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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For transition period from
__________ to __________
Commission file number 0-20945
MEDI-JECT CORPORATION
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(Exact name of registrant as specified in its charter)
Minnesota 41-1350192
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(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
161 Cheshire Lane, Minneapolis, Minnesota 55441
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 475-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 16, 1999, was approximately $2,150,000 (based upon the
last reported sale price of $1.75 per share on March 16, 1999, on the Nasdaq
Small Cap Market).
Following a one for five reverse stock split effective January 28, 1999, the
number of shares outstanding of the registrant's common stock as of March 16,
1999: 1,424,729
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G, certain responses in Part III are
incorporated herein by reference to information contained in the Company's
definitive Proxy Statement for its 1999 annual meeting to be filed on or before
April 30, 1999.
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Forward Looking Statements:
Certain statements included in this Form 10-K are "forward looking
statements" as defined in the Private Securities Litigation Reform Act of 1995
and are subject to risks and uncertainties. Factors that may affect future
results and performance are set forth in Exhibit 99, "Cautionary Statements",
which was filed with the United States Securities and Exchange Commission as an
exhibit to Form 10-K, December 31, 1996.
PART I
Item 1. BUSINESS
General
Medi-Ject Corporation ("Medi-Ject" or the "Company") 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. Needle-free injection (i) eliminates the
need to pierce oneself 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 oneself 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 that 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, 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 six and one-half 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.
Medi-Ject is a Minnesota corporation, incorporated in February 1979. The
Company's offices are located at 161 Cheshire Lane, Minneapolis, Minnesota
55441; telephone (612) 475-7700.
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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
benefit 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 patches,
controlled release oral delivery methods and inhalation devices. In Western
Europe, pharmaceutical and medical products companies 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 easily
formulated to be 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 recent
studies, 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's marketing efforts are not currently focused on 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 products,
techniques and regulations designed to reduce exposure to contaminated needles.
Syringes with sheathed needles have been developed and hospitals have begun to
increasingly give injections through intravenous tubing to reduce the number of
contaminated needles. In addition during 1998 the state of California banned the
use of exposed needles in hospitals and doctors' offices. 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.
While management believes that needle-free technology has broad market
applicability, management also recognizes certain inherent limitations of
needle-free injection, particularly with regard to dosage volumes above 0.5ml.
These limitations relate to the energy required to penetrate the skin, and
conventional needle-free injectors require unreasonably large energy sources to
manage high volume injections. Nevertheless, parenteral injection of volumes of
1.0ml or more are not uncommon in medical practice today. In order to address
perceived needs in the market segment requiring higher dosage volumes, the
Company has begun to expend resources on the development of needle-based
injection systems. These systems are being designed to incorporate the most
important features of the Company's needle-free systems, namely, no visible
needle and a very rapid injection cycle time. Management
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believes that these features will allow the Company to compete more effectively
in an important segment of the drug delivery industry.
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 and human growth hormone for children with growth
retardation. In the U.S., 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 techniques 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,
impotence, hormone therapy, 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.
PRODUCTS AND TECHNOLOGY
Based in part upon the results of marketing and clinical studies performed
by the Company, it believes that injections using a Medi-Jector system are
perceived as more comfortable than injections using a needle. In addition, the
Company believes injections can be administered more discreetly using a
Medi-Jector.
Current Needle-Free Injection Systems
The Company's current Medi-Jector system, the Medi-Jector Choice, was
introduced in December 1996 and consists of a coil spring mechanism, a dosage
meter, multi-use disposable needle-free syringe and a plastic adapter. This
injector is used by arming the spring mechanism, filling the needle-free syringe
and then setting the pressure level for an optimally effective and comfortable
injection. The coil spring is armed by turning the winding grip portion of the
power pack to compress the coil spring. The unit is then filled by placing a
plastic adapter on a drug vial, turning the winding grip in the opposite
direction to pull the medication into the needle-free syringe 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. The retail price of the Medi-Jector Choice insulin device
(excluding the needle-free syringe) is $399.
Disposable Needle-Free Syringes. The disposable plastic needle-free
syringes used with the Medi-Jector Choice system are labeled for use for up to
14 injections. The total annual cost to the end user of needle-free syringes and
related supplies is approximately $260 per year (based upon an average of two
injections per day). The needle-free syringes used with any of the Medi-Jector
systems do not require special disposal. Once a needle-free syringe is removed
from the device portion of the system, it cannot pierce the skin, consequently
the risk of cross-infection from discarded needle-free syringes is reduced
significantly over the risk associated with needles. Future generation injectors
currently in development are being designed to accept either single or multi-use
syringes.
New Product Research and Development
The Company continues to dedicate much of its financial resources and
personnel toward improving its existing products and developing new products and
technology. The Company believes that its development program offers
pharmaceutical manufacturers a broad and attractive array of delivery choices,
while providing consumers with less expensive and more user friendly injectors.
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MJ-7 Injector. The Company believes the 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 over the years, the Company believes
further reduction in size or improvement in ease of use of systems is needed.
To overcome this obstacle, the Company is developing a novel and
proprietary injector, the MJ7, based upon a new, more efficient modified coil
spring design. Use of the new spring is expected to reduce the energy
requirement by 15-30% with a concomitant reduction in size. The spring is a
modified coil spring rather than a gas spring as originally envisioned, because
of the lower cost and increased reliability of the coil spring design. Added
features include an automatic safety lock, a larger dosage display and
elimination of pressure setting adjustments. The device is quieter and easier to
arm in addition to being smaller in size. The MJ-7 will be introduced initially
for use with insulin and a multi-use disposable syringe. This injector system
and disposable components, both single use and multi-use syringes, have been
developed with technology collaboration and the financial support of Becton
Dickinson and Company ("Becton Dickinson"), and commercialization is planned for
1999. Although the Company is no longer planning to use a gas spring in the
MJ-7, it intends to reevaluate the feasibility of gas spring injectors for other
applications in the future.
MJ-8 Injector. Increasingly, parenteral drugs are being packaged in small
1.0ml to 3.0ml cartridges and administered in smaller volumes. For example, most
European insulin users take four injections of insulin daily of 0.10ml to 0.15ml
each. The Company conducted extensive research studies in 1998, comparing the
effect of fluid volume and syringe nozzle design on energy requirements. The
results of these investigations suggest that by reducing fluid volume and
increasing nozzle efficiency it is feasible to design and manufacture smaller
and easier to use devices. The further reduction in size allows the vial
cartridge to fit within the device, adding further user convenience. Prototypes
of this platform are scheduled to be completed in 1999, although
commercialization is not expected before 2001.
AJ-1 injector. Fluid dynamic studies conducted by the Company in early 1998
documented the benefit of adding a very short, hidden needle, supporting a
hypothesis that breaking the very outer layers of the skin would permit dramatic
energy reduction in its injection systems. Management believes this is a unique
hybrid technology combining features of needle-free (jet) delivery and pre-set
needle autoinjectors. The Company has filed for patent protection on certain
elements of this early work.
Also during 1998, the Company entered into discussions with the Elan
Corporation plc ("Elan"), a drug delivery company based in Ireland, to acquire
certain rights to proprietary technologies that complement the AJ-1 design. In
November 1998, Medi-Ject executed an agreement with Elan in which it purchased
marketing and manufacturing rights to this technology for certain applications.
The purchase involved cash plus a royalty payable to Elan on AJ-1 product sales.
The Company is designing and building prototypes of an AJ -1 injector with
a capacity of 1.0ml. These injectors are to be pre-filled with medication and
discarded after one use. The Company believes this design is attractive for
management of short-term therapies that may require very few injections over
limited time periods. Commercialization is planned for 2001.
The foregoing forward-looking statements regarding the Company's
development plans and schedules are subject to risks and uncertainties,
including the Company's ability to successfully conclude development, to obtain
ongoing funding for these development efforts, the perceived benefits of these
products as development continues, including market demand, and the development
of competing technologies, by the Company or others.
The Company has expended approximately $2,585,000, $2,413,000 and
$3,517,000 on research and development efforts during fiscal years 1996, 1997
and 1998, respectively. Of these amounts, approximately $1,854,000, $2,030,000
and $527,000 respectively, were funded by third-party sponsored development
programs and licensing fees.
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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 U.S., Japan and certain European countries for the administration of
insulin and human growth hormone.
Insulin
Approximately 3.2 million people in the U.S. (estimated to be 40% of the
worldwide market) take insulin daily for the control of high blood sugar
observed in individuals with diabetes, according to the National Institutes of
Health. In the U.S., most individuals take two injections daily, often combining
short acting insulin and long acting insulin. In the U.S., the vast majority of
insulin users use disposable plastic syringes and needles, while in Western
Europe and Japan, the majority use pen-like injectors that hold small vial
cartridges of insulin and use small needles. The management of diabetes has been
found to be benefited by a more disciplined approach to glucose management,
including, among other things, more frequent injections. Such regimens are
referred to as "tight control" and 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. 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, the cost and complexity of
earlier injectors was not a significant barrier 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. The Company believes that as it continues to make
improvements in its technology, that its injection systems will be more
attractive to users in this market segment. Norway is an example where current
devices have achieved favorable market penetration, assisted by government
reimbursement for the Company's injector system.
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 1997 study in Germany found that 36% of children on human
growth hormone therapy did not fully comply with the therapy using needle
injections. In addition, a 1998 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 U.S. suffering from impotence at
over 15 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. Despite the recent introduction of an oral impotence therapy,
penile injection remains an important therapy for men because oral therapy is
ineffective for a significant portion of men with advanced stages of this
disease. The first drug approved for injection in the U.S. was the generic drug
prostaglandin E1. 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, one company has introduced an intra-urethereal
prostaglandin E1 applicator. The Company believes that its needle-free injection
technology may provide yet an additional attractive alternative to needles.
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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, hormone therapy, osteoporosis, biopharmaceuticals
used for the treatment of AIDS and other hematological disorders.
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 a hospital.
COLLABORATIVE AGREEMENTS
The Company's business development efforts are focused on entering into
collaborative agreements with pharmaceutical companies. The table below
summarizes the Company's current agreements.
<TABLE>
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Company Market
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Ferring NV.............................. Growth Hormone
(Europe and all territories of former U.S.S.R.)
JCR Pharmaceuticals Co., Ltd............ Growth Hormone
(Japan)
Sci-Tech Genetics, Ltd.................. Growth Hormone
(India, China and certain countries in South East Asia)
Bio-Technology General Corporation (1).. Growth Hormone
(United States)
Organon, a division of Akzo/Nobel....... Undisclosed
Teva Pharmaceutical Industries, Ltd..... Copaxone(R)
(Multiple Sclerosis)
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(1) Bio-Technology General Corporation is currently barred by a court
injunction from introducing their growth hormone in the U.S. and therefore
marketing of the Company's products in the U.S. for use with human growth
hormone will not occur until this matter is resolved.
OTHER RELATIONSHIPS
Becton Dickinson
In January 1996, the Company entered into a strategic alliance with Becton
Dickinson that included an exclusive Development and Licensing Agreement, an
equity purchase and a seat on the Board of Directors. The agreement provided
Becton Dickinson with exclusive rights to market the MJ-7 insulin injector and
subsequent generations of injectors developed as a result of collaborative
development. In addition, Becton Dickinson held the right to manufacture the
disposable components of injector systems. In turn, Becton Dickinson contributed
funding and other resources, including dedicated engineering skills, to the
development program. Subsequent to year-end, both parties reached the conclusion
that the MJ-7 product and its disposable components would not fulfill the
marketing or manufacturing requirements of Becton Dickinson. Therefore, the
Development and Licensing Agreement of 1996 was terminated in February 1999 and
replaced with a new agreement. Under the terms of the new agreement, the Company
is free to market the MJ-7 insulin injector and manufacture disposables in
exchange for a small royalty on sales. Becton Dickinson retains an option that
allows it, for a limited time, to negotiate for marketing rights for the MJ-8
injector and a similar option to negotiate for the right to manufacture
disposables under certain conditions.
Schering-Plough
In early 1998, the Company entered into a contract with Schering-Plough
Corporation to supply MJ-7 injectors for persons taking alpha interferon for the
treatment of hepatitis. By September 1998, Schering-Plough decided to cancel the
order and terminate the project. In March 1999, the Company and Schering-Plough
agreed to a financial
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settlement in which Schering-Plough will pay the Company an undisclosed sum in
exchange for cancellation of the purchase order and as reimbursement of certain
non-cancelable manufacturing costs.
Other
Prior to 1998, the Company had received research funding from SmithKline
Beecham to investigate the possible application of the Company's technology for
certain pharmaceutical compounds. The Company also entered another research
relationship with a second, undisclosed party with interests in the area of male
erectile dysfunction. Both of these relationships have ended, although the
Company continues to self-fund research in the field of male erectile
dysfunction.
PATENTS
The Company, when appropriate, actively seeks protection for its products
and proprietary information by means of United States and foreign patents and
trademarks. The Company currently holds eight patents in the U.S., one in Japan,
four in Taiwan and one in Canada. The Company also has 26 other patent
applications being considered in various countries throughout the world.
Some of the Company's technology is 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 technologies and maintains
certain obligations to make milestone and royalty payments to the inventors.
MANUFACTURING
The Company operates a manufacturing facility in compliance with current
Quality System Regulations ("QSR") established by the Food and Drug
Administration ("FDA") and by the centralized European regulatory authority (ISO
9001 and EN 46,001). 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. The Company
anticipates a need to invest in automated assembly equipment as volume increases
in the future.
MARKETING
The Company's basic marketing strategy is to leverage off of the 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.
With respect to current selling efforts, the Company's relationship with
Ferring, NV best reflects this basic strategy. Ferring is selling human growth
hormone throughout Europe with a marketing campaign tied to the Medi-Ject
needle-free delivery system. Ferring has been successful in establishing a user
base of more that 1,000 children for its drug using the Medi-Jector system,
which represents approximately 10% of the targeted markets.
The Company's direct sales effort in the domestic insulin market typically
requires that individuals with diabetes call the Company directly for
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.
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A modest national advertising program in lay journals generates inquiries.
Training is supported by a video and manual accompanying each product. The
Company employs one nurse to provide training and support for customers through
this channel. The customer service "800" number is prominently displayed on each
injector. The Company also sells Medi-Jector systems for insulin use to various
distributors outside the U.S. In February 1999, the Company established an
E-commerce distribution channel that allows its customers to purchase its
products directly through the Internet.
In the domestic insulin market, the Company has sold its systems for
insulin using a combination of direct to consumer marketing and a network of
pharmacies and distributors. Until approximately the beginning of the fourth
quarter of 1997, the Company had been increasing its reliance on pharmacies and
distributors in the domestic insulin market. At that time, management assessed
its efforts and results to date with respect to its increased efforts in the
domestic insulin market and determined that the most appropriate approach in the
near term was to focus on selling direct to consumers. This approach reflects
management's assessment that the amount of spending required to produce
meaningful results with a distribution based approach is beyond the Company's
current resources. Management believes that efforts to significantly expand
sales in domestic insulin should be deferred until it can arrange an appropriate
marketing alliance with a diabetes products company.
The most common retail price of an injector (which can be used over a
period of several years) is approximately $400, and disposable components for
the system cost approximately $260 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.
The Company has made recent progress in the European insulin market. In
Norway, where reimbursement for injector systems has been available since 1997,
sales on a per capita basis significantly exceed the U.S. The Company extended
its European insulin marketing efforts in 1998 and signed an insulin injector
distribution agreement with the Swedish MediSense division of Abbott
Laboratories in February 1999.
COMPETITION
Competition in the parenteral 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. Nevertheless, 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 currently sell coil spring injectors to the U.S. insulin
market. These two companies have not actively promoted their products over the
past year, and the Company believes that it retains the largest market share.
Another company, Bioject, Inc., has sold a CO2 powered injector since 1993.
The injector is designed for and used almost exclusively for vaccinations in
doctors' offices or public clinics. Powderject Pharmaceuticals, Plc, a British
research company, is developing a needle-free injection system, as is Weston
Medical Ltd, another U.K. based company. Both Powderject and Weston Medical
compete actively and successfully for licensing agreements with pharmaceutical
manufacturers.
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.
9
<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 Federal Food Drug and Cosmetic Act (the
"FDC 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 FDC 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") or a Product
License Application ("PLA"). To the extent permitted under the FDC 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 the treatment of erectile dysfunction, under the medical
device provisions, rather than under the new drug provisions, of the FDC Act.
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 from the FDC Act and regulations thereunder. There are
two methods for obtaining such clearance or approvals. Certain products qualify
for a pre-market notification under Section 510(k) of the FDC 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 pre-market approval ("PMA")
application under Section 515 of the FDC 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 pre-filing testing and a longer
FDA review process. The Company believes that its Medi-Jector systems, when
indicated for use with drugs or biologicals approved by the agency, will be
regulated as medical devices and are eligible for clearance through the 510(k)
notification process. There can be no assurance however 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 FDC Act, substantially greater
regulatory requirements and approval times will be imposed. Use of a modified
new product with a previously unapproved new drug likely will 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
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.
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<PAGE>
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 manufacturing 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 FDC Act are more
onerous 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 previous versions of its products, the Medi-Jector EZ system
in February 1987, the Medi-Jector V system in October 1988, the Medi-Jector
system to administer Bio-Technology General's human growth hormone in April
1996, and the Medi-Jector Choice system in October 1996.
The Company expects in the future to submit 510(k) notifications with
regard to further device design improvements and uses with additional drug
therapies.
The FDC Act also regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate compliance with the current Quality System Regulation ("QSR"). 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
violate the QSR, the manufacturer must correct those conditions or explain them
satisfactorily. Failure to adhere to QSR 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 also 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.
Sales of medical devices outside of the U.S. are subject to foreign legal
and regulatory requirements. The Company's injection 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. Generally, 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 has obtained ISO 9001/EN 46001 certification of its quality
systems. This certification shows 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, 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.
11
<PAGE>
EMPLOYEES
As of December 31, 1998, the Company employed 37 full-time employees. 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. Management
evaluates its insurance requirements on an ongoing basis.
Item 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 23,000 square feet of office,
manufacturing and warehouse space in Plymouth, a suburb of Minneapolis,
Minnesota. The lease will terminate in April 2002. The Company believes its
facility will be sufficient to meet its requirements through such time.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders during the quarter
ended December 31, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
---- --- --------
Franklin Pass, M.D. 62 President, Chief Executive Officer and
Chairman of the Board of Directors
Peter Sadowski, Ph.D. 51 Executive Vice President, Chief
Technology Officer
Mark S. Derus 43 Executive Vice President, Finance, Chief
Financial Officer and Secretary
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 Verdant Brands Inc., a
manufacturer of lawn and garden care products.
Peter Sadowski, Ph.D., joined the Company in March 1994 as Vice President,
Product Development. In October 1998, Dr. Sadowski was promoted to the position
of Executive Vice President and Chief Technical Officer. From October 1992 to
February 1994, Dr. Sadowski served as Manager, Product Development for GalaGen,
Inc., a
12
<PAGE>
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.
Mark Derus joined the Company in December 1993 as Vice President, Finance,
Chief Financial Officer and Secretary. In October 1998, Mr. Derus was promoted
to the position of Executive Vice President and Chief Financial Officer. Mr.
Derus initially 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. Mr. Derus will resign from his
position at the Company effective April 2, 1999, in order to pursue other
opportunities.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Stock has traded on the Nasdaq Small Cap Market of the
Nasdaq Stock Market since March 8, 1999. Prior thereto, the Common Stock traded
on the Nasdaq National Market of the Nasdaq Stock Market. The common stock is
traded under the symbol MEDJ. The following table sets forth the per share high
and low sales prices of the Company's Common Stock for each quarterly period
during the two most recent fiscal years. Sales prices are as reported by the
Nasdaq Stock Market. All figures have been adjusted for a one-for-five reverse
split effective January 28, 1999.
High Low
1997:
First Quarter $31 7/8 $17 1/2
Second Quarter $23 3/4 $14 11/16
Third Quarter $19 1/16 $10
Fourth Quarter $19 3/8 $9 3/8
1998:
First Quarter $14 3/8 $7 1/2
Second Quarter $12 1/2 $6 1/2
Third Quarter $9 11/16 $5 5/8
Fourth Quarter $5 5/8 $ 1 9/16
HOLDERS
As of March 16, 1999, there were 147 holders of record of the Company's
common stock, with another estimated 2,225 shareholders whose stock is held by
nominees or broker dealers.
DIVIDENDS
The Company has not paid or declared any cash dividends on its common stock
during the past five years. The Company has no intention of paying cash
dividends in the foreseeable future on common stock. The Company will be paying
semi-annual dividends on Series A Convertible Preferred Stock at a rate of 10%,
payable on May 10 and November 10 each year.
CHANGES IN SECURITIES
Use of proceeds from public offering
The Company's initial Registration Statement on Form S-1, file no.
333-6661, was declared effective by the Securities and Exchange Commission on
October 10, 1996. The offering of the Company's Common Stock covered by such
Registration Statement commenced on October 2, 1996. Rodman & Renshaw and R.J.
Steichen &
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<PAGE>
Company acted as the managing underwriters ("the Representatives") for the
offering. A total of 550,000 shares of Common Stock, including 66,000 shares
subject to the Representatives over-allotment option and 44,000 shares subject
to the warrants issued to the Representatives were registered. In addition,
warrants to purchase 44,000 shares of Common Stock issued to the Representatives
were also registered. The aggregate offering price of the registered Common
Stock and warrants was $15,367,220. Of this amount, $12,100,000 representing
440,000 shares of Common Stock and warrants to purchase 44,000 shares of Common
Stock have been sold. The underwriter's over-allotment option has expired and
these shares were not sold. The Representative's warrant has not yet been
exercised and consequently the offering has not yet terminated.
The amount of expenses incurred for the Company's account in connection
with the issuance and distribution of the securities registered are as follows:
Underwriting discounts and commissions......... $ 907,500
Finder's fees.................................. 0
Expenses paid to or for the underwriters....... 12,786
Other expenses................................. 549,833
-------------
Total expenses....................... $ 1,470,119
=============
All such expenses were paid directly or indirectly to others.
The net offering proceeds to the Company after deducting expenses were
$10,629,881. All of the net proceeds have been used by the Company. The amount
of net offering proceeds to the Company used for the following purposes is as
follows:
Purchase and installation of machinery and equipment.... $ 1,573,972
Repayment of indebtedness............................... 184,669
Working capital......................................... 740,069
Other : -market development expenses.......... 2,527,335
-product development expenses......... 5,603,836
-------------
$ 10,629,881
All such payments were made directly or indirectly to others.
The use of proceeds contained herein does not represent a material change
in the use of proceeds described in the prospectus.
SALES OF UNREGISTERED SECURITIES
On November 10, 1998 the Company sold 1,000 shares of Series A Preferred
Stock (the "Series A") and warrants to purchase 56,000 shares of common stock to
Elan International Services, Ltd., for total consideration of $1,000,000. The
Series A carries a 10% dividend which is payable semi-annually. The Series A is
redeemable at the Company's option at anytime and is convertible into common
stock for sixty days following the 10th anniversary of the date of issuance at
the lower of $7.50 per share or 95% of the market price of the Common Stock.
Under certain limited circumstances where certain conditions fail to be met, the
Series A may be converted at the election of the Company within 30 days of the
second anniversary of the date of issuance at the market price of the common
stock at such time. The warrants to purchase common stock may be exercised at
anytime prior to November 10, 2005, at a price of $15.00 per share. The proceeds
from the sale of these securities were used primarily to fund the purchase of
certain technology from Elan Corporation. There was no underwriter involved and
no fees were paid to any other parties in connection with this transaction.
These securities were exempt from registration because they were issued to a
single accredited investor in a private placement pursuant to Section 4(2) of
the Securities Act of 1933.
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<PAGE>
Item 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales.................................... $ 1,518 $ 1,654 $ 1,838 $ 1,687 $ 2,224
Licensing and product development............. 470 921 1,854 2,030 527
------- -------- ------- ------- --------
Revenues............................... 1,988 2,575 3,692 3,717 2,751
------- -------- ------- ------ --------
Cost of sales............................ 631 1,049 1,136 1,221 1,852
Research and development................. 401 1,195 2,585 2,413 3,517
General and administrative.................... 1,118 1,237 1,397 1,983 2,427
Sales and marketing........................... 878 887 1,019 1,540 1,001
------- -------- ------- ------ --------
Operating expenses..................... 3,028 4,368 6,137 7,157 8,797
------- -------- ------- ------ --------
Net operating loss....................... (1,040) (1,793) (2,445) (3,440) (6,046)
Net other income (expense)............... (26) (89) 207 468 276
------- -------- ------- ------ --------
Net loss................................. $(1,066) $ (1,882) $(2,238) $(2,972) $ (5,770)
======= ======== ======= ======= ========
Net loss per common share (1), (2), (3) ...... $(26.98) $ (43.03) $ (4.22) $ (2.12) $ (4.07)
======= ======== ========= ======= ========
Weighted average number of
common shares (3) ............................ 40 44 530 1,402 1,421
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................ $ 646 $ 36 $ 11,039 $ 7,283 $ 2,852
Working capital (deficit)................ 108 (650) 11,187 7,804 3,068
Total assets............................. 1,361 1,240 12,956 10,047 5,334
Long-term liabilities, less
current maturities....................... 299 136 8 2
Accumulated deficit...................... (7,419) (9,302) (11,540) (14,512) (20,296)
Total shareholders' equity (deficit)..... $ 252 $ (74) $ 12,120 $ 9,337 $ 4,630
</TABLE>
(1) Basic and diluted loss per share amounts are identical as the effect of
potential common shares is anti-dilutive.
(2) The Company has not paid any dividends on its common stock since inception.
In November 1998, the Company issued a new Series A Convertible Preferred
Stock which requires the payment of dividends. 1998 loss per common share
has been adjusted to reflect the accrual of these dividends.
(3) All share and per share figures have been retroactively adjusted for a
one-for-five reverse stock split effective January 28, 1999.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 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. Development efforts have resulted in a new generation of the
Medi-Jector system, the Medi-Jector Choice system, introduced in December 1996,
which incorporates molded plastic components rather than tooled steel components
and a disposable needle-free syringe. Current development efforts are primarily
oriented toward completion of the smaller coil spring system, improved injection
quality and continued size reduction.
15
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1998
Revenues decreased from approximately $3,717,000 in 1997 to approximately
$2,751,000 in 1998, a decrease of approximately 26%. This decrease was primarily
due to a decrease in licensing and development fee income of approximately
$1,503,000 or 74% offset in part by an increase in product sales of
approximately $537,000 or 32%. Product sales include sales of injectors, related
parts and disposable components, repairs and freight. The total number of
devices sold increased from 3,391 in 1997 to 4,178 in 1998, an increase of 23%,
and revenue from the sale of disposable parts increased 63%.
Licensing and development fee income decreased primarily due to completion
in December 1997 of a two year product development funding contract with Becton
Dickinson Company. The Company expects that licensing and development fee income
will continue 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.
The product sales increase is due primarily to the increased sales in the
human growth hormone market. The increase was offset in part by lower sales in
the domestic insulin market following a reduction in sales efforts in this area.
The increase in disposable parts revenue is primarily due to the increase in
device sales in the human growth hormone market.
Cost of sales increased from approximately $1,221,000 in 1997 to
approximately $1,852,000 in 1998, an increase of approximately 52%. This
increase relates primarily to an increase in the amount of product sold in 1998
along with higher overall manufacturing overhead. Manufacturing overhead
increased primarily due to increased scrap, depreciation and compensation
expense. A majority of the approximately $100,000 increase in scrap expense
relates to the discontinuance of an older product line and the cost to relieve
inventory of certain parts. The depreciation expense increase is primarily due
to the introduction of certain new product tooling. Compensation expense
increased due to scale up efforts in anticipation of a large order from Schering
Plough that did not materialize.
Research and development expenses increased from approximately $2,413,000
in 1997 to approximately $3,517,000 in 1998, an increase of approximately 46%.
This increase is mainly due to the purchase of proprietary needle based
injection technology from Elan Corporation, plc.
General and administrative expenses increased from approximately
$1,983,000 in 1997 to approximately $2,427,000 in 1998, an increase of
approximately $444,000 or 22%. This increase was primarily driven by three
factors. The first is an increase of $173,000 related to on-going quality
assurance efforts and non-recurring expenses incurred in the ISO certification
process completed in June 1998. The second factor is an increase of $157,000 in
depreciation and patent amortization expense. This increase relates primarily to
a patent amortization charge in the fourth quarter following the suspension of
development activities relating to the gas spring power source project.
Activities on this project have been temporarily suspended after new coil spring
alternatives became available which appear to meet product needs. Management
believes the gas spring has certain features which may be valuable in future
generation injection systems and therefore will continue to monitor the
recoverability of the remaining patent asset on an ongoing basis. A third major
factor contributing to the increase in general and administrative expenses for
the period is an expense of $75,000 relating to the Company's repurchase of
certain distributor rights in the human growth hormone market from one of its
distributors. The repurchase of these rights has allowed the Company to sign a
new agreement that is expected to generate fee income and product sales in the
future.
Sales and marketing expenses decreased from approximately $1,540,000 in
1997 to approximately $1,001,000 in 1998, a decrease of approximately 35%.
Reduced expenses in the sales and marketing program reflect the Company's
planned reduction in sales efforts in the U.S. insulin market. This reduction
was initiated in late 1997
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<PAGE>
and is consistent with the Company's long term strategy of selling its products
through pharmaceutical companies with a focus on higher priced pharmaceuticals.
Interest and other income decreased from approximately $505,000 in 1997 to
approximately $292,000 in 1998, a decrease of approximately $213,000. This
decrease is attributable to reduced interest earnings on lower average cash
reserves during 1998.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1997
Revenues increased from approximately $3,692,000 in 1996 to approximately
$3,717,000 in 1997, an increase of approximately 1%. This increase was primarily
due to an increase of approximately $176,000 or 10% in development and licensing
fee income, offset by a decrease in product sales of approximately $151,000 or
8%. Product sales include sales of injectors, related parts and disposable
components, repairs and freight. The total number of devices sold was nearly
unchanged at 3,338 and 3,391 in 1996 and 1997, respectively. Total revenue from
injector sales decreased however due to a decline in the average selling price
per injector from $385 in 1996 to $294 in 1997, consistent with the Company's
general strategy as discussed above. Approximately half of the decrease in
revenue from injector sales was offset by increased sales of related supplies,
including disposable components for the Medi-Jector Choice system.
Licensing and development fee income increased as a result of three new
agreements signed with pharmaceutical firms interested in obtaining marketing
rights for injection systems under development.
In September 1997, the Company announced that its customers were
occasionally experiencing certain problems when using the Medi-Jector Choice
system. These problems pertained to the unexpected breakage of the disposable
needle-free syringe portion of the system and the fit of the disposable vial
adapter onto the syringe. As a result, management initiated a product recall and
replacement campaign for the affected disposable components. Management
conducted the recall campaign under the guidance of the FDA. These problems
interrupted production and also caused certain sales delays during the fourth
quarter while a correction to the problem was developed.
Cost of sales increased from approximately $1,136,000 in 1996 to
approximately $1,221,000 in 1997, an increase of 7%. The increase was primarily
due to higher manufacturing expenses during a period of flat unit volume. The
principal factors contributing to the increase in manufacturing expenses were
outside engineering consulting services, depreciation, rent and personnel.
Product problems relating to the disposable needle-free syringe of the
Medi-Jector Choice (discussed above) also increased manufacturing expense. These
expenses related primarily to scrap, engineering consulting fees and interrupted
production during the fourth quarter of 1997.
Research and development expenses decreased from approximately $2,585,000
in 1996 to approximately $2,413,000 in 1997, a decrease of less than 7%. This
decrease occurred as the Company completed an important transition in its
product research and development program. Prior to 1997, this program was
largely based on the efforts of a few outside engineering firms which handled a
majority of the engineering and development work. During 1997, the Company
purchased certain equipment and hired eight additional engineers and technicians
who are dedicated entirely to design and development of improved needle-free
injection and drug delivery systems. The transition to an internal research and
development program has resulted in an overall increase in the number of person
hours dedicated to such efforts while reducing the associated expense.
General and administrative expenses increased from approximately
$1,397,000 in 1996 to approximately $1,983,000 in 1997, an increase of
approximately $586,000 or 42%. Management estimates that approximately one half
of this increase relates to costs associated with being a publicly traded
company for all of 1997 compared to just three months of 1996. These increased
expenses relate to investor relations efforts, stock transfer and NASDAQ fees,
D&O liability insurance and legal expense. Depreciation and amortization expense
also increased by approximately $106,000 as a result of higher equipment
balances and the start of amortization of capitalized intellectual property
following the issuance of a major patent in early 1997.
Sales and marketing expenses increased from approximately $1,019,000 in
1996 to approximately $1,540,000 in 1997, an increase of approximately of 51%.
This increase is primarily attributable to expenses associated with a
17
<PAGE>
significant sales program directed at the domestic insulin market initiated in
early 1997. In October 1997 the Company announced that it was terminating this
program due to poor results. During the fourth quarter, expenses associated with
this program were reduced by approximately $500,000 on an annual basis.
Management believes that this revised level of spending is appropriate relative
to the current opportunities in the domestic insulin market.
Interest and other income increased from approximately $239,000 in 1996 to
approximately $505,000 in 1997, an increase of approximately $266,000. This
increase is attributable to increased interest earnings on higher average cash
reserves on hand during 1997, following the Company's initial public offering in
October 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short term investments decreased
from approximately $7,283,000 on December 31, 1997 to $2,852,000 at December 31,
1998. The decrease is primarily due to a net loss of approximately $5,769,000
and fixed asset purchases of approximately $516,000 offset in part by a sale of
preferred stock to Elan Corporation, plc, non-cash depreciation and amortization
expenses, and by a lower accounts receivable balance at the end of 1998.
During the year ended December 31, 1998, cash used to fund operating
activities was approximately $5,012,000. The major components of this amount
included a net loss of approximately $5,769,000 and an increase of approximately
$195,000 in inventories, offset by depreciation and amortization totaling
approximately $597,000, an increase in deferred revenue of $216,000 and a
decrease in receivables of approximately $485,000. Net cash received from
investing activities totaled approximately $3,080,000 principally due to net
proceeds from sales of marketable securities totaling approximately $3,714,000.
This amount was offset in part by additions to fixed assets of approximately
$516,000, and an additional investment in patent rights totaling approximately
$120,000. Net cash provided by financing activities totaled approximately
$1,039,000, resulting primarily from the issuance of convertible preferred stock
for $1,000,000.
The Company expects that it will report a net loss for the year ending
December 31, 1999 as it continues to incur marketing and development costs
related to bringing future generations of its products to market. 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 the receipt of revenues from
sales of the Company's products. In October 1998, the Company took certain
actions to reduce its operating expenses. These actions included involuntary
staff reductions, personnel reductions through attrition and the termination of
certain consultant relationships. In March 1999, the Company reached an
agreement with Schering-Plough Corporation to settle mutual obligations of the
parties under a contract dated January 20,1998. Schering-Plough agreed to pay
the Company an undisclosed sum in exchange for cancellation of a product
purchase order and as reimbursement for certain non-cancelable manufacturing
expenses. The Company believes that the capital available to the Company at
December 31, 1998, plus the expected revenue from product sales and from various
development and licensing agreements, including the settlement with
Schering-Plough, will provide sufficient cash to fund expected losses and meet
other cash usage needs through December 1999. In order to meet its capital needs
beyond this period, the Company may be required to raise additional capital
through public or private debt or equity offerings. The Company can provide no
assurance, however, that cash available will be sufficient to meet the Company's
needs during the next twelve months or beyond, that the Company will ever become
profitable or that the Company will be able to raise additional capital when and
if needed, on terms acceptable to the Company, or at all.
IMPACT OF THE YEAR 2000
The Company is addressing the issue associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The "Year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way. The Company is aware of the computing difficulties
that the millenium issue presents for the Year 2000.
The Company has formed a team to address the information technology (IT)
systems used for internal purposes at the Company and to also address the non-IT
systems. Software has been purchased to expedite the process of determining
which systems are out of compliance and the Company intends to have all systems
analyzed,
18
<PAGE>
reprogrammed and tested by June 30, 1999. The non-IT systems generally require
third-party assurances as to compliance with Year 2000. To date, confirmations
have been received from virtually all of the Company's vendors indicating that
plans are being developed to address processing of transactions in the Year
2000. There can be no assurance that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in its internal operating systems,
which are composed predominantly of third party software and hardware
technology, or by the inability of vendors to correct their Year 2000 issues.
The majority of the Company's current standard product lines and manufacturing
equipment are not date sensitive and therefore are not affected by the Year 2000
issues.
The Company incurred approximately $5,000 of expense to address the Year
2000 problem during fiscal 1998 and expects to incur total expenses of
approximately $20,000 in relation to this problem. The Company is in the process
of establishing a contingency plan if the Company's IT and non-IT systems are
not Year 2000 compliant. It is anticipated that the contingency plan and all
related Year 2000 compliance initiatives will be completed by June 30, 1999.
STOCK OPTION REPRICING
On July 21, 1998, the Board of Directors approved the repricing of all
outstanding options held by employees, other than the Chief Executive Officer of
the Company, which had an exercise price greater than $7.20 per share. This
repricing action reduced the exercise price to $7.20 per share for stock option
agreements representing approximately 100,000 shares which had exercise prices
ranging from $7.80 to $25.00. Following the repricing, all other terms and
conditions of these option agreements were unchanged, including the vesting
schedules.
On December 8, 1998, the Board of Directors approved the repricing of one
stock option agreement held by the Chief Executive Officer of the Company, which
had an exercise price of $26.90 per share. This option agreement totals 80,000
shares and its exercise price was reduced to $7.20 per share. Following the
repricing, all other terms and conditions of this option agreement were
unchanged, including its vesting schedule.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for the Company in 1999. The Company is
currently evaluating SFAS No. 133, but does not expect that it will have a
material effect on its financial statements.
Item 7(a). MARKET RISK ASSESSMENT
Under Items 305(b) and 9A of Regulation S-K, the Company believes that it
has no material exposure to market risks. All foreign sales are denominated and
transacted in U.S. dollars, the Company's excess cash is invested in a highly
liquid money market fund which primarily invests in short term securities and
its outstanding shares of convertible preferred have a fixed coupon rate.
19
<PAGE>
Item 8. FINANCIAL STATEMENTS.
MEDI-JECT CORPORATION
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................................21
Balance Sheets as of December 31, 1997 and 1998..............................22
Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998........................................23
Statements of Shareholders' Equity for the Years Ended December 31, 1996,
1997 and 1998...........................................................24
Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998........................................25
Notes to Financial Statements................................................26
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Medi-Ject Corporation:
We have audited the accompanying balance sheets of Medi-Ject Corporation
(the Company) as of December 31, 1997 and 1998, and the related statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998. 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, 1997 and 1998, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 26, 1999 except as to Note12(c), which is as of March 26, 1999
21
<PAGE>
MEDI-JECT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ......................................... $ 3,745,851 $ 2,852,285
Marketable securities ............................................. 3,537,483 --
Accounts receivable, less allowances for doubtful accounts of
$22,284 and $25,000, respectively ............................... 760,948 275,694
Inventories ....................................................... 397,072 592,185
Prepaid expenses and other assets ................................. 71,495 52,006
------------ ------------
8,512,849 3,772,170
------------ ------------
Equipment, furniture and fixtures, net ................................. 1,165,213 1,278,456
------------ ------------
Patent rights, net ..................................................... 369,406 283,805
------------ ------------
$ 10,047,468 $ 5,334,431
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 321,758 $ 250,512
Accrued expenses and other liabilities ............................ 379,776 236,191
Deferred revenue .................................................. -- 216,000
Capital lease obligations - current maturities .................... 7,083 1,721
------------ ------------
708,617 704,424
------------ ------------
Capital leases, less current maturities ................................ 1,721 --
Shareholders' equity:
Series A Convertible Preferred Stock: $0.01 par; authorized
10,000 shares; 1,000 issued and outstanding at
December 31, 1998, aggregate liquidation preference of $1 million -- 10
Common Stock: $0.01 par; authorized 3,400,000 shares;
1,414,318 and 1,424,752 issued and outstanding at
December 31, 1997 and 1998, respectively ........................ 14,143 14,247
Additional paid-in capital ........................................ 23,835,221 24,911,694
Accumulated deficit ............................................... (14,512,234) (20,295,944)
------------ ------------
9,337,130 4,630,007
------------ ------------
Commitments (Note 4)
$ 10,047,468 $ 5,334,431
============ ============
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales .................................... $ 1,837,704 $ 1,686,588 $ 2,223,504
Licensing & product development .......... 1,854,100 2,030,435 527,364
----------- ----------- -----------
3,691,804 3,717,023 2,750,868
----------- ----------- -----------
Operating Expenses:
Cost of sales ............................ 1,136,272 1,221,051 1,852,026
Research and development ................. 2,584,806 2,413,366 3,516,856
General and administrative ............... 1,397,338 1,983,024 2,426,639
Sales and marketing ...................... 1,019,077 1,539,504 1,001,178
----------- ----------- -----------
6,137,493 7,156,945 8,796,699
----------- ----------- -----------
Net operating loss ............................. (2,445,689) (3,439,922) (6,045,831)
----------- ----------- -----------
Other income (expense):
Interest and other income ................ 239,055 505,295 291,521
Interest and other expense ............... (31,934) (37,140) (15,154)
----------- ----------- -----------
207,121 468,155 276,367
----------- ----------- -----------
Net loss ....................................... (2,238,568) (2,971,767) (5,769,464)
Preferred stock dividends ...................... -- -- (14,246)
----------- ----------- -----------
Net loss applicable to common shares ........... $(2,238,568) $(2,971,767) $(5,783,710)
=========== =========== ===========
Basic and diluted net loss per common share .... $ (4.22) $ (2.12) $ (4.07)
=========== =========== ===========
Basic and diluted weighted average common shares
outstanding .............................. 529,936 1,402,140 1,421,066
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Preferred Stock
---------------------------------------------------------------------------------
Series C Series B Series A
----------------------------------- -------------------------- ------------
Shares Amount Shares Amount Shares Amount
-------- --------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 .................. -- -- 2,090,633 20,906 1,103,867 11,039
Conversion of Series A to common stock ... -- -- -- -- (1,103,867) (11,039)
Conversion of note payable ............... -- -- -- -- -- --
Shares issued for reverse stock split .... -- -- 43 -- -- --
Series B:
Exercise of stock options and conversion
of note payable ........................ -- -- 380,808 3,808 -- --
Series C:
Shares issued for cash ................. 761,615 7,616 -- -- -- --
Offering costs ......................... -- -- -- -- -- --
Series E:
Warrant issued for cash ................ -- -- -- -- -- --
Common stock:
Issued common stock pursuant to the
company's initial public offering ..... -- -- -- -- -- --
Offering costs ......................... -- -- -- -- -- --
Conversion of Series C to common stock ... (761,615) (7,616) -- -- -- --
Conversion of Series B to common stock ... -- -- (2,471,484) (24,714) -- --
Issuance of Series B anti-dilution shares -- -- -- -- -- --
Net loss ................................. -- -- -- -- -- --
-------- --------- ------------ ------------ ------------ ------------
Balance, December 31, 1996 .................. -- -- -- -- -- --
Exercise of stock options and warrants .. -- -- -- -- -- --
Compensation expense, stock options ...... -- -- -- -- -- --
Net loss ................................. -- -- -- -- -- --
-------- --------- ------------ ------------ ------------ ------------
Balance, December 31, 1997 .................. -- -- -- -- -- --
Issuance of Series A preferred stock ..... -- -- -- -- 1,000 10
Dividends payable on preferred stock ..... -- -- -- -- -- --
Financing cost ........................... -- -- -- -- -- --
Exercise of stock options and warrants ... -- -- -- -- -- --
Compensation expense, stock options ...... -- -- -- -- -- --
Net loss ............................... -- -- -- -- -- --
-------- --------- ------------ ------------ ------------ ------------
Balance, December 31, 1998 .................. -- $ -- -- $ -- 1,000 $ 10
======== ========= ============ ============ ============ ============
Common stock Additional
--------------------------- paid-in Accumulated
Shares Amount capital deficit Total
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 .................. 43,773 438 9,195,351 (9,301,899) (74,165)
Conversion of Series A to common stock ... 220,773 2,208 8,831 -- --
Conversion of note payable ............... 6,093 61 99,939 -- 100,000
Shares issued for reverse stock split .... 118 1 (1) -- --
Series B:
Exercise of stock options and conversion
of note payable ........................ -- -- 809,822 -- 813,630
Series C:
Shares issued for cash ................. -- -- 2,992,384 -- 3,000,000
Offering costs ......................... -- -- (236,022) -- (236,022)
Series E:
Warrant issued for cash ................ -- -- 125,000 -- 125,000
Common stock:
Issued common stock pursuant to the
company's initial public offering ..... 440,000 4,400 12,095,600 -- 12,100,000
Offering costs ......................... -- -- (1,470,199) -- (1,470,199)
Conversion of Series C to common stock ... 152,323 1,523 6,093 -- --
Conversion of Series B to common stock ... 494,297 4,943 19,771 -- --
Issuance of Series B anti-dilution shares 27,750 277 (277) -- --
Net loss ................................. -- -- -- (2,238,568) (2,238,568)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 .................. 1,385,127 13,851 23,646,292 (11,540,467) 12,119,676
Exercise of stock options and warrants .. 29,191 292 183,934 -- 184,226
Compensation expense, stock options ...... -- -- 4,995 -- 4,995
Net loss ................................. -- -- -- (2,971,767) (2,971,767)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 .................. 1,414,318 14,143 23,835,221 (14,512,234) 9,337,130
Issuance of Series A preferred stock ..... -- -- 999,990 -- 1,000,000
Dividends payable on preferred stock ..... -- -- (14,246) (14,246)
Financing cost ........................... -- -- (18,937) -- (18,937)
Exercise of stock options and warrants ... 10,434 104 64,476 -- 64,580
Compensation expense, stock options ...... -- -- 30,944 -- 30,944
Net loss ............................... -- -- -- (5,769,464) (5,769,464)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 .................. 1,424,752 $ 14,247 $ 24,911,694 ($20,295,944) $ 4,630,007
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (2,238,568) $ (2,971,767) $ (5,769,464)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ............................ 178,526 326,065 596,727
Loss on disposal of assets ............................... -- 17,079 9,445
Interest on marketable debt securities ................... (7,417) (246,813) (176,086)
Compensation expense ..................................... 4,995 30,944
Changes in operating assets and liabilities:
Accounts receivable .................................... (361,515) (223,193) 485,254
Inventories ............................................ (71,101) (45,742) (195,113)
Prepaid expenses and other assets ...................... (51,081) 15,094 19,489
Accounts payable ....................................... 110,175 (31,698) (71,246)
Accrued liabilities .................................... (66,786) 48,330 (157,831)
Deferred revenue ....................................... (134,544) (14,019) 216,000
------------ ------------ ------------
Net cash used in operating activities ...................... (2,642,311) (3,121,669) (5,011,881)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable securities ....................... (1,456,860) (6,975,059) (2,729,831)
Proceeds from sales of marketable securities ............. -- 5,148,666 6,443,400
Purchases of equipment, furniture and fixtures ........... (297,090) (859,373) (516,186)
Proceeds from sale of equipment, furniture & fixtures .... -- -- 2,200
Payments for patent rights ............................... (109,722) (77,790) (119,828)
------------ ------------ ------------
Net cash provided by (used in) investing activities ........ (1,863,672) (2,763,556) 3,079,755
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations .......... (44,546) (32,293) (7,083)
Proceeds from issuance of common stock, net .............. 10,394,689 184,226 64,580
Proceeds from issuance of convertible preferred stock, net 3,812,500 -- 981,063
Warrants issued .......................................... 125,220 -- --
Proceeds from issuance of notes payable .................. 187,500 -- --
Principal payments on notes payable ...................... (429,957) (96,097) --
------------ ------------ ------------
Net cash provided by financing activities .................. 14,045,406 55,836 1,038,560
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ....... 9,539,423 (5,829,389) (893,566)
Cash and cash equivalents:
Beginning of year ........................................ 35,817 9,575,240 3,745,851
------------ ------------ ------------
End of year .............................................. $ 9,575,240 $ 3,745,851 $ 2,852,285
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Description of Business and Summary of Significant Accounting Policies
Business
The Company is primarily a manufacturer and 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.
Net Loss Per Share
Basic EPS is computed by dividing net income or loss available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock. For the years ended December 31,
1996, 1997 and 1998, the effects of potential common shares were excluded from
the calculation of diluted EPS because their effect was antidilutive.
Cash Equivalents
The Company considers highly liquid debt instruments with original
maturities of 90 days or less to be cash equivalents.
Marketable Securities
The Company's marketable debt securities are classified as
available-for-sale and are carried at amortized cost, which approximates fair
value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on a basis that approximates the 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 ranging from
three to seven years.
Sales Recognition
Sales and related costs are recognized upon shipment of product to
customers. Sales are recorded net of provisions for returns.
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
26
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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.
Stock-Based Compensation
Compensation expense for stock incentives granted to employees and
directors is recognized in accordance with Accounting Principles Board, Opinion
25 ("APB 25"), "Accounting for Stock Issued to Employees." Pro forma effects on
net loss and loss per share are provided as if the fair value based method
defined in Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," had been applied.
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.
Patent Rights
The Company capitalizes the cost of obtaining patent rights. These
capitalized costs are amortized on a straight-line basis over seven years
beginning on the earlier of the date the patent is issued or the first
commercial sale of product utilizing such patent rights. Recoverability of such
patent assets is evaluated on a quarterly basis.
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.
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.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Discposed Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured
27
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
by the amount by which the carrying amount of the assets exceed the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation.
Fair Value of Financial Instruments
All financial instruments are carried at amounts that approximate estimated
fair value.
Advertising Expenses
Advertising expense (including production and communication costs) for
1996, 1997 and 1998 was $168,145, $333,515 and $201,521, respectively.
Production costs related to advertising are expensed as incurred.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income or
loss and its components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company has adopted SFAS No. 130, but
because it does not have any components of comprehensive income, net loss and
comprehensive net loss are identical.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for the Company in 1999. The Company is
currently evaluating SFAS No. 133, but does not expect that it will have a
material effect on its financial statements.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires all costs
related to the development of internal use software, other than those incurred
during the application development stage, to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. SOP 98-1 is
effective for the Company's fiscal year ending December 31, 1999. Adoption is
not expected to have a material effect on the Company's financial statements.
2. Liquidity
As reflected in the accompanying consolidated financial statements, the
Company incurred a net loss of $5,769,464 for the year ended December 31, 1998.
In addition, the Company has incurred net losses and has had negative cash flows
from operating activities since inception. Management believes current working
capital of $3,067,746 and projected operating revenues supplemented by proceeds
from a financial settlement with Schering-Plough will provide the Company with
sufficient liquidity through 1999. It is probable the Company will be
28
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
required to raise additional capital by early 2000. Management's intentions are
to raise this additional capital through alliances with strategic corporate
partners, issuance of debt, or an equity offering. If capital requirements vary
materially from those currently planned, the Company could require additional
capital at an earlier time. There can be no assurance that adequate funds will
be available when needed or on acceptable terms.
3. Composition of Certain Financial Statement Captions
December 31,
--------------------------
1997 1998
----------- -----------
Inventories:
Raw material ........................... $ 196,579 $ 132,884
Work-in-process ........................ 78,220 95,157
Finished goods ......................... 122,273 364,144
----------- -----------
$ 397,072 $ 592,185
=========== ===========
Equipment, furniture and fixtures:
Furniture, fixtures and office equipment $ 805,310 $ 933,296
Production equipment ................... 1,161,803 1,518,675
Less accumulated depreciation .......... (801,900) (1,173,515)
----------- -----------
$ 1,165,213 $ 1,278,456
=========== ===========
Patent rights:
Patent rights .......................... $ 422,800 $ 542,628
Less accumulated amortization .......... (53,394) (258,823)
----------- -----------
$ 369,406 $ 283,805
=========== ===========
Accrued expenses and other liabilities:
Product warranty and returns ........... $ 51,436 $ 56,000
Payroll ................................ 59,665 34,715
Other .................................. 268,675 145,476
----------- -----------
$ 379,776 $ 236,191
=========== ===========
4. Leases
The Company has a noncancelable operating lease for its office and
manufacturing facility that expires in April 2002. This lease requires the
Company to pay all executory costs such as maintenance and property taxes.
Rent expense incurred for the years ended December 31, 1996, 1997 and 1998
was $101,139, $161,339 and $214,093, respectively.
The Company is also obligated under a non-cancelable lease classified as a
capital lease. The lease calls for monthly payments of $202 with an expiration
date of September 1999. Equipment, furniture, and fixtures include $67,380 and
$8,813 of cost and $51,524 and $7,050 of accumulated amortization as of December
31, 1997 and 1998, respectively, related to the current and prior leases.
29
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Future minimum lease payments are as follows as of December 31, 1998:
Capital Operating
Leases Leases
------ ------
1999................................ 1,721 243,844
2000................................ -- 260,610
2001................................ -- 279,031
2002................................ -- 98,508
------ --------
$1,721 $881,993
====== ========
5. Income Taxes
The Company incurred losses for both book and tax purposes in each of the
years in the three year period ended December 31, 1998 and, accordingly, no
income taxes were provided. Effective tax rates differ from statutory federal
income tax rates in the years ended December 31, 1996, 1997 and 1998 as follows:
1996 1997 1998
---- ---- ----
Statutory federal income tax rate ........ (34.0)% (34.0)% (34.0)%
Valuation allowance increase ............. 39.8 35.7 39.0
State income taxes, net of federal benefit (2.0) (2.0) (3.6)
Research and experimentation credit ...... (1.6) -- (1.6)
Other .................................... (2.2) 0.3 0.2
---- ---- ----
0.0% 0.0% 0.0%
==== ==== ====
Deferred tax assets as of December 31, 1997 and 1998 consist of the following:
1997 1998
----------- -----------
Inventory reserve ............. $ 20,000 $ 18,000
Net operating loss carryforward 5,060,000 7,383,000
Research credit carryforward .. 165,000 372,000
Other ......................... 45,000 109,000
----------- -----------
5,290,000 7,882,000
Less valuation allowance ........... (5,290,000) (7,882,000)
----------- -----------
$ 0 $ 0
=========== ===========
At December 31, 1998, the Company had net operating loss carryforwards
("NOL") of approximately $20,000,000 for federal income tax purposes which if
unused will begin to expire in 2008. Additionally, the Company had research
credit carryforwards of approximately $372,000.
As a result of the 1996 equity changes as described in Note 6, the net
operating loss will be subject to annual limitation as defined by Section 382 of
the Internal Revenue Code. The annual limitation for utilization of the net
operating loss carryforwards is approximately $750,000. Subsequent equity
changes could further limit the net operating losses available.
30
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
6. Shareholders' Equity
Initial Public Offering
In October 1996, the Company completed an initial public offering ("IPO")
of its common stock. In this offering 440,000 common shares were sold at a price
of $27.50 per share. As a consequence of this offering, and in accordance with
the terms of each of the various series of preferred stock that the Company had
outstanding prior to the IPO, all series of preferred shares then outstanding
and rights to acquire preferred shares were automatically converted into common
stock or rights to purchase common stock
Authorized Shares
At December 31, 1998, the total number of shares authorized for all classes
of stock was 4,400,000 shares: 3,400,000 common shares and 1,000,000 preferred
shares undesignated as to class. The authorized common share figure has been
adjusted for a one for five reverse stock split effective on January 28, 1999.
The stock split had no effect on the authorized preferred shares.
Series A Convertible Preferred Stock
On November 10, 1998 the Company sold 1,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred") and warrants to purchase 56,000
shares of common stock for total consideration of $1,000,000 to Elan
Corporation, plc. The Series A Preferred carries a 10% dividend which is payable
semi-annually. The Series A Preferred is redeemable at the Company's option at
anytime at $1,000 per share. The Series A Preferred is not convertible by the
holder into common stock until 10 years from the date of issue at $7.50 per
share or 95 percent of the market price on the date of conversion. The Series A
Preferred becomes convertible at the election of the Company in the event the
Company is unable to secure a sub-licensee or user for certain technology
purchased from Elan prior to November 10, 2000. The shares are convertible into
common stock at an average closing market price of the common stock for the 20
trading days immediately preceding the date of conversion.
Stock Options and Warrants
The Company's stock option plans allow for the grants of options to
officers, directors, and employees to purchase up to 369,010 shares of common
stock at exercise prices not less than 100% of fair market value on the dates of
grant. The term of the options may not exceed ten years and vest in varying
periods.
As of December 31, 1995 the Company had 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 was exercised in
full on February 29, 1996. The exercise price was $1.64 per share for 190,404
shares and $2.63 for the remaining 190,404 shares, all of which were converted
to shares of common stock in connection with the Company's IPO.
Stock Option Repricing
On July 21, 1998, the Board of Directors approved the repricing of all
outstanding options held by employees, other than the Chief Executive Officer
and directors, of the Company, which had an exercise price greater than
31
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
$7.20 per share. This repricing action reduced the exercise price to $7.20 per
share for stock option agreements representing approximately 100,000 shares
which had exercise prices ranging from $7.80 to $25.00. Following the repricing,
all other terms and conditions of these option agreements were unchanged,
including the vesting schedules.
On December 8, 1998, the Board of Directors approved the repricing of one
stock option agreement held by the Chief Executive Officer of the Company, which
had an exercise price of $26.90 per share. This option agreement totals 80,000
shares and its exercise price was reduced to $7.20 per share. Following the
repricing, all other terms and conditions of this option agreement were
unchanged, including its vesting schedule.
Stock option and warrant activity is summarized as follows:
Weighted
Number average
of Shares prices
---------- -----------
Outstanding at December 31, 1995......... 198,362 9.20
Granted.............................. 588,583 28.05
Exercised............................ (76,276) 8.20
Canceled............................. (3,992) 8.75
-------- ------
Outstanding at December 31, 1996......... 706,677 25.15
Granted.............................. 121,700 22.25
Exercised............................ (29,190) 6.50
Canceled............................. (19,141) 22.35
-------- ------
Outstanding at December 31, 1997......... 780,046 25.40
Granted.............................. 301,190 8.40
Exercised............................ (10,434) 6.23
Canceled............................. (210,684) 19.47
-------- ------
Outstanding at December 31, 1998......... 860,118 $21.11
======== ======
The following table summarizes information concerning currently outstanding and
exercisable options and warrants by price range:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------------------- --------------------------------------
Number of Shares Weighted Average Weighted Average Number Exercisable Weighted Average
Price Range Outstanding Remaining Life Exercise Price Exercise Price
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Pursuant to Option
Plans:
$ 2.80 to 3.15 26,500 9.9 $3.06 -- $ --
6.55 to 9.40 222,169 7.6 7.28 111,787 7.09
14.70 to 25.00 53,870 7.2 21.46 34,630 19.94
-------- -------
302,539 146,417
======= =======
Warrants:
$15.00 to 23.00 132,772 7.0 $19.60 132,772 $19.60
29.55 to 33.00 424,807 6.6 29.91 424,807 29.91
------- -------
557,579 557,579
======= =======
</TABLE>
The Company applies APB No. 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for its stock-based
32
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
compensation plans. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123,
Accounting and Disclosure of Stock-Based Compensation, the Company's net loss
and loss per share would have increased to the pro-forma amounts shown below:
1996 1997 1998
---- ---- ----
Net loss applicable to
common shareholders:
As reported ......... $2,238,568 $2,971,767 $5,783,710
Pro forma ........... $2,614,000 $3,672,000 $6,667,938
Net loss per common share:
As reported ......... $ 4.22 $ 2.12 $ 4.07
Pro forma ........... $ 4.93 $ 2.62 $ 4.69
The per share weighted-average fair value of stock based awards granted
during 1996, 1997 and 1998 is estimated as $20.80, $17.15 and $9.19
respectively, on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
1996 1997 1998
---- ---- ----
Risk-free interest rate..................... 6.0% 6.0% 5.5%
Annualized volatility....................... 106% 99% 100%
Weighted average expected life, in years.... 7.5 5.0 5.0
Expected dividend yield..................... 0.0% 0.0% 0.0%
Proforma net loss reflects only options granted after December 31, 1994.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
because compensation cost is reflected over the option vesting periods and
compensation cost for options granted prior to January 1, 1995 is not
considered.
7. 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, 1996, 1997 and 1998.
8. Supplemental Disclosures of Cash Flow Information
Cash paid for interest during the years ended December 31, 1996, 1997 and
1998 was $30,919, $9,339 and $1,398, respectively.
Cash paid for taxes during the years ended December 31, 1996, 1997 and 1998
was $300, $300 and $2,758 respectively.
During 1996, notes payable of $312,500 and $100,000, respectively, were
converted into 190,404 shares of Series B Preferred Stock and 6,093 shares of
Common Stock, respectively.
33
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
9. Additional Sales Information
In the current year, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes standards
for disclosure about operating segments, products, geography and major
customers. The Company is primarily a manufacturer and distributor of
needle-free injection devices and disposables for the injection of insulin and
human growth hormone. For reporting purposes, these operations are considered to
be one segment.
International sales for the years ended 1996, 1997, and 1998 were
approximately 31%, 52%, and 73%, respectively of total sales. International
sales by country are summarized as follows:
International Sales Revenue: 1996 1997 1998
--------- --------- -----------
Europe (primarily Germany).............. $ 356,838 $ 759,168 $ 1,173,364
Other (primarily Asia).................. 221,653 113,044 440,923
--------- --------- -----------
Total............................... $ 578,491 $ 872,212 $ 1,614,287
========= ========= ===========
The following summarizes significant customers comprising 10% or more of the
Company's customer sales and outstanding accounts receivable as of and for the
years ended:
Significant Customer Revenue: 1996 1997 1998
--------- ---------- ------------
Ferring ........................... $ 460,498 $ 632,004 $ 1,095,779
Schering........................... 151,231 0 0
JCR ............................... 156,679 43,902 365,388
Significant Customer Receivable Balances:
1996 1997 1998
---------- --------- ---------
Ferring ............................ $ 158,772 $ 230,379 $ 71,911
Schering............................ 151,231 0 0
JCR ................................ 13,587 0 20,531
10. Equity Transaction with Becton Dickinson
On January 25, 1996, the Company sold 152,323 shares of common stock to
Becton Dickinson and Company ("Becton Dickinson") for $3,000,000. In addition,
the Company granted Becton Dickinson an option to purchase 76,162 shares of
common stock with an exercise price of $23.00. Warrants for 380,807 shares of
common stock were also granted at an exercise price of $29.55 for initial
consideration of $125,000. The Becton Dickinson option and warrant agreements
each expire on the tenth anniversary of the agreement.
In connection with the sale of equity to Becton Dickinson, the Company
entered into a licensing agreement with Becton Dickinson, which provided Becton
with exclusive worldwide rights to certain Medi-Ject technology. In exchange for
granting these rights, the Company received $100,000 per month for 24 months
beginning January 1996 to develop the technology. (See note 12.)
34
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
11. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1997:
Total revenues $ 971,025 $ 881,379 $ 609,828 $ 1,254,791
Net loss (582,290) (818,063) (926,787) (644,627)
Loss per common share (.42) (.59) (.66) (.46)
Weighted average shares (1) 1,389,449 1,398,394 1,411,407 1,413,299
1998:
Total revenues $ 912,973 $ 779,588 $ 702,667 $ 355,640
Net loss (845,556) (1,074,888) (1,262,042) (2,586,978)
Loss per common share (.60) (.75) (.88) (1.83)
Weighted average shares (1) 1,414,318 1,431,587 1,438,463 1,424,752
</TABLE>
(1) Loss per common share is computed based upon the weighted average number of
shares outstanding during each period. Basic and diluted loss per share
amounts are identical as the effect of potential common shares is
antidilutive.
12. Subsequent Events
(a) Reverse Stock Split
On January 28, 1999, the Company declared a one-for-five reverse stock
split of its outstanding common stock, applicable to shareholders of record at
close of trading on January 28, 1999. The reverse split is in response to the
Nasdaq National Market listing requirements which require that the Company
maintain a minimum value of public float of $5,000,000 and a minimum bid price
of $1.00 per share. After the reverse split, the Company met the requirements
for continued listing on the Nasdaq Small Cap Market, which are to maintain a
minimum bid price of $1.00 per share and to maintain a minimum value of public
float of $1,000,000. After the reverse split, the Company had 1,424,752 shares
of common stock outstanding. All common share and per share amounts in this
report have been retroactively restated to give effect to this reverse stock
split.
(b) Becton Dickinson Agreement
On February 8, 1999, the Company executed an agreement with Becton
Dickinson to restructure their original agreement which the parties entered into
in January 1996. The original agreement involved a strategic alliance with
Becton Dickinson that included an exclusive Development and Licensing Agreement,
which provided Becton with marketing and manufacturing rights to the Company's
products and technology. The revised agreement is based upon the realization of
both parties that the MJ-7 product and its disposable components would not
fulfill the marketing or manufacturing requirements of Becton Dickinson. Under
the terms of the new agreement, the Company is free to market the MJ-7 insulin
injector and manufacture disposables in exchange for a small royalty on sales.
Becton Dickinson retains an option that allows it, for a limited time, to
negotiate for marketing rights for a future generation MJ-8 injector and a
similar option to negotiate for the right to manufacture disposables under
certain conditions.
35
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(c) Settlement of Schering-Plough Contract
In March 1999, the Company signed an agreement with Schering-Plough
Corporation to settle mutual obligations of the parties under a contract dated
January 20, 1998. The original agreement called for an exclusive sales
arrangement where the Company would sell its products to Schering-Plough for
distribution with its drug Intron-A. Schering-Plough agreed to pay the Company
an undisclosed sum in exchange for cancellation of a product purchase order and
as reimbursement for certain non-cancelable manufacturing expenses.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the headings "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on or about May
14th, 1999 is incorporated by reference.
Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, information as to executive officers of the Company is
set forth in Part 1 of the Form 10-K under separate caption.
Item 11. EXECUTIVE COMPENSATION
The information included under the heading "Executive Compensation" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
or about May 14th, 1999 is incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on or about May 14th, 1999 is
incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the heading "Certain Relationships and
Related Transactions" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on or about May 14th, 1999 is incorporated by reference.
36
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements - see Part II
(2) Financial Statement Schedules -All schedules have been omitted because
they are not applicable, are immaterial or are not required because
the information is included in the financial statements or the notes
thereto.
(3) Item 601 Exhibits- see list of Exhibits below
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the fourth quarter of 1998.
(c) Exhibits
3.1 Second Amended and Restated Articles of Incorporation of the Company.(a)
3.2 Second Amended and Restated Bylaws of the Company.(a)
3.3 Certificate of Designations for Series A Preferred Stock
4.1 Form of Certificate for Common Stock.(a)
4.2 Stock Warrant, dated January 25, 1996, issued to Becton Dickinson and
Company.(a)
1.3 Stock Option, dated January 25, 1996, issued to Becton Dickinson and
Company.(a)
4.4 Warrant, dated March 24, 1995, issued to Robert Fullerton.(a)
4.5 Warrant, dated March 24, 1995, issued to Michael Trautner.(a)
4.6 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).(a)
4.7 Warrant issued to Elan International Services, Ltd. on November 10, 1998
10.1 Office/Warehouse/Showroom Lease, dated January 2, 1995, including
amendments thereto.(a)
10.3 Security Agreement, dated September 30, 1994, by and between the Company
and Kelsey Lake Limited Partnership and Kerry Lake Company, a Limited
Partnership.(a)
10.4 Reserved.
10.5 Reserved.
37
<PAGE>
10.6 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.(a)
10.7 Preferred Stock, Option and Warrant Purchase Agreement, dated January 25,
1996, between the Company and Becton Dickinson and Company.(a)
10.8* Employment Agreement, dated as of January 1, 1997, between the Company
and Franklin Pass, MD.(c)
10.9* Employment Agreement, dated as of January 3, 1995, between the Company
and Mark Derus.(a)
10.10* Reserved.
10.11* Employment Agreement, dated as of January 3, 1995, between the Company
and Peter Sadowski.(a)
10.12* 1993 Stock Option Plan.(a)
10.13* Form of incentive stock option agreement for use with 1993 Stock Option
Plan.(a)
10.14* Form of non-qualified stock option agreement for use with 1993 Stock
Option Plan.(a)
10.15* 1996 Stock Option Plan, with form of stock option agreement.(a)
10.20+ Development and License Agreement between Becton Dickinson and Company
and the Company, effective January 1, 1996 (terminated January 1, 1999).
See Exhibit 10.24 (a)
10.21 Office-Warehouse lease with Carlson Real Estate Company, dated February
11, 1997. (b)
10.22* 1998 Stock Option Plan for Non-Employee Directors. (d)
10.23* Letter consulting agreement dated February 20, 1998 between the Company
and Geoffrey W. Guy. (d)
10.24# Agreement with Becton Dickinson and Company dated January 1, 1999
10.25 Securities Purchase Agreement with Elan International Services, Ltd.
dated November 10, 1998
10.26# License & Development Agreement with Elan Corporation, plc, dated
November 10, 1998
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Cautionary Statement (b)
38
<PAGE>
* Indicates management contract or compensatory plan or arrangement.
+ Pursuant to Rule 406 of the Securities Act of 1933, as amended,
confidential portions of Exhibit 10.20 were deleted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment, which was subsequently granted by the Securities
and Exchange Commission.
# Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of Exhibits 10.24 and 10.26 were deleted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
(a) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-6661), filed with the Securities and Exchange Commission
on October 1, 1996.
(b) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1996.
(c) Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
(d) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on March 30, 1999.
MEDI-JECT CORPORATION
/s/ Franklin Pass, M.D.
-----------------------------------
Franklin Pass, MD
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Report has been signed by the following persons on behalf of
the registrant in the capacities indicated on March 30, 1999.
Signature Title
--------- -----
/s/Franklin Pass, M.D. President, Chief Executive Officer and Director
- ---------------------------
Franklin Pass, M.D. (principal executive officer)
/s/Mark S. Derus Vice President of Finance, Chief Financial Officer
- ---------------------------
Mark S. Derus (principal financial and accounting officer)
/s/Kenneth Evenstad Director
- ---------------------------
Kenneth Evenstad
/s/Geoffrey Guy Director
- ---------------------------
Geoffrey Guy
/s/Norman Jacobs Director
- ---------------------------
Norman Jacobs
/s/Fred Shapiro, M.D. Director
- ---------------------------
Fred Shapiro, M.D.
/s/Stanley Goldberg Director
- ---------------------------
Stanley Goldberg
/s/Karl Groth Director
- ---------------------------
Karl Groth
40
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
MEDI-JECT CORPORATION
The undersigned officers of Medi-Ject Corporation, a corporation
organized and existing under the Minnesota Business Corporation Act (the
"Corporation"), do hereby certify that, pursuant to authority conferred by the
Second Amended and Restated Articles of Incorporation of the Corporation, as
amended (the "Articles of Incorporation"), and pursuant to the provisions of
Section 302A.401 of the Minnesota Business Corporation Act, the Board of
Directors of the Corporation adopted a resolution adopting a Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock
(this "Certificate of Designations") providing for certain designations, powers,
number, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of 10,000
shares of Series A Convertible Preferred Stock, $.01 par value per share, which
resolution is as follows:
RESOLVED: That pursuant to Article 3 of the Second Amended and
Restated Articles of Incorporation, as amended, of this Corporation,
the Board of Directors hereby establishes the following series of
Preferred Stock, $.01 par value per share (the "Preferred Stock"),
of the Corporation having the designations, powers, number, preferences
and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof set forth below:
1. Designation. 10,000 shares of the Preferred Stock shall be designated
-----------
and known as the "Series A Convertible Preferred Stock."
2. Dividend Provisions.
-------------------
a. The Series A Convertible Preferred Stock shall bear a mandatory
dividend of 10% per annum of the stated value, payable semi-annually in cash on
May 1st and November 1st of each year commencing May 1, 1999 (each a "Dividend
Distribution Date"), on any shares of the Series A Convertible Preferred Stock
issued and outstanding. The stated value of the Series A Convertible Preferred
Stock shall be $1,000 per share. In the event the Corporation does not have
legally available funds to make such distribution (provided, however, that the
Board of Directors shall have taken all necessary and appropriate action to make
such funds legally available), such distribution shall be made by the issuance
of additional shares of Series A Convertible Preferred Stock having a stated
value equal to the amount of the distribution not otherwise made on the same
terms and subject to the same conditions as the Series A Convertible Preferred
Stock originally issued hereby. Fractional shares of Series A Convertible
Preferred Stock shall be issuable for purposes hereunder.
b. Notwithstanding anything contained in this Certificate of
Designations, as
<PAGE>
amended, to the contrary, so long as any shares of Series A Convertible
Preferred Stock remain outstanding, no dividends shall be declared or payable
with respect to any outstanding shares of Common Stock of the Corporation or
shares of any other class of shares of the Corporation nor, except for
repurchases or redemptions made in good faith by the Corporation in
consideration for the exercise of options issued under the Corporation's stock
option plans existing on the date hereof, nor shall the Corporation redeem,
repurchase or otherwise acquire shares of Common Stock of the Corporation or
shares of any other class of shares of the Corporation.
3. Liquidation Preference.
----------------------
a. In the event of any liquidation, dissolution or winding-up of the
affairs of the Corporation, whether voluntary or involuntary (collectively, a
"Liquidation"), before any payment of cash or distribution of other property
shall be made to the holders of the Common Stock (the "Common Shareholders") or
any other class or series of stock subordinate in Liquidation Preference to the
Series A Convertible Preferred Stock, the holders of the Series A Convertible
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its shareholders, the Original
Purchase Price per share (as appropriately adjusted for any combinations or
divisions or similar recapitalizations affecting the Series A Convertible
Preferred Stock after issuance) plus any accrued and unpaid dividends thereon
(the "Series A Liquidation Preference"). As used herein, the "Original Purchase
Price" is $1,000 per share.
b. If, upon any Liquidation, the assets of the Corporation available
for distribution to its shareholders shall be insufficient to pay the holders of
the Series A Convertible Preferred Stock the full amounts to which they shall be
entitled, the holders of the Series A Convertible Preferred Stock shall share
ratably in any distribution of assets in proportion to the respective amounts
which would be payable to them in respect of the shares held by them if all
amounts payable to them in respect of such were paid in full pursuant to
subsection 3(a), above.
c. After the distributions described in subsection (a), above, have
been paid, the holders of the Series A Convertible Preferred Stock shall not be
entitled to any further participation in any distribution of assets of the
Corporation.
d. For purposes of this Section 3:
(i) a liquidation, dissolution or winding up of the Corporation
shall be deemed to be occasioned by, or to include,
(A) the acquisition of the Corporation by another
entity by means of any transaction or series of related
transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the
domicile of the Corporation); except, if (i) the
Corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will,
immediately after such acquisition (by virtue of
2
<PAGE>
securities issued as consideration for the Corporation's
acquisition) hold at least 50% of the voting power of the
surviving or acquiring entity or (ii) if a majority in
interest of the Series A Convertible Preferred Stock, voting
as a class, shall have approved such reorganization, merger
or consolidation; or
(B) a sale of all or substantially all of the assets
of the Corporation.
(ii) Upon the occurrence of any of the events described in
the foregoing subsection (3)(d)(i), if the consideration received
by the Corporation is other than cash, its value will be deemed
its fair market value, which shall be valued as follows:
(A) if traded on a securities exchange or through
Nasdaq, the average of the closing sale prices of the
securities on such exchange for the 20 consecutive trading
days ending with the day which is two trading days prior to
the closing of such transaction (the "Market Price");
(B) if actively traded over-the-counter, the average
of the closing bid or sale prices (whichever is applicable)
over the 30 day period ending three days prior to the
closing; or
(C) if there is no active public market, the fair
market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the
voting power of all then outstanding shares of Series A
Convertible Preferred Stock.
The method of valuation of securities subject to restrictions on
free marketability (other than restrictions arising solely by
virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the
market value determined as above in (ii), (A), (B) or (C) to
reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of at least a
majority of the voting power of all then outstanding shares of
the Series A Convertible Preferred Stock.
(iii) In the event the requirements of this subsection 3(d)
are not complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such
time as the requirements of this Section 3 have
been complied with; or
3
<PAGE>
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders
of the Series A Convertible Preferred Stock shall
revert to and be the same as such rights,
preferences and privileges existing immediately
prior to the date of the first notice referred to
in subsection 3(e) below.
e. The Corporation shall give each holder of record of Series A
Convertible Preferred Stock written notice of any impending transaction
described under subsection 3(d)(i) above, not later than 20 days prior to the
shareholders' meeting called to approve such transaction, or 20 days prior to
the closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 3, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than 20 days after the
Corporation has given the first notice provided for herein or sooner than 10
days after the Corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the written
consent of the holders of Series A Convertible Preferred Stock that are entitled
to such notice rights or similar notice rights and that represent at least a
majority of the voting power of all then outstanding shares of Series A
Convertible Preferred Stock.
4. Conversion. The holders of the Series A Convertible Preferred Stock
----------
shall have conversion rights as follows (the "Conversion Rights"):
a. Each share of Series A Convertible Preferred Stock shall be
convertible, at the option of the holder thereof, within sixty (60) days after
the tenth anniversary of the first issuance of shares of Series A Convertible
Preferred Stock (the "Original Conversion Date") at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by valuing each issued
and outstanding share of Series A Convertible Preferred Stock at the Series A
Liquidation Preference and converting such share into such number of shares of
Common Stock as may be acquired at such value where each share of Common Stock
is valued at the conversion price applicable to such share (the "Conversion
Price"), determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. On the third (3rd) anniversary of the Original
Conversion Date, all outstanding shares of Series A Convertible Preferred Stock
shall, subject to the requirements of Nasdaq Rule 4460(i)(1)(d)(ii) to the
extent applicable, automatically convert into shares of Common Stock at the
Conversion Price in effect on such date. The Conversion Price per share of
Common Stock on any day for purposes of this paragraph shall be equal to the
lower of $1.50 per share and ninety-five (95%) per cent of the Market Price of
the Common Stock as of such date.
b. Before any holder of Series A Convertible Preferred Stock shall
be entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any
4
<PAGE>
transfer agent for the Series A Convertible Preferred Stock, and shall give
written notice to the Corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Convertible Preferred Stock, or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Convertible
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date.
c. Corporation Conversion Right. Notwithstanding anything contained
----------------------------
herein to the contrary, and subject to the provisions of Section 4(b) of the
Securities Purchase Agreement between the Corporation and Elan International
Services, Inc. (the "Purchase Agreement"), in the event the Corporation is
unable to secure a sub-licensee or user of the Auto-Injector Technology (as that
term is defined in that certain License and Development Agreement, between the
Corporation and Elan Corporation, plc) prior to the second anniversary of the
date of the Purchase Agreement, the Corporation, at the Corporation's option,
shall have the right, upon written notice given to the holder within thirty (30)
days after the second anniversary of the date hereof, to convert all issued and
outstanding shares of Series A Convertible Preferred Stock into Common Stock, by
delivering to the holder of the Series A Convertible Preferred Stock such number
of shares of Common Stock, as is determined by valuing each issued and
outstanding share of Series A Convertible Preferred Stock at the Liquidation
Preference and converting such share into such number of shares of Common Stock
as may be acquired at such value where each share of Common Stock is valued at
the conversion price applicable to such share (the "Conversion Price") in effect
on the date the Corporation gives notice of its intention to call the Series A
Convertible Preferred Stock for conversion. The Conversion Price per share of
Common Stock shall be equal to the Market Price of the Common Stock, (as defined
below). Notwithstanding anything contained herein to the contrary, the
Corporation shall not be entitled to convert the Series A Preferred Stock
pursuant to this paragraph in the event that (A) the Market Price on the date of
payment is not greater than 85% of the average Market Price for the Common Stock
for the 45 consecutive trading days immediately prior to such date of payment,
or (B) the Market Price on the date of payment is not greater than the Market
Price on the Closing Date (as such term is defined in the Purchase Agreement").
d. As used herein, the term "Market Price" shall mean the average
closing sale price of the Common Stock, as reported by its principal trading
exchange, for the twenty (20) trading days immediately preceding the date of
conversion.
5. Redemption. The Corporation shall have the right, at any time after
----------
the issuance of the shares of Series A Convertible Preferred Stock and prior to
the conversion of such shares into shares of Common Stock as provided in Section
4 above, to redeem any or all of the issued and outstanding shares of Series A
Convertible Preferred Stock for cash at a price per share equal to the Series A
Liquidation Preference.
5
<PAGE>
6. Other Distributions. In the event the Corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in subsection 4(d)(iii), then, in each such
case for the purpose of this Section 6, the holders of the Series A Convertible
Preferred Stock shall be entitled, upon conversion of the Series A Convertible
Preferred Stock, to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the Corporation
into which their shares of Series A Convertible Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common Stock
of the Corporation entitled to receive such distribution.
7. Recapitalization. If at any time or from time to time there shall
----------------
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in Section 3 or
Section 4) provision shall be made so that the holders of the Series A
Convertible Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Convertible Preferred Stock the number of shares of
stock or other securities or property of the Corporation or otherwise, to which
a holder of Common Stock deliverable upon conversion would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made
in the application of the provisions of Section 4 with respect to the rights of
the holders of the Series A Convertible Preferred Stock after the
recapitalization to the end that the provisions of Section 4 shall be applicable
after that event as nearly equivalent as may be practicable.
8. No Impairment. The Corporation will not, by amendment of its Articles
-------------
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Convertible Preferred Stock against impairment.
9. No Fractional Common Shares and Certificate as to Adjustments. No
-------------------------------------------------------------
fractional shares of Common Stock shall be issued upon the conversion of any
share or shares of the Series A Convertible Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest whole share.
10. Notices of Record Date. If at any time that the Series A Convertible
----------------------
Preferred Stock is convertible pursuant to Section 4 hereof, the Corporation
takes a record of the holders of Common Stock for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series A Convertible Preferred Stock, at least 20 days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right,
6
<PAGE>
and the amount and character of such dividend, distribution or right.
11. Reservation of Stock Issuable Upon Conversion. The Corporation shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Convertible Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Convertible Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock not otherwise reserved shall not be sufficient to effect the conversion of
all then outstanding shares of the Series A Convertible Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to the Articles of
Incorporation, as amended.
12. Notices. Any notice required by the provisions hereof to be given to
-------
the holders of shares of Series A Convertible Preferred Stock shall be deemed
given on the date of service if served personally on the party to whom notice is
to be given, on the date of transmittal of services via telecopy to the party to
whom notice is to be given and five (5) days after mailing if mailed by first-
class mail to the address of the holder appearing on the books of the
Corporation.
13. Voting Rights.
-------------
a. In any vote by the holders of the Series A Convertible Preferred
Stock acting as a class, each holder of Series A Convertible Preferred Stock
shall be entitled to one vote for each share of Series A Convertible Preferred
Stock.
b. So long as any shares of Series A Convertible Preferred Stock
remain outstanding, in the event the Corporation is unable to make a cash
dividend with respect to all issued and outstanding shares of Series A
Convertible Preferred Stock for two consecutive years, the holders of the Series
A Convertible Preferred Stock, acting as a class, shall be entitled to elect a
member of the Board of Directors of the Corporation. The term of office of any
director so elected by the holders of the Series A Convertible Preferred Stock
shall automatically terminate at such time as all dividends due and payable
hereunder shall have been paid.
7
<PAGE>
c. So long as any shares of Series A Convertible Preferred Stock
remain outstanding on or after the sixtieth (60th) day following the Original
Conversion Date, (i) the holders of the Series A Convertible Preferred Stock,
acting as a class, shall be entitled to elect such additional members to the
Board of Directors of the Corporation as shall constitute a majority of the
members of the Board of Directors of the Corporation at any time; (ii) the
holders of the Common Stock (and any other classes entitled to vote with the
holders of the Common Stock) shall be entitled to elect the remaining directors,
(subject to the rights of any other class of preferred stock or others to elect
any members of the Board of Directors) and (iii) holders of shares of Series A
Convertible Preferred Stock together with holders of shares of outstanding
shares of Common Stock (and any other class of stock entitled to vote therewith)
shall have the right to vote together on all matters with respect to which
holders of Common Stock (and any other class entitled to vote thereon with the
holders of Common Stock) are entitled to vote, together as a single class, with
each share of Series A Convertible Preferred Stock having the number of votes at
the time of any vote as determined by the following formula:
P = T
-
PS
where
P equals the number of votes allocable to each share of Series A
Convertible Preferred Stock in any vote where the Series A Convertible
Preferred Stock and other classes of stock of the Corporation are
voting together as a single class;
T equals the difference of (i) the number of votes held by other
classes entitled to vote in the action to be taken by the shareholders
of the Corporation, divided by three-tenths less (ii) the number of
votes exercisable by other classes entitled to vote and
PS equals the total number of outstanding shares of Series A
Convertible Preferred Stock.
Notwithstanding anything contained in this Section 13(c)(iii) to the contrary,
in no event shall the holders of the Series A Preferred Stock be entitled to any
voting rights in excess of those allowed by Nasdaq Rule 4460(i)(1)(d)(ii) unless
and until the Corporation shall have received shareholder approval of the voting
rights granted hereunder or the requirements of such rule are no longer
applicable to the Corporation.
14. Protective Provisions. Except as otherwise provided hereunder, so long
---------------------
as any shares of Series A Convertible Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series A Convertible Preferred Stock, voting separately as
a class:
8
<PAGE>
a. increase or decrease the authorized or outstanding number of
the shares of Series A Convertible Preferred Stock (other than by the conversion
or redemption or such shares as provided for herein), respectively, so as to
affect adversely such shares;
b. authorize or issue any other equity security, or security
convertible into or exercisable for any equity security, having a preference
over, or being on a parity with, or being senior to, the Series A Convertible
Preferred Stock with respect to voting, dividends, liquidation or redemption,
respectively; or
c. authorize or issue any other equity security, or security
convertible into or exercisable for any equity security, or any other series of
preferred stock which shall have voting rights, under any circumstances, of
greater than one vote per share.
15. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A Convertible Preferred Stock shall be converted pursuant to Section 4
hereof or redeemed pursuant to Section 5 hereof, the shares so converted or
redeemed shall be canceled and shall not be reissuable by the Corporation.
16. Amendment. Notwithstanding anything contained herein to the contrary,
---------
any provision of this Certificate of Designations may be modified or waived with
the consent of the Company and the holders of a majority in interest of the
Series A Convertible Preferred Stock.
9
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Rights to be duly executed to this 10th day of
November, 1998.
MEDI-JECT CORPORATION
By: _______________________________
Name: Mark Derus
Title: Chief Financial Officer
and Secretary
10
<PAGE>
EXHIBIT 4.7
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
SALE OR DISPOSITION OF THIS WARRANT OR OF ANY OF SUCH SHARES MAY BE EFFECTED
WITHOUT (I) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (II) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE
COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, OR (III)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 5 OF THIS WARRANT.
MEDI-JECT CORPORATION
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, ELAN INTERNATIONAL SERVICES,
LTD., or its affiliates or assigns or any other holder of this Warrant (each, a
"Holder"), is entitled to subscribe for and purchase up to 280,000 (Two hundred
eighty thousand) shares (as adjusted pursuant to Section 4 hereof, the "Shares")
of the fully paid and nonassessable common stock, par value $.01 (the "Common
Stock"), of MEDI-JECT CORPORATION, a Minnesota corporation (the "Company"), at
the price of $3.00 per share (such price, and such other prices as shall result
from time to time, from the adjustments specified in Section 4 below, the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth.
1. Term. Subject to the limitations set forth in Section 2 below,
----
the purchase right represented by this Warrant is exercisable, in whole or in
part, at any time, and from time to time, from and after the date hereof and
until 5:00 p.m. Eastern Daylight Time November 10, 2005. To the extent not
exercised at 5:00 p.m. Eastern Daylight Time on November 10, 2005, this Warrant
shall completely and automatically terminate and expire, and thereafter it shall
be of no force or effect whatsoever.
2. Method of Exercise; Payment; Issuance of New Warrant. (a) The
-----------------------------------------------------
purchase right represented by this Warrant may be exercised by the Holder, in
whole or in part and from time to time, by the surrender of this Warrant (with
the notice of exercise form attached hereto as Annex A duly executed) at the
-------
principal office of the Company and by the payment to the Company of an amount,
in cash or other immediately available funds, equal to the then applicable
Warrant Price per share multiplied by the number of Shares then being purchased.
(b) The person or persons in whose name(s) any certificate(s)
representing shares of Common Stock shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the Shares represented
thereby (and such Shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
<PAGE>
exercised. Upon any exercise of the rights represented by this Warrant,
certificates for the Shares purchased shall be delivered to the holder hereof as
soon as possible and in any event within thirty (30) days of receipt of such
notice and payment and, unless this Warrant has been fully exercised or expired,
a new Warrant representing the portion of Shares, if any, with respect to which
this Warrant shall not then have been exercised, shall also be issued to the
holder hereof as soon as possible and in any event within such thirty (30) day
period.
3. Stock Fully Paid, Reservation of Shares. All Shares that may be
---------------------------------------
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, fully paid and nonassessable, and will be free
from all taxes, liens and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of the
issue upon the exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to the adjustment from time to time upon the occurrence
of certain events, as follows:
(a) Reclassification, Merger, Etc. In case of (i) any
------------------------------
reclassification, reorganization, change or conversion of securities of the
class issuable upon exercise of this Warrant (other than a change in par value,
or from par value to no par value), or (ii) any consolidation of the Company
with or into another corporation (other than a merger or consolidation with
another corporation in which the Company is the surviving corporation and which
does not result in any reclassification or change of outstanding securities
issuable upon exercise of this Warrant), or (iii) any sale of all or
substantially all of the assets of the Company, then the Company, or such
successor or purchasing corporation, as the case may be, shall duly execute and
deliver to the holder of this Warrant a new Warrant or a supplement hereto (in
form and substance reasonably satisfactory to the holder of this Warrant), so
that the holder of this Warrant shall have the right to receive, at a total
purchase price not to exceed that payable upon the exercise of the unexercised
portion of this Warrant, and in lieu of the shares of Common Stock theretofore
issuable upon the exercise of this Warrant, the kind and amount of shares of
stock, other securities, money and property receivable upon such
reclassification, reorganization, change, conversion, merger or consolidation by
a holder of the number of shares of Common Stock then purchasable under this
Warrant. Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The provisions of this Section 4(a) shall similarly attach to successive
reclassifications, reorganizations, changes, mergers, consolidations and
transfers.
(b) Subdivision or Combination of Shares. If the Company at any
------------------------------------
time during which this Warrant remains outstanding and unexpired shall subdivide
or combine its Common Stock, (i) in the case of a subdivision, the Warrant Price
shall be proportionately decreased and the number of Shares purchasable
hereunder shall be proportionately increased, and (ii) in the
2
<PAGE>
case of a combination, the Warrant Price shall be proportionately increased and
the number of Shares purchasable hereunder shall be proportionately decreased.
(c) Stock Dividends; Etc. If the Company at any time while this
--------------------
Warrant is outstanding and unexpired shall (i) pay a dividend with respect to
Common Stock in Common Stock or Options, or (ii) make any other distribution
with respect to Common Stock (except any distribution specifically provided for
in Sections 4(a) and (b) above), the price at which the holder of this Warrant
shall be able to purchase Shares shall be adjusted by multiplying the Warrant
Price in effect immediately prior to such date of determination of the holders
of securities entitled to receive such dividend or distribution, by a fraction
(A) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (B) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution, as if all of such
Options had been exercised and the Company used the consideration payable in
respect thereof to purchase shares of Common Stock in the market. Upon each
adjustment in the Warrant Price pursuant to this Section 4(c), the number of
Shares of Common Stock purchasable hereunder shall be adjusted, to the nearest
whole share, to the product obtained by multiplying the number of Shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter.
(d) If the Company at any time while this Warrant is outstanding and
unexpired shall (i) issue or sell any shares of Common Stock at a price below
the Warrant Price, (ii) except for issuances otherwise permitted under clause
(iii) hereof, issue, sell or fix a record date for the issuance of rights,
options, warrants or other securities exercisable, convertible or exchangeable
into Common Stock (collectively "Options") at a price per share (or exercise,
conversion or exchange price per share) which is below the Warrant Price on the
date of issuance, or (iii) issue any Options to officers, directors, employees
or consultants to the Company, other than pursuant to the Company's existing
duly authorized and constituted stock option plans (the "Company Plans") having
an exercise price (on a per share basis) below the Market Price on the date of
issuance, then the price at which the holder of this Warrant shall be able to
purchase Shares shall be adjusted downward (but may not be increased) to the
price determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
multiplied by the Warrant Price in effect plus (2) the aggregate consideration
----
received or receivable for the shares of Common Stock issued or issuable by (B)
the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issuance or sale plus (2) the number of shares issued or sold or
----
receivable upon the exercise or conversion of such Options. For purposes of
this Section 4(c), "Market Price" as of any date shall mean the closing sale
price of the Common Stock on such date.
3
<PAGE>
(e) Repurchases or Redemptions of Common Stock or Options. Except
-----------------------------------------------------
for repurchases or redemptions made in good faith by the Company to permit a
cashless exercise of options issued under a Company Plan, if the Company at any
time while this Warrant is outstanding and unexpired shall repurchase or redeem
any outstanding shares of Common Stock, or any Options for a price which is more
than the Warrant Price, the Warrant Price shall thereupon be adjusted downward
(but may not be increased) by subtracting from the Warrant Price an amount equal
to the amount obtained by multiplying the Warrant Price in effect at the time of
such repurchase or redemption by a fraction (i) the numerator of which shall be
the redemption price less the Warrant Price multiplied by the number of shares
or options redeemed in such repurchase or redemption and (ii) the denominator of
which shall be the Warrant Price multiplied by the number of issued and
outstanding of shares of Common Stock of the Company prior to the purchase or
redemption. Upon each adjustment in the Warrant Price pursuant to this Section
4(e), the number of Shares of Common Stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Shares purchasable immediately prior to such adjustment in the Warrant
Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
(e) No Impairment. The Company will not, by amendment of its charter
--------------
or bylaws or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
(f) Notice of Adjustments. Whenever the Warrant Price or the number
----------------------
of Shares purchasable hereunder shall be adjusted pursuant to this Section 4,
the Company shall prepare a certificate setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment and the method by
which such adjustment was calculated. Such certificate shall be signed by its
chief financial officer and shall be delivered to the holder of this Warrant.
(g) Fractional Shares. No fractional shares of Common Stock will be
------------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Common Stock on the date of exercise as reasonably determined in
good faith by the Company's Board of Directors.
(h) Cumulative Adjustments. No adjustment in the Warrant Price shall
----------------------
be required under this Section 4 until cumulative adjustments result in a
concomitant change of 1%
4
<PAGE>
or more of the Warrant Price or in the number of shares of Common Stock
purchasable upon exercise of this Warrant as in effect prior to the last such
adjustment; provided, however, that any adjustments which by reason of this
Section 4 are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 4
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
5. Compliance with Securities Act; Disposition of Warrant or Shares
----------------------------------------------------------------
of Common Stock. (a) The holder of this Warrant, by acceptance hereof, agrees
- ---------------
that this Warrant and the Shares to be issued upon exercise hereof are being
acquired for investment and that such holder will not offer, sell or otherwise
dispose of this Warrant or any Shares to be issued upon exercise hereof except
under circumstances which will not result in a violation of applicable
securities laws. Upon exercise of this Warrant, unless the Shares being
acquired are registered under the Securities Act of 1933, as amended (the
"Act"), or an exemption from the registration requirements of such Act is
available, the holder hereof shall confirm in writing, by executing an
instrument in form reasonably satisfactory to the Company, that the Shares so
purchased are being acquired for investment and not with a view toward
distribution or resale. This Warrant and all Shares issued upon exercise of
this Warrant (unless registered under the Act) shall be stamped or imprinted
with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, (II) AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, OR (III) OTHERWISE COMPLYING
WITH THE PROVISIONS OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
(b) With respect to any offer, sale or other disposition of this
Warrant or any Shares acquired pursuant to the exercise of this Warrant prior to
registration of such Shares, the holder hereof and each subsequent holder of
this Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
holder's counsel, if requested by the Company, in form and content reasonably
satisfactory to the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of this Warrant or
such Shares and indicating whether or not under the Act certificates for this
Warrant or such Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with the Act. Promptly upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company, as promptly as
practicable, shall notify such holder that such holder may sell or
5
<PAGE>
otherwise dispose of this Warrant or such Shares, all in accordance with the
terms of the notice delivered to the Company. Notwithstanding the foregoing,
this Warrant or such Shares may be offered, sold or otherwise disposed of in
accordance with Rule 144 as promulgated under the Act ("Rule 144"), provided
that the Company shall have been furnished with such information as the Company
may reasonably request to provide a reasonable assurance that the provisions of
Rule 144 have been satisfied. Each certificate representing this Warrant or the
Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a
legend as to the applicable restrictions on transferability in order to insure
compliance with the Act, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to insure compliance with the Act.
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
6. Rights as Shareholders. No holder of this Warrant, as such, shall
----------------------
be entitled to vote or receive dividends or be deemed the holder of Shares or
any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
7. Representations and Warranties. The Company represents and
------------------------------
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable; and
(c) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's charter or bylaws, as
amended, and do not and will not constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound.
8. Miscellaneous. (a) This Warrant and any provision hereof may be
-------------
changed, waived, discharged or terminated only by an instrument in writing
signed by both the Company and the holder of this Warrant.
6
<PAGE>
(b) Any notice, request or other document required or permitted to be
given or delivered to the holder hereof or the Company shall (i) be in writing,
(ii) be delivered personally or sent by mail or overnight courier to the
intended recipient to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the signature
page of this Warrant, unless the recipient has given notice of another address,
and (iii) be effective on receipt if delivered personally, two business days
after dispatch if mailed, and one business day after dispatch if sent by
overnight courier service.
(c) The Company covenants to the holder hereof that upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft or
destruction, upon receipt of a bond or indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant, the Company will make and deliver a new Warrant, of like tenor,
in lieu of the lost, stolen, destroyed or mutilated Warrant.
(d) The descriptive headings of the several sections and paragraphs
of this Warrant are inserted for convenience only and do not constitute a part
of this Warrant.
(e) This Warrant shall be governed by and construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York, with respect to contracts to be wholly performed within
such state.
7
<PAGE>
IN WITNESS WHEREOF, Medi-Ject Corporation has executed this Warrant as
of the date set forth below.
MEDI-JECT CORPORATION
By:___________________________
Name: ________________________
Title: _______________________
Dated: November 10, 1998.
8
<PAGE>
Annex A
-------
NOTICE OF EXERCISE
To: Medi-Ject Corporation
1. The undersigned hereby elects to purchase _____ shares of Common Stock of
Medi-Ject Corporation in accordance with the terms of the attached Warrant, and
tenders herewith full payment of the purchase price of such shares, in cash or
other immediately available funds.
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:
Name: __________________________________________
Address: _______________________________________
________________________________________________
3. The undersigned represents that the aforesaid shares are being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
Signature:_________________________________
Name:______________________________________
Address:___________________________________
___________________________________________
___________________________________________
Social Security or taxpayer identification
number:
___________________________________________
9
<PAGE>
EXHIBIT 10.24
CONFIDENTIAL
AGREEMENT
---------
This AGREEMENT, made and effective January 1, 1999 ("Effective Date") by
and between BECTON DICKINSON AND COMPANY, a New Jersey corporation ("BECTON")
and MEDI-JECT CORPORATION, a Minnesota corporation ("MEDI-JECT").
Whereas, BECTON and MEDI-JECT have previously entered into that certain
Development and License Agreement, dated as of January 1, 1996, an Amendment No.
1 to Development and License Agreement and an Amendment No. 2 to Development and
License Agreement (collectively the "DEVELOPMENT AND LICENSE AGREEMENT"),
relating to the development and commercialization of certain needle-free
injectors and disposables, particularly the MJ-7 injector, copies of which are
attached hereto; and
Whereas, the parties have now completed the three (3) year period from
January 1, 1996 under the DEVELOPMENT AND LICENSE AGREEMENT, including the
initial term of the OPEN DEVELOPMENT PROGRAM, and the parties now wish to set
forth the terms and conditions to restructure their relationship and redefine
their roles, rights and obligations to one another going forward whereby MEDI-
JECT shall be free to develop, make, have made, import, offer for sale, sell,
distribute and use needleless injectors and disposables, including assuming
complete responsibility for the commercialization of the MJ-7 injector, as well
as multiple-use disposable drug chambers (user-filled) and other related drug-
containing or drug-contacting components (e.g., vial adapter) for use in
connection with the MJ-7 injector, and BECTON is free to develop, make, have
made, import, offer for sale, sell, distribute and use needleless injectors and
disposables, including disposable drug chambers (either user-filled or pre-
fillable) and other related drug-containing or drug-contacting components (e.g.,
vial adapter); and
Now, therefore, in consideration of the premises and promises contained
herein, the parties agree as follows:
<PAGE>
1. DEFINITIONS.
-----------
Each of the capitalized terms used in this Agreement (other than the headings of
the Paragraphs), whether used in the singular or the plural, shall have the
meaning as set forth below or, if not listed below, the meaning as designated in
places throughout this Agreement.
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 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 PROPERTY" shall mean all INTELLECTUAL PROPERTY owned by or
licensed to (with right of sublicense) BECTON prior to January 1, 1996 relating
to DISPOSABLES.
1.3 "CONFIDENTIAL INFORMATION" shall mean any information, report,
document or other materials (including, but not limited to, laboratory
notebooks, schematics, specifications, circuits, diagrams, specimens, samples,
prototypes, models and data regardless of how stored) disclosed or provided to
the other party during the DEVELOPMENT AND LICENSE AGREEMENT which is of a trade
secret, confidential, proprietary or like undisclosed nature or was identified
as such.
1.4 "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.
1.5 "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.
1.6 "MJ-7 INJECTOR" shall mean the reusable device described in the
specification attached hereto as Exhibit A for needleless, transdermal injection
of parenteral drugs and any
2
<PAGE>
improvements or modifications thereto, excluding next generation devices such as
the MJ-8 needleless injector to be submitted to BECTON under Paragraph 9.2.
1.7 "MEDI-JECT PROPERTY" shall mean all INTELLECTUAL PROPERTY owned by or
licensed to (with right of sublicense) MEDI-JECT prior to January 1, 1996
relating to NEEDLELESS INJECTORS and/or DISPOSABLES, including all PATENTS filed
by MEDI-JECT before March 1, 1996.
1.8 "NEEDLELESS INJECTOR" shall mean (a) a 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.
1.9 "NET SALES" shall mean the price at which ROYALTY-BEARING DISPOSABLES
are sold by MEDI-JECT, its respective AFFILIATES or sublicensees to a purchaser
(other than MEDI-JECT, its respective AFFILIATES or sublicensees), less returns
or credits, rebates, excise, sale, use or value-added taxes, cash and trade
discounts actually allowed and import duties. The parties recognize that only
one royalty shall be payable with respect to any ROYALTY-BEARING DISPOSABLE
regardless of the number of VALID CLAIMS under the applicable PROGRAM PATENTS
that may cover the manufacture, sale or use of such DISPOSABLE.
1.10 "PATENTS" shall mean United States and foreign patents and/or patent
applications, including any continuations, continuations-in-part, divisions,
extensions, substitutions, reissues or re-examinations thereof.
1.11 "PRE-FILLABLE" shall mean a DISPOSABLE filled by any one other than a
patient, nurse, doctor or other healthcare professional.
1.12 "PROGRAM PATENTS" shall mean those PATENTS within the PROGRAM
PROPERTY and for which PATENTS have been filed for by March 1, 1999.
1.13 "PROGRAM PROPERTY" shall mean all INTELLECTUAL PROPERTY made,
conceived, created, developed or reduced to practice (by employees or agents of
BECTON or
3
<PAGE>
MEDI-JECT or jointly by employees or agents of both parties) during and/or in
connection with their respective activities under the DEVELOPMENT AND LICENSE
AGREEMENT between January 1, 1996 and January 1, 1999 relating to NEEDLELESS
INJECTORS and/or DISPOSABLES.
1.14 "ROYALTY-BEARING DISPOSABLE" shall mean:
(a) any DISPOSABLE for use with the MJ-7 INJECTOR; or
(b) any DISPOSABLE, (i) the manufacture, importation, offer for
sale, sale or use of such is covered, in the country where the DISPOSABLE is
manufactured, imported, offered for sale, sold or used, by (1) for the two (2)
year period commencing on the first commercial sale of DISPOSABLES, a claim of a
pending patent application within the PROGRAM PATENTS, or (2) at any time during
the term hereof, a VALID CLAIM of any PROGRAM PATENTS.
1.15 "USER-FILLED" shall mean a DISPOSABLE filled by a patient, nurse,
doctor or other healthcare professional.
1.16 "VALID CLAIM" shall mean at least one claim of an issued or granted
PROGRAM 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.
1.17 Except to the extent expressly provided in this Agreement, any other
capitalized terms used herein shall have the same meanings as provided under the
DEVELOPMENT AND LICENSE AGREEMENT.
2. UNDERSTANDING OF THE PARTIES & MUTUAL RELEASES. In furtherance of the
----------------------------------------------
parties' desire to restructure the relationship and redefine their roles, rights
and obligations to one another going forward with respect to the MJ-7 INJECTOR
and DISPOSABLES, the DEVELOPMENT AND LICENSE AGREEMENT is hereby cancelled and
shall have no further force and effect. Accordingly, except as specifically
provided herein, from the Effective Date hereof, the parties
4
<PAGE>
agree that: (a) neither party shall bear any further obligation or
responsibility to the other party pursuant to the DEVELOPMENT AND LICENSE
AGREEMENT, and each party shall not to bring any lawsuit against the other
party, or its affiliated and subsidiary entities, and fully releases and forever
discharges the other party, and its affiliated and subsidiary entities and their
respective legal representatives, successors, assigns, agents, directors and
employees, from and against any and all actions, claims, and liabilities of
whatsoever kind or character, in law or in equity, now known or unknown,
suspected or unsuspected, that the other party has ever had or may now have
against them or any of them as related to or arising from the respective
activities and obligations of the parties under the DEVELOPMENT AND LICENSE
AGREEMENT; (b) MEDI-JECT shall be free to develop, make, have made, import,
offer for sale, sell, distribute and use NEEDLELESS INJECTORS and DISPOSABLES,
including but not limited to being free to commercialize the MJ-7 INJECTOR and
DISPOSABLES for use in connection therewith; (c) BECTON shall be free to
develop, make, have made, import, offer for sale, sell, distribute and use
NEEDLELESS INJECTORS and DISPOSABLES; and (d) the rights and obligations of the
parties in and to the INTELLECTUAL PROPERTY which is the subject of the
DEVELOPMENT AND LICENSE AGREEMENT shall be allocated between the parties in the
manner set forth in this Agreement.
3. INTELLECTUAL PROPERTY. All INTELLECTUAL PROPERTY shall be owned by
---------------------
the parties as follows:
(a) MEDI-JECT shall own all MEDI-JECT PROPERTY and all PROGRAM PROPERTY
covering NEEDLELESS INJECTORS, excluding PROGRAM PATENTS;
(b) BECTON shall own all BECTON PROPERTY and all PROGRAM PROPERTY covering
DISPOSABLES, excluding PROGRAM PATENTS;
(c) BECTON and MEDI-JECT shall jointly own all PROGRAM PATENTS; and
5
<PAGE>
(d) BECTON and MEDI-JECT shall jointly own any remaining PROGRAM PROPERTY
not otherwise covered herein under Sub-Paragraphs (a) & (b).
4. PATENT PROSECUTION. Each party shall promptly disclose, in writing, to
------------------
the other party all INTELLECTUAL PROPERTY covered by Paragraph 3, and each party
shall be responsible for filing and prosecuting patent applications covering
INTELLECTUAL PROPERTY exclusively owned by it. However, with respect to jointly
owned PROGRAM PATENTS, the parties shall mutually agree on whether and in which
countries to file and prosecute patent applications covering such INTELLECTUAL
PROPERTY, and to maintain patents granted thereunder; with each party having an
opportunity to review and comment on any such filings prior to submission and to
discuss the strategy for preparing, filing, prosecuting, maintaining and
defending of any such patent applications or resulting patents, and with the
parties sharing equally any out-of-pocket costs and expenses incurred with
respect to such actions. Unless otherwise mutually agreed, the parties agree
that at a minimum PROGRAM PATENTS shall be applied for, prosecuted and
maintained in at least the United States, Europe (designating the United
Kingdom, France and Germany) and Japan. In the event one party declines to
share in the future expenses for seeking or maintaining a PROGRAM PATENT, such
party shall provide the other party with prior written notice of its wish to
share in any future expenses before such expenses are incurred and shall
continue to jointly own such PROGRAM PATENT but such party shall not be entitled
---
to enforce such PROGRAM PATENT against a third-party without the written
authorization of the other party. Also, in the case of BECTON, if BECTON
declines to participate in the future expenses for seeking or maintaining such
PROGRAM PATENT, for purposes of royalties owed under this Agreement, such
PROGRAM PATENT shall be considered has having been cancelled for purposes of
whether it includes a VALID CLAIM.
6
<PAGE>
5. COOPERATION. 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.
6. CROSS-LICENSES. The following cross-licenses are hereby granted:
--------------
(a) BECTON hereby grants to MEDI-JECT a non-exclusive, worldwide, royalty-
free license to use the PATENTS within the BECTON PROPERTY (subject to
any restrictions or obligations to third parties, including license
royalty obligations) to develop, make, have made, market, import,
offer for sale, sell, distribute and use multiple-use disposable drug
chambers (USER-FILLED) or other related drug-containing or drug-
contacting component (e.g., vial adapter) for use with the MJ-7
INJECTOR, as well as the continuing right and license to use such
PATENTS actually used in connection with the MJ-7 INJECTOR to develop,
make, have made, market, import, offer for sale, sell, distribute and
use multiple-use disposable drug chambers (USER-FILLED) or other
related drug-containing or drug-contacting component (e.g., vial
adapter) for use with future NEEDLELESS INJECTORS; and
(b) MEDI-JECT hereby grants to BECTON a non-exclusive, worldwide, royalty-
free license to use the PATENTS within the MEDI-JECT PROPERTY (subject
to any restrictions or obligations to third parties, including license
royalty obligations) to develop, make, have made, market, import,
offer for sale, sell, distribute and use single-use disposable drug
chambers (either USER-FILLED or PRE-FILLABLE)
7
<PAGE>
or other related drug-containing or drug-contacting components (e.g.,
vial adapter).
(c) Except as specifically provided herein, nothing contained in this
Agreement shall be construed by implication or otherwise to grant to a
party any rights to any of the other party's other INTELLECTUAL
PROPERTY, including PATENTS, 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) prior to January 1,
1996 or independently acquired or developed by either party after
January 1, 1999.
7. ROYALTIES.
---------
7.1 Notwithstanding the royalty-free nature of the rights granted MEDI-
JECT under Paragraph 6(a), in consideration of the rights granted hereunder, as
well as the rights granted to BECTON under the DEVELOPMENT AND LICENSE AGREEMENT
and in accordance herewith relinquished by BECTON, MEDI-JECT agrees to pay
BECTON the following royalties:
(a) A (***) percent ((***)%) royalty on NET SALES of the MJ-7 INJECTORS
for use with insulin;
(b) A (***) percent ((***)%) royalty on NET SALES of ROYALTY-BEARING
DISPOSABLES for use with insulin; and
(c) A (***) percent ((***)%) royalty on NET SALES of ROYALTY-BEARING
DISPOSABLES for uses other than with insulin.
7.2 At the expiration of the last to expire PROGRAM PATENT having a VALID
CLAIM covering a ROYALTY-BEARING DISPOSABLE, MEDI-JECT shall have a completely
paid-up, royalty-free right and license under the PROGRAM PATENTS to
subsequently make, have made, use, sell and import such ROYALTY-BEARING
DISPOSABLES and shall have no further obligation to BECTON under the PROGRAM
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
8
<PAGE>
PATENTS under this Agreement with respect to such ROYALTY-BEARING DISPOSABLE for
use other than with the MJ-7 INJECTOR.
7.3 MEDI-JECT shall keep complete and accurate records of the NET SALES of
DISPOSABLES, as applicable, and all data necessary for the computation of
payment or other calculation made hereunder or thereunder. However, MEDI-JECT
shall have no duty of trust or other fiduciary relationship with BECTON
regarding the maintenance of the books of account or the calculation and
reporting of royalties and other calculations and payments hereunder.
7.4 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, 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 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 7.6 below.
7.5 All royalties and other payments hereunder shall be payable by MEDI-
JECT to BECTON in United States dollars by a check or checks drawn to the order
of BECTON. To the extent sales may have been made by MEDI-JECT 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 according to
MEDI-JECT's 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 BECTON 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 MEDI-JECT to
make payment of royalties in
9
<PAGE>
any country where the currency is blocked and where legal conversion of the
currency billed cannot be made into United States dollars by depositing such
royalty payments in BECTON's name in a bank designated by BECTON within such
country.
7.6 BECTON, at its own expense, shall have the right for a period of two
(2) years after receiving any report from MEDI-JECT to nominate an independent
Certified Public Accountant ("CPA") reasonably acceptable to MEDI-JECT, who
shall have access to MEDI-JECT'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 BECTON 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 BECTON to request verification
of any payment report during said two (2) year period shall be considered
acceptance of the accuracy of such report and MEDI-JECT shall have no obligation
to maintain any records pertaining such report beyond said two (2) year period.
8. CONFIDENTIALITY. Subject to the rights and licenses granted herein,
---------------
MEDI-JECT and BECTON shall continue to be restricted from using or disclosing
CONFIDENTIAL INFORMATION for a period of five (5) years from the Effective Date
of this Agreement, except as provided as provided under Paragraph 12.4 in
connection with a transfer so long as any receiving party agrees to be bound by
the restrictions and obligations set forth herein, including but not limited to
those with respect non-use and confidentiality of CONFIDENTIAL INFORMATION.
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
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<PAGE>
independently of knowledge of CONFIDENTIAL INFORMATION received by the receiving
party from the disclosing party.
9. RIGHT OF FIRST REFUSAL
----------------------
9.1 Disposables. For a period of five (5) years from the Effective Date
-----------
of this Agreement, MEDI-JECT agrees to notify BECTON in writing no more than
(***) months before MEDI-JECT either commits capital to manufacture or commits
to a third-party to manufacture for it more than (***) DISPOSABLES per calendar
year and MEDI-JECT agrees to negotiate with BECTON, before any others, for
exclusive rights to manufacture such DISPOSABLE for MEDI-JECT. BECTON shall have
(***) days after receiving such written notification to notify MEDI-JECT if
BECTON desires to exercise its right of first refusal. Failure to provide such
notice in a timely manner shall result in a forfeiture of such right of first
refusal as to such DISPOSABLE. Upon receipt of notice by MEDI-JECT from BECTON
that it intends to exercise its right of first refusal, BECTON and MEDI-JECT
shall negotiate, in good faith and in an expeditious manner, terms and
conditions satisfactory to both parties under which BECTON would exclusively
manufacture and sell such DISPOSABLE, unless otherwise agreed to by the parties.
If the parties are unable to agree on the terms and conditions of an agreement
within a period of (***) days after receiving the notification from MEDI-JECT
provided for under this Paragraph, MEDI-JECT shall be free to offer the same
rights to such DISPOSABLE as were offered to BECTON to any third party on terms
no more favorable in the aggregate to that third party than the terms last
offered to BECTON.
9.2 Injector for Use with Insulin. For a period of (***) months from the
-----------------------------
Effective Date of this Agreement, MEDI-JECT agrees to notify BECTON in writing
in the event MEDI-JECT has conceived of a new NEEDLELESS INJECTOR to be
commercially developed for use with insulin and provide BECTON with at least one
(***) prototype of such new NEEDLELESS INJECTOR, and MEDI-JECT agrees to
negotiate with BECTON, before any others, for exclusive rights to commercially
develop and sell the new NEEDLELESS INJECTOR, which
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
11
<PAGE>
BECTON understands the next new NEEDLELESS INJECTOR may be known as the MJ-8.
BECTON shall have (***) days after receiving such written notification to notify
MEDI-JECT if BECTON desires to exercise its right of first refusal. Failure to
provide such notice in a timely manner shall result in a forfeiture of such
right of first refusal as to such new NEEDLELESS INJECTOR. Upon receipt of
notice by MEDI-JECT from BECTON that it intends to exercise its right of first
refusal, BECTON and MEDI-JECT shall negotiate, in good faith and in an
expeditious manner, terms and conditions satisfactory to both parties under
which BECTON would exclusively sell such new NEEDLELESS INJECTOR for use with
insulin, unless otherwise agreed to by the parties. If the parties are unable to
agree on the terms and conditions of an agreement within a period of (***) days
after receiving the notification from MEDI-JECT provided for under this
Paragraph, MEDI-JECT shall be free to offer the same rights to such NEEDLELESS
INJECTOR as were offered to BECTON to any third party on terms no more favorable
in the aggregate to that third party than the terms last offered to BECTON.
9.3 Injectors for use with other than Insulin. For a period of (***)
-----------------------------------------
months from the Effective Date of this Agreement, MEDI-JECT agrees to notify
BECTON in writing in the event MEDI-JECT has conceived of a new NEEDLELESS
INJECTOR to be commercialized for use with other than insulin and provide BECTON
with at least one sample of such new NEEDLELESS INJECTOR, and MEDI-JECT agrees
to negotiate with BECTON, before any others, for exclusive rights to offer for
sale, sell and use DISPOSABLES in connection with the new NEEDLELESS INJECTOR to
deliver other than insulin, which BECTON understands the next new NEEDLELESS
INJECTOR may be known as the MJ-8. BECTON shall have (***) days after receiving
such written notification to notify MEDI-JECT if BECTON desires to exercise its
right of first refusal. Failure to provide such notice in a timely manner shall
result in a forfeiture of such right of first refusal as to such new NEEDLELESS
INJECTOR. Upon receipt of notice by MEDI-JECT from BECTON that it intends to
exercise its right of first refusal, BECTON and MEDI-JECT shall negotiate, in
good faith and in an expeditious manner, terms and conditions satisfactory to
both parties under which BECTON would exclusively make,
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
12
<PAGE>
have made, offer for sale, sell, import and use DISPOSABLES in connection with
such new NEEDLELESS INJECTOR for use with other than insulin, unless otherwise
agreed to by the parties. If the parties are unable to agree on the terms and
conditions of an agreement within a period of (***) days after receiving the
notification from MEDI-JECT provided for under this Paragraph, MEDI-JECT shall
be free to offer the same rights to such NEEDLELESS INJECTOR and/or DISPOSABLE
as were offered to BECTON to any third party on terms no more favorable in the
aggregate to that third party than the terms last offered to BECTON.
10. OBLIGATIONS TO THIRD-PARTIES. BECTON and MEDI-JECT agree to cooperate
----------------------------
(***)
11. RIGHTS AND OBLIGATIONS TO NEGOTIATE AND RESOLUTION OF DISPUTES.
--------------------------------------------------------------
11.1 Within sixty (60) days of the Effective Date of this Agreement, the
parties shall attempt in good faith to identify and categorize all of the
PATENTS within the PROGRAM PROPERTY and MEDI-JECT PROPERTY covered by this
Agreement, and resolve any outstanding issues with respect thereto, including
any issues raised under Paragraphs 4 and 5.
11.2 If during a period of two (2) years from the Effective Date of this
Agreement it becomes necessary or desirable for a party to have access to the
INTELLECTUAL PROPERTY of the other party covered by this Agreement in order to
carry out any of its rights and obligations under this Agreement or access to
PROGRAM PROPERTY not specifically provided for herein, MEDI-JECT and BECTON
agree to negotiate in good faith with each other a mutually agreeable
arrangement, including, for example, a licensing agreement to provide access to
such necessary rights.
11.3 The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiations between
executives of each party who have the authority to settle such dispute.
Executives of both parties shall attempt to resolve such dispute in the course
of discussions conducted by telephone or face-to-face meeting at a mutually
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
13
<PAGE>
acceptable times and places, and thereafter as often as they reasonably deem
necessary, to exchange relevant information. If the executives are 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.
12. MISCELLANEOUS.
-------------
12.1 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
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.
12.2 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.
12.3 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.
14
<PAGE>
12.4 This Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and permitted
assigns. Neither party shall assign this Agreement or any part thereof without
the prior written consent of the other party; provided, however, either party,
without such consent, may assign this Agreement or delegate its responsibilities
under this Agreement to an AFFILIATE, and in connection with the transfer or
sale of substantially its entire business to which this Agreement pertains in
the event of its merger or consolidation with or acquisition by another company
or in the event of the transfer or sale to a wholly-owned subsidiary.
12.5 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original.
12.6 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 Pharmaceutical Systems
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
with a copy to: Chief Intellectual Property Counsel
Becton Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
15
<PAGE>
If to MEDI-JECT: President
Medi-Ject Corporation
161 Cheshire Lane, Suite 100
Minneapolis, Minnesota 55441
with a copy to: Morris Sherman, Esq.
LEONARD, STREET & DEINARD
150 South 5th Street, Suite 2300
Minneapolis, Minnesota 55402
12.7 This Agreement shall be governed by and construed in accordance with
Minnesota law (excluding its choice of law rules).
12.8 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.
12.9 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.
12.10 This Agreement constitutes the complete understanding between the
parties of each party's obligations to the other party with respect to the
subject matter hereof and cancels and supersedes all prior and contemporaneous
understandings, negotiations and agreements whether written or oral, including
but not limited to the DEVELOPMENT AND LICENSE AGREEMENT.
12.11 This Agreement can be modified only by a written document executed
by an authorized representative of the parties which refers to this Agreement
and includes a copy of this Agreement as an attachment.
16
<PAGE>
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/ Alexandre Conroy
---------------------------- ----------------------------
Authorized Signature Authorized Signature
____________________________ ____________________________
Name & Title Typed Name & Title Typed
Date Signed: 2/8/99 Date Signed: 2/1/99
------------------- ------------------
17
<PAGE>
EXHIBIT 10.25
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of November 10, 1998, between
MEDI-JECT CORPORATION, a Minnesota corporation (the "Company"), and ELAN
INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS").
R E C I T A L S :
A. The Company desires to issue and sell to EIS, and EIS desires to
purchase from the Company, on the Closing Date (as defined below), 1,000 shares
of the Company's Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and the Company's Warrant for the purchase of shares of Common Stock of
the Company (the "Warrant") which shall be issued to EIS for aggregate
consideration of US$1,000,000 (one million United States dollars), to be paid by
EIS to the Company on the Closing Date.
B. The Company and Elan Corporation have entered into a License and
Development Agreement of even date herewith (the "License Agreement"), for the
purpose of researching, developing and commercializing the Auto-Injector
Technology (as that term is defined therein). Capitalized terms used herein
which are not otherwise defined shall have the same meanings as ascribed to them
in the License Agreement. The parties intend, as provided herein, that the
proceeds of the issuance of Series A Preferred Stock shall be applied by the
Company solely for the payment of the license fee by the Company for the Auto-
Injector Technology.
A G R E E M E N T :
NOW THEREFORE, the parties agree as follows:
SECTION 1. Closing. (a) Time and Place. The closing of the
------- --------------
transactions contemplated hereby (the "Closing") shall occur simultaneous with
the execution of this Agreement on the date hereof (the "Closing Date"), at the
offices of counsel to EIS or such other place as the parties may agree.
(b) Issuance of the Series A Preferred Stock. At the Closing,
----------------------------------------
the Company shall issue and sell to EIS, and EIS shall purchase from the
Company, 1,000 shares of Series A Preferred Stock, and a warrant to purchase
280,000 shares of Common Stock of the Company for an aggregate purchase price of
US $1,000,000 (one million United States dollars).
(c) Delivery. At the Closing, EIS shall pay the purchase price
--------
for the Series A Preferred Stock by wire transfer of immediately available funds
in accordance with the Company's instructions, and the parties hereto shall
execute and deliver to each other, as applicable: (i) a certificate or
certificates for the shares of the Series A Preferred Stock (against payment of
the purchase price therefor); (ii) certificates as to the incumbency of the
officers executing this Agreement and each of the other documents or instruments
executed in connection herewith; (iii) the Warrant for the issuance of shares of
Common Stock to EIS and (iii) each of the other documents or instruments
executed in connection herewith (together, with this Agreement, the "Transaction
Documents"). In addition, at the Closing, the Company shall cause to be
delivered to EIS an opinion of counsel, from Dorsey & Whitney LLP, in the form
and substance reasonable acceptable to EIS. As a condition precedent for the
transactions contemplated herein, prior to or simultaneous with the Closing, the
Company and Elan Corporation shall have executed and delivered the to each other
the License Agreement.
1
<PAGE>
(d) Exemption from Registration. The Series A Preferred Stock
---------------------------
will be issued under an exemption or exemptions from registration under the
Securities Act of 1933, as amended; accordingly, the certificates evidencing the
Series A Preferred Stock shall, upon issuance, contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933 AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS ALSO SUBJECT TO THE RESTRICTIONS
CONTAINED IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED
NOVEMBER 10, 1998, BY AND BETWEEN MEDI-JECT CORPORATION AND ELAN
INTERNATIONAL SERVICES, LTD.
SECTION 2. Representations and Warranties of the Company. Except as
---------------------------------------------
set forth in the Schedule of Exceptions attached hereto as Exhibit 1, the
---------
Company hereby represents to EIS on behalf of itself and, as applicable, its
subsidiaries and affiliates:
(a) Organization and Qualification. The Company is duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to own and lease
its properties, to carry on its business as presently conducted and as proposed
to be conducted and to consummate the transactions contemplated hereby. The
Company is qualified and in good standing to do business in each jurisdiction in
which the nature of the business conducted or the property owned by it requires
such qualification, except where the failure to so qualify would not have a
Material Adverse Effect (as defined below) on the business, prospects,
properties or condition (financial or otherwise) of the Company. Annexed hereto
as Exhibit A is true and complete copy of the Company's Articles of
Incorporation, as amended, as of the date hereof, together with all certificates
of designations related thereto. Annexed hereto as Exhibit B is a true and
complete copy of the Company's bylaws, as amended, as of the date hereof.
Annexed hereto as Exhibit C is a true and complete copy of the Certificate of
Designations related to the Series A Preferred Stock (the "Certificate of
Designations") which the Company represents and warrant contains all of the
designations, rights and preferences of the Series A Preferred Stock and has
been filed and is effective as of the date hereof.
(b) Capitalization. (i) Immediately prior to the Closing of the
--------------
transactions contemplated hereby: the authorized capital stock of the Company
consisted of 17,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock; of the authorized Common Stock, 7,123,762 shares are issued and
outstanding; of the authorized Preferred Stock, 10,000 are designated Series A
Preferred Stock. and no other shares of Preferred Stock have been designated;
and as of the date hereof, there are no shares of Preferred Stock issued and
outstanding. Simultaneously herewith, the Company is issuing 1,000 shares of
Series A Preferred Stock to EIS.
(ii) As of the Closing Date: the Company has reserved (A)
1,415,101 shares of Common Stock for issuance upon exercise of outstanding
option grants to employees, directors and consultants of the Company, (B)
429,949 shares of Common Stock for future option grants to employees, directors
and consultants of the Company, (C) 2,787,893 shares of Common Stock for
issuance upon exercise of outstanding warrants, including 280,000 shares of
Common Stock issuable upon exercise of the Warrant, dated of
2
<PAGE>
even date herewith, issued by the Company to EIS and (D) 2,000,000 shares of
Common Stock for issuance upon conversion of the Series A Preferred Stock. In
addition, the Company has reserved (E) 9,000 shares of Series A Preferred Stock
for issuance as dividend distributions in the event the Company does not have
sufficiently legally available funds for payment of a cash distribution on a
dividend payment date. Other than the foregoing, there are no preemptive rights,
voting agreements, rights of first offer or refusal, options, warrants or other
conversion privileges or rights presently outstanding to purchase, subscribe for
or otherwise acquire, or any securities into or exercisable for or into, any of
the Company's authorized but unissued capital stock. Except as otherwise
provided herein, there are no agreements to register any of the Company's
outstanding securities under the U.S. federal securities laws.
(iii) All of the outstanding shares of capital stock of the
Company have been issued in accordance with applicable state and federal laws
and regulations governing the sale and purchase of securities, all of such
shares have been duly and validly issued and are fully paid and non-assessable,
and none of such shares carries preemptive or similar rights.
(c) Authorization of Transaction Documents. The Company has full
--------------------------------------
corporate power and authority to execute and deliver this Agreement, and each of
the other Transaction Documents, and to perform its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of the
Transaction Documents (including the issuance and sale of the Series A Preferred
Stock) have been authorized by all requisite corporate actions by the Company;
and the Transaction Documents (including the issuance and sale of the Series A
Preferred Stock) have been duly executed and delivered by the Company, are the
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the enforcement of creditors' rights generally, and except
as enforcement of rights to indemnity and contribution hereunder and thereunder
may be limited by U.S. federal or state securities laws.
(d) No Conflicts. The execution, delivery and performance by the
------------
Company of the Transaction Documents (including the issuance and sale of the
Series A Preferred Stock), and compliance with the provisions thereof by the
Company, will not (i) violate any provision of applicable law, statute, rule or
regulation applicable to the Company or, to the Company's knowledge, any ruling,
writ, injunction, order, judgment or decree of any court, arbitrator,
administrative agency or other governmental body applicable to the Company or
any of their respective properties or assets or (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of, or constitute (with
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of,
any Encumbrance (as defined below) upon any of the properties or assets of the
Company under its Articles of Incorporation, as amended and restated, any other
or similar certificates of designations or Bylaws, or any material contract to
which the Company is a party, except where such violation, conflict or breach
would not, individually or in the aggregate, have a material adverse effect on
the business properties, condition (financial or otherwise), operations or
prospects of the Company ("Material Adverse Effect"). As used herein,
"Encumbrance" shall mean any lien, charge, encumbrance,
3
<PAGE>
equity, claim, option, proxy, pledge, security interest, or other similar right
of any nature, except for such conflicts, breaches or defaults that would not,
individually or in the aggregate, have a Material Adverse Effect.
(e) Approvals. No material permit, authorization, consent or
---------
approval of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of the Transaction Documents (including the issuance and
sale of the Securities or the filing of the Certificate of Designations) by the
Company except for the filing of a Form D with the Securities and Exchange
Commission and any required notices or filings and with the Nasdaq Stock Market.
(f) Filings and Financial Statements. (i) The Company has filed
--------------------------------
its annual report on Form 10-K for the year ended December 31, 1997, its related
proxy materials and its quarterly reports on Form 10-Q for the quarters ended
March 31 and June 30, 1998 (collectively, including all exhibits and schedules
required to be filed in connection therewith, the "SEC Filings") with the
Securities and Exchange Commission, the Nasdaq Stock Market and any other
required person or entity (governmental or otherwise) in a timely manner and as
otherwise required by applicable laws and regulations, including the federal
securities acts. The audited financial statements of the Company for the fiscal
year ended December 31, 1997 included in the SEC Filings (the "Audited Financial
Statements"), and the Company's unaudited balance sheet for the period ending
June 30, 1998, together with the accompanying statements of operations and cash
flows including the notes thereto (the "June Financial Statements";
collectively, with the Audited Financial Statements, the "Financial Statements")
are accurate and complete in all material respects and fairly present the
financial condition of the Company as at the dates thereof and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as may be otherwise
indicated in such financial statements or the notes thereto), subject, in the
case of the June Financial Statements, to normal year-end audit adjustments
(which shall not be material in the aggregate) and the absence of footnote
disclosures.
(g) Taxes and Plans. (i) The Company has filed in a timely
---------------
manner all material federal, state, local and foreign tax returns, reports and
filings (collectively, "Returns"), including income, franchise, property and
other taxes, and has paid or accrued the appropriate amounts reflected on such
Returns. None of the Returns have been audited or challenged, nor has the
Company received any notice of challenge nor have any of the amounts or other
data included in the Returns been challenged or reviewed by any governmental
authority.
(ii) The Company does not maintain, sponsor, is not required
to make contributions to or otherwise have any liability with respect to any
pension, profit sharing, thrift or other retirement plan, employee stock
ownership plan, deferred compensation, stock ownership, stock purchase,
performance share, bonus or other incentive plan, severance plan, health or
group insurance plan, welfare plan, or other similar plan, agreement, policy or
understanding (whether written or oral), whether or not such plan is intended to
be qualified under Section 401(a) of the Code, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended, which
plan covers
4
<PAGE>
any employee or former employee of the Company.
(h) Absence of Changes. Since December 31, 1997, there has not
------------------
been (a) any Material Adverse Effect on the Company; (b) any damage, destruction
or loss, whether or not covered by insurance, resulting in a Material Adverse
Effect on the Company; (c) any declaration, setting aside or payment of any
dividend or other distribution or payment (whether in cash, stock or property)
in respect of the capital stock of the Company, or any redemption or other
acquisition of such stock by the Company (other than the repurchase of unvested
shares of Common Stock held by employees of or consultants to the Company upon
termination of employment or consultancy in accordance with the provisions of
the Company's equity incentive plan and agreements); (d) any disposal or lapse
of any trade secret, invention, patent, patent application or continuation (in
whole or in part), trademark, trademark registration, service mark, service mark
registration, copyright, copyright registration, or any application therefor or
filing in respect thereof (collectively, and together with any and all know-how,
trade secrets and proprietary business or technology information, the
"Intellectual Property"); (e) loss of the services of any of the key officers or
key employees of the Company; (f) any incurrence of or entry into any liability
or Encumbrance, commitment or transaction, including without limitation, any
borrowing (or assumption or guarantee thereof) or guarantee of a third party's
obligations, or capital expenditure (or lease in the nature of a conditional
purchase of capital equipment) in excess of $100,000; or (g) any material change
by the Company in accounting methods or principles or (h) any change in the
assets, liabilities, condition (financial or otherwise), results or operations
or prospects of the Company from those reflected on the Company's financial
statements as of or for the year ended December 31, 1997 (the "Financial
Statements"), as furnished to EIS in writing, except changes in the ordinary
course of business that have not, individually or in the aggregate, had a
Material Adverse Effect or changes reflected in the SEC Filings.
(i) No Liabilities. Except as set forth in the SEC Filings,
--------------
since June 30, 1998 the Company has not incurred or suffered any liability or
obligation, matured or unmatured, contingent or otherwise, except in the
ordinary course of business and that have not, individually or in the aggregate,
had a Material Adverse Effect.
(j) Properties and Assets; Etc. (a) The Company does not own any
--------------------------
interest in real property, and (b) the Company owns or has the right to use
pursuant to license, sub-license, agreement or permission all Intellectual
Property necessary for the operation of its business as presently conducted,
including patents, patent applications, continuations, continuations-in-part,
extensions, trademarks and trademark applications, know-how and other
Intellectual Property, as reflected in the Financial Statements, subject in each
case, to no Encumbrances required to be disclosed in the Financial Statements
except as set forth therein. All of the Company's Intellectual Property which is
owned by the Company is owned free and clear of all liens, claims and
encumbrances; none of the Company's rights in or use of such Intellectual
Property has been or is currently being threatened to be, challenged; to the
Company's knowledge, without making any inquiry other than those, if any,
routinely conducted by the Company in the ordinary course of business, no
current or currently planned product based upon the Company's Intellectual
Property would infringe any patent, trademark, service mark, trade name or
copyright of any other person or entity issued or pending on the Closing Date if
the Company were to distribute, sell, market or manufacture
5
<PAGE>
such products; and the Company is not aware, after due inquiry, of any actual or
threatened claim by any person or entity alleging any infringement by the
Company of a patent, trademark, service mark, trade name or copyright possessed
by such person or entity. None of such Intellectual Property, whether foreign or
domestic, has been canceled, abandoned, or otherwise terminated. All of the
Company's patent applications, trademark applications, service mark
applications, trade name applications and copyright applications have been duly
filed with the appropriate regulatory authorities.
(k) The Company has and maintains fire and casualty insurance
policies, sufficient in amount, subject to reasonable deductibles, to allow it
to replace any of its properties that may become damaged or destroyed.
(l) The Company, its business and properties and assets are in
compliance, in all material respects, with all applicable laws and regulations,
including without limitation, those relating to (a) health, safety and employee
relations, (b) environmental matters, including the discharge of any hazardous
or potentially hazardous materials into the environment, and (c) the
development, commercialization and sale of pharmaceutical and biotechnology
products, including all applicable regulations of the U.S. Food and Drug
Administration and comparable, applicable foreign regulatory authorities.
(m) Legal Proceedings, etc. Except as set forth in the Company's
----------------------
SEC Filings, there is no legal, administrative, arbitration or other action or
proceeding or governmental investigation pending or, to the Company's knowledge,
threatened against the Company.
(n) Disclosure. The representations and warranties set forth
----------
herein do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements contained herein and therein
not misleading, in light of the circumstances under which they were made.
(o) Brokers or Finders. The Company has not retained any
------------------
investment banker, broker or finder in connection with the transactions
contemplated by the Transaction Documents; and no person or entity is entitled
to any fee or compensation in respect thereof.
SECTION 3. Representations, Warranties and Covenants of EIS. EIS
------------------------------------------------
hereby represents, warrants and covenants to the Company as follows:
(a) Organization. EIS is a corporation duly organized, validly
------------
existing and in good standing under the laws of Bermuda and has all requisite
corporate power and authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be conducted and to
consummate the transactions contemplated hereby. EIS is qualified and in good
standing to do business in each jurisdiction in which the nature of the business
conducted or the property owned by it requires such qualification, except where
the failure to so qualify would not reasonably be expected to have a material
adverse effect on the business or condition (financial or otherwise) of EIS.
(b) Authorization of Agreement. EIS has full legal right, power
--------------------------
6
<PAGE>
and authority to enter into this Agreement and purchase and accept the Series A
Preferred Stock, and perform its obligations hereunder, which have been duly
authorized by all requisite corporate action. This Agreement has been duly
executed and delivered by EIS and is the valid and binding obligations of EIS,
enforceable against EIS in accordance with its terms.
(c) No Conflicts. The execution, delivery and performance by EIS
------------
of this Agreement, the purchase and acceptance of the Series A Preferred Stock
and compliance with provisions hereof by EIS, will not (i) violate any
provisions of applicable law, statute, rule or regulation or, to the best of
EIS's knowledge, any ruling, injunction, order, judgment or decree of any court,
arbitration, administrative agency of other governmental body applicable to EIS
of any of its properties or assets or (ii) conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute (with notice or
lapse of time to both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any
Encumbrance upon any of the properties or assets of EIS under the organizational
documents of EIS or any material contract to which EIS is party, except where
such violation conflict or breach would not, individually or in the aggregate,
have a material adverse effect on EIS.
(d) Approvals. No permit, authorization, consents or approval of
---------
or by, or any notification of or filing with, any person or entity (governmental
or otherwise) is required in connection with the execution, delivery or
performance of this Agreement by EIS.
(e) Investment Representations.
--------------------------
(i) EIS has not been formed solely for the purpose of
entering into the transactions described herein and is acquiring the
Securities for investment for its own account, not as a nominee or agent,
and not with the view to, or for sale in connection with, any distribution
of any part thereof.
(ii) EIS understands that the offer and sale of the Series
A Preferred Stock has not been, and will not be, registered under the
Securities Act of 1933 as amended, (the "Securities Act"), by reason of a
specific exemption from the Registration provisions of the Securities Act
that depends, among other things, the bona fide nature of EIS's investment
intent and the accuracy of EIS's representations as expressed herein and in
response to the Company's inquiries. EIS further understands that no public
market now exists for the Series A Preferred Stock, and the Company has
made no assurances that such a public market will ever exist for the Series
A Preferred Stock.
(iii) EIS has had the opportunity to ask questions of, and
receive answers from, representatives of the Company concerning the Company
and the terms and conditions of this transaction. All questions raised by
EIS have been answered to its satisfaction, and all information requested
by EIS has been supplied.
(iv) EIS's decision to enter into the transactions
contemplated hereby is based on its own evaluation of the risk and merits
of the purchase and the Company's proposed business activities. EIS
acknowledges that the Series A Preferred Stock or the Common Stock issuable
upon conversion thereof must
7
<PAGE>
be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available. EIS is aware of
the provisions of Rule 144 promulgated under the Securities Act, which may
permit resale of the Series A Preferred Stock, subject to the satisfaction
of certain conditions.
(v) Nothing contained in this Section 3(e) shall limit any
of the Company's representations or warranties or limit EIS's recourse in
respect thereof.
(vi) EIS has not retained any investment banker, broker or
finder in connection with the transactions contemplated by the Transaction
Documents; and no person or entity is entitled to any fee or compensation
in respect thereof.
(vii) EIS has a net worth in excess of US $5,000,000 (five
million United States dollars).
SECTION 4. Covenants.
---------
(a) Fully-Diluted Stock Ownership. (i) Notwithstanding any other
-----------------------------
provision of this Agreement, in the event that EIS shall have determined that at
any time it (together with its Affiliates, if applicable) holds or has the right
to receive or the obligation to accept from the Company Common Stock (or
securities or rights, options or warrants exercisable, exchangeable or for or
into Common Stock) representing in the aggregate in excess of 19.9% of the
Company's outstanding Common Stock (assuming any such exercise, exchange or
conversion, but not the exercise, exchange or conversion of any other similar
securities), EIS shall have the right, in its sole discretion, rather than
acquiring such securities from the Company, to exchange such number of
securities as are necessary to bring its holdings to below 19.9% of the voting
securities of the Company, for non-voting, no liquidation preference equity
securities of the Company (which shall be reasonably satisfactory to the Company
and EIS), which equity securities shall be entitled to all of the other rights
and benefits of the Common Stock. In the event that EIS shall undertake to
exercise such right, the Company shall use its good faith best efforts to obtain
the approval of the terms of such equity securities by its shareholders if so
required by law, and EIS shall retain the additional right to exchange such new
class of equity security for Common Stock, in its discretion. In the event the
Company has exercised its rights under Section 4(e) hereof and such approval is
required but not obtained, the Company's rights under such Section 4(e) shall be
deemed null and void.
(ii) Notwithstanding anything contained herein to the
contrary, the Company shall not issue a number of shares of Common Stock upon
conversion of the Series A Preferred Stock in excess of 20% of the number of
shares of Common Stock outstanding on the date the Series A Preferred Stock was
first issued (1,424,752 shares) unless and until the Company shall have received
the approval of its shareholders of such issuance as and to the extent required
by Nasdaq Rule 4460(i)(1)(d)(ii). At any time that the Series A Preferred Stock
is convertible pursuant to its terms and the number of shares that would be
issuable upon conversion of the Series A Preferred Stock shall exceed such
number of shares, the Company, upon the request of a holder of Series A
Preferred Shares, shall submit the approval of such issuance to its shareholders
for approval to the extent required by Nasdaq Rule 4460(i)(1)(d)(ii).
(b) Use of Proceeds. The Company shall use the proceeds of the
---------------
sale of the Series A Preferred Stock solely for the purpose of paying the
license fee to Elan Corporation pursuant to the License and Development
Agreement, dated as of the date hereof.
(c) Registration. The Company covenants and agrees that all
------------
8
<PAGE>
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
whether converted by the holder or by the Company, shall at the time of issuance
be registered under the Securities Act or shall be freely transferable without
volume restriction by EIS pursuant to an exemption from the registration
requirements of the Securities Act. The Company shall bear all expenses with
respect to any such registration.
(d) Further Assurances. From and after the date hereof, each of
------------------
the parties hereto agrees to do or cause to be done such further acts and things
and deliver or cause to be delivered to each other such additional assignments,
agreements, powers and instruments, as each may reasonably require or deem
advisable to carry into effect the purposes of the Transaction Documents or to
better to assure and confirm unto each other their respective rights, powers and
remedies hereunder and thereunder.
SECTION 5. Entire Agreement. This Agreement and the other
----------------
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto.
SECTION 6. Survival and Indemnification.
----------------------------
(a) Survival Period. The representations and warranties of the
---------------
Company contained herein shall survive until the redemption of all shares of the
Series A Preferred Stock or their conversion into shares of Common Stock (the
"Survival Period").
(b) Indemnification. In addition to all rights and remedies
---------------
available to the parties hereunder at law or in equity, the Company shall
indemnify EIS, and its respective affiliates, and EIS' and its respective
affiliates' stockholders, officers, directors, employees, agents,
representatives, successors and assigns (collectively, the "Indemnified
Person"), and save and hold EIS harmless from and against and pay on behalf of
or reimburse each such Indemnified Person, as and when incurred, for any and all
losses, cost, or damages, arising out of claims by or on behalf of such
Indemnified Person or any third party, (collectively, "Losses"), that any such
Indemnified Person may suffer, sustain incur or become subject to, as a result
of, in connection with or relating to:
(i) any misrepresentation or breach of warranty on the part
of the Company under Section 2 of this Agreement; or
(ii) any breach or failure to perform of any covenant or
agreement on the part of the Company under Section 4 of this Agreement;
(c) Investigation. All indemnification rights hereunder shall
-------------
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 6(b) above,
irrespective of any investigation, inquiry or examination made for or on behalf
of, or any knowledge of the Indemnified Person or the acceptance of any
certificate or opinion.
(d) Contribution. If the indemnity provided for the this Section
------------
6 shall be, in whole or in part, unavailable to any Indemnified Person, due to
Section 6(b) being declared unenforceable by a court of competent jurisdiction
based upon reasons of public
9
<PAGE>
policy, so that Section 6(b) shall be insufficient to hold each such Indemnified
Person harmless from Losses which would otherwise be indemnified hereunder, then
the Indemnifying Party and the Indemnified Person shall each contribute to the
amount paid or payable for such Loss in such proportion as is appropriate to
reflect not only the relative benefits received by the Indemnifying Party on the
one hand and the Indemnified Person on the other, but also the relative fault of
the Indemnifying Party and be in addition to any liability that the Indemnifying
Party may otherwise have. The indemnity, contribution and expense reimbursement
obligations that the Indemnifying Party has under this Section 6 shall survive
the expiration of the Transaction Documents. The parties hereto further agree
that the indemnification and reimbursement commitments set forth in this
Agreement shall apply whether or not the Indemnified Person is a formal part to
any such lawsuit, claims or other proceedings.
(e) Limitation. No claim shall be brought by an Indemnified
----------
Person in respect of any misrepresentation or breach of warranty under this
Agreement after the Survival Period unless written notice thereof shall have
been provided prior to the expiration of the Survival Period, in which case such
surviving claims shall be limited to those in such notice; and any claim for
nonfulfillment, default or breach of any covenant shall be brought within one
year of the date of that such Indemnified Person became aware or should have
become aware of the nonfulfillment, default or breach, unless written notice
thereof shall have been provided prior to such one -year period, in which case
such surviving claims shall be limited to those in such notice. Except as set
forth in the previous sentence and in Section 6(c) above, this Section 6 is not
intended to limit the rights or remedies otherwise available to any party hereto
with respect to this Agreement or the Transaction Documents.
SECTION 7. Notices. All notices, demands and requests of any kind to
-------
be delivered to any party in connection with this Agreement shall be in writing
and shall be deemed to have been duly given if personally delivered or if sent
by nationally-recognized overnight courier or by registered or certified first-
class mail, return receipt requested and postage prepaid, or by facsimile
transmission, addressed as follows:
(i) if to the Company, to:
Medi-Ject Corporation
161 Cheshire Lane
Suite 100
Minneapolis, Minnesota 55441
Facsimile: (612) 476-1009
Attention: Chief Executive Officer
with a copy to:
Dorsey & Whitney LLP
2200 First Bank Place East
Minneapolis, Minnesota 55402
Facsimile: (612)340-8827
Attention: Karin Keitel, Esq.
10
<PAGE>
(ii) if to EIS, to:
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths Parish
Bermuda, SL04
Facsimile: (441) 292-2224
Attention: Director
with a copy to:
Cohen & Tauber LLP
1350 Avenue of the Americas
26th Floor
New York, New York 10019
Facsimile: (212) 519-5195
Attention: Laurence Tauber
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 7. Any such notice or communication shall be deemed to have been
received (i) in the case of personal delivery or facsimile transmission, on the
date of such delivery, (ii) in the case of nationally-recognized overnight
courier, on the second business day after the date when sent and (iii) in the
case of mailing, on the fifth business day following that day on which the piece
of mail containing such communication is posted. Notice hereunder may be given
on behalf of the parties by their respective attorneys.
SECTION 8. Amendments. This Agreement may not be modified or
----------
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS.
SECTION 9. Withholding. The Company agrees to pay to any holder of
-----------
the Series A Preferred Stock that is not a U.S. Person such additional amounts
as are necessary in order that the net payment of any amount due with respect to
any dividend payment being made to such person with respect thereto, after
deduction for or withholding in respect of any U.S. taxes imposed with respect
to any such dividend payment (or, in lieu thereof, payment of such U.S. taxes by
such non-U.S. person), will not be less than the amount which would otherwise be
distributed to such non-U.S. person, absent such deduction, withholding or
payment.
SECTION 10. Counterparts and Facsimile. The Transaction Documents
--------------------------
may be executed in any number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such counterparts together
shall constitute one agreement. Each of the Transaction Documents may be signed
and delivered to the other party by facsimile transmission; such transmission
shall be deemed a valid signature.
SECTION 11. Headings. The section and paragraph headings contained
--------
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of the Agreement.
SECTION 12. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving
11
<PAGE>
effect to principles of conflicts of laws.
SECTION 13. Expenses. Each of the parties shall be responsible for
--------
its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.
SECTION 14. Public Releases; Etc. The parties shall reasonably agree
--------------------
in writing upon the contents of any press release or releases and other public
disclosure in respect of the transactions contemplated hereby, and no such press
release or disclosure shall be made except as so agreed, except as may otherwise
be required by applicable law or judicial or administrative process or pursuant
to arrangements with financial, accounting or legal advisors.
SECTION 15. Schedules, etc. All statements contained in any exhibit
--------------
or schedule delivered by or on behalf of the parties hereto, or in connection
with the transactions contemplated hereby, are an integral part of this
Agreement and shall be deemed representations and warranties hereunder.
SECTION 16. Assignments. This Agreement and all of the provisions
-----------
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. EIS may transfer and assign
its rights hereunder and to the Shares to any of its Affiliates without the
prior consent of the Company. EIS may not transfer or assign its rights
hereunder and to the Series A Preferred Stock to any other party without the
prior consent of the Company, which consent shall not be unreasonably withheld
or delayed.
[Signature page follows]
12
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Securities Purchase Agreement as of the date first written above.
MEDI-JECT CORPORATION.
By: ______________________________________
Frank Pass
President and Chief Executive Officer
ELAN INTERNATIONAL SERVICES, LTD.
By: ______________________________________
Kevin Insley, President
13
<PAGE>
EXHIBIT 10.26
LICENSE AND DEVELOPMENT AGREEMENT
BY AND BETWEEN
ELAN CORPORATION, PLC
An Irish Company
AND
MEDI-JECT CORPORATION
A Minnesota Corporation
This Agreement is made as of the 10th day of November 1998
<PAGE>
TABLE OF CONTENTS
-----------------
1. ARTICLE I: DEFINITIONS.......................................... 1
2. ARTICLE II: THE LICENSE.......................................... 7
3. ARTICLE III: DEVELOPMENT OF THE PRODUCT...........................14
4. ARTICLE IV: FINANCIAL PROVISIONS.................................14
5. ARTICLE V: REGISTRATION OF THE PRODUCT..........................17
6. ARTICLE VI: WARRANTY AND INDEMNITY...............................18
7. ARTICLE VII: PATENTS..............................................21
8. ARTICLE VIII: MISCELLANEOUS CLAUSES................................24
<PAGE>
LICENSE AND DEVELOPMENT AGREEMENT, DATED AS OF NOVEMBER 10, 1998, BY AND BETWEEN
ELAN CORPORATION, PLC, AN IRELAND CORPORATION ("ELAN") AND MEDI-JECT
CORPORATION, A MINNESOTA CORPORATION ("MEDI-JECT").
RECITALS
A. Elan owns various patents and patent applications, including the Elan
Patent Rights (capitalized terms used herein are defined below), which have been
granted or are pending under the International Convention in relation to the
development and production of drug delivery devices and processes.
B. Elan is knowledgeable in the development of drug delivery devices and
has developed a unique range of systems for the delivery of medicaments.
C. Medi-Ject desires to enter into a licensing agreement with Elan pursuant
to which Medi-Ject shall have the right to manufacture Devices, market the
Products in the Territory and sublicense the Elan Intellectual Property, to the
extent and subject to the terms and conditions set forth herein.
D. Elan is prepared to license the Elan Intellectual Property for the Field
in the Territory to Medi-Ject in accordance with the terms and conditions
contained herein.
E. As of the date of this Agreement, Elan and Medi-Ject are entering into
several agreements with respect to the transactions contemplated hereunder.
NOW THEREFORE, the Parties agree as follows:
1. ARTICLE I: DEFINITIONS AND INTERPRETATIONS
1.1. Definitions. In the present Agreement and any further agreements
based thereon between the Parties hereto, the following definitions shall
apply:
"Affiliate" shall mean any corporation or entity controlling,
controlled by or under the common control of Elan or Medi-Ject, as the
case may be. For the purpose of this Agreement, "control" shall mean
the direct or indirect ownership of at least fifty (50%) percent of
the outstanding shares or other voting rights of the subject entity to
elect directors, or if not meeting the preceding criteria, any entity
owned or controlled by or owning or controlling at the maximum control
or ownership right permitted in the country where such entity exists.
"Auto-Injector Technology" shall mean any technology incorporated or
used in a device (i) constituting a disposable, single use, needle
injection system wherein the active ingredient is housed in a vial
which is situated in a manner substantially perpendicular to the body
surface, (ii) utilising gas generation achieved via a
1
<PAGE>
chemical reaction for delivery of the active ingredient and (iii)
having infusion time for delivery of an active ingredient which is
less than or equal to 10 seconds. For the avoidance of doubt,
Auto-Injector Technology shall not include any other technology that
does not meet the foregoing definition, whether or not similar or
containing elements of the Elan Intellectual Property, including,
without limitation, the Medipad(TM) Technology or any other Excluded
Technology.
"cGCP", "cGLP" and "cGMP" shall mean current Good Clinical Practices,
current Good Laboratory Practices and current Good Manufacturing
Practices respectively.
"Confidential Information" shall have the meaning set forth in Article
8.1 below.
"Definitive Documents" shall mean this Agreement; a warrant for the
purchase of shares of common stock of Medi-Ject issued by Medi-Ject to
Elan International Services, Ltd. and a securities purchase agreement,
between Medi-Ject and Elan International Services, Ltd., for the
purchase of shares of Medi-Ject's Series A Convertible Preferred
Stock, all of which are dated as of the date hereof and any other
documents or agreements executed in connection with the transactions
contemplated hereunder and thereunder.
"Device" shall mean any device or any parts or components thereof, the
manufacture, use, importation or sale of which is covered by or
embodies the Auto-Injector Technology, the Elan Intellectual Property,
the Joint Intellectual Property and the Medi-Ject Intellectual
Property.
"Effective Date" shall mean November 10, 1998.
"Elan" shall mean Elan Corporation, plc.
"Elan Compounds" shall mean, at any time during the Term of this
Agreement or, in the event of the acquisition of Elan by another
pharmaceutical company, immediately prior to the time of such
acquisition, chemical entities (i) for which Elan is the patent holder
or which are in-licensed by Elan or (ii) which are not patented and
which Elan is developing to sell itself In Market.
"Elan Improvements" shall mean any and all improvements to the Auto-
Injector Technology conceived, created, developed, and/or otherwise
invented by or on behalf of Elan which can be used in the Field.
"Elan Intellectual Property" shall mean the Elan Patent Rights, Elan
Improvements and/or the Elan Know-How.
"Elan Know-How" shall mean all knowledge, information, trade secrets,
data and expertise relating to the Elan Patents for use in the Field
and that is owned or
2
<PAGE>
licensed by Elan (other than the Excluded Technology) as of the
Effective Date, including, but not limited to, clinical data and test
results, whether or not covered by any patent, copyright, design,
trademark, trade secret or other industrial or intellectual property
rights, but, except as otherwise provided herein, all subject to any
contractual obligations to unaffiliated third parties that Elan has as
of the Effective Date.
"Elan Patent Rights" shall mean the patents and patent applications
related to the Auto-Injector Technology for use in the Field that are
owned or licensed by or on behalf of Elan (but excluding the
Medipad(TM) Technology or other Excluded Technology), set forth on
Appendices A-1 and A-2 attached hereto; subject, however, except as
otherwise provided herein, to any contractual obligations to
unaffiliated third parties that Elan has as of the Effective Date.
Elan Patent Rights shall also include all extensions, continuations,
continuations-in-part, divisionals, patents-of-additions, re-
examinations, re-issues, supplementary protection certificates and
foreign counterparts of such patents and patent applications and any
patents issuing thereon and extensions of any patents licensed
hereunder and any Elan Improvements.
"Excluded Technology" shall mean all knowledge, information, trade
secrets, data, discoveries, inventions, improvements, ideas,
techniques, processes, formulations, systems, designs and/or
expertise, and any and all other intellectual property (including
patents and patent applications that are issued or that may be
issued), relating to any technology, other than the Auto-Injector
Technology in the Field. For the avoidance of doubt, Excluded
Technology shall include such intellectual property relating to (i)
the Auto-Injector Technology for utilization outside of the Field and
(ii) the Medipad(TM) Technology.
"FDA" shall mean the United States Food and Drug Administration or any
other successor agency, whose approval is necessary to market the
Devices or Products in the United States of America.
"Field" shall mean the practice of delivering therapeutic entities
utilizing Auto Injector Technology, other than (A) active ingredients
used in the treatment of (i) (***) (ii) (***) (iii) (***) and (iv)
(***) and (B) Elan Compounds, provided, in the case of Elan Compounds
that Medi-Ject has not previously sub- licensed the right to use the
Auto-Injector Technology with respect to such compound to an
unaffiliated third party on an exclusive basis pursuant to a written
agreement and that Medi-Ject has delivered to Elan prior written
notice of same.
"In Market" shall mean the sale of the Products or Devices to a third
party such as a wholesaler, distributor, managed care organization,
hospital, pharmacy and/or the like.
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
3
<PAGE>
"Joint Intellectual Property" shall mean the Joint Know-How and/or the
Joint Patent Rights.
"Joint Know-How" shall mean all knowledge, information and expertise
developed by Elan and Medi-Ject during the Term relating to the Auto-
Injector Technology and in accordance with the Project whether or not
covered by any patent, copyright, design, trademark or other
industrial or intellectual property rights.
"Joint Patent Rights" shall mean any patent and patent applications
created, developed, conceived or otherwise jointly invented or
developed by Elan and Medi-Ject, relating to the Auto-Injector
Technology. Joint Patent Rights shall also include all extensions,
continuations, continuations-in-part, divisionals, patents of
additions, re-examinations, re-issues, supplementary protection
certificates and foreign counterparts of such patents and patent
applications and any patents issuing thereon and extensions of any
patents licensed hereunder.
"Manufacturing Cost" shall mean the fully allocated cost which is the
sum total of all production related costs for a Product (direct labor,
direct materials, facility overhead and expenses which can be
allocated to the Product, QA/QC and analytical charges, packaging and
regulatory compliance costs for the Product, including, but not
limited to, stability studies and FDA fees) accounted for in
accordance with United States Generally Accepted Accounting
Principles, consistently applied.
"Major Markets" shall mean (***).
"Marketing Authorization" shall mean the procurement of registrations
and permits required by applicable government authorities in a country
in the Territory for the marketing, sale, and distribution of Devices
and/or a Product in such country.
"Medi-Ject" shall mean Medi-Ject Corporation and any of its
Affiliates.
"Medi-Ject Intellectual Property" shall mean the Medi-Ject Know-How
and/or the Medi-Ject Patent Rights.
"Medi-Ject Know-How" shall mean all knowledge, information, trade
secrets, data and expertise relating to the Auto-Injector Technology,
that is possessed by Medi-Ject, or from time to time, developed,
invented or otherwise acquired by or on behalf of Medi-Ject during the
Term, including without limitation, Medi-Ject Project Know-How, and
clinical data and test results, whether or not covered by any patent,
copyright, design, trademark, trade secret or other industrial or
intellectual property rights.
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
4
<PAGE>
"Medi-Ject Patent Rights" shall mean all patents and patent
applications owned or to be owned by, or licensed or to be licensed by
Medi-Ject relating to the Auto-Injector Technology. Medi-Ject Patent
Rights shall also include all extensions, continuations,
continuations-in-part, divisionals, patents of additions, re-
examinations, re-issues, supplementary protection certificates and
foreign counterparts of such patents and patent applications and any
patents issuing thereon and extensions of any patents licensed
hereunder. Medi-Ject Patent Rights shall further include any patents
or patent applications covering any improved Products or improved
methods of making or using the Products invented or acquired by Medi-
Ject during the Term relating to the Auto-Injector Technology (and
shall for the avoidance of doubt include the Medi-Ject Project Patent
Rights).
"Medi-Ject Project Know-How" shall mean all knowledge, information,
trade secrets, data and expertise owned or to be developed by or on
behalf of Medi-Ject in connection with the Project, or otherwise
relating to the Auto-Injector Technology, including clinical data,
whether or not covered by any patent, copyright, design, trademark,
trade secret or other industrial or intellectual property rights.
"Medi-Ject Project Patent Rights" shall mean any patents or patent
applications covering any improved Products or methods of making or
using the Products, invented or acquired by or on behalf of Medi-Ject
in connection with the Project.
"Medipad(TM) Technology" shall mean (***).
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
5
<PAGE>
"NSP" shall mean net selling price determined by deducting from the
gross amount billed by Medi-Ject for Devices or Products (including,
without limitation, any and all sums billed for the compound and/or
drug product delivered with, by and/or via the Devices or Products;
sums billed for the supply of Devices and Products; and royalties
receivable for the sale of Devices or Products) sold In Market, the
following:
(***)
If Medi-Ject shall sell any of the Devices or the Products together
with other products to third parties in a particular country and the
price attributable to the Devices or Products is less than the average
price of "arms length" sales of the Devices or Products alone in the
particular country for the reporting period in which such sales occur
(such sales to be excluded from the calculation of the average price
of "arms length" sales), NSP for any such sales shall be the average
price of "arms length" sales by Medi-Ject of the Devices or Products
alone (as the case may be) in the country during the reporting period
in which such sales occur.
"Party" shall mean Medi-Ject or Elan as the case may be. "Parties"
shall mean Medi-Ject and Elan.
"Plan" shall mean the program of development agreed to by the Parties
and attached hereto as Appendix B, with respect to the research and
development of the Devices or Products.
"Products" shall mean all Devices or any parts or components thereof,
together with any and all compounds, active ingredients, and/or drug
products delivered with, by and/or via the Devices, that are used,
developed, manufactured, offered for sale and/or sold by or on behalf
of Medi-Ject and/or its permitted sub-licensees, and the manufacture,
use, importation or sale of which is covered by or embodies the Elan
Intellectual Property, the Medi-Ject Intellectual Property and/or the
Joint Intellectual Property.
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
6
<PAGE>
"Project" shall mean all activity as undertaken by Medi-Ject in order
to develop Products in accordance with the Plan.
"Retained Elan Intellectual Property" shall mean the Elan Patent
Rights listed on Appendix A-2 and the Elan Know-How related thereto.
"Technological Competitor" shall mean any entity that substantially
engages or proposes to substantially engage directly or indirectly in
the development or commercialization of drug delivery systems or
products in the pharmaceutical industry.
"Term" shall have the meaning set forth in Article 8.5 below.
"Territory" shall mean all of the countries of the world.
"Trademark" shall mean the trademark(s) as may be selected by Medi-
Ject or its permitted sub-licensees which has been or may be
registered by Medi-Ject or its permitted sub-licensees in one or more
countries in the Territory.
"$" shall mean United States Dollars.
1.2. Interpretation. In this Agreement, the following shall apply:
1.2.1. the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural persons
include corporate bodies, partnerships and vice versa;
1.2.2. any reference to an Article or Appendix shall, unless otherwise
specifically provided, be to a Article or Appendix of this Agreement; and
1.2.3. the headings of this Agreement are for ease of reference only
and shall not affect its construction or interpretation.
2. ARTICLE II : THE LICENSE
2.1. License Grant.
2.1.1 Subject to the terms and conditions of this Agreement and to the
terms and conditions of any contractual arrangements existing on the
Effective Date, Elan hereby grants to Medi-Ject for the Term, and Medi-Ject
hereby accepts,
(i) an exclusive license of the Elan Intellectual Property and the
Joint Intellectual Property in connection with the applications
or deliveries of compounds listed on Appendix D, except with
respect to any Retained
7
<PAGE>
Elan Intellectual Property, as to which Medi-Ject is being
granted a non-exclusive license,
(ii) a non-exclusive license of the Elan Intellectual Property and the
Joint Intellectual Property in connection with the applications
or deliveries of compounds listed on Appendix E, and
(iii) subject to existing contractual rights of third parties, an
exclusive license of the Elan Intellectual Property and the Joint
Intellectual Property for use with any other compounds not listed
on Appendices D or E and which are not Elan Compounds,
in each case for use only as Auto-Injector Technology and in the Field for
the Territory to develop, make, have made, manufacture, have manufactured,
package, use, import, export, promote, distribute, market, offer for sale,
and sell the Devices and Products in the Field for the Territory. From time
to time, Medi-Ject may notify Elan of the intended use of the Elan
Intellectual Property upon the terms and conditions contained herein, in
connection with compounds not listed on Appendix D and E hereof, and Elan
shall as promptly as possible thereafter, notify Medi-Ject whether any of
such intended uses are subject to the contractual rights of third parties
previously granted by Elan.
2.1.2 For further avoidance of doubt, nothing in this license shall be
deemed to
(i) constitute a license to the Elan Compounds; or
(ii) include the use of Elan Intellectual Property for uses other than
as Auto-Injector Technology and in the Field for the Territory.
2.1.3 For further avoidance of doubt, notwithstanding the license
granted to Medi-Ject, Elan shall retain
(A) the right to utilise or license the Elan Intellectual
Property to the extent provided in Section 2.3 hereof, and
(B) subject to Elan's grant of non-exclusive rights to
Medi-Ject, all rights, including the rights to utilise or
license, with respect to the Retained Elan Intellectual
Property and, with respect to the compounds listed on
Appendix E, to use of the Auto-Injector Technology in
connection with such compounds.
2.2. Medi-Ject may assign or sublicense the licenses and rights granted to
it herein without the prior written approval of Elan; provided that:
(i) each and any sublicense shall be limited to the utilization of
Devices in connection with a single Product and including therein
derivatives of the active ingredient of such Product which the
sub-licensee shall sell In-Market;
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(ii) any such sub-license will prohibit the sub-licensee thereunder
from assigning its rights thereunder or granting any sub-license
of the rights granted thereunder other than to an Affiliate of
such sub-licensee;
(iii) the rights granted under any such sublicense shall not include
the right to manufacture Devices; provided, however, such
sublicense may provide for the designation by Medi-Ject or its
sub-licensee of a reputable manufacturer to manufacture Devices
in the event Medi-Ject fails to meet its manufacturing
obligations thereunder; provided further that such manufacturer
agrees to enter into an agreement with Elan with respect to the
manufacture of Devices with respect to such Product on terms
substantially the same, to the extent applicable, as those
contained herein; and
(iv) any such sublicense shall be subject to all the provisions of
this Agreement hereof.
Medi-Ject shall indemnify and hold Elan harmless for the acts and omissions of
any of its sub-licensees.
2.3. Notwithstanding the foregoing, Elan shall be entitled to use the Elan
Intellectual Property and all technical and clinical data or improvements
thereto in connection with or with respect to (i) Elan's commercial arrangements
for Devices or Products in any country that ceases to be a part of the
Territory, or in any country in the Territory in the event of the expiration or
sooner termination of this Agreement, (ii) Elan's commercial arrangements for
Devices or Products outside of the Field, (iii) any Excluded Technology, and
(iv) the right to utilize the Auto-Injector Technology on an exclusive basis for
the delivery of Elan Compounds within the Field, provided Medi-Ject has not
previously licensed the right to use the Elan Intellectual Property with respect
to such compound to an unaffiliated third party on an exclusive basis pursuant
to a written agreement and that Medi-Ject has delivered to Elan prior written
notice of same, it being understood that Medi-Ject may not license or utilize
the Auto-Injector Technology in connection with any Elan Compound after Medi-
Ject has received notification from Elan of its rights in any Elan Compound.
Such commercial arrangements referred to in the immediately preceding sentence
shall include the right to research, develop, manufacture, offer for sale, sell,
license or otherwise market the Devices and/or Products.
2.4. (***)
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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2.5. Notwithstanding anything contained in this Agreement to the contrary,
in the event Elan itself does not wish to manufacture Devices incorporating
Auto- Injector Technology for use outside the Field or with respect to Elan
Compounds as provided herein, Medi-Ject shall have the right of first refusal to
manufacture such devices. Such right of first refusal shall be exercised as
follows:
2.5.1. If Elan intends to enter into an agreement with a third party
for the manufacture of Devices that is subject to Medi-Ject's right of
first refusal, then Elan immediately shall notify Medi-Ject in writing of
the proposed terms of such agreement. Medi-Ject shall indicate its desire
to exercise its right of first refusal pursuant to this Article 2.5 by
delivering written notice to Elan within thirty (30) days of Medi-Ject's
receipt of the written notification from Elan to Medi-Ject. If Medi-Ject
does not notify Elan within such thirty (30) day period of its intention to
exercise its right of first refusal under this Article 2.5, Elan shall be
free to enter into an agreement to manufacture Devices with the third party
specified in the notification upon terms which are substantially the same
as those specified in the notification provided under this Article 2.5 by
Elan to Medi-Ject. If Medi-Ject elects to exercise its right of first
refusal, the Parties shall negotiate in good faith the terms of an
applicable agreement based upon the terms contained in the notice
delivered.
2.5.2. If, despite such good faith negotiations, Elan and Medi-Ject do
not reach agreement on the terms of such an agreement within sixty (60)
days from the notification in writing by Elan to Medi-Ject, then Elan shall
be free to offer a third party terms to manufacture Devices in the
Territory, which terms when taken as a whole, are no more favorable to Elan
than the principal terms of the last written proposal offered to Medi-Ject
by Elan, or by Medi-Ject to Elan, as the case may be.
2.6. During the term of this Agreement or so long as the license granted
hereunder remains in effect for any country, in the event Elan desires to market
Devices incorporating Auto-Injector Technology for use outside the Field or with
respect to a Product in a country for which the license hereunder has been
terminated pursuant to Section 2.10(ii) or (iii) or with respect to Elan
Compounds as provided herein, but does not wish to manufacture the Devices, Elan
shall have the right to require Medi-Ject to manufacture the Devices, to the
extent Medi-Ject has available manufacturing capacity, for it at a price equal
to the lower of (***).
2.7. Medi-Ject, or its permitted sub-licensees, shall market the Devices or
Products in the Territory under a Trademark, which Trademark will be owned by
Medi-Ject or such sub-licensees subject to the terms and conditions of this
Agreement.
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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2.8. Subject to the provisions of Article 2.15 hereof, Medi-Ject hereby
grants to Elan during the Term a non-exclusive royalty free license in the
Medi-Ject Intellectual Property, to develop, make, have made, manufacture, have
manufactured, package, use, import, export, promote, distribute, market, offer
for sale, and sell Devices and Products (i) in the Field for any particular
Product or Device in any country, the rights to which have reverted to Elan
pursuant to Article 2.10-2.12 and 2.14 hereof, (ii) for the delivery of active
ingredients used in the treatment of (1) (***), (2) (***), (3) (***), and (4)
(***) and (iii) for the delivery of Elan Compounds in the Field in the
Territory, on the following terms and conditions:
(A) Elan shall as soon as it becomes aware of any infringement give to
Medi-Ject in writing full particulars of any use or proposed use by any
other person, firm or company of a trade name or trademark or promotional
or advertising activity which may constitute infringement.
(B) If Elan becomes aware that any other person, firm or company
alleges that such Medi-Ject Intellectual Property infringes any rights of
another party, Elan shall immediately give to Medi-Ject full particulars in
writing thereof and shall make no comment or admission to any third party
in respect thereof.
(C) Medi-Ject shall have the right to conduct all proceedings relating
to such Medi-Ject Intellectual Property and shall in its sole discretion
decide what action, if any, to take in respect of any infringement or
alleged infringement of such Medi-Ject Intellectual Property or any other
claim or counter-claim brought or threatened in respect of the use of such
Medi-Ject Intellectual Property. Any such proceedings shall be conducted at
Medi-Ject's expense and for its own benefit.
For the avoidance of doubt, nothing herein shall be deemed to be a license
to Elan of Medi-Ject Intellectual Property for use other than in connection with
the Auto-Injector Technology.
2.9. When packaged, and to the extent permitted by law, at Elan's election,
Product labels shall include an acknowledgement that the Product is made under
license from Elan. Such acknowledgement shall take into consideration regulatory
requirements and Medi-Ject's reasonable commercial requirements. Medi-Ject
shall, wherever possible, at Elan's request, in conformance with industry
standards, give due acknowledgement and recognition to Elan in all printed
promotional and other material regarding the Product such as stating that the
Product is under license from Elan and that the applicable Elan Intellectual
Property has been applied to the Products. Medi-Ject shall consult with and
obtain the written approval, which shall not be unreasonably withheld, of Elan
as to the format and content of the promotional and other material insofar as it
relates to a description of, or other reference to, the application of the Elan
Intellectual Property. The further consent of Elan shall not be required where
the format and content of such materials is substantively similar as the
materials previously furnished to and approved in writing by Elan.
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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2.10. Medi-Ject will use reasonable best efforts to commercialize the
Devices and shall (***). In the event Medi-Ject shall fail to obtain such
sub-licenses Elan shall have the right, upon ten (10) days prior written notice
to Medi-Ject, to terminate the term of the license hereunder, except to the
extent it relates to any sublicenses previously granted by Medi-Ject with
respect to particular Products which comply with the terms hereof. At all times
after Medi-Ject has satisfied the requirements set forth above, Medi-Ject shall
continue to use commercially reasonable efforts to secure additional
sub-licenses for the sale and marketing of Products in the Territory.
2.11. Medi-Ject will, as promptly as possible but in no event later that
(***) from the date hereof, complete development of and produce a working
prototype of the Devices and make a bona fide application for a Marketing
Authorization for the Devices with the FDA and thereafter obtain and maintain
such Marketing Authorization for the Devices. Medi-Ject and its sub-licensees
shall also file, obtain and maintain Marketing Authorizations in such other
countries within the Territory as shall be reasonably necessary to commercialize
and market the Devices and Products. In the event that Medi-Ject or its sub-
licensees shall obtain Marketing Authorization for a Product in a Major Market,
Medi-Ject or its sub-licensee, as the case may be, shall also, within (***) of
obtaining such Marketing Authorization, make bona fide applications for
Marketing Authorizations in the other Major Markets for such Product. If
(i) Medi-Ject shall fail to complete development of the Devices or
develop a working prototype or make a bona fide application for a
Marketing Authorization with the FDA in the time period specified
above, Elan shall have the right, upon thirty (30) days written
notice from Elan to Medi-Ject, to terminate the grant of the
license hereunder, or
(ii) Medi-Ject or its sub-licensees fail to apply for Marketing
Authorization for a Product in the Major Markets, as provided
herein, Elan shall have the right, upon thirty (30) days written
notice from Elan to Medi-Ject, to terminate the grant of the
license hereunder with respect to such Product in such country or
countries, or
(iii) Medi-Ject or its sub-licensees fail to effect a national
commercial launch of a Product in a country in the Major Markets
within the period specified in Article 2.12 below, Elan shall
have the right, upon thirty (30) days written notice from Elan to
Medi-Ject, to terminate the grant of the license hereunder with
respect to such Product in such country or countries,
then, in any such event, Medi-Ject, at the option of Elan, make available and
transfer to Elan all of Medi-Ject's and, to the extent available to Medi-Ject,
Medi-Ject's sub-licensee's data, information, applications, approvals, filings
and the like to permit Elan to commercialize such Product in the applicable
country or countries in the Major Markets or, with respect to a complete
termination of the license pursuant to clause (i) above, all Products and
Devices in the Territory. In such event, except as otherwise provided in Article
2.15, below, Elan shall be
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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entitled to an irrevocable, exclusive, perpetual, royalty free, license from
Medi-Ject to the Medi-Ject Intellectual Property and the Trademark to
commercialize such Product in the applicable country in the Field (or, with
respect to a complete termination of the license pursuant to clause (i) above,
all Products and Devices in the Field and in the Territory) on the terms set out
in this Article 2.11. Elan may sublicense the rights granted to it under this
Article 2.11 to one or more sub-licensees without the prior consent of
Medi-Ject. Insofar as Medi-Ject has licensed or acquired third party technology,
Medi-Ject shall use all commercially reasonable efforts to exclude or where
applicable to minimize the extent of any limitations or restrictions on its use
for such purposes. In the event that Elan acquires such a license, the Parties
shall enter into a further written license and other applicable agreement which
shall include customary and reasonable terms in accordance with this Article
2.11, and at Elan's option, Medi-Ject shall use commercially reasonable efforts
to assign to Elan its rights under any third party supply or other agreement
relating to such Product or Products.
2.12. Medi-Ject will use its commercially reasonable efforts to obtain
Marketing Authorizations to commercialize the Devices and Products in the other
countries of the Territory (i.e., other than the Major Markets) that it selects,
having regard to the effort and expenditure required to obtain Marketing
Authorizations for the Devices and Products and the commercial opportunities for
the Devices and Products in such other countries of the Territory. Medi-Ject
shall effect a national commercial launch of a Product within one hundred eighty
(180) days of securing a Marketing Authorization for such Product in a country
in a Major Market. If Medi-Ject does not make a national commercial launch of
such Product in such country in a Major Market within such period, the licenses
granted to Medi-Ject hereunder shall, at Elan's option exercised upon thirty
(30) days written notice from Elan, terminate in such country or countries with
respect to such Product and Elan shall be entitled to commercialize such Product
in the Field in such countries and to receive a license in the Field to the
Medi-Ject Intellectual Property and Trademark in the applicable countries on the
terms set forth in Article 2.11.
2.13. In general, Medi-Ject shall employ commercially reasonable efforts to
research, develop, register, market, promote and sell and maintain sales of the
Products in the Territory and Medi-Ject shall employ a level of advertising,
sales, marketing, and promotion efforts in each country in the Territory where
Marketing Authorization for Product has been obtained which is: (i) commensurate
with that used by other pharmaceutical manufacturers for products of similar
market potential in that country in the Territory, and (ii) sufficient with
respect to the potential for that country to fully exploit the market potential
for the Product.
2.14. If Medi-Ject indicates to Elan in writing that it does not intend to
obtain Marketing Authorization and commercialize the Products in a particular
country or countries of the Territory, or fails to commence commercialization in
any country within one hundred and eighty (180) days after receiving the
required Marketing Authorization therefor, Elan shall, in addition to the rights
granted under Article 2.11 hereof, be entitled to license from Medi-Ject the
Medi-Ject Intellectual Property and Trademark to commercialize the Products in
the Field and to receive licenses in the Field in such countries on the terms
set forth in Article 2.11. For purposes of this Section 2.14, the European Union
shall be deemed to be one country.
2.15 Notwithstanding anything contained herein to the contrary, in the
event Elan shall
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terminate the term of the license granted by it to Medi-Ject hereunder due to
the circumstances set forth in Article 2.10 or clause (i) of Article 2.11, Elan
shall pay to Medi-Ject a royalty equal to (***) percent ((***)%) of the NSP for
all sales in the Field, whether In Market or to third parties by Elan of Devices
or Products which utilize Medi-Ject Intellectual Property. For purposes of this
Article 2.15, references to Medi-Ject contained in the definition of NSP shall
be deemed to refer to Elan.
3. ARTICLE III: DEVELOPMENT OF THE PRODUCT
3.1. Medi-Ject shall be responsible for the development, registration,
manufacture and marketing of the Devices and Products, and the costs associated
therewith, in accordance with the Plan. Medi-Ject shall use its commercially
reasonable efforts to conduct the Project in accordance with the Plan. Elan's
sole obligations with respect to development under this Section 3.1 shall be to
(i) assist only in the process of transfer of the Technology and the related
Elan Intellectual Property to Medi-Ject; and (ii) during the first year of the
Term, provided he is employed by Elan, to make (***) available for consultation
for a minimum of forty (40) hours at mutually agreeable times during normal
business hours and, to the extent the same will not interfere with his duties at
Elan or any other Elan Project, for an additional forty (40) hours on the same
terms and conditions.
3.2. Each Party shall co-operate with the other in good faith particularly
with respect to unknown problems or contingencies and shall perform its
obligations in good faith and in a commercially reasonable, diligent and
workmanlike manner. Medi-Ject will update Elan on the progress of the Project on
a periodic basis, but in no event less than every six (6) months.
3.3. Medi-Ject shall mark or have marked the patent number(s) on all
Products or otherwise reasonably communicate to the trade concerning the
existence of any Elan Patent Rights, Medi-Ject Patent Rights or Joint Patent
Rights for the countries within the Territory in such a manner as to ensure
compliance with all applicable laws, including, without limitation, 35 United
States Code Section 287, as the same may be amended from time to time.
4. ARTICLE IV: FINANCIAL PROVISIONS
4.1. In consideration of the rights and licenses granted to Medi-Ject to
the Elan Patent Rights by virtue of this Agreement, Medi-Ject shall pay to Elan
or Elan's designee the following:
4.1.1. (***) United States Dollars simultaneously with execution and
delivery of this Agreement by both Parties;
4.1.2. Additional payments not to exceed (***) United States Dollars
equal to (***) percent ((***)%) of all licensing, milestone, development
and similar fees payable to Medi-Ject from sub-licensees or users of the
Devices or the Products in excess of (***) United States Dollars;
4.1.3. After payments totaling (***) United States Dollars have been
made pursuant to Article 4.1.2, a royalty equal to (***) percent ((***)%)
of all licensing, milestone,
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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development and similar fees payable to Medi-Ject from sub-licensees or
users of the Devices and/or Products;
4.1.4. An additional royalty equal to (***) percent ((***)%) of the
NSP for all sales, whether In Market or to third parties by Medi-Ject of
Devices or Products, exclusive of sales to Elan; and
4.1.5. If the Manufacturing Cost of a Device or Product is less than
(***), then Medi-Ject will pay an additional royalty to Elan for each
Device or Product equal to (***), exclusive of Devices or Products produced
by Medi-Ject for Elan. For purposes of this Article 4.1.5, a Device or
Product shall be deemed not to include the vial containing the medicament,
the medicament itself and the needle, each of which shall be excluded from
the calculation of the Manufacturing Cost of a Device or Product.
4.1.6. If Medi-Ject claims in good faith that one or more of its
devices, products, parts or components thereof, compounds and/or drug
products does not utilize, incorporate, apply or is not based on the Elan
Intellectual Property, the Medi-Ject Intellectual Property and/or Joint
Intellectual Property, then Medi-Ject shall establish such claim to the
reasonable satisfaction of Elan.
4.2. Royalties, Payments, Reports and Records
4.2.1. Within ninety (90) days of the end of each quarter, Medi-Ject
shall notify Elan of any licensing, milestone, development and similar fees
due and payable to Medi-Ject and the NSP of Devices and Products sold or
income receivable with respect to the Auto-Injector Technology, the Elan
Intellectual Property, the Joint Intellectual Property and the Medi-Ject
Intellectual Property in that preceding quarter. Payments and/or amounts
payable to Medi-Ject shown by each calendar quarter report to have accrued
shall be due and payable to Elan on the date such report is due and shall
be paid to the designated bank account of Elan or its designee as
instructed by Elan. All payments due under this Agreement shall be made in
United States Dollars and shall be non- refundable to Medi-Ject.
4.2.2. Medi-Ject shall keep and shall cause its Affiliates and sub-
licensees to keep true and accurate records of the licensing, milestone and
other similar income received by Medi-Ject with respect to the Auto-
Injector Technology, the Elan Intellectual Property and the Joint
Intellectual Property, gross sales of Devices and Products, the items
deducted from the gross amount in calculating the NSP, the NSP of Devices
and Products, manufacturing costs and the royalties and licensing fees
payable to Elan under this Article 4. Medi-Ject shall deliver to Elan a
written statement thereof within forty-five (45) days following the end of
each calendar quarter (or any part thereof in the first or last calendar
quarter of this Agreement) for such calendar quarter. The said written
statements shall set forth for
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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Devices or Products on country-by-country basis, the calculation of the NSP
from gross revenues during that calendar quarter, the applicable percentage
rate, a computation of the sums due to Elan, and such details of the
transactions that are relevant to the calculations of NSP. The Parties'
financial officers shall agree upon the precise format of such statement.
4.2.3. Payments due as provided above in a currency other than United
States Dollars shall first be calculated in the foreign currency and then
converted to United States Dollars on the basis of the exchange rate in
effect for the purchase of United States Dollars with such foreign currency
quoted in the Wall Street Journal (or comparable publication if not quoted
in the Wall Street Journal) with respect to the sale of currency of the
country of origin of such payment for the day prior to the date on which
the payment by Medi-Ject is being made.
4.2.4. Any income or other taxes which Medi-Ject is required by law to
pay or withhold on behalf of Elan with respect to royalties and any other
monies payable to Elan under this Agreement shall be deducted from the
amount of such payments, royalties and other monies due. Medi-Ject shall
furnish Elan with proof of such payments. Any such tax required to be paid
or withheld shall be an expense of and borne solely by Elan. Medi-Ject
shall promptly provide Elan with a certificate or other documentary
evidence to enable Elan to support a claim for a refund or a foreign tax
credit with respect to any such tax so withheld or deducted by Medi-Ject.
The Parties will reasonably cooperate in completing and filing documents
required under the provisions of any applicable tax treaty or under any
other applicable law, in order to enable Medi-Ject to make such payments to
Elan without any deduction or withholding.
4.2.5. For the twenty four (24) month period following the close of
each calendar year during the Term, but no more frequently than once per
year, Medi-Ject and its sub-licensees will provide Elan's independent
certified accountants with access, during regular business hours and upon
reasonable prior request and subject to the confidentiality provisions as
contained in this Agreement, to the books and records relating to the
Devices and Products, solely for the purpose of verifying the accuracy and
reasonable composition of the calculations hereunder for such calendar year
then ended, including the sums payable by Medi-Ject to Elan pursuant to
Article 4.
4.2.6. Any adjustment required by such inspection shall be made within
thirty (30) days of the agreement of the Parties or, if not agreed, upon
the determination of an arbitrator agreed to by the Parties to whom any
dispute under this Article shall be submitted to arbitration. In the event
the parties cannot agree upon an arbitrator, the arbitrator shall be
selected by the American Arbitration Association who shall resolve the
dispute pursuant to the rules of the American Arbitration Association
pursuant to an arbitration to be held in the City of New York. The decision
of the arbitrator shall be final and binding on all Parties. In the
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event there is no adjustment payable to Elan, the cost of inspection and,
if applicable, the arbitration, shall be borne by Elan. If there is an
adjustment payable to Elan, but such adjustment is not greater than five
per cent (5%) of the amount paid for the relevant period, then the cost to
Elan for the inspection, and if applicable the arbitration, shall be shared
equally by the Parties. If the adjustment payable to Elan is greater than
five per cent (5%) of the amount paid for the relevant period, then the
cost to Elan for the inspection, and if applicable, the arbitration, shall
be paid by Medi-Ject. In addition, Medi-Ject shall pay interest to Elan at
the rate publicly announced by Morgan Guaranty Trust Company of New York at
its principal office as its prime rate plus one per cent (1%) (applicable
as of the date on which payment should have been made pursuant to Article
4), from the date on which the payment should have been made pursuant to
Article 4.2.1 until the date of payment.
4.2.7. Medi-Ject shall pay interest to Elan at the rate publicly
announced by Morgan Guaranty Trust Company of New York at its principal
office as its prime rate plus one per cent (applicable as of the date on
which payment should have been made pursuant to the applicable provisions
of this Agreement) from the date on which payment should have been made
pursuant to the applicable provision of this Agreement until the date of
payment.
5. ARTICLE V: REGISTRATION OF THE PRODUCT
5.1. Medi-Ject shall at its sole cost file, and shall use commercially
reasonable efforts to prosecute to approval, the Marketing Authorizations for
the Devices and Products in the Territory in accordance with the Plan.
5.2. Medi-Ject shall maintain at its own cost the Marketing Authorizations
during the period that Medi-Ject is marketing the Devices. Medi-Ject shall
continue to maintain the Marketing Authorizations in the applicable countries at
Elan's request and expense, if Elan acquires the right to a license pursuant to
Article 2.11 for such term thereafter during which Elan and/or its designees is
marketing the Products, and Medi-Ject hereby agrees to provide to Elan, or
transfer and assign to Elan, the Marketing Authorizations and any applications
for regulatory approval within thirty (30) days of the submission thereof to the
applicable authority to the extent necessary for Elan to market such Products.
To the extent necessary for Elan to exercise its rights hereunder, Medi-Ject
shall furnish to Elan all regulatory filings and other material correspondence
with the FDA and other regulatory authorities within thirty (30) days of
submission, and shall take any and all action necessary to enable Elan to
receive the benefits from any such registration, including, without limitation,
transferring or assigning, to the extent held by and assignable or transferable
by Medi-Ject, a registration or Marketing Authorization to Elan.
5.3. During the registration procedure for Marketing Authorizations,
Medi-Ject shall keep Elan promptly and fully advised of Medi-Ject's registration
activities, progress and procedures. Medi-Ject shall notify Elan immediately of
any inspection by the FDA or any other regulatory authority of the manufacturing
or other facilities used in the clinical research,
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manufacturing, packaging, storage or handling of the Devices or Products. Copies
of all correspondence with the regulatory authority will be provided to Elan.
5.4. Medi-Ject shall indemnify and hold harmless Elan, its agents and
employees from and against all claims, damages, losses, liabilities and expenses
to which Elan, its agents, and employees may become subject related to or
arising out of Medi-Ject's bad faith, negligence or intentional misconduct in
connection with the filing or maintenance of the Marketing Authorizations.
6. ARTICLE VI: WARRANTY AND INDEMNITY.
6.1. Elan represents and warrants to Medi-Ject as follows:
6.1.1. Elan is duly and validly existing in the jurisdiction of its
incorporation and each other jurisdiction in which the conduct of its
business requires such qualification (except where such failure to so
qualify shall not have a material adverse affect on the business and assets
of Elan), and is in compliance with all applicable laws, rules, regulations
or orders relating to its business and assets;
6.1.2. Elan has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby; this
Agreement has been duly executed and delivered by Elan and constitutes the
legal and valid obligations of Elan and is enforceable against Elan in
accordance with its terms and the execution, delivery and performance of
this Agreement and the transactions contemplated hereby and will not
violate or result in a default under or creation of lien or encumbrance
under Elan's memorandum and articles of association or any material
agreement or instrument binding upon or affecting Elan or its properties or
assets or any applicable laws, rules, regulations or orders affecting Elan
or its properties or assets;
6.1.3. Elan is not in material default of its memorandum and articles
of association, any applicable material laws or regulations or any material
contract or agreement binding upon or affecting it or its properties or
assets and the execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not result in any such violation;
6.1.4. As of the Effective Date, Elan is the sole and exclusive owner
or licensee of, or controls all right, title and interest to the Elan
Patent Rights; and to Elan's knowledge and belief without independent
investigation, Elan is the sole owner or licensee of the Elan Know-How.
Elan has the right to grant the licenses granted herein. Subject to
existing contractual rights granted to third parties, the Elan Patent
Rights, and to Elan's knowledge and belief, without independent
investigation, the Elan Know-How, are free and clear of any lien,
encumbrances, security interest or restriction granted by Elan; provided,
however,
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that, notwithstanding anything to the contrary contained herein, Elan
warrants and represents that (***). Elan will not grant during the Term,
any right, license or interest in and to the Elan Intellectual Property, or
any portion thereof, inconsistent with the license granted herein; and to
the best of Elan's knowledge there are no pending or threatened adverse
actions, suits, investigations, claims or proceedings brought by one or
more third parties related to the Elan Intellectual Property as of the
Effective Date;
6.1.5. Elan represents and warrants that the execution of this
Agreement will not breach or in any way be inconsistent with the terms and
conditions of any license, contract, understanding or agreement, whether
express, implied, written or oral between Elan and any third party; and
6.1.6. EXCEPT AS SET FORTH IN THIS ARTICLE 6.1, ELAN IS GRANTING THE
LICENSES HEREUNDER ON AN "AS IS" BASIS, WITHOUT REPRESENTATION OR WARRANTY
WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY RIGHTS,
AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED.
6.2. Medi-Ject represents and warrants to Elan the following:
6.2.1. Medi-Ject is duly and validly existing in good standing in the
jurisdiction of its incorporation and each other jurisdiction in which the
conduct of its business requires such qualification (except where such
failure to so qualify shall not have a material adverse affect on the
business and assets of Medi-Ject), and Medi-Ject is in compliance with all
applicable laws, rules, regulations or orders relating to its business and
assets;
6.2.2. Medi-Ject has full corporate authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby; this
Agreement has been duly executed and delivered and constitutes the legal
and valid obligations of Medi-Ject and is enforceable against Medi-Ject in
accordance with its terms; and the execution, delivery and performance of
this Agreement and the transactions contemplated hereby will not violate or
result in a default under or creation of lien or encumbrance under
Medi-Ject's certificate of incorporation, by-laws or other organic
documents, any material agreement or instrument binding
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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upon or affecting Medi-Ject, or its properties or assets or any applicable
laws, rules, regulations or orders affecting Medi-Ject or its properties or
assets;
6.2.3. Medi-Ject is not in default of its charter or by-laws, any
applicable laws or regulations or any material contract or agreement
binding upon or affecting it or its properties or assets and the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby will not result in any such violation;
6.2.4. Medi-Ject has not granted any option, license, right or
interest to any third party which would conflict with the terms of this
Agreement;
6.2.5. As of the Effective Date, Medi-Ject is the sole and exclusive
owner or licensee of, or controls all right, title and interest to the
Medi-Ject Patent Rights; and to Medi-Ject's knowledge and belief without
independent investigation, Medi-Ject is the sole owner or licensee of the
Medi-Ject Know-How;
6.2.6. The Devices and Products shall be developed, manufactured,
transported, stored, handled, packaged, marketed, promoted, distributed,
offered for sale and sold in accordance with all regulations and
requirements of the FDA and foreign regulatory authorities including,
without limitation, cGCP, cGLP, cGMP regulations. The Products shall not be
adulterated or misbranded as defined by the Federal Food, Drug and Cosmetic
Act (or applicable foreign law) and shall not be a product which would
violate any section of such Act if introduced in interstate commerce; and
6.2.7. Medi-Ject is, or at time of registration for any Marketing
Authorization, will be, fully cognizant of all applicable statutes,
ordinances and regulations of the United States of America and countries in
the Territory with respect to the manufacture of the Devices and the
Products in any jurisdiction in which a Marketing Authorization is being
sought, including, but not limited to, the U.S. Federal Food, Drug and
Cosmetic Act and regulations thereunder and similar statutes in countries
outside of the United States, and cGMPs. Medi-Ject shall manufacture or
procure the manufacture of the Products in conformity with the Marketing
Authorizations and in a manner that fully complies with all United States
of America and foreign statutes, ordinances, regulations and practices.
6.3. Subject to the provisions of Sections 6.6, 6.7 and 7.4.3 hereof, Elan
shall indemnify, defend and hold harmless Medi-Ject, and its officers,
directors, employees and agents from all actions, losses, claims, demands,
damages, costs and liabilities (including reasonable attorneys' fees) due to
third party claims to which Medi-Ject is or may become subject insofar as they
arise out of or are alleged or claimed to arise out of (i) any breach by Elan of
any of its obligations under this Agreement, and (ii) any breach of a
representation or warranty of Elan made in this Agreement.
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6.4. Subject to the provisions of Sections 6.6, Medi-Ject shall indemnify,
defend and hold harmless Elan and its officers, directors, employees and agents
from all actions, losses, claims, demands, damages, costs and liabilities
(including reasonable attorneys' fees) due to third party claims to which Elan
is or may become subject insofar as they arise out of or are alleged or claimed
to arise out of (i) any breach by Medi-Ject of any of its obligations under the
Agreement, (ii) any breach of any representation or warranty of Medi-Ject made
in this Agreement, (iii) any activities conducted by Medi-Ject in connection
with the Project, except to the extent due to the negligence or willful
misconduct of Elan, and (iv) claims by sub-licensees of Medi-Ject, wholesales,
retailers, distributors or end-users of the Products, to which Elan is or may
become subject insofar as they arise out of or are alleged or claimed to arise
out of the development, manufacture, transport, packaging, storage, handling,
distribution, promotion, marketing, offer for sale or sale, or use of the
Devices or Products, including any product liability claim or any claim relating
to any recall of Devices or a Product.
6.5. As a condition of obtaining an indemnity in the circumstances set out
above or elsewhere in the Agreement, the Party seeking an indemnity shall:
6.5.1. fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
6.5.2. permit the indemnifying Party to take full care and control of
such claim or proceeding;
6.5.3. reasonably assist in the investigation and defense of such
claim or proceeding; and
6.5.4. not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which consent shall
not be unreasonably withheld; and take all reasonable steps to mitigate any
loss or liability in respect of any such claim or proceeding.
6.6. Notwithstanding anything to the contrary contained in this Agreement,
neither Elan nor Medi-Ject shall be liable to the other for any punitive,
consequential or incidental loss or damage (whether for loss of profit or
otherwise) by reason of any representation or warranty, condition or other term
or any duty of common law, or under the express or implied terms of this
Agreement, and whether occasioned by the negligence of the respective Parties,
their employees or agents or otherwise.
6.7. Notwithstanding anything to the contrary contained in this Agreement,
in no event shall Elan be liable to Medi-Ject for any actions, losses, claims,
demands, damages, costs and liabilities (including reasonable attorneys' fees)
which exceed, in the aggregate, amounts paid to Elan by Medi-Ject pursuant to
this Agreement.
7. ARTICLE VII: PATENTS
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7.1. Title: Subject to the terms and conditions of this Agreement, title to
the various inventions and intellectual property are set forth below as follows:
(i) title to the Elan Patent Rights shall be owned by Elan;
(ii) title to all inventions and other intellectual property made
solely by Medi-Ject in connection with the Project shall be owned by
Medi-Ject; and
(iii) title to all inventions and other intellectual property made
jointly by Elan and Medi-Ject in connection with the Project shall be owned
by jointly by Elan and Medi-Ject.
7.2. Preparation, Filing, Prosecution and Maintenance of Patents
7.2.1. Each Party shall timely inform the other in writing of any
improvement or development made by such Party relating, respectively, to
the Elan Intellectual Property, and/or the Medi-Ject Intellectual Property
so that any patent protection that may be available for any such
improvement or development is not compromised.
7.2.2. Except as provided below, Medi-Ject shall prepare, file,
prosecute and maintain, at its sole cost and expense, all patents
applications and issued patents relating to the inventions, improvements
and other intellectual property set forth in paragraphs (ii) and (iii) in
Article 7.1. With respect to such preparation, filing, prosecution and
maintenance activities, Medi-Ject shall timely apprise Elan of the status
of any such activity. In the event Medi-Ject shall decide not to seek
patent protection for any such intellectual property, Elan shall have the
option to take control of such preparation, filing, prosecution and
maintenance. In the event that Elan shall determine, in good faith, that
any patents applications and issued patents relating to the inventions,
improvements and other intellectual property set forth in paragraphs (ii)
and (iii) in Article 7.1 predominantly relates to an area other than the
Field, Elan shall have the option to take control of such, preparation,
filing, prosecution and maintenance of patent protection directed to such
intellectual property in its own name. In the event that Elan does not
exercise such right, Medi-Ject shall have the option to take responsibility
for the preparation, prosecution and maintenance of patent protection
directed to such intellectual property.
7.2.3. Medi-Ject shall prepare, file, prosecute and maintain, at the
sole cost and expense of Medi-Ject, all patents applications and issued
patents relating to the inventions, improvements and other intellectual
property set forth in paragraph (i) in Article 7.1 other than Retained Elan
Intellectual Property; provided, however, that Elan shall reimburse
Medi-Ject for up to one-half of the costs incurred by Medi-Ject incurred in
connection therewith, but, together with amounts reimbursed under Article
7.2.4 below, such reimbursement shall in no event exceed (***) in the
aggregate, at the rate of (***) for each product for which Elan utilizes
the Elan Intellectual Property. With respect to such preparation, filing,
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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prosecution and maintenance activities, Medi- Ject shall timely apprise
Elan of the status of any such activity. In the event Medi-Ject shall
decide not to seek patent protection for any such intellectual property,
Elan shall have the option to take control of such prosecution, at
Medi-Ject's sole cost and expense.
7.2.4. Elan shall prepare, file, prosecute and maintain, at the sole
cost and expense of Medi-Ject for all reasonable costs and expenses
(including attorney's fees) incurred in connection therewith, all patents
applications and issued patents relating to the Retained Elan Intellectual
Property; provided, however, that Elan shall reimburse Medi-Ject for up to
one-half of the costs incurred by Medi-Ject in connection therewith, but,
together with amounts reimbursed under Article 7.2.3 above, such
reimbursement shall in no event exceed (***) United States Dollars in the
aggregate, at the rate of (***) for each product for which Elan utilizes
the Retained Elan Intellectual Property. With respect to such preparation,
filing, prosecution and maintenance activities, Elan shall timely apprise
Elan of the status of any such activity and shall provide documentation to
Medi-Ject of all expenses incurred by Elan in connection therewith.
7.3. Enforcement of Intellectual Property Rights; Third Party Infringement.
7.3.1. Medi-Ject and Elan shall promptly inform the other in writing
of any alleged infringement or unauthorized use of which it shall become
aware by a third party of Elan Intellectual Property, Medi-Ject
Intellectual Property, and/or Joint Intellectual Property and provide such
other with any available evidence of such unauthorized activity.
7.3.2. During the Term, Medi-Ject shall have the first right to pursue
at its own expense any enforcement activities of the Elan Intellectual
Property, the Medi-Ject Intellectual Property and/or the Joint Intellectual
Property within the Field. Elan shall agree to be named as a necessary
party in an action brought by and fully financed by Medi-Ject and will
reasonably co-operate with such action. Any expenses borne by Elan shall be
reimbursed by Medi-Ject. Elan shall have the right to participate in and
have input in decisions relating to the prosecution of any such enforcement
action and Medi-Ject shall not compromise or settle any claim or
proceedings relating thereto without Elan's prior written consent, which
shall not be unreasonably withheld or delayed. Any recovery remaining after
the deduction by and reimbursement to Medi-Ject and Elan of their
respective reasonable expenses (including attorney's fees) incurred in
relation to such action shall be treated as (***) for all the purposes of
this Agreement. Should Medi-Ject decide not to enforce the Elan
Intellectual Property and/or the Medi-Ject Intellectual Property and/or the
Joint Intellectual Property within the Field, Elan may do so and for its
own benefit, and Medi-Ject will reasonably co-operate with such action and
shall bear (***) of all costs, including reasonable attorney's fees
incurred by Elan in connection with such action, and, in such event, any
recovery remaining after the
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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deduction by and reimbursement to Medi-Ject and Elan of their respective
reasonable expenses (including attorney's fees) incurred in relation to
such action shall be divided equally between Elan and Medi-Ject.
7.4. Infringement of Third Party Patents
7.4.1. In the event that a claim or proceedings are brought against
Medi-Ject or Elan by a third party alleging that the manufacture, use,
offer for sale, sale or other activity relating to the Products in the
Field constitute an unauthorized use of an intellectual property right
owned by such a third party in the Territory, Medi-Ject shall promptly
advise Elan of such threat or suit.
7.4.2. Medi-Ject shall indemnify, defend and hold Elan harmless
against all actions, losses, claims, demands, damages, costs and
liabilities (including reasonable attorneys fees) relating directly or
indirectly to all such claims or proceedings referred to in this Article
7.4; provided that Elan shall not acknowledge to the third party or to any
other person the validity of any claims of such a third party, and shall
not compromise or settle any claim or proceedings relating thereto without
the prior written consent of Medi-Ject, not to be unreasonably withheld or
delayed. Elan, at its own cost and expense, shall have the right to
participate in and have input in decisions relating to the defense of any
such action. At its option, Elan may elect to take over the conduct of such
proceedings from Medi-Ject; provided that Medi- Ject's indemnification
obligations shall continue; the costs of defending such claim shall be
borne by Elan; and Elan shall not compromise or settle any such claim or
proceeding without the prior written consent of Medi-Ject, not to be
unreasonably withheld or delayed.
7.4.3. Elan shall have no liability to Medi-Ject whatsoever or
howsoever arising for any losses incurred by Medi-Ject as a result of
having to cease selling Products or having to defer the launch of selling
Products, whether as a result of a court order or otherwise. Subject to the
provisions of Articles 6.6 and 6.7 hereunder, in the event Medi-Ject incurs
any loss or is obligated to indemnify Elan due to a successful claim by a
third party of infringement by the Elan Intellectual Property, Medi-Ject
shall be entitled to receive and Elan's liability hereunder shall be
limited to an amount equal to (***)%) per cent of the losses incurred by
Medi-Ject.
8. ARTICLE VIII: MISCELLANEOUS CLAUSES
8.1. Secrecy
8.1.1. Any information, whether written or oral (provided that oral
information shall be reduced to writing within one month by the party
giving the oral information and the written form shall be furnished to the
other party) pertaining to the Products that has been or will be
communicated or delivered by
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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Elan to Medi-Ject, or by Medi-Ject to Elan, including, without limitation,
trade secrets, business methods, and cost, supplier, manufacturing and
customer information (collectively, "Confidential Information'), shall be
treated by Medi-Ject and Elan, respectively, as confidential information,
and shall not be disclosed or revealed to any third party whatsoever or
used in any manner except as expressly provided for herein; provided,
however, that such confidential information shall not be subject to the
restrictions and prohibitions set forth in this Article to the extent that
such Confidential Information:
(A) is available to the public in public literature or otherwise, or
after disclosure by one Party to the other becomes public
knowledge through no default of the Party receiving such
Confidential Information; or
(B) was known to the Party receiving such Confidential Information
prior to the receipt of such Confidential Information by such
Party, whether received before or after the Effective Date; or
(C) is obtained by the Party receiving such Confidential Information
from a third party not subject to a requirement of
confidentiality with respect to such Confidential Information; or
(D) is required to be disclosed pursuant to: (1) any order of a court
having jurisdiction and power to order such information to be
released or made public; or (2) any lawful action of a
governmental or regulatory agency.
8.1.2. Each Party shall take all such precautions with Confidential
Information disclosed to it by the other Party as it normally takes with
its own confidential information to prevent any improper disclosure of the
Confidential Information disclosed to it by the other Party to any third
party; provided, however, that such Confidential Information may be
disclosed within the limits required to obtain any authorization from the
FDA or any other United States of America or foreign governmental or
regulatory agency or, with the prior written consent of the other Party,
which shall not be unreasonably withheld, or as may otherwise be required
in connection with the purposes of this Agreement.
8.1.3. Notwithstanding the above, each Party hereto may use or
disclose Confidential Information disclosed to it by the other Party to the
extent such use or disclosure is reasonably necessary in filing or
prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental regulations or otherwise submitting
information to tax or other governmental authorities, conducting clinical
trials, or making a permitted sub-license or otherwise exercising its
rights hereunder, provided that if a Party is required to make any such
disclosure of the other party's Confidential Information,
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other than pursuant to a confidentiality agreement, it will given
reasonable advance notice to the latter Party of such disclosure and,
except to the extent inappropriate in the case of patent applications, will
use its best efforts to secure confidential treatment of such information
prior to its disclosure (whether through protective orders or otherwise).
8.1.4. Each Party agrees that it will not use, directly or indirectly,
any Confidential Information disclosed by the other Party pursuant to this
Agreement, other than as expressly provided herein.
8.1.5. Medi-Ject and Elan will not publicize the existence of this
Agreement in any way without the prior written consent of the other subject
to the disclosure requirements of applicable laws and regulations. The
Parties agree that promptly following the execution of this Agreement they
shall issue an agreed press release that will not disclose the financial
terms of this Agreement. In the event that one of the Parties wishes to
make an announcement concerning the Agreement, that Party will seek the
consent of the other Party. The terms of any such announcement shall be
agreed in good faith.
8.2. Assignments/Subcontracting. This Agreement shall not be assigned by
Elan, or Medi-Ject to any third party without the prior written consent of the
other Party hereto. Notwithstanding the above and subject to the following
sentence, Elan may assign this Agreement, without the consent of Medi-Ject, to
an Affiliate or to an entity that acquires all or substantially all of the
business or assets of Elan to which this Agreement pertains, whether by merger,
reorganization, acquisition, sale, or otherwise. Notwithstanding the foregoing,
Medi-Ject and Elan will, subject to any confidentiality obligations to third
parties, discuss any assignment prior to its implementation in order to consider
how to avoid or reduce any additional tax liability to either Party resulting
solely from different tax law provisions applying after such assignment. For the
purpose hereof, an additional tax liability to either Party means that such
Party would be subject to a higher net tax on payments made hereunder after
taking into account any applicable tax treaty and available tax credits, than
the said Party was subject to before the proposed assignment.
8.3. Parties Bound. This Agreement shall be binding upon and inure for the
benefit of Parties hereto, their successors and permitted assigns.
8.4. Severability. If any provision in this Agreement is agreed by the
Parties to be, or is deemed to be, or becomes invalid, illegal, void or
unenforceable under any law that is applicable hereto, (i) such provision will
be deemed amended to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the Parties, it will be deleted, with effect from the date of such
agreement or such earlier date as the Parties may agree, and (ii) the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not be impaired or affected in any way.
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8.5. Duration and Termination.
8.5.1. Subject to the other provisions of Article 8.5, this Agreement
shall remain in full force and effect on a Product by Product and country
by country basis, for a period commencing as of the Effective Date and
expiring fifteen (15) years from the date of the first commercial sale of
such Product in such country in the Territory, or for the last to expire of
the Elan Patent Rights, whichever is longer (the "Term").
8.5.2. In addition to the rights of early or premature termination
provided for elsewhere in this Agreement, the Term of this Agreement may be
terminated immediately upon written notice of termination given by:
(A) the non-defaulting party in the event that the other party
shall: (1) commit a material breach or default under a Definitive
Document, which breach or default shall not be remedied within sixty
(60) days after the receipt of written notice thereof by the party in
breach or default; or (2) have made a material misrepresentation of
any representation or warranty contained herein or any Definitive
Document; or
(B) Elan, in the event that (1) a change of "control" of
Medi-Ject shall occur (the term "control" shall have the meaning set
forth in the definition of "Affiliate"), or (2) a Technological
Competitor acquires directly or indirectly voting stock or equivalent
securities in Medi-Ject representing (***)%) percent or more of the
stock which carries entitlement to vote, (or, in the case of (***)%)
per cent); or (3) if such Technological Competitor otherwise controls
Medi-Ject's board of directors.
(C) Elan on the one hand, and Medi-Ject on the other hand, as the
case may be, if the other shall at any time be Insolvent, dissolved,
liquidated, discontinued, or when any proceeding is filed or commenced
by either Party under bankruptcy, insolvency or debtor relief laws.
For purposes of this Agreement, "Insolvent" shall mean (1) a Party is
unable, or has reason to believe it is unable, to pay its debts as
such debts mature, or (2) a Party does not have sufficient capital
with which to conduct its business.
(D) Medi-Ject upon thirty (30) days prior written notice to Elan.
8.5.3. Upon exercise of those rights of termination as set forth in
this Agreement with respect to any country or countries or the entire
Agreement as the case may be, this Agreement shall, subject to the other
provisions of the Agreement, automatically terminate forthwith in the
applicable country or countries or the entire Agreement as the case may be,
and be of no further legal force or effect.
8.5.4. Upon termination of the Term of this Agreement:
*** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of this Exhibit have been deleted and filed separately
with the Securities Exchange Commission pursuant to a request for confidential
treatment.
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(A) any sums that were due from Medi-Ject to Elan prior to the
exercise of the right to terminate this Agreement shall be
paid in full within sixty (60) days of termination of this
Agreement;
(B) all confidentiality provisions set out herein shall remain
in full force and effect for a period of five (5) years;
(C) all indemnities shall survive the termination of this
Agreement and shall remain in full force and effect;
(D) the rights of inspection and audit shall continue in force
for the period referred to in the relevant provisions of
this Agreement;
(E) termination of the Term of this Agreement for any reason
shall not release any Party hereto from any liability which,
at the time of such termination, has already accrued to the
other Party or which is attributable to a period prior to
such termination nor preclude either Party from pursuing all
rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement;
(F) except as is necessary to enable Elan to exercise the
licenses granted by Medi-Ject to Elan under this Agreement,
upon any termination of this Agreement, Medi-Ject and Elan
shall promptly return to the other Party all Confidential
Information received from the other Party (except one copy
of which may be retained for archival purposes);
(G) in the event the Term of this Agreement is terminated for
any reason, Medi-Ject shall have the right for a period of
six (6) months from termination to sell or otherwise dispose
of the stock of any Product then on hand, which such sale
shall be subject to Article 4 and Article 5 and the other
applicable terms of this Agreement;
(H) the Elan Intellectual Property and all of the rights granted
to Medi-Ject hereunder shall immediately revert to Elan and,
unless this Agreement is terminated due to the breach by
Elan beyond any cure or grace period in accordance with the
terms of this Agreement, Medi-Ject shall immediately be
deemed to have assigned and transferred, to the extent held
by Medi-Ject and assignable and transferable, to Elan the
Marketing Authorizations (together with all applications for
regulatory approvals), the Trademark, the Medi-Ject
Intellectual Property, the Joint Intellectual Property, all
rights under supply or other agreements
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relating to the Products, and all other transactions and
documents relating to the foregoing and/or contemplated
thereby;
(I) all sublicenses of the Elan Intellectual Property shall,
except to the extent provided in Section 2.10 hereof,
terminate, provided, however, that Elan agrees to enter into
licenses with all sub-licensees of Medi-Ject on terms no
less favorable to the sub-licensees than those contained in
the sublicense agreements with Medi-Ject; provided such
sublicense agreements have been entered into in accordance
with this Agreement; and
(J) the following Articles shall survive the termination of the
Term of or expiration of the Term of this Agreement for any
reason: Article 1; Articles 2.2, 2.4 and 2.9; Articles
4.2.5; 4.2.6; and 4.2.7; Article 5.4; Articles 6.3, 6.4,
6.5, 6.6 and 6.7; Article 7.4, and Article 8.
8.6. Force Majeure. Neither Party to this Agreement shall be liable for
delay in the performance of any of its obligations hereunder if such delay
results from causes beyond its reasonable control, including, without
limitation, acts of God, fires, strikes, acts of war, or intervention of a
Government Authority, non availability of raw materials, but any such delay or
failure shall be remedied by such Party as soon as practicable.
8.7. Relationship of the Parties. Nothing contained in this Agreement is
intended or is to be construed to constitute Elan or Medi-Ject as partners or
joint venturers or either Party as an employee of the other. Neither Party
hereto shall have any express or implied right or authority to assume or create
any obligations on behalf of or in the name of the other Party or to bind the
other Party to any contract, agreement or undertaking with any third party.
8.8. Amendments. No amendment, modification or addition hereto shall be
effective or binding on either Party unless set forth in writing and executed by
a duly authorized representative of both Parties.
8.9. Waiver. No waiver of any right under this Agreement shall be deemed
effective unless contained in a written document signed by the Party charged
with such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of any other
right arising under this Agreement.
8.10. No effect on other agreements. No provision of this Agreement shall
be construed so as to negate, modify or affect in any way the provisions of any
other agreement between the Parties unless specifically referred to, and solely
to the extent provided, in any such other agreement.
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8.11. Applicable Law. This Agreement is construed under and ruled by the
laws of the state of New York. For the purpose of any dispute arising out of or
related to this Agreement, the Parties submit to the personal jurisdiction of
the United States District Court for the State of New York. The Parties each
further irrevocably consent to the service of any complaint, summons, notice or
other process by delivery thereof to it by any manner in which notices may be
given pursuant to this Agreement.
8.12. Notices. Any notice to be given under this Agreement shall be sent in
writing in English by registered airmail or faxed to:
- If to Elan, at
Elan Corporation, plc.
Lincoln House,
Lincoln Place,
Dublin 2, Ireland.
Attention: President, Elan Pharmaceutical Technologies,
a division of Elan Corporation plc
Telefax : 353 1 662 4960
- If to Medi-Ject, at
Medi-Ject Corporation
161 Cheshire Lane
Suite 100
Minneapolis, Minnesota 55441
Attention: Chief Executive Officer
Telefax: (612) 476-1009
or to such other address(es) and telefax numbers as may from
time to time be notified by either Party to the other
hereunder.
Any notice sent by registered air-mail shall be deemed to have been
delivered within seven (7) working days after dispatch and any notice sent by
telefax (with confirmed answer back) shall be deemed to have been delivered
within twenty four (24) hours of the time of the dispatch. Notice of change of
address shall be effective upon receipt.
8.13. No Implied Rights. No rights or licenses are granted or deemed
granted hereunder or in connection herewith, other than those rights expressly
granted in this Agreement.
8.14. Further Assurances. At any time or from time to time on and after
Effective Date, each party shall at the request of the other (i) deliver such
records, data or other documents consistent with the provisions of this
Agreement, (ii) execute, and deliver or cause to be
30
<PAGE>
delivered, all such consents, documents or further instruments of transfer or
license, and (iii) take or cause to be taken all such actions, as the other
Party may reasonably deem necessary or desirable in order for it to obtain the
full benefits of this Agreement and the transactions contemplated hereby.
8.15. Entire Agreement. This Agreement including its Appendices, together
with the Definitive Documents, sets forth the entire agreement and understanding
of the Parties with respect to the subject matter hereof, and supersedes all
prior discussions, agreements and writings in relating thereto, including the
Letter Agreement.
31
<PAGE>
8.16. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and which together shall constitute
one instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
duplicate as of the date first set forth above.
MEDI-JECT CORPORATION
By: /s/ Franklin Pass
----------------------------
Name: ____________________________
Title: ____________________________
ELAN CORPORATION, PLC
By: /s/ Donal J. Geaney
----------------------------
Name: ____________________________
Title: ____________________________
32
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Medi-Ject Corporation
We consent to incorporation by reference in the registration statements (Nos.
333-20389 and 333-40483) on Form S-8 of Medi-Ject Corporation of our report
dated February 26, 1999, except as to note 12(c) which is as of March 26, 1999,
relating to the balance sheets of Medi-Ject Corporation as of December 31, 1997
and 1998, and the related statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1998, which report is included in the annual report on Form 10-K of Medi-Ject
Corporation.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,852,285
<SECURITIES> 0
<RECEIVABLES> 300,694
<ALLOWANCES> 25,000
<INVENTORY> 592,185
<CURRENT-ASSETS> 3,772,170
<PP&E> 2,451,971
<DEPRECIATION> 1,173,515
<TOTAL-ASSETS> 5,334,431
<CURRENT-LIABILITIES> 704,423
<BONDS> 0
0
10
<COMMON> 14,248
<OTHER-SE> 4,615,750
<TOTAL-LIABILITY-AND-EQUITY> 5,334,431
<SALES> 2,223,504
<TOTAL-REVENUES> 3,042,389<F1>
<CGS> 1,852,026
<TOTAL-COSTS> 6,944,673
<OTHER-EXPENSES> 13,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,398
<INCOME-PRETAX> (5,769,463)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,769,463)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,769,463)
<EPS-PRIMARY> (4.07)
<EPS-DILUTED> (4.07)
<FN>
<F1>INCLUDES $291,521 OF INTEREST INCOME FOR PE 12-31-98.
</FN>
</TABLE>
