownership thereof, and, to the knowledge of such counsel, has not been
issued and is not owned or held in violation of any preemptive right
of shareholders. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share of
capital stock of the Company or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as may be described in the
Prospectus. To the knowledge of such counsel, there is outstanding no
security or other instrument which by its terms is convertible into,
exercisable for or exchangeable for capital stock of the Company,
except as may be described in the Prospectus.
(iii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding
(formal or informal), or investigation before any court or before any
public body or board pending, threatened, or in prospect with respect
to the Company, or any of its respective operations, businesses,
properties, assets, or financial condition which is required to be
described in the Prospectus that is not described as required under
the Act or the Exchange Act.
(iv) The issuance and sale of the Shares and
Representatives' Warrants as described in the Prospectus, will not
violate or conflict with, or constitute a breach or default with
respect to, the articles of incorporation or bylaws of the Company, or
any contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding known to
such counsel to which the Company is a party.
(v) The Company has all requisite corporate power to
execute, deliver and perform the Company Agreements and to issue and
sell the Shares and to issue the Representatives' Warrants. All
necessary corporate proceedings of the Company have been taken to
authorize the execution, delivery and performance by the Company of
the Company Documents. Each of the Company Documents has been duly
authorized by all requisite corporate action, executed and delivered
by the Company, is the legal, valid and binding obligation of the
Company and (subject to applicable bankruptcy, insolvency, and other
laws affecting the enforceability of creditors' rights generally and
general limitations on the availability of equitable remedies) is
enforceable as to the Company in accordance with its terms. No
consent, authorization, approval, order, license, certificate or
permit of or from, or declaration or filing with, any federal state,
local or other governmental authority or any court or other tribunal
is required by the Company, for the execution and delivery by the
Company of the Company Documents and the issuance and sale of the
Shares and Representatives' Warrants as contemplated by the
Registration Statement (except filings under the Act and the Exchange
Act which have been made prior to the Closing Date and consents
consisting only of approvals and consents under "blue sky" or
securities
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laws). To the knowledge of such counsel, no consent of any party to
any contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding to which
the Company is a party, or to which any of its respective properties
or assets are subject, is required for the execution, delivery or
performance of the Company Documents (except as have been obtained);
and the execution, delivery and performance of the Company Documents
will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding, in each case known to such
counsel, or violate or result in a breach of any term of the
certificate of incorporation (or other charter document) or by-laws of
the Company, or violate, result in a breach of, or conflict with any
law, rule or regulation of the United States, the State of Minnesota
or any government authority or regulatory body thereof or any, order,
judgment, or decree known to such counsel and binding on the Company
or to which any of its respective operations, businesses, properties
or assets are subject.
(vi) The Firm Shares and the Option Shares are duly and
validly authorized. Such opinion delivered at each of the Closing
Dates shall state that each Share to be delivered on that date is duly
and validly issued, fully paid, and non-assessable, with no personal
liability attaching solely to the ownership thereof, and is not
issued, to the knowledge of such counsel, in violation of any
preemptive rights of shareholders, and the Underwriters have received
good title to the Shares purchased by them from the Company for the
consideration contemplated herein and in good faith and without notice
of any adverse claim within the meaning of the Uniform Commercial
Code, free and clear of any liens, security interests, pledges,
charges, encumbrances, shareholders' agreements, voting trusts and
other claims. The Common Stock, the Firm Shares and the Option Shares
conform substantially and in all material respects to the description
thereof contained in the Registration Statement or the Prospectus.
(vii) The Warrant Shares have been duly and validly
reserved for issuance and, upon issuance, delivery and payment
therefore, as described in the Representatives' Warrants, will be
validly issued, fully paid and non-assessable, without any personal
liability attaching solely to the ownership thereof, and will not be
issued, to the knowledge of such counsel, in violation of any
preemptive rights of shareholders, optionholders, warrantholders and
any other persons. The Representatives' Warrants have been duly and
validly issued, fully paid, and non-assessable, with no personal
liability attaching solely to the ownership thereof, and will not have
been issued, to the knowledge of such counsel, in violation of any
preemptive rights of stockholders, optionholders, warrantholders and
any other persons, and the holders of the Representatives' Warrants
will receive good title to the securities purchased by them from the
Company, for the consideration
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contemplated herein and in good faith and without notice of any
adverse claim within the meaning of the Uniform Commercial Code, free
and clear of any liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, voting trusts and other
claims. The Warrant Shares and the Representatives' Warrants conform
substantially and in all material respects to the description thereof
contained in the Registration Statement or the Prospectus.
(viii) Any contract, agreement, instrument, lease or
license known to such counsel and required to be described in the
Registration Statement or the Prospectus has been properly described
therein. Any contract, agreement, instrument, lease or license known
to such counsel and required to be filed as an exhibit to the
Registration Statement has been filed with the Commission as an
exhibit to or has been incorporated as an exhibit by reference into
the Registration Statement.
(ix) Insofar as statements in the Prospectus purport to
summarize provisions of the Company's agreements and licenses with
pharmaceutical and medical device companies, the Minnesota Business
Corporation Act, the Company's lease for its facilities in
Minneapolis, Minnesota, the Company' employee agreements, the
Company's stock option plans, the Company's loan agreements, the
Company's preferred, common and warrant purchase agreements and the
Act and Exchange Act, such statements have been prepared or reviewed
by such counsel and to the knowledge of such counsel, accurately
reflect the provisions purported to be summarized and are correct in
all material respects.
(x) The Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act and, if the Company
conducts its business as set forth in the Prospectus, will not become
an "investment company" and will not be required to be registered
under the Investment Company Act.
(xi) To the knowledge of such counsel, no person or entity
has the right to require registration of shares of Common Stock or
other securities of the Company because of the filing or effectiveness
of the Registration Statement except such persons or entities from
whom written waivers of such rights have been received prior to the
Closing Date.
(xii) The Registration Statement has become effective under
the Act. No Stop Order has been issued and no proceedings for that
purpose have been instituted or, to the knowledge of such counsel, are
threatened, pending or contemplated.
(xiii) The Registration Statement, any Rule 430A
Prospectus, and the Prospectus, and any amendment or supplement
thereto (other than financial statements and other financial data and
schedules which are or should be contained in any thereof, as to which
such counsel need express no opinion), comply as to form
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in all material respects with the requirements of the Act and the
Regulations.
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statement and the Prospectus
and in conferences with officers and other representatives of the Company,
representatives of the Representatives and representatives of the independent
accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel has not independently verified and is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus (except as specified in the foregoing opinion), on the basis of the
foregoing and relying as to materiality upon the representations of executive
officers of the Company after conferring with such executive officers, no facts
have come to the attention of such counsel which lead such counsel to believe
that the Registration Statement, except for the financial statements and other
financial and statistical data included therein as to which counsel need express
no statement, at the time it became effective contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus, or any Rule 430A Prospectus, except for the financial statements and
other financial and statistical data included therein as to which counsel need
express no statement, as amended or supplemented on the date thereof contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
the Company as to laws of any jurisdiction other than the Federal laws of the
United States and the laws of the State of Minnesota, provided that (1) each
such local counsel is reasonably acceptable to the Representatives and (2) such
reliance is expressly authorized by each opinion so relied upon and a copy of
each such opinion is addressed to the Representatives and is in form and
substance reasonably satisfactory to them and their counsel. In addition, such
counsel may rely, as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the Company, provided that
executed copies of such certificates are provided to the Representatives.
(g) The Representatives shall have received on each Closing Date from
Pennie & Edmonds, patent counsel for the Company, an opinion, addressed to
the Representatives and dated such Closing Date, and in form and scope
satisfactory to counsel for the Underwriters.
(h) The Representatives shall have received on each Closing Date from
Covington & Burling, FDA counsel for the Company, an opinion, addressed to
the Representatives and dated such Closing Date, and in form and scope
satisfactory to counsel for the Underwriters.
(i) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be satisfactory
in form and substance to the Representatives and their counsel, and the
Underwriters shall have received from Squadron, Ellenoff, Plesent &
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Sheinfeld, LLP, a favorable opinion, addressed to the Representatives and
dated such Closing Date, with respect to the Shares, the Registration
Statement and the Prospectus, and such other related matters, as the
Representatives may reasonably request, and the Company shall have
furnished to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, such documents
as they may reasonably request for the purpose of enabling them to pass
upon such matters.
(j) On the Firm Shares Closing Date, the Company shall have issued to
the Representatives, the Representatives' Warrants equal to 10% of the Firm
Shares.
6. Covenants of the Company.
(a) The Company covenants and agrees as follows:
(i) The Company shall use its best efforts to cause the
Registration Statement to become effective as promptly as possible.
If the Registration Statement has become or becomes effective with a
form of prospectus omitting Rule 430A information, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
file the Prospectus, properly completed, pursuant to Rule 424(b)
within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company shall notify
you immediately, and confirm such notice in writing, (A) when the
Registration Statement and any post-effective amendment thereto become
effective, (B) of the receipt of any comments from the Commission or
the "blue sky" or securities authority of any jurisdiction regarding
the Registration Statement, any post-effective amendment thereto, the
Prospectus, or any amendment or supplement thereto, and (C) of the
receipt of any notification with respect to a Stop Order. The Company
shall not file any amendment of the Registration Statement or
supplement to the Prospectus unless the Company has furnished the
Representatives a copy for its review prior to filing and shall not
file any such proposed amendment or supplement to which the
Representatives reasonably object. The Company shall use its best
efforts to prevent the issuance of any Stop Order and, if issued, to
obtain as soon as possible the withdrawal thereof.
(ii) During the time when a Prospectus relating to the
Shares is required to be delivered hereunder or under the Act or the
Regulations, comply so far as it is able with all requirements imposed
upon it by the Act, as now existing and as hereafter amended, and by
the Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Shares in
accordance with the provisions hereof and the Prospectus. If, at any
time when a prospectus relating to the Shares is required to be
delivered under the Act and the Regulations, there shall occur any
event as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made
not misleading, or if it
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shall be necessary to amend or supplement the Prospectus to comply
with the Act or the Regulations, the Company promptly shall prepare
and file with the Commission, subject to the third sentence of
paragraph (i) of this Section 6(a), an amendment or supplement which
shall correct such statement or omission or an amendment which shall
effect such compliance.
(iii) The Company shall make generally available to its
security holders and to the Representatives as soon as practicable,
but not later than 45 days after the end of the 12-month period
beginning at the end of the fiscal quarter of the Company during which
the Effective Date (or 90 days if such 12-month period coincides with
the Company's fiscal year), an earnings statement (which need not be
audited) of the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Act or Rule 158 of the
Regulations.
(iv) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including all exhibits and amendments thereto)
and to each other Underwriter a copy of the Registration Statement
(without exhibits thereto) and all amendments thereof and, so long as
delivery of a prospectus by an Underwriter or dealer may be required
by the Act or the Regulations, as many copies of any preliminary
prospectus and the Prospectus and any amendments thereof and
supplements thereto as the Representatives may reasonably request.
(v) The Company shall cooperate with the Representatives and
their counsel in endeavoring to qualify the Shares for offer and sale
under the laws of such jurisdictions as the Representatives may
designate and shall maintain such qualifications in effect so long as
required for the distribution of the Shares; provided, however, that
the Company shall not be required in connection therewith, as a
condition thereof, to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction or subject
itself to taxation as doing business in any jurisdiction.
(vi) For a period of five years after the date of this
Agreement, the Company shall supply to the Representatives, and to
each other Underwriter who may so request in writing, copies of such
financial statements and other periodic and special reports as the
Company may from time to time distribute generally to the holders of
any class of its capital stock and to furnish to the Representatives a
copy of each annual or other report it shall be required to file with
the Commission.
(vii) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 promulgated under the Act by the earlier
of (i) 10:00 p.m. eastern time on the date of
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this Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(viii) Without the prior written consent of Rodman, on
behalf of the Underwriters, for a period of 180 days from the date on
which a public offering of the Shares commences, the Company shall not
issue, sell or register with the Commission or otherwise dispose of,
directly or indirectly, any securities of the Company (or any
securities convertible into or exercisable or exchangeable for
securities of the Company), except for (A) the issuance of the Shares
pursuant to the Registration Statement (B) the issuance of Common
Stock upon the exercise of currently outstanding options and warrants
or pursuant to outstanding contingent share agreements, (C) the
issuance of options under plans disclosed in the Registration
Statement, (D) the filing of a registration statement on Form S-8 or
other comparable form in respect of the shares underlying the option
plans disclosed in the Registration Statement and (E) the issuance of
Common Stock in connection with acquisitions with consent not to be
unreasonably withheld.
(ix) The Company shall use its reasonable efforts to assure
that the restrictions set forth in the so-called "lock-up" agreements
signed by certain shareholders of the Company are enforced.
(x) Prior to each Closing Date and for a period of 25 days
thereafter, you shall be given reasonable written prior notice of any
press release or other direct or indirect communication and of any
press conference with respect to the Company, the financial
conditions, results of operations, business, properties, assets,
liabilities of the Company, or this offering.
(xi) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws and
by the Nasdaq National Market.
(xii) Until expiration of the Representatives' Warrants,
the Company shall keep reserved sufficient shares of Common Stock for
issuance upon exercise thereof.
(xiii) The Company will make all filings required to be
made under the Exchange Act and such filings shall comply in all
material respects with the Requirements of the Exchange Act and the
rules and regulations thereunder.
(xiv) Prior to each Closing Date and for a period of 25
days thereafter, you shall be given reasonable written prior notice of
any press release or other direct or indirect communication and of any
press conference with respect to the Company, the financial condition,
results of operations, business, properties, assets, liabilities of
the Company, or this offering.
(xv) The Company shall participate in conference calls
designated and arranged by the Representatives on a quarterly basis in
connection with the release of its quarterly earnings for a period of
one year from the Firm Shares Closing Date, subject to any applicable
law.
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
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consummated or this Agreement is terminated, all of its costs and expenses
relating to the registration and public offering of the Shares including
those relating to: (i) the preparation, printing, filing and distribution
of the Registration Statement including all exhibits thereto, each
preliminary prospectus, the Prospectus, all amendments and supplements to
the Registration Statement and the Prospectus, and any documents required
to be delivered with any Preliminary Prospectus or the Prospectus, and the
printing, filing and distribution of the Agreement Among Underwriters, this
Agreement and related documents; (ii) the preparation and delivery of
certificates for the Shares to the Underwriters; (iii) the registration or
qualification of the Shares for offer and sale under the securities or Blue
Sky laws of the various jurisdictions referred to in Section 6(a)(v),
including the fees and disbursements of counsel for the Underwriters in
connection with such registration and qualification and the preparation,
printing, distribution and shipment of preliminary and supplementary Blue
Sky memoranda; (iv) the furnishing (including costs of shipping and
mailing) to the Representatives and to the Underwriters of copies of each
preliminary prospectus, the Prospectus and all amendments or supplements to
the Prospectus, and of the several documents required by this Section to be
so furnished, as may be reasonably requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold; (v) the filing fees of the National Association of
Securities Dealers, Inc. in connection with its review of the terms of the
public offering; (vi) the furnishing (including costs of shipping and
mailing) to the Representatives and to the Underwriters of copies of all
reports and information required by Section 6(a)(vi); (vii) inclusion of
the Shares for quotation on the Nasdaq National Market; and (viii) all
transfer taxes, if any, with respect to the sale and delivery of the Shares
by the Company to the Underwriters. Except as otherwise contemplated by
Section 9 hereof, the Underwriters will pay their own out-of-pocket
expenses, including counsel fees and expenses to the extent not otherwise
covered by clause (iii) above, and their own travel and travel-related
expenses in connection with the offering and distribution of the Shares.
Without limiting the Company's obligations set forth above, it agrees to
pay all of its other costs and expenses incident to the performance of its
obligations under this Agreement and the sale of the Shares by it
hereunder.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any and all
losses, claims, damages and liabilities, joint or several (including any
reasonable investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding
or any claim asserted), to which they, or any of them, may become subject
under the Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto, or arise
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out of or are based upon any omission or alleged omission to state therein
such fact required to be stated therein or necessary to make such
statements therein not misleading. Such indemnity shall not inure to the
benefit of any Underwriter (or any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the sale
of the Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus, or
such amendment or supplement, in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives on
behalf of any Underwriter specifically for use therein. In no event shall
the indemnification agreement contained in this Section 7(a) inure to the
benefit of any Underwriter on account of any losses, claims, damages,
liabilities or actions arising from the sale of the Shares upon the public
offering to any person by such Underwriter if such losses, claims, damages,
liabilities or actions arise out of, or are based upon, a statement or
omission or alleged omission in a preliminary prospectus and if, in respect
to such statement, omission or alleged omission, the Prospectus differs in
a material respect from such preliminary prospectus, such that the
Prospectus does not contain such untrue statement or such omission or
alleged untrue statement or omission, and a copy of the Prospectus has not
been sent or given to such person at or prior to the confirmation of such
sale to such person. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each director of the Company, and each officer of the Company
who signs the Registration Statement, to the same extent as the foregoing
indemnity from the Company to each Underwriter, but only insofar as such
losses, claims, damages or liabilities arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which
was made in any Preliminary Prospectus, any Rule 430A Prospectus, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, which were made in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives on
behalf of any Underwriter for specific use therein; provided, however, that
except as otherwise provided in section 9 below the obligation of each
Underwriter to indemnify the Company (including any controlling person,
director or officer thereof) shall be limited to the net proceeds received
or to be received by the Company from such Underwriter. For all purposes
of this Agreement, the public offering price and underwriting discounts and
commissions set forth on the cover of the Prospectus, the stabilization
language in the penultimate paragraph on page 2 of the Prospectus and the
third paragraph under the caption "Underwriting" (except for the
penultimate sentence thereof) constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for inclusion in any
Preliminary Prospectus, any Rule 430A Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto.
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(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7(a) or 7(b) shall be available to
any party who shall fail to give notice as provided in this Section 7(c) if
the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice but the omission so to notify such indemnifying
party of any such action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party for contribution or
otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party
shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to
employ its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in
writing by the indemnifying parties, (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest between the
indemnifying parties and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying parties shall not
have the right to direct the defense of such action on behalf of the
indemnified party), or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable
time after notice of the commencement thereof, in each of which cases the
reasonable fees and expenses of counsel shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its
written consent.
8. Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Sections 7(a) and
(b) is due in accordance with its terms but for any reason is held to be
unavailable from the Company or the Underwriters, such as the Company and the
Underwriters shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deducting any contribution
received by the Company from persons other than the Underwriters, persons who
control the Company within the meaning of the Act, officers of the Company who
signed the Registration Statement and directors of the Company, who
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may also be liable for contribution) to which the Company and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as (x) the total proceeds from the Offering (net of
underwriting discounts but before deducting expenses) received by the Company
from the sale of the Shares, as set forth in the table on the cover page of the
Prospectus (but not taking into account the use of the proceeds of such sale of
Shares by the Company), bear to (y) the underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact related to information supplied by the Company, or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8, (i) in no case shall any Underwriter (except as may be provided in
the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, and (ii) the Company shall be liable and responsible
under this Section 8 for any amount in excess of the underwriting discount;
provided, however (i) that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of the Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i), (ii) and (iii) in the immediately
preceding sentence of this Section 8. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section, notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have hereunder or otherwise than under this Section. No party
shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriters' obligations to
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<PAGE>
contribute pursuant to this Section 8 are several in proportion to their
respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to the
Shares to be purchased on any Closing Date by the Representatives by notifying
the Company at any time prior to the purchase of the Shares:
(a) in the absolute discretion of the Representatives at or before any
Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Representatives will in the future materially disrupt,
the securities markets; (ii) if there has occurred any new outbreak or
material escalation of hostilities or other calamity or crisis the effect
of which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, inadvisable to proceed with the
Offering; (iii) if there shall be such a material adverse change in general
financial, political or economic conditions or the effect of international
conditions on the financial markets in the United States such as to make
it, in the judgment of the Representatives, inadvisable or impracticable to
market the Shares; (iv) if trading in the Shares has been suspended by the
Commission or trading generally on the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. or the Nasdaq National Market System has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or any
other governmental or regulatory authority; or (v) if a banking moratorium
has been declared by any state or federal authority, or
(b) at or before any Closing Date, if any of the conditions specified
in Section 5 shall not have been fulfilled when and as required by this
Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company or all of them to comply with
the terms or to fulfill any of the conditions of this Agreement, the Company
will reimburse the Underwriters for all out-of-pocket expenses (including the
fees and disbursements of their counsel) incurred by them in connection with the
proposed purchase and sale of the Shares or in contemplation of performing their
obligations hereunder but not to exceed an aggregate of $25,000 and (z) no
Underwriter who shall have failed or refused to purchase the Shares agreed to be
purchased by it under this Agreement, without some reason sufficient hereunder
to justify cancellation or termination of its obligations under this Agreement,
shall be relieved of liability (without limitation as to amount) to the Company
or to the other Underwriters for all damages occasioned by its failure or
refusal.
10. Substitution of Underwriters. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
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<PAGE>
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to an additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Representatives to purchase such Shares upon
the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have the
right to postpone the applicable Closing Date for a period of not more than five
business days in order that necessary changes and arrangements (including any
necessary amendments or supplements to the Registration Statement or Prospectus)
may be effected by the Representatives and the Company. If the number of Shares
to be purchased on such Closing Date by such defaulting Underwriter or
Underwriters shall exceed 10% of the Shares that all the Underwriters are
obligated to purchase on such Closing Date, and none of the nondefaulting
Underwriters or the Company shall make arrangements pursuant to this Section
within the period stated for the purchase of the Shares that the defaulting
Underwriters agreed to purchase, this Agreement shall terminate with respect to
the Shares to be purchased on such Closing Date without liability on the part of
any nondefaulting Underwriter to the Company and without liability on the part
of the Company, except in both cases as provided in Sections 6(b), 7, 8 and 9.
The provisions of this Section shall not in any way affect the liability of any
defaulting Underwriter to the Company or the nondefaulting Underwriters arising
out of such default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers, and
the Underwriters set forth in or made pursuant to this Agreement shall remain in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or the Company or any of the officers, directors or controlling
persons referred to in Sections 7 and 8 hereof, and shall survive
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<PAGE>
delivery of and payment for the Shares. The provisions of Sections 6(b), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the Underwriters,
the Company and their respective heirs, executors, administrators, personal
representatives, successors and assigns and, to the extent expressed herein, for
the benefit of persons controlling any of the Underwriters, or the Company, and
directors and officers of the Company, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser of Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and delivered
by mail, overnight courier, personal delivery, or by telefax if subsequently
confirmed by letter, (a) if to the Representatives, to Rodman & Renshaw, Inc.,
225 Liberty Street, 2 World Financial Center, 30th Floor, New York, New York
10281, and Attention: John J. Borer III, Managing Director, telecopy: (212) 416-
7439 and (b) if to the Company, to the Company's agent for service as such
agent's address appears on the cover page of the Registration Statement or
telecopy: (612) 553-1610, with a copy to Amy Lange, Esq. as such person's
address appears on the cover page of the Registration Statement. Such notices
and communications shall be deemed received three days following the date of
dispatch if by mail, upon receipt if by overnight courier, upon confirmation if
by telefax or when made if by personal delivery.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of laws.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine or neuter, singular or plural, as the identity of the person
or persons or entity or entities requires.
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<PAGE>
All section headings herein are for convenience of reference only and are
not part of this Agreement, and no construction or inference shall be derived
therefrom.
Please confirm that the foregoing correctly sets forth the agreement among
us.
Very truly yours,
MEDI-JECT CORPORATION
By:
---------------------------------------------
Name: Franklin Pass, M.D.
Title: President, Chief Executive Officer and
Chairman of the Board of Directors
Confirmed on behalf of itself
and as a Representative of the several Underwriters
named in Schedule I annexed hereto:
RODMAN & RENSHAW, INC.
By:
---------------------------
Name: John J. Borer III
Title: Managing Director
R. J. STEICHEN & COMPANY
By:
---------------------------
Name:
--------------------
Title: Managing Director
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<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Shares to be
Name of Underwriter Purchased
------------------- --------------
<S> <C>
Rodman & Renshaw, Inc................................
R. J. Steichen & Company.............................
---------
Total 2,200,000
</TABLE>
-30-
<PAGE>
DRAFT SEPTEMBER 23, 1996
WARRANT FOR COMMON STOCK
W/CASHLESS EXERCISE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. HOWEVER, NEITHER THE WARRANTS NOR SUCH SHARES MAY BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH
ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
MEDI-JECT CORPORATION
Warrant for the Purchase of Shares of Common Stock,
$.01 par value per Share
No. 1 [__________] Shares
THIS CERTIFIES that, for receipt in hand of [$______] [$0.001 per
share of underlying Common Stock] and other value received, [______________]
(the "Holder"), is entitled to subscribe for and purchase from MEDI-JECT
CORPORATION, a Minnesota corporation (the "Company"), upon the terms and
conditions set forth herein, at any time or from time to time after [one year
after the effective date], and before 5:00 P.M. on [five years after the
effective date], New York time (the "Exercise Period"), [________] shares of the
Company's Common Stock, $.01 par value ("Common Stock"), at a price of $_____
per share (120% of the offering price) (the "Exercise Price"). This Warrant is
the warrant or one of the warrants (collectively, including any warrants issued
upon the exercise or transfer of any such warrants in whole or in part, the
"Warrants") issued pursuant to the Underwriting Agreement, dated __________,
between Rodman & Renshaw, Inc., as representative of the several Underwriters
named therein, and the Company. This Warrant may not be sold, transferred,
assigned or hypothecated until [one year after the effective date] except that
it may be transferred, in whole or in part, to (i) one or more officers or
partners of the Holder (or the officers or partners of any such partner); (ii)
any other underwriting firm or member of the selling group which participated in
the public offering of Common Stock (the "Offering") which commenced on
[effective date] (or the officers or partners of any such firm); (iii) a
successor to the Holder, or the officers or partners of such successor; (iv) a
purchaser of substantially all of the assets of the Holder; or (v) by operation
of law; and the term the "Holder" as used herein shall include any transferee to
whom this Warrant has been transferred in accordance with the above.
<PAGE>
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the election at the end hereof duly executed) to the Company at
its office at 1840 Berkshire Lane, Minneapolis, Minnesota 55441, or at such
other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares
for which this Warrant is being exercised (the "Stock Purchase Price").
2. (a) In lieu of the payment of the Stock Purchase Price, the
Holder shall have the right (but not the obligation), to require the Company to
convert this Warrant, in whole or in part, into shares of Common Stock (the
"Conversion Right") as provided for in this Section 2. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment by
the Holder of any of the Stock Purchase Price) that number of shares of Common
Stock (the "Conversion Shares") equal to the quotient obtained by dividing (x)
the value of this Warrant (or portion thereof as to which the Conversion Right
is being exercised if the Conversion Right is being exercised in part) at the
time the Conversion Right is exercised (determined by subtracting the aggregate
Stock Purchase Price of the shares of Common Stock as to which the Conversion
Right is being exercised in effect immediately prior to the exercise of the
Conversion Right from the aggregate Current Market Price (as defined in Section
6(c) hereof) of the shares of Common Stock as to which the Conversion Right is
being exercised immediately prior to the exercise of the Conversion Right) by
(y) the Current Market Price of one share of Common Stock immediately prior to
the exercise of the Conversion Right.
(b) The Conversion Rights provided under this Section 2 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the Conversion Right, the
Holder shall surrender to the Company, at its offices, this Warrant with the
Notice of Conversion at the end hereof duly executed. The presentation and
surrender shall be deemed a waiver of the Holder's obligation to pay all or any
portion of the aggregate purchase price payable for the shares of Common Stock
as to which such Conversion Right is being exercised. This Warrant (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant for conversion in accordance with the foregoing
provisions.
3. Upon each exercise of the Holder's rights to purchase Warrant
Shares or Conversion Shares, the Holder shall be deemed to be the holder of
record of the Warrant Shares or Conversion Shares issuable upon such exercise or
conversion, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing such Warrant Shares or Conversion Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise or conversion of this Warrant, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Warrant Shares or Conversion Shares issuable upon such exercise or conversion,
-2-
<PAGE>
registered in the name of the Holder or its designee. If this Warrant should be
exercised or converted in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the right
of the Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
4. Any Warrants issued upon the transfer or exercise or conversion in
part of this Warrant shall be numbered and shall be registered in a Warrant
Register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by the Holder's duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment, or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian, or other legal representative, duly
authenticated evidence of the authority of such person or entity shall be
produced. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto. This Warrant may be
exchanged, at the option of the Holder thereof, for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Warrant Shares (or portions
thereof), upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
thereunder.
5. The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of providing
for the exercise of the rights to purchase all Warrant Shares and/or Conversion
Shares granted pursuant to the Warrants, such number of shares of Common Stock
as shall, from time to time, be sufficient therefor. The Company covenants that
all shares of Common Stock issuable upon exercise of this Warrant, upon receipt
by the Company of the full Exercise Price therefor, and all shares of Common
Stock issuable upon conversion of this Warrant, shall be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any preemptive rights
of stockholders, optionholders, warrantholders and any other persons and the
Holders will receive good title to the securities purchased by them,
respectively, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts which might be created
by acts or omissions to act of the Company.
6. (a) In case the Company shall at any time after the date the
Warrants were first issued (i) declare a dividend on the outstanding Common
-3-
<PAGE>
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price, and the number and kind of securities
issuable upon exercise or conversion of this Warrant, in effect at the time of
the record date for such dividend or of the effective date of such subdivision,
combination, or reclassification, shall be proportionately adjusted so that the
Holder after such time shall be entitled to receive the aggregate number and
kind of shares which, if such Warrant had been exercised or converted
immediately prior to such time, the Holder would have owned upon such exercise
or conversion and been entitled to receive by virtue of such dividend,
subdivision, combination, or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the stockholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any cash
dividend which, together with any cash dividends paid within the 12 months prior
to the record date for such distribution, does not exceed 5% of the Current
Market Price at the record date for such distribution) or assets (other than
dividends payable in shares of its capital stock), or rights, options, or
warrants to subscribe for or purchase Common Stock, or securities convertible
into or exchangeable for shares of Common Stock, then, in each case, the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction, the numerator of which
shall be the Current Market Price per share of Common Stock on such record date,
less the fair market value (as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive, absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such rights, options, or warrants or convertible or
exchangeable securities, or the amount of such cash, applicable to one share,
and the denominator of which shall be such Current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the record date for the determination of
stockholders entitled to receive such distribution.
(c) For the purpose of any computation under this Warrant, the
Current Market Price per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal national securities exchange (including, for purposes hereof, the
Nasdaq National Market) on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through Nasdaq or a similar organization if Nasdaq is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
-4-
<PAGE>
trading on any national securities exchange and is not quoted by Nasdaq or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(d) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(e) In any case in which this Section 6 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised or converted this Warrant
after such record date, the shares of Common Stock, if any, issuable upon such
exercise or conversion over and above the shares of Common Stock, if any,
issuable upon such exercise or conversion on the basis of the Exercise Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to the Holder a due bill or other appropriate instrument evidencing the
Holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(f) Upon each adjustment of the Exercise Price as a result of the
calculations made in this Section, this Warrant shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of shares
(calculated to the nearest thousandth) obtained by dividing (i) the product
obtained by multiplying the number of shares purchasable upon exercise of this
Warrant prior to adjustment of the number of shares by the Exercise Price in
effect prior to adjustment of the Exercise Price, by (ii) the Exercise Price in
effect after such adjustment of the Exercise Price.
(g) Whenever there shall be an adjustment as provided in this Section
6, the Company shall promptly cause written notice thereof to be sent by
registered mail or overnight courier, postage prepaid, to the Holder, at its
address as it shall appear in the Warrant Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Warrant
Shares purchasable upon the exercise of this Warrant and the Exercise Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment and the computation thereof, which officer's certificate shall
be conclusive evidence of the correctness of any such adjustment absent manifest
error.
(h) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise or
conversion of this Warrant. If any fraction of a share would be issuable on the
exercise or conversion of this Warrant (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the same
fraction of the Current Market Price of such share of Common Stock on the date
of exercise or conversion of this Warrant.
7. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
-5-
<PAGE>
the Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of all or substantially all of the
property and assets of the Company, such successor, leasing, or purchasing
corporation, as the case may be, shall (i) execute with the Holder an agreement
providing that the Holder shall have the right thereafter to receive upon
exercise or conversion of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash, or any combination thereof
receivable upon such consolidation, merger, sale, lease, or conveyance by a
holder of the number of shares of Common Stock for which this Warrant might have
been exercised or converted immediately prior to such consolidation, merger,
sale, lease, or conveyance, and (ii) make effective provision in its certificate
of incorporation or otherwise, if necessary, to effect such agreement. Such
agreement shall provide for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 6.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise or conversion of this Warrant (other than a change
in par value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise or conversion of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised or converted immediately prior to
such reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
8. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater
amount per share than the most recent such cash dividend) to all holders of
Common Stock; or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
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<PAGE>
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
(e) to take any other action which would cause an adjustment to
the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
9. The issuance of any shares or other securities upon the exercise
or conversion of this Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
10. (a) The Company represents that it has, at the Company's sole
expense (other than the fees and disbursements of counsel for the Holders and
the underwriting discounts, if any, payable in respect of the Underwriters'
Securities sold by any Holder), registered or qualified all of the Underwriters'
Securities concurrently with the registration of the Company's initial public
offering of Common Stock and such registration statement has become effective
under the Act. As used herein, "Underwriters' Securities" shall mean the
Warrants and the Warrant Shares and the Conversion Shares which, in each case,
have not been previously sold pursuant to a registration statement or Rule 144
promulgated under the Act.
(b) The Company shall use its best efforts to cause the Underwriters'
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such Holders
may reasonably request and, with respect to the Warrant Shares or
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Conversion Shares, through the facilities of any securities exchange or over-
the-counter market on which the Company's Common Stock is traded, at such time
as such Holder or Holders reasonably anticipate selling any Underwriters'
Securities and so notifies the Company in writing; provided, however, that the
Company shall not for any such purpose be required to (A) qualify generally to
do business as a foreign corporation in any jurisdiction wherein it is not
otherwise required to be so qualified, (B) subject itself to taxation in any
jurisdiction wherein it is not so subject or (C) consent to general service of
process in any such jurisdiction or otherwise take action that would subject it
to the general jurisdiction of the courts of any jurisdiction to which it is not
so subject.
(c) The Company shall keep effective any registration or qualification
contemplated by this Section 10 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the holders of any Underwriters' Securities (the
"Eligible Holders") to complete the offer and sale of the Underwriters'
Securities covered thereby upon notice from an Eligible Holder that such
Eligible Holder intends to sell Underwriters' Securities pursuant thereto;
provided, however, that the Company shall not be required to effect the
foregoing during a period of one year from the date hereof. The Holder agrees
not to sell, transfer, assign or otherwise dispose of any Underwriters'
Securities pursuant to any registration statement under this Section 10 until
the Company has informed the Holder in writing that it has amended or
supplemented each applicable registration statement, preliminary prospectus,
final prospectus, application document and communication necessary under the Act
or Exchange Act for the sale of such Underwriters' Securities. The Holder agrees
that if, at the time that the Company is requested to update or amend a
registration statement or qualification hereunder in order to facilitate a sale
of Underwriters' Securities, the Board of Directors of the Company determines,
in good faith, that a sale of Underwriters' Securities pursuant to the
registration statement or qualification would require disclosure of material
information which the Company has a bona fide business purpose for preserving as
confidential, the Company shall not be required to update or amend such
registration statement, and the Holder shall not sell any Underwriters'
Securities pursuant thereto, until such time as such restriction is no longer
advisable; provided, however, that such time shall not exceed a period of 90
consecutive days and that the foregoing restriction shall not be applicable more
than once during each 12-month period commencing upon the effective date of the
Offering.
(d) The Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Underwriters' Securities included in such
registration.
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(e) The Company shall furnish each Eligible Holder of any
Underwriters' Securities so registered at the time such Eligible Holder desires
to sell Underwriters' Securities with an opinion of its counsel (reasonably
acceptable to the Eligible Holders) to the effect that (i) the registration
statement has become effective under the Act and no order suspending the
effectiveness of the registration statement, preventing or suspending the use of
the registration statement, any preliminary prospectus, any final prospectus, or
any amendment or supplement thereto has been issued, nor has the Commission or
any securities or blue sky authority of any jurisdiction instituted or
threatened to institute any proceedings with respect to such an order and (ii)
the registration statement and each prospectus forming a part thereof (including
each preliminary prospectus), and any amendment or supplement thereto, complies
as to form with the Act and the rules and regulations thereunder, and such
counsel shall provide a statement that such counsel has no knowledge of any
material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. The Company shall also deliver a
statement of counsel stating the jurisdictions in which the Underwriters'
Securities have been registered or qualified for sale pursuant to the provisions
of Section 10(b).
(f) The Company agrees that until all the Underwriters' Securities
have been sold under a registration statement or pursuant to Rule 144 under the
Act, it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Underwriters'
Securities to sell such securities under Rule 144.
11. (a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Eligible Holder, its officers,
directors, partners, employees, agents, and counsel, and each person, if any,
who controls any such person within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all loss, liability, charge, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Section 11,
but not be limited to, reasonable attorneys' fees and any and all reasonable
expense whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained (A) in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Underwriters' Securities, or (B) in any application or
other document or communication (in this Section 11 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Underwriters' Securities under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
such Eligible Holder by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
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<PAGE>
amendment or supplement thereto, or in any application, as the case may be. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability pursuant to this Section 11(a) unless the Company was
unaware of the action to which such notice would have related and the failure to
so notify materially prejudices the Company's ability to defend such action, but
the failure to so notify shall not relieve the Company from any liability that
it may have for contribution or otherwise under this Section) and the Company
shall promptly assume the defense of such action, including the employment of
counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel reasonably satisfactory to such indemnified party
or parties to have charge of the defense of such action or such indemnified
party or parties shall have reasonably concluded that there may be a conflict of
interest between the indemnified party or parties and the Company in the conduct
of the defense of such action in any of which events such fees and expenses
shall be borne by the Company and the Company shall not have the right to direct
the defense of such action on behalf of the indemnified party or parties.
Anything in this Section 11 to the contrary notwithstanding, the Company shall
not be liable for any settlement of any such claim or action effected without
its written consent, which shall not be unreasonably withheld. The Company shall
not, without the prior written consent of each indemnified party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may be
sought hereunder (whether or not any indemnified party is a party thereto),
unless such settlement, compromise, consent, or termination includes an
unconditional release of each indemnified party from all liability in respect of
such action. The Company agrees promptly to notify the Eligible Holders of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of any Underwriters'
Securities or any preliminary prospectus, prospectus, registration statement, or
amendment or supplement thereto, or any application relating to any sale of any
Underwriters' Securities.
(b) The Holder agrees to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have signed
any registration statement covering Underwriters' Securities held by the Holder,
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from the
Company to the Holder in Section 11(a), but only with respect to statements or
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<PAGE>
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to the
Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 11(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
11(a).
(c) To provide for just and equitable contribution, if an indemnified
party makes a claim for indemnification pursuant to Section 11(a) or 11(b)
(subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, then the Company shall contribute (including for
this purpose any contribution made by or on behalf of any director of the
Company, any officer of the Company who signed any such registration statement,
any controlling person of the Company, and its or their respective counsel), as
one entity, and the Eligible Holders of the Underwriters' Securities included in
such registration in the aggregate shall contribute (including for this purpose
any contribution by or on behalf of an indemnified party), as a second entity,
to the losses, liabilities, claims, damages, and expenses whatsoever (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution (i) received by the
Company from persons other than the Eligible Holders, persons who control the
Company within the meaning of the Act, officers of the Company who signed the
registration statement and directors of the Company, or (ii) received by the
Eligible Holders from persons other than the Company, any director of the
Company, any officer of the Company who signed any such registration statement,
any controlling person of the Company, and the Company's or their respective
counsel, who may also be liable for contribution) to which any of them may be
subject, on the basis of relevant equitable considerations such as the relative
fault of the Company and such Eligible Holders in connection with the facts
which resulted in such losses, liabilities, claims, damages, and expenses. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission, or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission, or alleged omission relates
to information supplied by the Company or by such Eligible Holders, and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and the Eligible
Holders for contribution were determined by pro rata or per capita allocation of
the aggregate losses, liabilities, claims, damages, and expenses (even if the
Holder and the other indemnified parties were treated as one entity
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<PAGE>
for such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 11(c). In no case shall any
Eligible Holder be responsible for a portion of the contribution obligation
imposed on all Eligible Holders in excess of its pro rata share based on the
number of shares of Common Stock owned (or which would be owned upon exercise of
all Underwriters' Securities) by it and included in such registration as
compared to the number of shares of Common Stock owned (or which would be owned
upon exercise of all Underwriters' Securities) by all Eligible Holders and
included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 11(c), each person, if any, who
controls any Eligible Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent, and counsel of each such Eligible Holder or control person shall have the
same rights to contribution as such Eligible Holder or control person and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed any such registration statement, each director of the Company, and
its or their respective counsel shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 11(c). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 11(c), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 11(c). Anything in this Section
11(c) to the contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected without its
written consent. This Section 11(c) is intended to supersede any right to
contribution under the Act, the Exchange Act or otherwise.
12. The Warrant Shares issued upon exercise of the Warrants shall be
subject to a stop transfer order and the certificate or certificates evidencing
such Warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, SUCH
SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION
STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT."
13. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor, and denomination.
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14. The Holder of any Warrant shall not have, solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Warrant.
15. This Warrant shall be construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles of conflicts of law.
Dated: , 199_
MEDI-JECT CORPORATION
By:
---------------------------------------------
Name: Franklin Pass, M.D.
Title: President, Chief Executive Officer and
Chairman of the Board of Directors
[Seal]
- ----------------------
Secretary
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, __________________ hereby sells, assigns, and
transfers unto __________________ a Warrant to purchase __________ shares of
Common Stock, without par value per share, of Medi-Ject Corporation (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint __________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated:
-----------------------
Signature
--------------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
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To: Medi-Ject Corporation
1840 Berkshire Lane
Minneapolis, MN 55441
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $_________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: Name
------------------------ --------------------------------
(Print)
Address:
------------------------------------------------------------------------
-------------------------------------
(Signature)
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To: Medi-Ject Corporation
1840 Berkshire Lane
Minneapolis, MN 55441
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Warrant)
The undersigned hereby irrevocably elects to surrender its Warrant for the
number of shares of Common Stock as shall be issuable pursuant to the cashless
exercise provisions of the within Warrant, in respect of _____ shares of Common
Stock underlying the within Warrant, and requests that certificates for such
securities be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of, and
delivered to, the undersigned at the addressed stated below.
Dated: Name
------------------------ --------------------------------
(Print)
Address:
------------------------------------------------------------------------
-------------------------------------
(Signature)
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Exhibit 10.20
DEVELOPMENT AND LICENSE AGREEMENT
This Agreement is made by and between BECTON, DICKINSON AND COMPANY, a New
Jersey corporation ("BECTON"), and MEDI-JECT CORPORATION, a Minnesota
corporation ("MEDI-JECT").
Whereas, MEDI-JECT has experience in and has committed significant
resources to designing and developing needleless injection devices and systems,
including disposables, suitable for the delivery of various drugs;
Whereas, BECTON has experience in marketing and selling drug delivery
devices and systems, including disposables;
Whereas, MEDI-JECT and BECTON entered into a Confidentiality Agreement,
dated February 1, 1995, for the purpose of sharing information in order to
evaluate a possible business relationship;
Whereas, the parties have completed their evaluation and now desire to
proceed with a development and licensing agreement sufficient to permit MEDI-
JECT to develop needleless injection devices and BECTON to develop disposables,
to be followed by separate supply agreements;
Now, therefore, in consideration of the premises and promises contained
herein, the parties agree as follows.
ARTICLE I - DEFINITIONS
1.1 "AFFILIATE" shall mean any corporation or other business entity
controlled by or in common control of a party. "Control" as used herein means
the ownership directly or indirectly of fifty percent (50%) or the maximum
interest
<PAGE>
permitted by local law of the voting stock of a corporation or a fifty percent
(50%) or greater interest in the income of such corporation or other business
entity or the ability otherwise of a party to secure that the affairs of such
corporation or other business entity are managed in accordance with its wishes.
1.2 "BECTON" shall include all of the divisions, subsidiaries and
AFFILIATES of Becton, Dickinson and Company.
1.3 "BECTON PROPERTY" shall mean (a) all INTELLECTUAL PROPERTY owned by or
licensed to (with right of sublicense) BECTON prior to the EFFECTIVE DATE
relating to DISPOSABLES, and (b) all INTELLECTUAL PROPERTY made, conceived,
created, developed or reduced to practice (by employees or agents of BECTON or
MEDI-JECT or jointly by employees or agents of both parties) during the course
of the OPEN DEVELOPMENT PROGRAM or a CLOSED DEVELOPMENT PROGRAM and covering
DISPOSABLES (including without limitation the manufacture, use or sale thereof),
excluding PROGRAM DISPOSABLE PROPERTY.
1.4 "CLOSED ARCHITECTURE SYSTEM" shall mean any NEEDLELESS INJECTOR and
DISPOSABLE (a) each of which is designed or calibrated for use with a specific
drug, (b) which are designed to be used together as an integrated unit, and (c)
which are intended to be sold to and distributed by or on behalf of a third
party pharmaceutical company. The parties will develop and commercialize CLOSED
ARCHITECTURE SYSTEMS as set forth in Article III.
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1.5 "CLOSED DEVELOPMENT PROGRAM" shall mean each and every development
program for the development and commercialization of one or more CLOSED
ARCHITECTURE SYSTEMS pursuant to Paragraph 3.3.
1.6 "COST OF GOODS SOLD" shall mean (***).
1.7 "DISPOSABLE" shall mean a single-use or multiple-use disposable drug
chamber (either user-filled or pre-fillable) or other related drug-containing or
drug-contacting component (e.g., vial adapter) for use with a NEEDLELESS
INJECTOR.
1.8 "EFFECTIVE DATE" shall mean January 1, 1996.
1.9 "INTELLECTUAL PROPERTY" shall mean and include all patentable and
unpatentable inventions, ideas, discoveries, improvements, design rights, works
of authorship, trade secrets, know-how and any equivalents thereof.
1.10 "LICENSED PATENTS" shall mean those United States and foreign patents
and/or patent applications within the MEDI-JECT PROPERTY, BECTON PROPERTY,
PROGRAM DISPOSABLE PROPERTY or PROGRAM SYSTEM PROPERTY, including any
continuations, continuations-in-part, divisions, extensions, substitutions,
reissues or re-examinations thereof.
1.11 "MEDI-JECT" shall include all of the divisions, subsidiaries and
AFFILIATES of Medi-Ject Corporation.
1.12 "MEDI-JECT PROPERTY" shall mean (a) all INTELLECTUAL PROPERTY owned by
or licensed to (with right of sublicense) MEDI-JECT prior to the EFFECTIVE DATE
relating to NEEDLELESS INJECTORS and/or DISPOSABLES
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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for OPEN ARCHITECTURE SYSTEMS or CLOSED ARCHITECTURE SYSTEMS and (b) all
INTELLECTUAL PROPERTY made, conceived, created, developed or reduced to practice
(by employees or agents of BECTON or MEDI-JECT or jointly by employees or agents
of both parties) during the course of the OPEN DEVELOPMENT PROGRAM or a CLOSED
DEVELOPMENT PROGRAM and covering NEEDLELESS INJECTORS (including without
limitation the manufacture, use or sale thereof).
1.13 "MJ-6" shall mean the needleless injector system previously developed
by MEDI-JECT as of the EFFECTIVE DATE for use in connection with the delivery of
insulin, human growth hormone and those other drugs listed on Exhibit C hereto,
including enhancements thereto (e.g. disposables) but excluding any needleless
injector system having a size materially smaller than that of the MJ-6.
1.14 "NEEDLELESS INJECTOR" shall mean (a) a reusable device for needleless,
transdermal injection of parenteral drugs which is (i) designed for use with a
DISPOSABLE and (ii) self-powered or powered by means of any external energy
source and, if applicable, (b) any reusable external energy source and related
ancillary components. The parties agree that the term NEEDLELESS INJECTOR
excludes the MJ-6.
1.15 "NET SALES" shall mean the price at which ROYALTY-BEARING DISPOSABLES
are sold by BECTON or MEDI-JECT, its respective AFFILIATES or sublicensees to a
purchaser (other than BECTON OR MEDI-JECT, its respective AFFILIATES or
sublicensees), (***). The parties recognize that only one royalty shall be
payable with respect to any ROYALTY-BEARING DISPOSABLE regardless of the
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
number of VALID CLAIMS under the applicable LICENSED PATENTS that may cover the
manufacture, sale or use of such DISPOSABLE.
1.16 "OPEN ARCHITECTURE SYSTEM" shall mean a NEEDLELESS INJECTOR and
DISPOSABLE (a) which are not designed or calibrated for use with a specific drug
made by a specific drug company and (b) which are intended to be distributed
primarily through pharmacies for uses other than (***). Initially, the parties
will develop an OPEN ARCHITECTURE SYSTEM for insulin; the parties may develop
additional OPEN ARCHITECTURE SYSTEMS for other drugs as set forth in Article
III.
1.17 "OPEN DEVELOPMENT PROGRAM" shall mean the joint program under which:
(i) MEDI-JECT, using PROGRAMS FUNDS paid by BECTON and on behalf of BECTON,
shall undertake to develop a NEEDLELESS INJECTOR for an OPEN ARCHITECTURE
SYSTEM, including specifications, timetables, milestones, reports and
deliverables, as set forth in Exhibit A hereto; (ii) BECTON, using its own
funds, shall undertake to develop a DISPOSABLE for use with such NEEDLELESS
INJECTOR for an OPEN ARCHITECTURE SYSTEM, including the specifications,
timetables, milestones reports and deliverables, also as set forth in Exhibit A
hereto; and (iii) MEDI-JECT and BECTON shall work together to integrate the
NEEDLELESS INJECTOR and DISPOSABLE so developed into an OPEN ARCHITECTURE
SYSTEM.
1.18 (***).
1.19 (***).
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
-5-
<PAGE>
1.20 "PROGRAM DISPOSABLE PROPERTY" shall mean all INTELLECTUAL PROPERTY
made, conceived, created, developed or reduced to practice (by employees or
agents of BECTON or MEDI-JECT or jointly by employees or agents of both parties)
during the course of the OPEN DEVELOPMENT PROGRAM or a CLOSED DEVELOPMENT
PROGRAM and covering DISPOSABLES (including without limitation the manufacture,
use or sale thereof) solely for use in connection with NEEDLELESS INJECTORS.
1.21 "PROGRAM FUNDS" shall mean the monies paid by BECTON to MEDI-JECT
pursuant to Paragraph 2.4 to fund MEDI-JECT's portion of the OPEN DEVELOPMENT
PROGRAM.
1.22 "PROGRAM SYSTEM PROPERTY" shall mean all INTELLECTUAL PROPERTY made,
conceived, created, developed or reduced to practice (by employees or agents of
BECTON or MEDI-JECT or jointly by employees or agents of both parties) during
the course of the OPEN DEVELOPMENT PROGRAM or a CLOSED DEVELOPMENT PROGRAM and
covering NEEDLELESS INJECTORS and DISPOSABLES (including without limitation the
manufacture, use or sale thereof) as integral parts of an OPEN ARCHITECTURE
SYSTEM or CLOSED ARCHITECTURE SYSTEM.
1.23 "ROYALTY-BEARING DISPOSABLE" shall mean:
(a) with respect to Paragraphs 3.3, 7.2, 12.4(b) and (c) any
DISPOSABLE, (i) the manufacture, use or sale of such is covered, in the country
where the DISPOSABLE is manufactured or sold, by (***), a claim of a pending
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
-6-
<PAGE>
patent application within the LICENSED PATENTS, or (***), a VALID CLAIM of any
LICENSED PATENT or any third party technology acquired jointly pursuant to
Paragraph 6.3; provided that such pending patent application or such LICENSED
PATENT, as applicable, names as the sole inventor(s) or as joint inventors,
employees of MEDI-JECT; or (ii) which is manufactured or sold in any country in
which the FDA or applicable regulatory authority requires the use of such
DISPOSABLE with a NEEDLELESS INJECTOR covered by any of the LICENSED PATENTS; or
(b) with respect to Paragraphs 3.5, 4.4, 5.5, 12.2 and 12.5 of this
Agreement and Paragraph 8 of Exhibit B, any DISPOSABLE, (i) the manufacture, use
or sale of such is covered, in the country where the DISPOSABLE is manufactured
or sold, by (***), a claim of a pending patent application within the LICENSED
PATENTS, or (***), a LICENSED PATENT of any LICENSED PATENT or any third party
technology acquired jointly pursuant to Paragraph 6.3; provided that such
pending patent application or such LICENSED PATENT, as applicable, names as the
sole inventor(s) or joint inventors, employees of BECTON, or (ii) which is
manufactured or sold in any country in which the FDA or applicable regulatory
authority requires the use of such DISPOSABLE with a NEEDLELESS INJECTOR covered
by any of the LICENSED PATENTS.
1.24 "SUPPLY AGREEMENT" shall mean an agreement to be entered into between
BECTON and MEDI-JECT under which MEDI-JECT shall supply to BECTON NEEDLELESS
INJECTORS for OPEN ARCHITECTURE SYSTEMS, which
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
-7-
<PAGE>
agreement shall include the terms set forth in Exhibit B below and such other
terms and conditions as are customary in such agreements and as the parties
shall mutually agree.
1.25 "STOCK PURCHASE AGREEMENTS" shall mean the PREFERRED STOCK PURCHASE
AGREEMENT, WARRANT, and OPTION AGREEMENT between BECTON and MEDI-JECT of even
date herewith under which BECTON acquired equity and other interests in MEDI-
JECT.
1.26 "VALID CLAIM" shall mean at least one claim of an issued or granted
LICENSED PATENT so long as such claim shall not have been cancelled or shall not
have been held invalid or not infringed in an unappealed or unappealable
decision rendered by a tribunal of competent jurisdiction.
ARTICLE II - OPEN DEVELOPMENT PROGRAM
2.1 MEDI-JECT and BECTON each shall use reasonably diligent efforts to
carry out their respective parts of the OPEN DEVELOPMENT PROGRAM as set forth in
Exhibit A. MEDI-JECT shall use PROGRAM FUNDS solely to carry out the OPEN
DEVELOPMENT PROGRAM and for no other purpose. MEDI-JECT shall use reasonably
diligent efforts to assure that it is the owner of all MEDI-JECT PROPERTY.
BECTON shall use reasonably diligent efforts to assure that it is the owner of
all BECTON PROPERTY.
2.2 MEDI-JECT warrants that the design, manufacture, sale and use of a
NEEDLELESS INJECTOR as part of the OPEN DEVELOPMENT SYSTEM shall not
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<PAGE>
knowingly infringe the valid INTELLECTUAL PROPERTY of others. MEDI-JECT agrees
to notify BECTON if it becomes aware of such an infringement before
incorporating a feature covered by such rights into NEEDLELESS INJECTOR so
developed, and agrees to notify the Executive Committee of the terms of any
license necessary to acquire such rights prior to execution thereof. MEDI-JECT
shall be responsible for acquiring any such license. MEDI-JECT warrants that its
rights under any licenses or other agreements entered into under this Paragraph
after the EFFECTIVE DATE shall inure to the benefit of BECTON.
2.3 BECTON warrants that the design, manufacture, sale and use of a
DISPOSABLE shall not knowingly infringe the valid INTELLECTUAL PROPERTY of
others. BECTON agrees to notify MEDI-JECT if it becomes aware of such an
infringement before incorporating a feature covered by such rights into the
DISPOSABLE, and agrees to notify the Executive Committee of the terms of any
license necessary to acquire such rights prior to execution thereof. BECTON
shall be responsible for acquiring any such license. BECTON warrants that its
rights under any licenses or other agreements entered into under this Paragraph
after the EFFECTIVE DATE shall inure to the benefit of MEDI-JECT.
2.4 Unless earlier terminated under Article XII, as partial consideration
for MEDI-JECT's performing the development of NEEDLELESS INJECTORS for OPEN
ARCHITECTURE SYSTEMS, BECTON shall provide PROGRAM FUNDS to MEDI-JECT in an
amount not to exceed Two Million Four Hundred Thousand Dollars ($2,400,000), in
exchange for such rights granted to BECTON under Article IV. The
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<PAGE>
PROGRAM FUNDS shall be paid in twenty-four equal monthly installments of
$100,000, with the first such monthly installment payable on the EFFECTIVE DATE
and the remaining monthly installments being due on or before the fifth day of
each month commencing February 1996. The initial term of the OPEN DEVELOPMENT
PROGRAM shall be two (2) years from the EFFECTIVE DATE. Any extension of the
OPEN DEVELOPMENT PROGRAM beyond December 1997 and/or modifications in the scope,
direction and efforts of the parties under it after that date, shall be
determined by the representatives of the parties comprising the Executive
Committee which also shall set the amount and timing of any additional PROGRAM
FUNDS to be spent as of January 1998, all of which shall be set forth in a
writing amending this Agreement and Exhibit A in order to be effective. The
PROGRAM FUNDS shall be allocated to the OPEN DEVELOPMENT PROGRAM and such other
development projects as the Executive Committee may determine, but in no event
shall such PROGRAM FUNDS be refundable to BECTON.
ARTICLE III - COMMERCIALIZATION EFFORTS
3.1 (a) For the (***) period commencing on the EFFECTIVE DATE, BECTON and
MEDI-JECT shall (***) to determine whether to develop NEEDLELESS INJECTORS and
DISPOSABLES in either OPEN or CLOSED ARCHITECTURE SYSTEMS for a particular drug,
class of drugs or indication/disease. Other than particular CLOSED ARCHITECTURE
SYSTEMS for which BECTON has declined to manufacture the DISPOSABLES pursuant to
Paragraph 3.5, for the (***) period
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
commencing on the EFFECTIVE DATE, (***) engage in any research, development,
commercialization, manufacturing, marketing or sales activity with respect to
NEEDLELESS INJECTORS and DISPOSABLES for OPEN or CLOSED ARCHITECTURE SYSTEMS,
except pursuant to this Agreement. In addition, for the (***) period commencing
on the EFFECTIVE DATE, each party shall (***) all of its activities with respect
to OPEN ARCHITECTURE SYSTEMS, and neither party shall, without the prior consent
of the other party, and except as provided in Paragraph 6.3, (***) with any
third party relating to NEEDLELESS INJECTORS or DISPOSABLES for OPEN or CLOSED
ARCHITECTURE SYSTEMS, except for such activities that would take place after
such three (3) year period.
(b) After such (***) period, BECTON (***) to engage in any research,
development, commercialization, manufacturing, marketing or sales (***) with
respect to NEEDLELESS INJECTORS or DISPOSABLES for OPEN or CLOSED ARCHITECTURE
SYSTEMS, with any third party. Notwithstanding the foregoing, if BECTON (***)
in any research, development, commercialization, manufacturing, marketing or
sales activity with respect to NEEDLELESS INJECTORS or DISPOSABLES for OPEN OR
CLOSED ARCHITECTURE SYSTEMS, with any third party, other than permitted
sublicensing of its rights and obligations under this Agreement, as contemplated
herein, or to assist BECTON in performing its obligations hereunder or
exploiting its rights hereunder, (***) under (***), shall be (***), effective as
follows:
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
(i) if BECTON enters into a written agreement with a third party with
respect to such activity, (***) shall be effective immediately upon the
date of such agreement, without notice to BECTON,
(ii) if BECTON (***) (other than pursuant to a written agreement), BECTON
shall give MEDI-JECT written notice thereof, and BECTON shall have thirty
(30) days from the date of such notice in which either to (***) such
activity or to (***), and, if such activity is not (***) within such thirty
(30) day period, (***), on the expiration of such thirty (30) day period,
or
(iii) if MEDI-JECT (***) (other than pursuant to a written agreement),
MEDI-JECT shall give BECTON written notice thereof, and (***) thirty (30)
days after receipt of such written notice, if BECTON has not (***) the
activity which is the subject of such notice. From and after receipt of
notice from MEDI-JECT pursuant to this subsection (iii) above, BECTON shall
not be entitled (***) until BECTON has (***) the activity which is the
subject of the notice.
Failure by BECTON to give notice under Section 3.1(b)(ii) shall not constitute a
basis for terminating this Agreement.
(c) The parties acknowledge that their respective rights and obligations
with respect to (***) are not subject to Paragraphs 3.1, 6.3 or 6.4.
3.2 OPEN ARCHITECTURE SYSTEMS for drugs other than insulin shall be
developed under modifications of the OPEN DEVELOPMENT PROGRAM determined in
accordance with the provisions of Paragraph 2.4 above. MEDI-JECT
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
shall have the exclusive right to manufacture and supply NEEDLELESS INJECTORS
for OPEN ARCHITECTURE SYSTEMS, for BECTON'S worldwide sales of such OPEN
ARCHITECTURE SYSTEMS. Such manufacture and supply of NEEDLELESS INJECTORS for
each OPEN ARCHITECTURE SYSTEM (e.g., initially insulin, and thereafter, such
other drugs as the parties may designate pursuant to Paragraph 2.4) shall be
pursuant to a SUPPLY AGREEMENT to be executed by the parties; each such SUPPLY
AGREEMENT shall include the terms set forth in Exhibit B and such other
customary and reasonable terms as the parties may then agree.
3.3 Development of CLOSED ARCHITECTURE SYSTEMS shall be carried out as
follows: MEDI-JECT and BECTON shall develop and establish a joint plan for the
development, marketing and sale of CLOSED ARCHITECTURE SYSTEMS on behalf of one
or more drug companies ("PLAN"). The PLAN shall be completed and submitted to
the Executive Committee for approval by it by and on behalf of the parties, no
later than (***). It is understood that the PLAN would include provisions to
(i) jointly market to and then establish contracts ("Contracts") with individual
drug companies to develop a CLOSED ARCHITECTURE SYSTEM for a particular
company's drug, and (ii) assist each drug company which entered into such a
Contract or Contracts ("Drug Company") to obtain regulatory clearance for the
SYSTEM so developed. Each such arrangement with a Drug Company entered into
under the PLAN also shall provide that: (i) unless otherwise agreed to with a
Drug Company, MEDI-JECT would exclusively supply NEEDLELESS INJECTORS, and
BECTON would exclusively supply DISPOSABLES (paying a royalty to MEDI-
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
JECT on NET SALES of ROYALTY-BEARING DISPOSABLES pursuant to Paragraph 7.2
below); (ii) MEDI-JECT and BECTON would enter into a CLOSED DEVELOPMENT PROGRAM
with the Drug Company (***); (iii) MEDI-JECT and BECTON would grant licenses to
each other consistent with the terms of Article IV below; and (iv) (***).
3.4 In the event that the purchase price paid for one or more of the
NEEDLELESS INJECTORS for CLOSED ARCHITECTURE SYSTEMS pursuant to any Contract
contemplated in Paragraph 3.3 (***). The Executive Committee will discuss in
good faith whether it is desirable for BECTON and MEDI-JECT to contract jointly
with the Drug Company. In any event, neither party shall have the right or
authority to enter into a Contract alone or to bind the other to a Contract
without having first obtained the prior express written approval to do so.
3.5 If BECTON determines, in good faith, that it is not commercially
feasible for it to manufacture DISPOSABLES for a particular CLOSED ARCHITECTURE
SYSTEM, then it shall grant to MEDI-JECT, and it hereby does, the exclusive
worldwide right and license under the BECTON PROPERTY, to make, have made, use,
sell and import such DISPOSABLES for such particular CLOSED ARCHITECTURE SYSTEM
only, together with the right to grant sublicenses under the terms and
conditions of this Agreement. Such license shall be subject to a (***) royalty
on NET SALES of such ROYALTY-BEARING DISPOSABLES, provided, however, that the
manufacture, use or sale of such DISPOSABLE is covered, in the
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
country whether the DISPOSABLE is manufactured or sold, by a VALID CLAIM under
such BECTON PROPERTY.
3.6 For a period of two (2) years from the EFFECTIVE DATE, BECTON shall
assist MEDI-JECT in the distribution and marketing of the MJ-6 to pharmacies in
the United States for use in conjunction with vials of insulin. (***). The
parties agree that except as expressly provided in this Section 3.6, development
and commercialization of the MJ-6 is outside of the scope of this Agreement.
ARTICLE IV - GRANT
4.1 MEDI-JECT hereby grants to BECTON an exclusive, world-wide right and
license under MEDI-JECT PROPERTY, PROGRAM DISPOSABLE PROPERTY and PROGRAM SYSTEM
PROPERTY, during the term of this Agreement, (i) to sell and use NEEDLELESS
INJECTORS for OPEN ARCHITECTURE SYSTEMS and (ii) to make, have made, use, sell
and import DISPOSABLES for use with OPEN ARCHITECTURE SYSTEMS and CLOSED
ARCHITECTURE SYSTEMS, together with the right to grant sublicenses under the
terms and conditions of this Agreement.
4.2 BECTON hereby grants to MEDI-JECT an exclusive, world-wide right and
license under the BECTON PROPERTY, during the term of this Agreement, to make
and have made NEEDLELESS INJECTORS as part of OPEN ARCHITECTURE SYSTEMS, CLOSED
ARCHITECTURE SYSTEMS or (***), together with the right to grant sublicenses
under the terms and conditions of this Agreement.
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
4.3 BECTON agrees not to assert against MEDI-JECT any of its rights under
any INTELLECTUAL PROPERTY owned or controlled by BECTON and covering the
manufacture, use or sale of NEEDLELESS INJECTORS, with respect to MEDI-JECT's
manufacture and supply of any NEEDLELESS INJECTORS hereunder, or under any
SUPPLY AGREEMENT or any CONTRACT, or with respect to MEDI-JECT's exercise of any
of its licenses hereunder.
4.4 MEDI-JECT also shall have the right to convert BECTON's rights under
Paragraph 4.1 to non-exclusive if either BECTON fails (***). In the event MEDI-
JECT converts BECTON's license rights to non-exclusive due to a failure to
(***), MEDI-JECT shall have the non-exclusive, world-wide right (with right of
sublicense) under the BECTON PROPERTY to make, have made, use and sell such
DISPOSABLES for use with OPEN ARCHITECTURE SYSTEMS, CLOSED ARCHITECTURE SYSTEMS
or (***), and to the extent that such DISPOSABLES are ROYALTY-BEARING
DISPOSABLES, MEDI-JECT shall pay a (***) royalty on NET SALES of such ROYALTY-
BEARING DISPOSABLES.
ARTICLE V - (***) RIGHTS
5.1 In the course of this Agreement, MEDI-JECT shall be free to work on
and develop one or more (***). In the course of this work, MEDI-JECT shall be
free to incorporate and use MEDI-JECT PROPERTY, BECTON PROPERTY, PROGRAM
DISPOSABLE PROPERTY and PROGRAM SYSTEM PROPERTY in any such (***)
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
developed. No PROGRAM FUNDS, however, shall be spent on the development of a
device for such use.
5.2 In the event the efforts of MEDI-JECT to develop such a (***) are
successful, MEDI-JECT hereby grants to BECTON a right of first refusal to
evaluate and negotiate for rights to such SYSTEM, including the exclusive right
to sell and use such SYSTEM, subject to the following conditions:
A. MEDI-JECT shall notify BECTON in writing of the completed
development of prototypes for a (***) and shall provide BECTON with such
information and data as may be necessary to allow BECTON to evaluate the
prototype of the new device, including at least two (2) functional models
of such a device;
B. BECTON shall have (***) after receiving such notification and
functional models from MEDI-JECT to evaluate the new device, including the
right to conduct focus groups, market research and/or preliminary clinical
studies, with BECTON agreeing to share the results of its evaluation with
MEDI-JECT; and
C. If BECTON desires to exercise its right of first refusal, it
shall do so in writing not later than (***) after receiving such
notification and models from MEDI-JECT. Failure to provide such notice in
a timely manner shall result in a forfeiture of such right of first refusal
as to the (***) so noticed.
5.3 Upon receipt of notice that it intends to exercise its right of first
refusal, BECTON and MEDI-JECT shall negotiate, in good faith and in an
expeditious
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
manner, terms and conditions satisfactory to both parties under which MEDI-JECT
would manufacture and supply such NEEDLELESS INJECTORS for (***) exclusively to
BECTON, and BECTON would exclusively manufacture and sell DISPOSABLES for use
therewith, unless otherwise agreed to by the parties.
5.4 So long as BECTON shall have the rights of first refusal granted to it
under this Article, MEDI-JECT shall not mortgage, grant, assign, license or
otherwise convey any right, title or interest in any INTELLECTUAL PROPERTY in,
or any rights or interest to sell, distribute or otherwise provide, (***) to any
third party.
5.5 If the parties are unable to agree on the terms and conditions of an
agreement within a period of (***) after receiving the notice and models
provided for under Paragraph 5.2(A), MEDI-JECT shall be (***); it being
understood that any such rights granted to a third party to such (***) shall in
no way conflict with or diminish the rights granted to BECTON under of this
Agreement, including but not limited to those set forth in Article IV. (***).
ARTICLE VI - EXECUTIVE COMMITTEE
6.1 BECTON and MEDI-JECT each shall appoint two (2) people to serve on an
Executive Committee. The Executive Committee is created for the purposes of
facilitating and exercising the respective rights of the parties under this
Agreement. Except as provided elsewhere in this Agreement, the members of the
Executive Committee shall have no fiduciary duty to each other. The purpose of
the Executive Committee shall be: (i) to monitor progress of the OPEN
DEVELOPMENT
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
PROGRAM, to determine whether the timetables and milestones for the OPEN
DEVELOPMENT PROGRAM and any acceptance criteria for NEEDLELESS INJECTORS and
DISPOSABLES have been met; (ii) to determine whether to expand the scope of the
OPEN DEVELOPMENT PROGRAM to include OPEN ARCHITECTURE SYSTEMS for drugs other
than insulin or to include development of enhanced or improved SYSTEMS; (iii) to
determine whether an OPEN ARCHITECTURE SYSTEM or CLOSED ARCHITECTURE SYSTEM
should be developed for a particular drug, class of drugs, or drugs for a
particular indication, as set forth in Paragraph 3.1 above; (iv) to set forth in
writing the PLAN, as defined in Paragraph 3.3 above, for the development of
CLOSED ARCHITECTURE SYSTEMS; (v) to appoint persons to such committees to carry
out any projects and programs as the Executive Committee shall deem appropriate
and (vi) to attempt to resolve any and all disputes as may arise under or relate
to this Agreement.
6.2 The Executive Committee shall meet at such times and places as are
mutually agreed upon, preferably at each other's principal place of business on
an alternating basis, but in any event not less than quarterly. Each party shall
bear its own costs in attending Executive Committee meetings. Each party shall
have the right to replace its members of the Executive Committee on notice to
the other party. Persons not members of the Executive Committee may be invited
to attend Committee meetings in the discretion of the Executive Committee.
Decisions of the Executive Committee shall be by majority.
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<PAGE>
6.3 In the event that either party becomes aware of the availability of
any third party INTELLECTUAL PROPERTY relating to NEEDLELESS INJECTORS or
DISPOSABLES (other than such INTELLECTUAL PROPERTY required pursuant to
Paragraph 2.2 and 2.3), either alone or in conjunction with the sale of that
third party's business or assets, the parties shall bring such information to
the attention of the Executive Committee. (***).
6.4 During the term of this Agreement, in the event that either party
becomes aware of the availability of any third party INTELLECTUAL PROPERTY
relating to needleless, transdermal injection of parenteral drugs other than as
provided in Paragraph 6.3, either alone or in conjunction with the sale of that
third party's business or assets, the parties shall bring such information to
the attention of the Executive Committee. Although the Executive Committee may
discuss whether it would be desirable for the parties to acquire such
INTELLECTUAL PROPERTY as provided in Paragraph 6.3, each party shall be free to
acquire and use such INTELLECTUAL PROPERTY independently from, and without
limitation or encumbrance under, this Agreement.
ARTICLE VII -- COMMERCIALIZATION AND ROYALTIES
7.1 BECTON will use reasonably diligent efforts to commercialize the OPEN
ARCHITECTURE SYSTEMS on a world-wide basis.
7.2 BECTON shall pay to MEDI-JECT the following royalties on NET SALES of
ROYALTY-BEARING DISPOSABLES with the applicable royalty rate to be
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
determined by annual worldwide NET SALES of ROYALTY-BEARING DISPOSABLES:
Annual Worldwide Sales Revenue Royalty
------------------------------ -------
(***) (***)
7.3 (***).
7.4 Each party owing royalties or any other payment hereunder or any
SUPPLY AGREEMENT (the "paying party") shall keep complete and accurate records
of the NET SALES and COST OF GOODS SOLD of DISPOSABLES and/or NEEDLELESS
INJECTORS, as applicable, and all data necessary for the computation of payment
or other calculation made hereunder or thereunder. However, the paying party
shall have no duty of trust or other fiduciary relationship with the other party
(the "receiving party") regarding the maintenance of the books of account or the
calculation and reporting of royalties and other calculations and payments
hereunder.
7.5 Royalty payments hereunder, when due, shall be made on or before the
last business day of May, August, November and February of each year for the
sales of the ROYALTY-BEARING DISPOSABLES and/or NEEDLELESS INJECTORS, as the
case may be, during the preceding quarterly periods ending on the last day of
March, June, September and December, respectively. Such payments shall be
accompanied by a statement showing the NET SALES and such other particulars as
are necessary for an account of the payments to be made pursuant to this
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
Agreement. Payment of the amount due shall accompany such statement, which shall
be deemed to be true and correct unless objected to and audited in accordance
with Paragraph 7.7 below.
7.6 All royalties and other payments hereunder or under any SUPPLY
AGREEMENT shall be payable by the paying party to the receiving party in United
States dollars by a check or checks drawn to the order of the receiving party.
To the extent sales may have been made by the paying party in a foreign country,
such royalty payments shall be made in United States dollars on the basis of
conversion, from the currency of such foreign country, in the case of BECTON, at
the rate recited in the report entitled "Rates of Exchange" issued monthly by
BECTON's International Finance Department which provides spot exchange rates for
each foreign country where sales were made, or in the case of MEDI-JECT,
according to its then standard procedures for such conversions, which standard
procedures shall utilize a publicly available bank exchange rate or other
published exchange rate (e.g., The Wall Street Journal), on the last business
day of the calendar quarter when the sales occurred, and shall be paid at the
time and in the manner set forth above, provided, however, that royalties based
on sales in any foreign country shall be payable to the receiving party only
after deducting for exchange and all other charges due foreign governments,
including withholding taxes, arising from the origin and transmittal of such
royalties, and further provided that the foregoing is subject to the right of
the paying party to make payment of royalties in any country where the
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<PAGE>
currency is blocked and where legal conversion of the currency billed cannot be
made into United States dollars by depositing such royalty payments in the
receiving party's name in a bank designated by the receiving party within such
country.
7.7 The receiving party, at its own expense, shall have the right for a
period of (***) after receiving any report from the paying party to nominate an
independent Certified Public Accountant ("CPA") reasonably acceptable to the
paying party, who shall have access to the paying party's records during
reasonable business hours for the purpose of verifying the payments or other
calculations made under this Agreement, but this right may not be exercised more
than once in any calendar year, and the CPA shall disclose to the receiving
party only information relating to the accuracy of the payment report or other
calculations and the payments made in accordance with this Agreement. The
failure of the receiving party to request verification of any payment report
during said (***) period shall be considered acceptance of the accuracy of such
report and the paying party shall have no obligation to maintain any records
pertaining such report beyond said (***) period.
ARTICLE VIII - CONFIDENTIALITY OBLIGATIONS
8.1 Subject to the rights and licenses granted herein, any information,
report, document or other materials (including, but not limited to, laboratory
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
notebooks, schematics, specifications, circuits, diagrams, specimens, samples,
prototypes, models and data regardless of how stored) disclosed or provided to
the other party during this Agreement which is of a trade secret, confidential,
proprietary or like undisclosed nature or is identified as such ("CONFIDENTIAL
INFORMATION"), shall be retained by the receiving party in confidence for the
term of this Agreement and a five (5) year period thereafter and shall not be
used except in connection with performance under this Agreement; provided,
however, nothing in this Agreement shall in any way restrict the right of a
receiving party to use, disclose, or otherwise deal with any information which
(i) was already known to the receiving party at the time of disclosure as
evidenced by written documents in the receiving party's possession prior to
disclosure; or (ii) was generally available to the public or becomes publicly
known through no wrongful act of the receiving party; or (iii) was received by
the receiving party from a third-party who had a legal right to provide it; or
(iv) was developed independently of knowledge of CONFIDENTIAL INFORMATION
received by the receiving party from the disclosing party.
8.2 Upon termination or expiration of this Agreement or within thirty (30)
days following a written request made at any time by a disclosing party, the
receiving party shall return all CONFIDENTIAL INFORMATION, including all
writings, models and the like supplied by the disclosing party, except that one
copy of same may be retained for archival purposes.
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<PAGE>
8.3 The receiving party agrees to exercise the same care and safeguards
with respect to CONFIDENTIAL INFORMATION disclosed by the disclosing party as
used to maintain the confidentiality of its own information of like character,
but in no event less than a reasonable degree of care.
8.4 Nothing contained herein shall be construed, either expressly or
implicitly, to grant to the receiving party any rights to the CONFIDENTIAL
INFORMATION, including technology or license under any INTELLECTUAL PROPERTY now
or hereinafter in existence, except as specifically provided herein.
ARTICLE IX - INTELLECTUAL PROPERTY
9.1 Each party shall promptly disclose, in writing, to the other party all
INTELLECTUAL PROPERTY made, developed, created, conceived or reduced to practice
by any person(s), including any employee, agent or representative of the party
as part of the OPEN DEVELOPMENT PROGRAM or CLOSED DEVELOPMENT PROGRAM, and all
rights, title and interest to such INTELLECTUAL PROPERTY, shall be owned
exclusively by and vest entirely in the parties, subject to the rights and
licenses granted under this Agreement, as follows:
(a) MEDI-JECT shall own all MEDI-JECT PROPERTY, PROGRAM DISPOSABLE
PROPERTY and PROGRAM SYSTEM PROPERTY; and
(b) BECTON shall own all BECTON PROPERTY.
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<PAGE>
9.2 MEDI-JECT shall diligently file and prosecute patent applications
covering, and shall maintain all LICENSED PATENTS granted under, MEDI-JECT
PROPERTY in the United States and Patent Cooperation Treaty Countries. MEDI-JECT
shall keep BECTON currently informed of the filing and progress of all material
aspects of the prosecution of all such applications and of the issuance of
patents, and shall consult with BECTON concerning any decisions which would
affect the scope of any issued claims and other prosecutorial details, including
the potential abandonment of any application. MEDI-JECT shall promptly inform
BECTON of any additions, deletions or changes in the status of such LICENSED
PATENTS. All actions taken by MEDI-JECT pursuant to this Paragraph 9.2 shall be
at its own expense.
9.3 BECTON shall diligently file and prosecute patent applications
covering, and shall maintain all LICENSED PATENTS granted under, BECTON PROPERTY
and PROGRAM DISPOSABLE PROPERTY material to DISPOSABLES. BECTON shall keep MEDI-
JECT currently informed of the filing and progress of all material aspects of
the prosecution of all such applications and of the issuance of patents, and
shall consult with MEDI-JECT concerning any decisions which would affect the
scope of any issued claims and other prosecutorial details, including the
potential abandonment of any application. BECTON shall promptly inform MEDI-JECT
of any additions, deletions or changes in the status of such LICENSED
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<PAGE>
PATENTS. All actions taken by BECTON pursuant to this Paragraph 9.3 shall be at
its own expense.
9.4 The parties shall mutually agree, through the Executive Committee, on
whether and in which countries to file and prosecute patent applications
covering, and to maintain LICENSED PATENTS granted under, PROGRAM SYSTEM
PROPERTY. All such joint filings shall be made by counsel reasonably acceptable
to the parties. Each party shall have the opportunity to review and comment on
any such filings prior to submission and to discuss the strategy for the
preparation, filing, prosecution, maintenance and defense of any patent
applications covering the PROGRAM SYSTEM PROPERTY and any LICENSED PATENTS
granted thereon. The parties shall share equally any out-of-pocket costs and
expenses incurred with respect to such actions.
9.5 OPEN ARCHITECTURE SYSTEMS shall bear such trademarks and trade names as
BECTON may choose, and BECTON shall be the owner of all right, title and
interest in any such trademarks and trade names so used (with BECTON being
responsible to obtaining at its cost all registrations worldwide for such
trademarks and trade names). BECTON shall be responsible for and shall own all
copyrights in any labels, marketing materials, publications and other written
documentation created for use in connection with the distribution, marketing and
sale of OPEN ARCHITECTURE SYSTEMS.
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<PAGE>
9.6 Upon request, each party shall execute and deliver to the other party
all descriptions, applications, assignments and other documents and instruments
necessary or proper to carry out the provisions of this Agreement without
further compensation; and the parties shall cooperate with and assist each other
or their nominees in all reasonable ways and at all reasonable times, including,
but not limited to, testifying in all legal proceedings, signing all lawful
papers and in general performing all lawful acts reasonable, necessary or
proper, to aid the other party in obtaining, maintaining, defending and
enforcing all lawful patent, copyright, trade secret, know-how and the like in
the United States and elsewhere.
9.7 Upon termination or expiration of this Agreement, or any of the rights
granted to BECTON hereunder, for any reason, BECTON has (***), or (***),
together with the right to grant sublicenses, and thereafter such property shall
be (***) for purposes of any licenses or sublicenses granted to MEDI-JECT or
others under this Agreement. BECTON shall exercise such right by providing
written notice to MEDI-JECT within ninety (90) days of such termination or
expiration.
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
ARTICLE X - PATENT LITIGATION
10.1 BECTON and MEDI-JECT shall promptly notify the other as soon as either
becomes aware of any infringement, actual or threatened, of any of the
INTELLECTUAL PROPERTY licensed hereunder, including those with respect to the
LICENSED PATENTS.
10.2 MEDI-JECT shall have the primary right, but not the obligation, to
institute, prosecute and control any action or proceeding with respect to
infringement of any (***), by counsel of its own choice, and BECTON shall have
the right, at its own expense, to be represented by counsel of its own choice.
If MEDI-JECT fails to bring an action or proceeding within (***) after having
knowledge or notice of such infringement, BECTON shall have the right to bring
and control any such action by counsel of its own choice and MEDI-JECT shall
have the right to be represented in such action by counsel of its own choice, at
its own expense. If one party brings any such action or proceeding, the second
party agrees to be joined as a party plaintiff and to give the first party
reasonable assistance and authority to file and prosecute the suit; provided
that the party bringing suit shall indemnify the joined party against any and
all costs and other awards against the parties, including attorneys' fees. The
party bringing suit hereunder shall be entitled to retain any damages or other
monetary awards recovered in favor of the parties.
10.3 BECTON shall have the right, but not the obligation, to institute,
prosecute and control any action or proceeding with respect to infringement of
any
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
(***), by counsel of its own choice. MEDI-JECT agrees it may be joined as a
party plaintiff, and if so, it may be represented by counsel of its own choice;
provided that BECTON shall indemnify MEDI-JECT against any and all costs and
other awards against the parties, including attorneys' fees. If BECTON fails to
bring an action or proceeding in any particular country within (***) after
having knowledge or notice of such infringement and MEDI-JECT is obligated
hereunder to (***), MEDI-JECT's (***) in such country shall be (***).
10.4 The parties shall discuss whether to institute and prosecute any
action or proceeding with respect to infringement of any (***). Unless the
parties otherwise agree, each party shall be entitled to institute, prosecute
and control any action or proceeding with respect to such infringement (with the
other party having the right to participate in such action) and shall take such
action as may be necessary to allow the other party to proceed. If one party
brings any such action or proceeding, the second party agrees to be joined as a
party plaintiff and to give the first party reasonable assistance and authority
to file and prosecute the suit; provided that the party bringing suit shall
indemnify the joined party against any and all costs and other awards against
the parties, including attorneys' fees. The party bringing suit hereunder shall
be entitled to retain any damages or other monetary awards recovered in favor of
the parties; provided, however, that if the parties bring suit jointly, such
damages and monetary awards shall be shared equally by the parties,
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
after reimbursement of each party's out-of-pocket costs and expenses with
respect to such suit.
ARTICLE XI - REGULATORY MATTERS
11.1 Upon finalization of any OPEN DEVELOPMENT SYSTEM developed hereunder,
MEDI-JECT and BECTON shall jointly conduct (or cause to be conducted) such
clinical trials as may be necessary or deemed advisable to obtain clearance to
market and sell such SYSTEMS in such countries in the world as the parties may
agree upon. MEDI-JECT and BECTON shall jointly design the content, claims and
timing of all trials conducted, and shall provide each other access to all data
and documentation collected or prepared in support of such trials and access to
all communications and filings sent to or received from any regulatory agency.
The costs of such trials shall be borne equally by the parties; provided,
however, BECTON shall contribute, without charge, an amount of DISPOSABLES
sufficient to conduct such trials, and MEDI-JECT shall contribute, without
charge, an amount of NEEDLELESS INJECTORS sufficient to conduct such trials.
Each party agrees to use reasonably diligent efforts to file for and obtain
regulatory approval for such OPEN DEVELOPMENT SYSTEMS in such agreed countries.
11.2 Clinical trials for each CLOSED DEVELOPMENT SYSTEM, developed pursuant
to a CLOSED DEVELOPMENT PROGRAM shall be handled in accordance with terms of
each Contract associated therewith.
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<PAGE>
ARTICLE XII - TERMINATION
12.1 Unless sooner terminated, this Agreement and the rights and licenses
granted hereunder shall continue in effect until the later of (a) the end of
(***) years after conclusion of the initial OPEN DEVELOPMENT PROGRAM or (b) the
life of the last to expire of the LICENSED PATENTS.
12.2 For a period of three (3) years following the EFFECTIVE DATE or prior
to MEDI-JECT receiving FDA approval for an OPEN ARCHITECTURE SYSTEM, whichever
is shorter, BECTON shall have the right to terminate this Agreement, without
cause, on six (6) months advance written notice. Thereafter, BECTON shall have
the right to terminate this Agreement, without cause, on twelve (12) months
advance written notice. If BECTON terminates this Agreement without cause and if
any DISPOSABLES for OPEN or CLOSED ARCHITECTURE SYSTEMS have been developed
hereunder as of the date of such termination, BECTON shall negotiate in good
faith, terms and conditions reasonably necessary to enable MEDI-JECT to arrange
an alternative source of such DISPOSABLES, including upon MEDI-JECT's request,
the continued supply of such DISPOSABLES by BECTON for a period of time not to
exceed (***), and BECTON shall grant to MEDI-JECT, and hereby does grant
(effective only upon such termination pursuant to this Paragraph 12.2), a non-
exclusive license (with right of sublicense) under BECTON PROPERTY, PROGRAM
DISPOSABLE PROPERTY and PROGRAM SYSTEM PROPERTY to make, have
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
made, use, sell and import such DISPOSABLES for use with OPEN ARCHITECTURE
SYSTEMS, CLOSED ARCHITECTURE SYSTEMS or (***), and to the extent that such
DISPOSABLES are ROYALTY-BEARING DISPOSABLES, MEDI-JECT shall pay a (***) royalty
on NET SALES of such ROYALTY-BEARING DISPOSABLES.
12.3 In the event of any breach of a material term of this Agreement by
either party, including non-performance under the OPEN DEVELOPMENT PROGRAM, and
such breach cannot be cured or otherwise addressed by action of the Executive
Committee, the non-breaching party shall have the right to terminate this
Agreement on sixty (60) days written notice, in addition to any other legal or
equitable remedies available to such non-breaching party.
12.4 If BECTON terminates this Agreement pursuant to Paragraph 12.3 as a
result of a material breach by MEDI-JECT (***) and if any NEEDLELESS INJECTORS
have been developed hereunder as of the date of such termination, the following
shall apply:
(a) If MEDI-JECT has materially breached (***), with respect to the
use or sale of (***) and MEDI-JECT and BECTON have entered into a SUPPLY
AGREEMENT with respect to such NEEDLELESS INJECTORS, MEDI-JECT shall continue to
supply, and BECTON shall continue to purchase, such NEEDLELESS INJECTORS for
OPEN ARCHITECTURE SYSTEMS pursuant to the terms of such SUPPLY AGREEMENT, and
(***);
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
(b) If MEDI-JECT has materially breached (***), with respect to (1)
the use or sale of (***) or (2) the manufacture, use or sale of (***), MEDI-JECT
shall (***), and (***) and, if BECTON has not exercised its rights under (***)
and BECTON, (***), shall (***) for (***), (i) the manufacture, use or sale of
which is covered in the country where the NEEDLELESS INJECTOR is manufactured or
sold, by a VALID CLAIM of any LICENSED PATENT or (ii) manufactured or sold in
any country in which the FDA or applicable regulatory authority requires the
labelling of such NEEDLELESS INJECTOR for use with a DISPOSABLE covered by any
of the LICENSED PATENTS; or
(c) (1) If MEDI-JECT has materially breached (***), with respect to
the manufacture, use or sale of (***) or by (***) and (2) unless BECTON has
waived or otherwise its rights under (***), MEDI-JECT shall (***), and if BECTON
has not exercised its rights under (***), and BECTON, (***), shall (***), (i)
the manufacture, use or sale of which is covered in the country where the
NEEDLELESS INJECTOR is manufactured or sold, by a VALID CLAIM of any LICENSED
PATENT or (ii) manufactured or sold in any country in which the FDA or
applicable regulatory authority requires the labelling of such NEEDLELESS
INJECTOR for use with a DISPOSABLE covered by any of the LICENSED PATENTS.
12.5 If MEDI-JECT terminates this Agreement pursuant to (***) and if any
DISPOSABLES have been developed hereunder as of the date of such termination,
BECTON shall negotiate in good faith, terms and conditions reasonably necessary
to
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
enable MEDI-JECT to arrange an alternative source of such DISPOSABLES, including
upon MEDI-JECT's request, the continued supply of such DISPOSABLES by BECTON for
a period of time not to exceed (***), and BECTON shall (***), and to the extent
that (***), MEDI-JECT shall (***). In addition, upon any such termination, (a)
(***), shall be (***), pursuant to the (***) and (b) the licenses granted to
MEDI-JECT pursuant to Paragraph 3.5 shall continue as provided therein.
12.6 Upon any termination or expiration of this Agreement, the parties
shall retain their respective ownership rights under the BECTON PROPERTY, MEDI-
JECT PROPERTY, PROGRAM DISPOSABLE PROPERTY or PROGRAM SYSTEM PROPERTY, subject
to the provisions of Paragraphs 3.5, 4.3, 4.4, 5.5, 9.7, 12.2, 12.4 or 12.5, to
the extent that such provisions are in effect as of, or as a result of, such
termination.
12.7 In the event MEDI-JECT has not filed with the FDA an application for
clearance to distribute or sell a NEEDLELESS INJECTOR for an OPEN ARCHITECTURE
SYSTEM prior to (***), MEDI-JECT shall (***), subject to the terms of Paragraph
8 in Exhibit C below.
12.8 All rights and licenses granted under or pursuant to this Agreement
are, and shall otherwise be deemed to be, for the purposes of Paragraph 365(n)
of the Bankruptcy Code, licenses of rights to "intellectual property" as defined
under Paragraph 101(52) of the Bankruptcy Code. The parties agree that each
party, as a
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
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<PAGE>
licensee hereunder, shall retain and may fully exercise all of its rights and
elections under the Bankruptcy Code.
12.9 Termination of this Agreement for any reason shall not affect the
rights or obligations of any party accrued prior to termination. In addition,
upon any termination of this Agreement, each party shall be entitled to any
rights and remedies such party may have at law and in equity. Termination or
expiration of this Agreement shall not relieve the parties of their respective
rights and obligations under Article VIII [Confidentiality], Article IX
[Intellectual Property], and with respect to any royalties owing after such
termination, Article VII [Commercialization and Royalties]. Termination of this
Agreement shall not terminate the parties' respective rights and licenses under
Paragraph 3.5, 4.3, 4.4, 5.3, 9.7, 12.2, 12.4 or 12.5 to the extent that such
rights and licenses are in effect as of or as a result of such termination.
12.10 Termination of any OPEN DEVELOPMENT PROGRAM or CLOSED DEVELOPMENT
PROGRAM shall not affect the continuation of any other OPEN DEVELOPMENT PROGRAM
or CLOSED DEVELOPMENT PROGRAM hereunder or the continuation of this Agreement.
ARTICLE XIII - MISCELLANEOUS
13.1 Each party represents and warrants to the other party that it is duly
authorized to enter into this Agreement and become bound by all of its terms and
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<PAGE>
conditions, and further represents and warrants that nothing in this Agreement
will contravene or conflict with any Article of Incorporation, by-law, rule,
regulation, order, statute, agreement or other writing by which it may be bound
or held accountable.
13.2 Nothing in this Agreement shall be deemed or construed as creating any
agency or partnership between or among the parties. The parties shall not
conduct their activities hereunder in such manner as to make it appear to third
parties that they have formed a partnership. No person not a party to this
Agreement, including any employees or agents or any party to this Agreement,
shall have or acquire any rights by reason of the parties having entered into
this Agreement.
13.3 This Agreement and any of its individual terms shall be amended,
modified, waived, superseded or canceled only by a writing duly authorized and
signed by both parties. The delay or failure of any party at any time or times
to require performance of any term shall in no manner affect that party's rights
at a later time to enforce the same.
13.4 This Agreement, including Exhibits A-C, which are hereby incorporated
herein by reference, contains the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous understandings, negotiations and agreements whether written or
oral.
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<PAGE>
13.5 This Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and permitted
assigns. This Agreement shall not be assigned by either party without the prior
written consent of the other party, unless such assignment is to a wholly-owned
subsidiary of a party in which case only written notice need be provided.
13.6 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original.
13.7 Any notice permitted or required under this Agreement shall be deemed
given upon receipt when hand-delivered or sent by United States Postal Service
Express Mail when addressed to:
If to BECTON: President
Becton Dickinson Advanced Injection Systems
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
with a copy to: General Counsel
Becton Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
If to MEDI-JECT: President
MEDI-JECT Corporation
1840 Berkshire Lane
Minneapolis, Minnesota 55441
with a copy to: J. Andrew Herring, Esq.
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402
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<PAGE>
13.8 This Agreement (and any SUPPLY AGREEMENTS executed hereunder) shall be
governed by and construed in accordance with Minnesota law (excluding its choice
of law rules). The parties agree to submit any disputes arising hereunder or
thereunder first to the Executive Committee. If the Executive Committee is
unable to resolve such dispute, the parties shall submit such dispute to non-
binding mediation, to be performed over a period not to exceed five days by a
professional mediation service reasonably acceptable to the parties. If the
dispute is not resolved by such mediation, the parties may exercise their rights
to any legal or equitable remedy available; provided, however that the exclusive
jurisdiction and venue for any such disputes shall be the state and federal
courts located in (a) Minneapolis, Minnesota, if BECTON brings suit against
MEDI-JECT or (b) Bergen County, New Jersey, if MEDI-JECT brings suit against
BECTON.
13.9 If any term or condition of this Agreement is or is found to be
invalid or unenforceable in any country or countries, the remaining terms and
conditions shall remain in full force and effect, and the parties agree to amend
or construe the invalid or unenforceable terms or conditions of this Agreement
in such manner so as to render them valid and enforceable giving due regard to
the intent of the parties. In the event that cannot be done and the invalid or
unenforceable term or condition is material to this Agreement, the parties agree
to renegotiate the entire Agreement with respect to that country.
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<PAGE>
13.10 If the parties determine that a filing or notification with the
European Economic Commission is necessary or useful to affect the intent of this
Agreement within the European Economic Community, the parties shall cooperate,
at their own expense, in the preparation and filing of such documents.
Having intended to become bound by the terms and conditions of this
Agreement, the parties acknowledge entering into this Agreement as evidenced by
their duly authorized signatures set forth below.
MEDI-JECT CORPORATION BECTON, DICKINSON AND
COMPANY
BY: /s/ Franklin Pass BY: /s/ Raymond P. Ohlmuller
------------------------- -----------------------------
ITS: President and CEO ITS: Vice President and Secretary
------------------------ ----------------------------
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<PAGE>
EXHIBIT A
(***)
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
A-1
<PAGE>
EXHIBIT B
SUPPLY AGREEMENT TERMS
1. Terms defined in the DEVELOPMENT AND LICENSE AGREEMENT shall be
incorporated by reference in each SUPPLY AGREEMENT.
2. MEDI-JECT shall manufacture and supply NEEDLELESS INJECTORS to BECTON
and BECTON shall manufacture and supply for itself DISPOSABLES.
3. Assuming MEDI-JECT meets the cost targets set forth in Exhibit A, BECTON
will pay a transfer price to MEDI-JECT on NEEDLELESS INJECTORS FOR OPEN
ARCHITECTURE SYSTEMS, sold to it by MEDI-JECT equal to the (***) for such (***),
(***). If MEDI-JECT does not meet the cost targets set forth in Exhibit A, the
parties shall negotiate in good faith a reasonable transfer price for such
NEEDLELESS INJECTORS, with the intent that such transfer price shall provide
each of MEDI-JECT and BECTON with (***).
4. The term of each SUPPLY AGREEMENT shall be the later of (a) (***) years
from the first commercial sale of the applicable OPEN ARCHITECTURE SYSTEM or (b)
the life of the last to expire of the LICENSED PATENTS covering such OPEN
ARCHITECTURE SYSTEM.
5. Each SUPPLY AGREEMENT shall include customary and reasonable provisions
relating to ordering, delivery, shipment, inspection and payment. The parties
shall mutually negotiate and agree in good faith on the quantity of NEEDLELESS
INJECTORS to be supplied to BECTON during the first year of each
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
B-1
<PAGE>
SUPPLY AGREEMENT. In addition, thereafter, BECTON shall submit to MEDI-JECT, on
a quarterly basis, rolling annual forecasts, prepared in good faith, of its
reasonably anticipated orders for NEEDLELESS INJECTORS for the applicable OPEN
ARCHITECTURE SYSTEM. In addition, in order to permit MEDI-JECT to plan its
manufacturing needs appropriately, the parties shall negotiate in good faith the
terms of the initial purchase order (i.e. quantity and delivery date) of
NEEDLELESS INJECTORS for each OPEN ARCHITECTURE SYSTEM.
6. (a) If, for any reason, MEDI-JECT cannot meet BECTON's reasonable
requirements (whether by virtue of quantities ordered or other reason) for such
NEEDLELESS INJECTORS, subject to the terms of this Paragraph 6, MEDI-JECT shall
designate a third party to manufacture such NEEDLELESS INJECTORS on its behalf
for supply to BECTON; with such third party manufacturer to be acceptable to
BECTON, which acceptance shall not be unreasonably withheld. The term of such
third party manufacturing arrangement shall be mutually agreed by MEDI-JECT and
such third party and MEDI-JECT shall be entitled to recommence manufacture of
such NEEDLELESS INJECTORS upon a showing, reasonably acceptable to BECTON, of
its ability to provide a consistent supply of such NEEDLELESS INJECTOR as
necessary to meet BECTON's reasonably anticipated requirements therefor.
(b) If MEDI-JECT is unable to designate a third party to manufacture
such NEEDLELESS INJECTORS in quantities sufficient to meet BECTON's reasonable
requirements, or if a third party so designated fails to meet such requirements
over a period of (***), then BECTON shall have the (***), and
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
B-2
<PAGE>
BECTON, (***), shall (***), (i) the manufacture, use or sale of which is covered
in the country where the NEEDLELESS INJECTOR is manufactured or sold, by a VALID
CLAIM of any LICENSED PATENT or (ii) manufactured or sold in any country in
which the FDA or applicable regulatory authority requires the labelling of such
INJECTOR for use with a DISPOSABLE.
(c) Notwithstanding the foregoing, BECTON shall not be entitled to
invoke the provisions of this Paragraph 6, unless such unfilled quantities are
within the forecast required by Paragraph 5 above, and such failure lasts for a
period of more than (***). In addition, upon (***) written notice to BECTON and
a showing, reasonably acceptable to BECTON, of its ability to provide a
consistent supply of such NEEDLELESS INJECTOR as necessary to meet BECTON's
reasonably anticipated requirements therefor, MEDI-JECT will have the option to:
(1) allow BECTON to continue to manufacture such NEEDLELESS INJECTORS on a
non-exclusive basis until such time as (***); in which case MEDI-JECT shall
also be entitled to supply NEEDLELESS INJECTORS to BECTON; or
(2) reimburse BECTON for (***) and, upon the expiration of such notice
period, BECTON shall no longer be entitled to manufacture such NEEDLELESS
INJECTORS hereunder.
7. Termination of any SUPPLY AGREEMENT shall not result in termination of
the DEVELOPMENT AND LICENSE AGREEMENT.
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
B-3
<PAGE>
8. If BECTON terminates any SUPPLY AGREEMENT without cause, BECTON shall
negotiate, in good faith, terms and conditions reasonably necessary to enable
MEDI-JECT to arrange an alternative source of the DISPOSABLES subject to such
SUPPLY AGREEMENT, including upon MEDI-JECT's request the continued supply of
such DISPOSABLES by BECTON for a period of time (***), and BECTON shall grant to
MEDI-JECT, and hereby does grant (effective only upon such termination), a non-
exclusive license under BECTON PROPERTY, PROGRAM DISPOSABLE PROPERTY and PROGRAM
SYSTEM PROPERTY to make, have made, use, sell and import such DISPOSABLES for
use in OPEN ARCHITECTURE SYSTEMS, CLOSED ARCHITECTURE SYSTEMS or (***), and to
the extent that such DISPOSABLES are ROYALTY-BEARING DISPOSABLES, MEDI-JECT
shall pay a (***) royalty on NET SALES of such ROYALTY-BEARING DISPOSABLES.
9. MEDI-JECT shall indemnify, defend and hold harmless BECTON, its
directors, officers, employees and agents, against any judgments, fees,
expenses, liability, costs, awards or damages arising from or incidental to any
product liability or other suit, claim, demand or action (including infringement
of the INTELLECTUAL PROPERTY rights of others) brought as a consequence of the
sale and/or use of NEEDLELESS INJECTORS for OPEN ARCHITECTURE SYSTEMS sold to
BECTON hereunder, whether BECTON, either jointly or severally, is named as a
party defendant in such action.
10. BECTON shall indemnify, defend and hold harmless MEDI-JECT, its
directors, officers, employees and agents, against any judgments, fees,
expenses,
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
B-4
<PAGE>
liability costs, awards or damages arising from or incidental to any product
liability or other suit, claim, demand or action (including infringement of the
INTELLECTUAL PROPERTY rights of others) brought as a consequence of the sale
and/or use of DISPOSABLES sold by BECTON hereunder whether MEDI-JECT, either
jointly or severally, is named as a party defendant in such action.
11. In the event an action is brought against either or both MEDI-JECT and
BECTON alleging infringement of the INTELLECTUAL PROPERTY rights of another by
the sale and/or use of NEEDLELESS INJECTORS for OPEN ARCHITECTURE SYSTEMS,
(***).
12. MEDI-JECT and BECTON shall each warrant to the other that it shall
comply with all documentation and other requirements, rules and regulations of
the Food and Drug Administration ("FDA") necessary to permit production of
NEEDLELESS INJECTORS and DISPOSABLES, respectively, under FDA's Good
Manufacturing Practices, and shall comply with all requirements, rules and
regulations of any other agency or body having regulatory authority over the
manufacture, distribution or sale of OPEN ARCHITECTURE SYSTEMS, and MEDI-JECT
and BECTON shall each further warrant to the other it shall obtain IS 9002
certification for their manufacturing facilities and operations prior to
commercial production of NEEDLELESS INJECTORS or DISPOSABLES, respectively,
hereunder.
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
B-5
<PAGE>
EXHIBIT C
Third Party Agreements
(***)
Ferring (hGH) (MJ-6)
JCR (hGH) (MJ-6)
Gene Medicine (gene therapy) (MJ-6)
BioTechnology General (hGH) (MJ-6)
Schwarz Pharma (PGE\\1\\) (CAS)
(***)
(***)
(***)
- --------------------
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities and Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
C-1
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Medi-Ject Corporation
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/KPMG Peat Marwick LLP
------------------------
Minneapolis, Minnesota
September 24, 1996
