<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1997
REGISTRATION NO. 333-22359
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
BIONX IMPLANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3841 22-3458598
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
279B GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 296-0919
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------
DAVID W. ANDERSON
279B GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 296-0919
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO
PETER H. EHRENBERG, ESQ. ALEXANDER D. LYNCH, ESQ.
LOWENSTEIN, SANDLER, KOHL, FISHER & BROBECK, PHLEGER & HARRISON LLP
BOYLAN, P.A. 1633 BROADWAY, 47TH FLOOR
65 LIVINGSTON AVENUE NEW YORK, NEW YORK 10019
ROSELAND, NEW JERSEY 07068 (212) 581-1600
(201) 992-8700
------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement is declared effective.
------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.0019 per share...... 2,300,000 shs. $14.00 $32,200,000 $9,758(3)
</TABLE>
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(1) Includes 300,000 shares which may be purchased by the Underwriters to
cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Previously paid.
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject To Completion, Dated April 23, 1997
2,000,000 SHARES
[LOGO] BIONX IMPLANTS INC.
COMMON STOCK
------------
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
Bionx Implants, Inc. (the "Company"). Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $12.00 and $14.00 per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "BINX."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE""RISK
FACTORS" COMMENCING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions[1] Company[2]
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<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total[3]................................... $ $ $
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</TABLE>
1. For information regarding indemnification of the Underwriters and additional
compensation payable to the Underwriters, see "Underwriting."
2. Before deducting expenses of the offering payable by the Company, estimated
at $985,000.
3. The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 300,000 additional shares of
Common Stock on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discounts and Commissions will be
$ and the Proceeds to the Company will be $ . See "Underwriting."
------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through
the offices of UBS Securities LLC, 299 Park Avenue, New York, New York on or
about , 1997.
------------
UBS SECURITIES
HAMBRECHT & QUIST
VOLPE BROWN WHELAN & COMPANY
, 1997
<PAGE>
BIONX IMPLANTS INC.
(LOGO)
TWO PAGE GATEFOLD
PAGE 1
Marketing a Broad Line of Proprietary, Self-Reinforced Resorbable Products
that Provide Solutions to Medical Needs in Orthopaedics and Other Specialties.
Photograph of businessman demonstrating approved indications for Bionx
Implants.
For fracture management, Bionx Implants markets four full lines of resorbable
pins and screws with over 100 specific product sizes applicable to a wide
variety of orthopaedic procedures involving fracture management.
Picture display of the Bionx Implant Product lines for Fracture Fixation
including PLLA SmartScrews, PLLA SmartPins, PGA Screws and Pins in a variety
of lengths and diameters.
In February 1996 the Company introduced its SmartTack product, its first
product dedicated to serving the clinical needs of the hand surgeon.
Photograph of skier demonstrating approved indication for SmartTack in the
thumb.
Picture display of SmartTack.
Skeletal diagram of hand showing the SmartTack in place.
PAGE 2
MENISCUS ARROW
In the second quarter of 1996, Bionx Implants introduced its patented Meniscus
Arrow to provide the arthroscopist with the first resorbable implant that
provided a rapid and effective means of repairing meniscal tears. Prior to the
introduction of the Meniscus Arrow, surgeons were required to either remove
the damaged section of the meniscus, a procedure that may be detrimental to
the long term outcome of the surgery, or perform a complex, technically
demanding and time consuming arthroscopic suture repair procedure.
Picture display of Meniscus Arrow.
Blow-up schematic of the knee showing the Meniscus Arrow in place repairing a
meniscus tear.
Bionx Implants: Working Today to Create the Next Generation of Proprietary
Self-Reinforced, Resorbable Implants for the Orthopaedic Surgeon.
Photographs of businessman, skier and woman demonstrating approved indications
for Bionx Implants.
<PAGE>
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following summary is qualified in its entirety by the more
detailed information and the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus, including the information under
"Risk Factors."
THE COMPANY
Bionx Implants, Inc. (the "Company") is a leading developer, manufacturer and
marketer of Self-Reinforced, resorbable polymer implants, including screws,
pins, arrows and stents, for use in a variety of applications which include
orthopaedic surgery, urology, dentistry and maxillo-facial surgery. The
Company's proprietary manufacturing processes self-reinforce a resorbable
polymer, modifying the gel-like or brittle polymer structure into a
physiologically strong structure with controlled, variable strength retention
(ranging from three weeks to six months depending upon the medical indication).
The Company currently markets its products through managed networks of
independent sales agents in the U.S. and independent distributors and dealers
in markets outside of the U.S. The Company's nine product lines, representing
more than 100 distinct products, were designed to address recognized clinical
needs. The Company estimates that its products have been used in over 150,000
surgeries. The Company has received 510(k) clearance from the Food and Drug
Administration ("FDA") for the six product lines that it currently markets in
the U.S. The Company has also received regulatory approvals for its product
lines in certain European and Asian markets.
The Company uses several proprietary manufacturing and processing
technologies to modify well characterized resorbable polymers (e.g., poly-l-
lactic acid ("PLLA") and polyglycolic acid ("PGA")) into appropriately
designed, Self-Reinforced (reinforced with material of the same chemical
composition as the bulk of the polymer), resorbable implants which can be used
safely and reliably in surgical applications. In addition to providing the
strength necessary for these applications, the Company's Self-Reinforcing
technology also imparts to the resorbable polymer a number of characteristics
which enhance the manufacturability of the implants and broaden their potential
clinical applications. For example, the Self-Reinforced polymers can be
machined (e.g., lathed, heat-treated and forged) into clinically appropriate
sizes and modified using custom metal forming techniques to incorporate
features, such as ridges and barbs, for improved fixation. See "Business--
Manufacturing." The Company's implants are resorbed by the body (i.e., broken
down into sizes that enable the body to dispose of them naturally) over a
controlled period of time, based on the indicated use of the particular
product.
The human skeletal system is comprised of bone, connective tissue (ligaments
and tendons) and cartilage, all of which may be damaged as a result of trauma,
degenerative disease or surgical intervention. For more than four decades,
orthopaedic surgeons have used implantable metal devices, including screws,
pins and tacks, to repair skeletal tissue and to facilitate healing. While
metal implants have been recognized as the standard of care for fixation of
skeletal tissue due to their high strength and low complication rates, these
devices have several limitations, including reduction of healed bone strength
due to stress shielding (prevention of the transfer of weight-bearing load from
the implant to the bone) and the need to remove the implants. First generation
resorbable implants were developed in response to the limitations of metal
fixation devices. These implants do not require removal following surgery, but
are either brittle or overly flexible due to the processes, such as injection
molding, which are used in their manufacture. As a result of their low
strength, these implants had to be produced in large sizes which limited their
clinical utility. The Company developed its Self-Reinforced, resorbable polymer
implants -- including pins, screws and other profiled (nonsmooth-surfaced)
implants -- in clinically appropriate sizes to address the limitations of
3
<PAGE>
metal implants and first generation resorbable implants. See "Business--
Traditional Approaches to Fixation," "--Limitations of Traditional Approaches"
and "--Self-Reinforced, Resorbable Implants."
The Company has leveraged its Self-Reinforcing platform technology to develop
and introduce high quality, clinically proven, resorbable implants into major
segments of the medical device industry. The Company's Self-Reinforced,
resorbable implants include pins and screws for repair of fractures of the
ankle, hand, knee, elbow, wrist and foot, resorbable stents for use in
urological procedures, and the Meniscus Arrow, the first resorbable,
arthroscopically administered fixation device designed for use in the repair of
longitudinal, vertical tears of the medial and lateral meniscus of the knee.
Prior to the introduction of the Meniscus Arrow, damaged menisci could only be
treated through complex suturing techniques or removal of the torn section. The
Meniscus Arrow has demonstrated the ability to reduce operating room time by
approximately 50% and to decrease the risk of arterial and nervous system
complications which may occur with suturing techniques. See "Business--
Products."
The Company is also developing more than ten additional Self-Reinforced,
resorbable polymer implants for approximately 18 different applications.
Products under development include PLLA plates and anchors, intramedullary
nails, resorbable joint prostheses, and ultra-high strength resorbable
composites, all of which are planned for commercial introduction within the
next several years. See "Business--Product Development."
The Company's use of well known and well characterized polymers has, to date,
allowed for clearance of the Company's orthopaedic products by 510(k)
submissions. The FDA is familiar with the toxicological properties of these
polymers, and has not required extensive preclinical or clinical tests prior to
granting marketing clearance. In certain recent cases, clearances have been
obtained within 90 days after submission. The Company believes that many of its
products under development for orthopaedic and related applications will be
subject to clearance by 510(k) submissions, while certain of its other
products, including urology stents, are or may be subject to a more extensive
regulatory approval process. No assurances can be given as to whether or when
products to be submitted by the Company to the FDA will receive the necessary
clearances or approvals. See "Business--Government Regulation."
THE OFFERING
Common Stock Offered................ 2,000,000 shares
Common Stock Outstanding after this
Offering............................ 8,638,122 shares(1)
Use of Proceeds..................... To establish a manufacturing capability
in the U.S. and expand manufacturing
capacity in Finland, to fund increased
research and development, to expand sales
and marketing, to fund working capital
and for other general corporate purposes,
including repayment of certain long-term
debt.
Proposed Nasdaq National Market
Symbol.............................. BINX
- --------
(1) Excludes 424,382 shares of Common Stock reserved for issuance pursuant to
stock options outstanding as of December 31, 1996. Also excludes an
aggregate of 425,618 shares of Common Stock reserved for future issuance
under the Company's Stock Option/Stock Issuance Plan as of December 31,
1996. See "Management -- Stock Option/Stock Issuance Plan" and "Description
of Capital Stock" and Note 11 of Notes to Consolidated Financial
Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1992(1) 1993(1) 1994 1995 1996
--------- --------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPER-
ATIONS DATA:
Revenues....................... $1,522 $1,177 $ 1,280 $ 1,622 $ 5,379
Gross profit................... 951 831 804 1,084 3,202
Operating expenses............. 1,668 1,135 883 2,439 4,970
Operating loss................. (717) (304) (79) (1,355) (1,768)
Net loss....................... (651) (219) (162) (1,478) (2,106)
Pro forma net loss per
share(2)...................... (0.33)
Shares used in computing pro
forma net loss per share(2)... 6,400
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................ $2,046 $2,546 $25,741
Total assets........................... 8,179 8,679 31,874
Long-term debt less current portion.... 590 590 590
Mandatorily redeemable convertible
preferred stock....................... 5,000 -- --
Accumulated deficit.................... (4,800) (4,800) (4,800)
Total stockholders' equity (deficit)... (168) 5,332 28,527
</TABLE>
- --------
(1) Consolidated Statement of Operations data for the years ended December 31,
1992 and 1993 have been derived from unaudited financial statements of the
Company.
(2) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share.
(3) Gives effect to the automatic conversion of all outstanding shares of
Preferred Stock of the Company into 1,052,638 shares of Common Stock, the
assumed issuance of 267,060 shares of Common Stock upon the exercise of
warrants and the assumed receipt of net proceeds of $500,000 in connection
with the exercise of warrants.
(4) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 2,000,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $13.00 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by the Company).
----------------
Unless otherwise indicated, all information in this Prospectus (i) assumes
the Underwriters' over-allotment option is not exercised, (ii) reflects a 1 for
1.9 reverse stock split of the Common Stock effected on February 24, 1997 (the
"Reverse Stock Split"), (iii) gives effect to the conversion of all outstanding
shares of Preferred Stock into 1,052,638 shares of Common Stock which will
occur upon the closing of this Offering (the "Preferred Stock Conversion") and
(iv) assumes that a total of 267,060 shares of Common Stock will be issued upon
the exercise of warrants and that the Company will receive net proceeds of
$500,000 in connection with the exercise of warrants on or before the Closing
of this Offering (the "Warrant Exercise"). See "Description of Capital Stock,"
"Capitalization" and "Underwriting."
The Company's logo is a trademark of the Company. This Prospectus also
includes trademarks and trade names of companies other than the Company.
5
<PAGE>
RISK FACTORS
Prospective investors in the shares offered hereby should carefully consider
the following risk factors, in addition to the other information contained in
this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus.
History of Operating Losses; Accumulated Deficit; Uncertainty of Future
Profitability; Fluctuating Results of Operations. The Company has incurred
substantial operating losses since its inception, including an operating loss
of approximately $1.8 million in 1996, and, at December 31, 1996, had an
accumulated deficit of approximately $4.8 million. Such losses have resulted
principally from expenses associated with the development and patenting of the
Company's Self-Reinforcing technologies and resorbable implant designs,
preclinical and clinical studies, preparation of submissions to the U.S. Food
and Drug Administration (the "FDA") and foreign regulatory bodies, the
development of sales, marketing and distribution channels and the development
of manufacturing capabilities. Although the Company's revenues grew
significantly during 1996, no assurance can be given that this trend will
continue or that revenues will exceed expenses incurred in anticipation of
future revenue growth. Accordingly, the Company may incur significant
operating losses in the future as the Company continues its product
development efforts, expands its marketing, sales and distribution activities
and scales up its manufacturing capabilities. There can be no assurance that
the Company will be able to successfully commercialize its products or that
profitability will be achieved. The Company's results of operations have
fluctuated in the past on an annual and quarterly basis and may fluctuate
significantly from period to period in the future, depending upon a number of
factors, many of which are outside of the Company's control. Such factors
include the timing of government approvals, the medical community's acceptance
of the Company's products, the success of competitive products, the ability of
the Company to enter into strategic alliances with corporate partners,
expenses associated with patent matters, and the timing of expenses related to
product launches. Due to one or more of these factors, in one or more future
quarters the Company's results of operations may fall below the expectations
of securities analysts and investors. In that event, the market price of the
Company's Common Stock could be materially and adversely affected. See
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."
Uncertainty of Market Acceptance. The Company's success will depend in part
upon the acceptance of the Company's Self-Reinforced, resorbable implants by
the medical community, including health care providers, such as hospitals and
physicians, and third-party payors. Such acceptance may depend upon the extent
to which the medical community perceives the Company's products as a safe,
reliable and cost-effective alternative to non-resorbable products, which are
widely accepted, have a long history of use and are generally sold at prices
lower than the prices of the Company's products. Such acceptance may also
depend upon the extent to which the medical community believes that the
Company's Self-Reinforced, resorbable implants have overcome the strength and
composition difficulties experienced with first generation resorbable
implants. Ultimately, for the Company's products to gain wide market
acceptance, it will also be necessary for the Company to convince surgeons
that the benefits associated with the Company's products justify the
modification of standard surgical techniques in order to use the Company's
implants safely and effectively. There can be no assurance that the Company's
products will achieve significant market acceptance on a timely basis, or at
all. Failure of some or all of the Company's products to achieve significant
market acceptance could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Competition."
Uncertainties Relating to Licenses, Trade Secrets, Patents and Proprietary
Rights. The Company's success will depend in part upon its ability to preserve
its trade secrets, obtain and maintain patent protection for its technologies,
products and processes, and operate without infringing the proprietary rights
of other parties. As a result of the substantial length of time and expense
associated with developing and commercializing new medical devices, the
medical device industry places considerable importance on obtaining and
maintaining trade secret and patent protection for new technologies, products
and processes.
6
<PAGE>
The Company owns or has licenses to patents issued in the United States and
various foreign countries and has patent applications pending at the U.S.
Patent and Trademark Office ("U.S. PTO") and in patent offices of various
foreign countries. Provided that all requisite maintenance fees are paid, the
Company's four principal U.S. patents (two of which are owned by the Company
and two of which are licensed to the Company on an exclusive basis) will
expire between 2004 and 2008. The two principal U.S. patents owned by the
Company relate to the Company's Self-Reinforced resorbable polymer products,
the Company's sintering process, and resorbable polymer products produced from
the Company's controlled drawing process. European counterparts to the two
principal U.S. patents that are owned by the Company and the Japanese
counterpart to one such patent are currently the subject of opposition
proceedings. One of these European patents has been revoked by the European
Patent Office for lack of novelty based on an earlier publication. The Company
has filed an appeal of the European Patent Office's revocation decision. The
other European patent and the Japanese patent application are being challenged
on lack of novelty and inventiveness grounds on the basis of disclosures made
in patent and other publications. The Company is vigorously defending its
European and Japanese patent positions in these proceedings. No assurance can
be given as to whether such appeal in Europe will be successful or as to the
outcome of the pending opposition proceedings. In order to clarify and confirm
its U.S. patent position, the Company intends in the second quarter of 1997 to
request reexamination by the U.S. PTO of the two principal U.S. patents owned
by the Company. No assurance can be given as to whether the issues raised in
the reexamination proceedings will be resolved in the Company's favor.
The reexamination process is expected to take up to twelve months or longer.
Such reexamination could result in some or all of the patent claims set forth
in these two U.S. patents being altered to provide narrower coverage or being
determined to be unpatentable. No assurance can be given as to the outcome of
the reexamination process. Narrowing of the coverage or a holding of
unpatentability in relation to one or both of these two principal U.S. patents
may significantly ease entry to the U.S. market for the products of the
Company's competitors and could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company also relies upon trade secret protection for certain unpatented
aspects of its proprietary technology, including its Self-Reinforcing
technology. Although the Company has taken steps to protect its trade secrets
and know-how, through the use of confidentiality agreements with its employees
and certain of its business partners and suppliers, there can be no assurance
that these agreements will not be breached, that the Company would have
adequate remedies for any breach, that others will not independently develop
or otherwise acquire substantially equivalent proprietary technology,
information or techniques, that others will not otherwise gain access to the
Company's proprietary technologies, or that any particular proprietary
technology will be regarded as a trade secret under applicable law. There can
also be no assurance that the steps taken by the Company will prevent
misappropriation of its trade secrets. As a result of the reliance that the
Company places on its trade secrets, loss of the Company's trade secret
protection would have a material adverse effect on the Company's business,
financial condition and results of operations.
Additionally, the Company is licensed under two principal U.S. patents.
Pursuant to this license agreement, the Company has the exclusive right in the
U.S. to manufacture, use and sell certain devices for fixation of meniscus
lesions. This license agreement, which requires the Company to pay periodic
royalties, has a term expiring in 2006, unless terminated earlier by the
licensor for breach by the Company. There can be no assurance that these
patents licensed to the Company are valid and enforceable, and, if
enforceable, that they cannot be circumvented or avoided by competitors.
There can be no assurance that patent applications to which the Company
holds rights will result in the issuance of patents, that any patents issued
or licensed to the Company will not be challenged and held to be invalid or
narrow in scope, or that the Company's present or future patents will provide
significant coverage for or protection to the Company's present or future
technologies, products or processes. Since patent applications are secret
until patents are issued in the U.S., or corresponding applications are
published in foreign countries, and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, the
Company cannot be certain that it was the first to make its inventions, or
that it was the first to file patent applications for such inventions. In the
event that a third party has also filed a patent
7
<PAGE>
application relating to an invention claimed in a Company patent application,
the Company may be required to participate in an interference proceeding
declared by the U.S. PTO to determine priority of invention, which could
result in substantial uncertainties and cost for the Company, even if the
eventual outcome is favorable to the Company. In addition, there can be no
assurance that others will not obtain access to the Company's know-how or that
others will not be, or have not been, issued patents that may prevent the sale
of one or more of the Company's products or the practice of one or more of the
Company's processes, or require licensing and the payment of significant fees
or royalties by the Company to third parties in order to enable the Company to
conduct its business. There can be no assurance that the Company would be able
to obtain a license on terms acceptable to the Company or that the Company
would be able to successfully redesign its products or processes to avoid such
patents. In either such case, such inability could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Legal standards relating to the scope of claims and the validity of patents
in the medical device field are still evolving, and no assurance can be given
as to the degree of protection any patents issued to or licensed to the
Company would provide. The medical device industry has been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in the medical device industry have employed intellectual
property litigation to gain competitive advantage. The Company has initiated
an opposition in the European Patent Office challenging the grant of a third
party's European patent relating to a drawing process for manufacturing
resorbable polymer products. Subsequently, another company has instituted its
own opposition against that patent. No assurance can be given that these
oppositions will result in either the revocation of that patent or the
narrowing of its claims. If neither opposition is successful, then no
assurance can be given that the third party will not assert that its European
patent is infringed by sales of one or more of the Company's products or by
the practice of one or more of the Company's processes in any of the eight
countries identified in the European patent. Moreover, there can be no
assurance that the Company will not be subject to claims that one or more of
its products or processes infringe other patents or violate the proprietary
rights of third parties. Defense and prosecution of patent claims can be
expensive and time consuming, regardless of whether the outcome is favorable
to the Company, and can result in the diversion of substantial financial,
management and other resources from the Company's other activities. An adverse
outcome could subject the Company to significant liability to third parties,
require the Company to obtain licenses from third parties, or require the
Company to cease any related product development activities or product sales.
In addition, the laws of certain countries may not protect the Company's
patent rights, trade secrets, inventions, products or processes to the same
extent as in the U.S. See "Business -- Licenses, Trade Secrets, Patents and
Proprietary Rights."
Uncertainties Relating to Product Development. Product development involves
a high degree of risk. There can be no assurance that the Company's products
under development will prove to be safe and effective, will receive the
necessary regulatory approvals or will ultimately be commercially successful.
These products will require substantial additional investment, laboratory
development, clinical testing and regulatory approvals prior to their
commercialization. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products. The Company's
inability to successfully develop and introduce products under development on
a timely basis or at all, or achieve market acceptance of such products, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Product Development."
Estimates of Procedures Uncertain; Regulatory Submission Dates Subject to
Change. To assist investors in evaluating the Company, this Prospectus
contains certain estimates of procedures performed in the U.S. on an annual
basis. These estimates have been derived by the Company on the basis of its
analysis of market research reports compiled by independent third-party
sources which the Company believes to be reliable. However, all such estimates
are inherently subject to uncertainties, and the Company is unable to
determine with any degree of certainty the number of potential patients for
any indication or the number of patients who are suitable for treatment using
any of the Company's products.
This Prospectus also reflects the Company's estimates regarding future
regulatory submission dates. Regulatory submissions can be delayed, or plans
to submit proposed products can be canceled, for a number
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of reasons, including the receipt of unanticipated preclinical or clinical
study reports, a determination by the FDA that PMA approval (as defined
herein) rather than 510(k) clearance is required with respect to a particular
submission, changes in regulations, adoption of new, or unanticipated
enforcement of existing, regulations, technological developments and
competitive developments. Accordingly, no assurances can be given that the
Company's anticipated submissions will be made on their target dates, or at
all. Delays in such submissions could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
Dependence on Key Personnel and Relationship with the Technical University
at Tampere. The Company's ability to operate successfully depends in part upon
the continued service of certain key scientific, technical, managerial and
finance personnel, and its continuing ability to attract and retain additional
highly qualified scientific, technical, managerial and finance personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to retain existing personnel and attract or retain
additional highly qualified employees in the future. At present, the Company
does not maintain key man life insurance on any of its employees and only has
individual employment agreements with two of its employees. The loss of key
personnel and the inability to hire and retain qualified personnel in key
positions could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's product development efforts are dependent upon Pertti Tormala,
Ph.D. and the Technical University in Tampere, Finland. Dr. Tormala, a
founder, director and executive officer of the Company, is currently an
Academy Professor at the Technical University and has been permitted by the
University to devote his efforts to developing new products for the Company.
Dr. Tormala utilizes a group of senior researchers, graduate students and
faculty at the Technical University to perform research and development
projects involving resorbable polymers and other topics relating to the
Company's technologies and manufacturing processes. This arrangement,
permitted in Finland as a means of encouraging the commercialization of
technological development, has resulted in substantial cost savings to the
Company while greatly expanding its product development efforts. There can be
no assurance that the University will allow Dr. Tormala to continue to devote
his efforts and University resources to the Company's product development
efforts. Any failure by the Company to obtain the continued services of Dr.
Tormala, or any requirement that the Company fund research at the Technical
University at a substantially increased level, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview," "Management" and "Certain
Transactions."
Government Regulation. The Company's products are subject to extensive
regulation by the FDA and certain foreign regulatory agencies. Pursuant to the
Federal Food, Drug, and Cosmetic Act, as amended, and the regulations
promulgated thereunder (the "FDC Act"), the FDA regulates the preclinical and
clinical testing, manufacture, labeling, distribution and promotion of medical
devices. Noncompliance with applicable requirements can result in, among other
things, warning letters, fines, injunctions, civil penalties, recalls or
seizures of products, total or partial suspension of production, failure of
the government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing clearances or approvals and criminal prosecution. The
FDA also has the authority to request repair, replacement or refund of the
cost of any device manufactured or distributed by the Company.
The Company is prohibited from marketing new devices in the U.S. until it
obtains clearance from the FDA under the premarket notification provisions of
Section 510(k) of the FDC Act ("510(k)") or approval of a Premarket Approval
Application ("PMA") from the FDA. A 510(k) submission generally requires
supporting data, which may include clinical data. The process of obtaining PMA
approval is much more costly, lengthy and uncertain. A PMA application
requires extensive clinical data and other supporting information. When
clinical data is required for either a 510(k) submission or a PMA application,
the process of compiling the data can be expensive and time-consuming, and
there can be no assurance that any clinical study proposed by the Company will
be permitted by the FDA, will be completed, or, if completed, will provide
data and information that will support clearance or approval. The Company
believes that it usually takes from four to twelve months from submission to
obtain 510(k) clearance, although it can take longer, and that the FDA's
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review of a PMA application after it is accepted for filing can last from one
to three years, or even longer. In all cases, there can be no assurance that
510(k) clearance or PMA approval will ever be obtained. Moreover, regulatory
clearances or approvals, if granted, may include significant limitations on
the indicated uses for which a product may be marketed.
To date, all of the Company's products sold in the U.S. have received 510(k)
clearance. However, the FDA recently advised the Company that its urology
stent will require PMA approval. There can be no assurance that the FDA will
not determine that other products currently in development by the Company or
future products must also undergo the more costly, lengthy and uncertain PMA
approval process.
Current FDA enforcement policy prohibits the marketing of approved medical
devices for unapproved uses. The Company's PGA pins have received 510(k)
clearance for the general intended use of "maintenance of alignment of small
fragments of fractured non-load bearing bones in the presence of appropriate
immobilization." The Company has promoted this product for numerous specific
indications within the general framework of the language quoted above.
Although the Company believes that these specific indications are covered by
the 510(k) clearance already received for its PGA pins, there can be no
assurance that the FDA would not consider promotion of this product for the
specific indications to be a change to the intended use of the device
requiring a new 510(k) submission.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA. Changes in existing requirements or adoption of new requirements
could adversely affect the ability of the Company to be in regulatory
compliance. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with laws and regulations in the
future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.
The FDC Act requires devices to be manufactured in accordance with good
manufacturing practices ("GMPs") which impose certain procedural and
documentation requirements upon the Company with respect to manufacturing,
quality assurance and other matters. Enforcement of GMP regulations has
increased significantly in the last several years, and the FDA has publicly
stated that compliance will be more strictly scrutinized. The FDA has recently
finalized changes to the GMP regulations, including design controls, which
will likely increase the cost of compliance with GMP requirements.
In October 1994, the Company's facility in Finland was inspected by the FDA.
The inspector made several observations related to GMPs, which resulted in a
Warning Letter being issued to the Company on February 23, 1995. The Company
then began an exchange of correspondence with the FDA, which concluded with an
October 10, 1995 letter from the FDA stating, among other things, that the
Company's responses to the Warning Letter were "adequate" and that during the
next inspection, the FDA would "verify that the corrections have been
implemented." During April 14 through 17, 1997, the Company was inspected by
the FDA and received four observations related to GMPs, including one that was
deemed a recurring observation from the 1994 inspection. The Company responded
to the FDA in writing on April 17, 1997. In its response, the Company
acknowledged the observations and indicated that three had been corrected
(including the recurring observation) and the correction for the fourth was
underway. No assurance can be given that the FDA will determine that the
Company's responses are satisfactory.
In addition, international regulatory bodies often establish regulations
governing product standards, packaging requirements, labeling requirements,
import restrictions, tariff regulations, duties and tax requirements. As a
result of the Company's sales in Europe, the Company is required to receive a
"CE" marking certification, an international symbol of quality and compliance
with the applicable European medical device directive. In January 1997, the
Company received an EC Design Examination and an EC Quality System Certificate
from a European Notified Body, which entitles the Company to affix a CE
marking on all of its currently marketed orthopaedic, dental and maxillo-
facial products. Submission of the
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required design dossier for the Company's stent products is scheduled for late
1997. Failure to obtain CE marking for the Company's stent products by June
14, 1998 would prohibit the Company from selling such products in the European
Economic Area unless and until compliance is achieved. There can be no
assurance that the Company will be able to achieve and/or maintain compliance
required for CE marking for any or all of its products or that it will be able
to produce its products in a timely and profitable manner while complying with
applicable requirements.
The Company is also subject to numerous environmental and safety laws and
regulations, including those governing use of hazardous materials. Any
violation of, and the cost of compliance with, these regulations could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
Competition. The medical device industry is subject to intense competition
both in the U.S. and abroad. The Company's products compete against metal
implants and other resorbable products for orthopaedic surgery, urology,
dentistry, and maxillo-facial surgery applications. Potential competitors may
be able to develop technologies that are as effective as, or more effective or
easier to use than, those offered by the Company, which could render the
Company's products noncompetitive or obsolete. Moreover, many of the Company's
existing and potential competitors have substantially greater financial,
marketing, sales, distribution and technological resources than the Company.
Such existing and potential competitors may be
in the process of seeking FDA approval for their respective products or may
possess substantial advantages over the Company in terms of research and
development expertise, experience in conducting clinical trials, experience in
regulatory matters, manufacturing efficiency, name recognition, sales and
marketing expertise or distribution channels. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competition will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Competition."
Dependence Upon Independent Sales Agents, Distributors and Dealers. The
Company markets and sells its products through managed networks of independent
sales agents in the U.S. and independent distributors and dealers in foreign
countries. As a result, a substantial portion of the Company's revenues are
dependent upon the sales efforts of such sales agents, distributors and
dealers. The Company may also rely on its distributors to assist it in
obtaining reimbursement and regulatory approvals in certain international
markets. There can be no assurance that the Company's sales agents,
distributors and dealers, certain of which operate relatively small
businesses, have the financial stability to assure their continuing presence
in their markets. The inability of a sales agent, distributor or dealer to
perform its obligations, or the cessation of business by a sales agent,
distributor or dealer, could materially and adversely affect the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to engage or retain qualified sales
agents, distributors or dealers in each territory targeted by the Company. The
failure to engage such entities in such territories would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Sales, Marketing and Distribution."
Risks Relating to International Operations. Approximately 32% of the
Company's product sales during 1996 were generated in international markets. A
number of risks are inherent in international operations. International sales
and operations may be limited or disrupted by the imposition of government
controls, export license requirements, political instability, trade
restrictions, changes in tariffs, difficulties in managing international
operations, import restrictions and fluctuations in foreign currency exchange
rates. The international nature of the Company's business subjects it and its
representatives, agents and distributors to the laws and regulations of the
foreign jurisdictions in which they operate, and in which the Company's
products are sold. The regulation of medical devices in a number of such
jurisdictions, particularly in the European Union, continues to develop and
there can be no assurance that new laws or regulations will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business -- Government Regulation" and
Note 14 of Notes to Consolidated Financial Statements.
Product Liability Risks; Limited Insurance Coverage. The Company's business
is subject to product liability risks in the testing, manufacturing and
marketing of its products. There can be no assurance that product
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liability claims will not be asserted against the Company, its strategic
partners or its licensees. While the Company maintains product liability
insurance, there can be no assurance that this coverage will be adequate to
protect the Company against future product liability claims. In addition,
product liability insurance is expensive and there can be no assurance that,
in the future, product liability insurance will be available to the Company on
terms satisfactory to the Company, if at all. A successful product liability
claim or series of claims brought against the Company in excess of its
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Product
Liability and Insurance."
No Assurance of Ability to Manage Growth. The Company experienced
substantial growth in product sales during the second half of 1996. Although
there can be no assurance that such growth can be sustained, products in
development may potentially lead to further growth. There can be no assurance
that the Company will be able to (i) develop the necessary manufacturing
capabilities, (ii) manage an expanded sales and marketing network, (iii)
attract, retain and integrate the required key personnel, or (iv) implement
the financial, accounting and management systems to meet growing demand for
its products should it occur. Failure of the Company to successfully manage
its growth could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business --
Manufacturing," "-- Sales, Marketing and Distribution," "-- Facilities" and
"Management."
Uncertainties Regarding Manufacturing. The Company currently manufactures
its implant products solely in Finland. The Company intends to develop a
manufacturing capability in the U.S. in order to increase its manufacturing
capacity for its existing and new implant products. The Company anticipates
that it will establish this capability either by (i) equipping and operating a
leased facility in the eastern U.S. or (ii) contracting with a third party to
provide a manufacturing capability to the Company. The Company presently is
exploring both of these alternatives. If the Company pursues contract
manufacturing, it will solicit bids from reliable medical device
manufacturers, including a subsidiary of Vital Signs, Inc. ("Vital Signs").
Certain of the directors and principal stockholders of the Company are
directors, officers and stockholders of Vital Signs. If the Company uses a
contract manufacturer, the Company would equip the manufacturer's facility,
with the objective of ultimately transitioning to a neighboring Company-owned
or Company-leased facility. There can be no assurance that the Company will be
able to enter into a contract manufacturing agreement or otherwise secure the
use of suitable facilities in the U.S. on commercially reasonable terms, or at
all. Furthermore, regardless of the alternative selected, the integration of
the Company's existing operations with the U.S. facility may result in
inefficiencies and delays, especially as a result of the technical
requirements necessary to produce products in accordance with the Company's
specifications. There can be no assurance that the Company will not encounter
difficulties in scaling up production, including problems involving production
yield, quality control and assurance, and shortages of qualified personnel. In
addition, the U.S. facility will be subject to GMP regulations, international
quality control standards and other regulatory requirements. Difficulties
encountered by the Company in manufacturing scale-up, or the failure by the
Company to establish and maintain the U.S. facility in accordance with such
regulations, standards or other regulatory requirements, could have a material
adverse effect on the Company's business, financial condition and results of
operations. During 1995 and 1996, the Company experienced occasional periods
of delay in filling product orders due to increases in demand beyond
forecasted levels. The Company is currently upgrading its production machinery
and processes to address this increased demand. No assurance can be given that
the integration of these machines into the production process will occur
within the scheduled time frame or will not result in difficulties in scale-up
that could lead to further delays in filling orders in the future.
Difficulties experienced in integrating such machinery on a timely basis could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Manufacturing" and "-- Facilities"
and "Certain Transactions."
Limited Sources of Supply; Lack of Contractual Arrangements. The raw
materials for the Company's PLLA products are currently available to the
Company from three qualified sources, while the Company's PGA raw materials
are available from two qualified sources. The Company's raw materials have
been utilized in
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products cleared by the FDA and the Company's suppliers maintain Device Master
Files at the FDA that contain basic toxicology and manufacturing information.
The Company does not have long-term supply contracts with any of its
suppliers, although it is currently negotiating a supply agreement with its
principal PLLA supplier. In the event that the Company is unable to obtain
sufficient quantities of raw materials on commercially reasonable terms, or in
a timely manner, the Company would not be able to manufacture its products on
a timely and cost-competitive basis which, in turn, would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if any of the raw materials for the Company's PGA and
PLLA products are no longer available in the marketplace, the Company would be
forced to further modify its Self-Reinforcing processes to incorporate
alternate raw materials. The incorporation of new raw materials into the
Company's existing products would likely require the Company to seek clearance
or approval from the FDA. There can be no assurance that such development
would be successful or that, if developed by the Company or licensed from
third parties, products containing such alternative materials would receive
regulatory approvals on a timely basis, or at all. See "Business --
Manufacturing" and "-- Government Regulation."
Ability to Maintain Third-Party Reimbursement. In the U.S. and other
markets, health care providers such as hospitals and physicians, that purchase
medical devices, such as the Company's products, generally rely on third-party
payors including Medicare, Medicaid and private health insurance plans, to
reimburse all or part of the cost of the procedures in which the medical
devices are being used. The Company believes that, to date, U.S. health care
providers have been reimbursed in full for the cost of procedures which
utilize the Company's products. However, there can be no assurance that third-
party reimbursement for such procedures will be consistently available for the
Company's products or that such third-party reimbursement will be adequate.
There is significant uncertainty concerning third-party reimbursement for
procedures which utilize any medical device incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that the use of the Company's products is
clinically useful and cost-effective, medically necessary and not experimental
or investigational. Since reimbursement approval is required from each payor
individually, seeking such approvals can be a time consuming and costly
process which, in the future, could require the Company to provide supporting
scientific, clinical and cost-effectiveness data for the use of the Company's
products to each payor separately. Federal and state government agencies are
increasingly considering limiting health care expenditures. For example, the
U.S. Congress is currently considering various proposals to significantly
reduce Medicaid and Medicare expenditures. Such proposals, if enacted, could
have a material adverse effect on the Company's business, financial condition
and results of operations. Outside the U.S., the Company relies on
distributors to establish reimbursement from third-party payors in their
respective territories. Health care reimbursement systems vary from country to
country and, accordingly, there can be no assurance that third-party
reimbursement available under any one system will be available for procedures
utilizing the Company's products under any other reimbursement system. Lack of
or inadequate reimbursement by government and other third-party payors for
procedures utilizing the Company's products would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Third-Party Reimbursement."
Possible Future Capital Needs; Uncertainty of Additional Financing. The
Company has experienced negative operating cash flows since its inception. The
Company has expended, and expects to continue to expend in the future,
substantial funds to pursue product development efforts, expand its sales and
marketing activities and expand its manufacturing capabilities. The Company
expects that its existing capital resources, together with the net proceeds of
this Offering, the interest earned thereon and the cash flow from operations,
if any, will be adequate to fund the Company's operations through 1998.
However, the Company's future capital requirements and the adequacy of
available funds will depend on numerous factors, including market acceptance
of its existing and future products, the successful commercialization of
products in development, progress in its product development efforts, the
magnitude and scope of such efforts, progress with preclinical studies,
clinical trials and product clearances by the FDA and other agencies, the cost
and timing of its efforts to expand its manufacturing capabilities, the cost
of filing, prosecuting, defending and enforcing patent claims
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and other intellectual property rights, competing technological and market
developments, and the development of strategic alliances for the marketing of
certain of its products. To the extent that funds generated from the Company's
operations, if any, together with the Company's existing capital resources,
the proceeds of this Offering and the interest earned thereon, are
insufficient to meet current or planned operating requirements, the Company
will be required to obtain additional funds through equity or debt financings,
strategic alliances with corporate partners and others, or through other
sources. The terms of any equity financings may be dilutive to stockholders
and the terms of any debt financings may contain restrictive covenants which
limit the Company's ability to pursue certain courses of action. Principal
stockholders of the Company who previously provided funding to the Company and
provided guarantees to sources of credit have indicated that they do not
intend to continue furnishing such assistance. There can be no assurance that
additional funding, if necessary, will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to
delay, scale-back or eliminate certain aspects of its operations or attempt to
obtain funds through arrangements with strategic partners or others that may
require the Company to relinquish rights to certain of its technologies,
product candidates, products or potential markets, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Uncertainties Relating to Strategic Partners. The Company anticipates that
it may be necessary to enter into arrangements with corporate partners,
licensees or others, in order to efficiently market, sell and distribute
certain of its products. Such strategic partners may also be called upon to
assist in the support of such products, including support of certain product
development functions. As a result, the success of such products may be
dependent in part upon the efforts of such third parties. The Company has
negotiated one such agreement with Ethicon GmbH, a subsidiary of Johnson &
Johnson, pursuant to which Ethicon GmbH has the right to market and sell in
Europe certain products, based upon the Company's membrane patent, in
dentistry and two other unrelated fields of use. There can be no assurance
that the Company will be able to negotiate additional acceptable arrangements
with strategic partners or that the Company will realize any meaningful
revenues pursuant to such arrangements.
Control by Directors, Executive Officers and Affiliated Entities. The
Company's directors, executive officers and entities affiliated with them
will, in the aggregate, beneficially own approximately 65% of the Company's
outstanding shares of Common Stock following the completion of this Offering
(or approximately 62% if the Underwriters exercise their over-allotment
options in full). These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by the stockholders of
the Company, including the election of directors and the approval of mergers
or other business combination transactions. See "Certain Transactions" and
"Principal Stockholders."
Potential Anti-Takeover Effects of Delaware Law and the Company's
Certificate of Incorporation and Bylaws. The Company's Board of Directors has
the authority, without further action by the stockholders, to issue from time
to time, up to 8,000,000 shares of Preferred Stock in one or more classes or
series, and to fix the rights and preferences of such Preferred Stock. The
Company's Certificate of Incorporation provides for staggered terms for
members of the Board of Directors and does not permit stockholders to act
without a meeting. The Company is also subject to provisions of Delaware
corporate law which, subject to certain exceptions, will prohibit the Company
from engaging in any "business combination" with a person who, together with
affiliates and associates, owns 15% or more of the Company's Common Stock (an
"Interested Stockholder") for a period of three years following the time that
such person became an Interested Stockholder, unless the business combination
is approved in a prescribed manner. Additionally, the bylaws of the Company
establish an advance notice procedure for stockholder proposals and for
nominating candidates for election as directors. These provisions of Delaware
law and of the Company's Certificate of Incorporation and bylaws may have the
effect of delaying, deterring or preventing a change in control of the
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Company, may discourage bids for the Common Stock at a premium over the
prevailing market price, and may adversely affect the market price, and the
voting and other rights of the holders, of the Common Stock. See "Description
of Capital Stock."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock (including shares issued upon the exercise of outstanding options and
warrants) in the public market after this Offering or the prospect of such
sales could materially and adversely affect the market price of the Common
Stock and may have a material adverse effect on the Company's ability to raise
any necessary capital to fund its future operations. Upon completion of this
Offering, the Company will have 8,638,122 shares of Common Stock outstanding.
The 2,000,000 shares offered hereby will be freely tradeable without
restrictions or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares held by "affiliates" of
the Company within the meaning of the Securities Act will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act ("Rule
144"). The remaining 6,638,122 outstanding shares are "restricted" securities
that may be sold only if registered under the Securities Act, or sold in
accordance with an applicable exemption from registration, such as Rule 144.
Rule 144 imposes a holding period with respect to securities purchased
directly from an issuer. The Securities and Exchange Commission has amended
Rule 144, effective April 29, 1997, to reduce the holding period for sales
subject to certain resale restrictions from two years to one year and to
reduce the holding period applicable to non-affiliates for non-restricted
sales from three years to two years.
The officers and directors of the Company and other holders of Common Stock
who together hold 6,638,122 shares of Common Stock and options to purchase an
additional 395,431 shares of Common Stock (of which, options to purchase
181,997 shares are currently exercisable), have agreed not to sell, directly
or indirectly, any Common Stock without the prior written consent of UBS
Securities LLC for a period of 180 days from the date of this Prospectus (the
"Lock-up Agreements"). UBS Securities LLC has advised the Nasdaq Stock Market
that it will not grant any such consent prior to September 4, 1997 with
respect to shares issued upon the Preferred Stock Conversion and the Warrant
Exercise. Holders of 176,849 shares of Common Stock are subject to similar
restrictions for a period of one year. Approximately 90 days after the
completion of this Offering, the Company intends to file a registration
statement on Form S-8 under the Securities Act to register the future issuance
of all shares of Common Stock reserved for issuance under the Company's Stock
Option/Stock Issuance Plan. As of December 31, 1996, 424,382 shares of Common
Stock were reserved for issuance pursuant to outstanding options and 425,618
shares of Common Stock were reserved for future issuance under the Company's
Stock Option/Stock Issuance Plan. Such registration statement will
automatically become effective upon filing. Accordingly, shares registered
thereunder will, subject to Rule 144 limitations applicable to affiliates, be
available for sale in the public market, except to the extent that such shares
are subject to vesting restrictions with the Company or certain contractual
restrictions on sale or transfer (including options covering 395,431 shares
which are subject to Lock-up Agreements). After this Offering, the holders of
approximately 1,320,000 shares of Common Stock will be entitled to certain
demand and piggyback rights with respect to the registration of such shares
under the Securities Act. If such holders, by exercising their demand
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could have an adverse effect on the
market price of the Company's Common Stock. If the Company, either on its own
behalf or on behalf of certain stockholders, were to initiate a registration
and include shares held by such holders pursuant to the exercise of their
piggyback registration rights, such sales could have a material adverse effect
on the Company's ability to raise needed capital. See "Certain Transactions,"
"Shares Eligible for Future Sale," "Description of Capital Stock--Registration
Rights of Certain Holders" and "Underwriting."
No Prior Public Market For Common Stock; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the
Company's Common Stock and there can be no assurance that an active public
market for the Common Stock will develop or be sustained after this Offering
or that the market price of the Common Stock will not decline below the
initial public offering price. The initial public offering price has been
determined by negotiations between the Company and the Underwriters and is not
necessarily indicative of the market price at which the Common Stock of the
Company will trade after this Offering. Among the factors considered in such
negotiations were prevailing market conditions, certain financial
15
<PAGE>
information of the Company, market valuations of other companies that the
Company and the representatives of the Underwriters believe to be comparable
to the Company, estimates of the business potential of the Company, the
present state of the Company's development and other factors deemed relevant.
The stock markets have experienced price and volume fluctuations that have
particularly affected medical technology companies, resulting in changes in
the market prices of the stocks of many companies that may not have been
directly related to the operating performance of those companies. Such broad
market fluctuations may materially and adversely affect the market price of
the Common Stock following this Offering. Factors such as variations in the
Company's results of operations, comments by securities analysts,
underperformance against analysts' estimates, announcements of technological
innovations or new products by the Company or its competitors, changing
government regulations and developments with respect to FDA or foreign
regulatory submissions, the results of regulatory inspections, patents,
proprietary rights or litigation may have a material adverse effect on the
market price of the Common Stock.
Dilution; No Dividends. Purchasers of the Common Stock offered hereby will
suffer immediate and substantial dilution in the net tangible book value per
share from the initial public offering price. The Company has not paid cash
dividends since its inception and does not intend to pay any dividends on its
Common Stock in the foreseeable future. See "Dilution" and "Dividend Policy."
16
<PAGE>
THE COMPANY
Bionx Implants, Inc. (the "Company") was incorporated in Delaware in October
1995 to coordinate the businesses of four related companies controlled by U.S.
and Finnish investors. In September 1996, the Company consummated a
reorganization pursuant to which it acquired all of the capital stock of the
four existing companies and issued in exchange a total of 5,263,160 shares of
its Common Stock (the "Reorganization"). The four existing companies were
Bioscience, Ltd. (which has been engaged in the development of resorbable
polymer products since 1984), Biocon, Ltd. (which holds most of the Company's
patents and patent applications) and two companies organized in the U.S. to
further sales, marketing and development efforts, Biostent, Inc. ("Biostent")
and Orthosorb, Inc. ("Orthosorb"). Of the 5,263,160 shares issued by the
Company in the Reorganization, 2,578,949 shares were issued to the former U.S.
stockholders of the four existing companies and 2,684,211 shares were issued
to a Dutch company (Bionix, B.V.) controlled by such stockholders and owned by
such stockholders and the former Finnish stockholders of Bioscience, Ltd. and
Biocon, Ltd. Unless otherwise indicated, all references herein to the business
of the Company include Bionx Implants, Inc. and the four entities acquired by
Bionx Implants, Inc. in connection with the Reorganization. See "Certain
Transactions" and Note 1 of the Notes to the Company's Consolidated Financial
Statements.
The Company's principal executive offices are located at 279B Great Valley
Parkway, Malvern, Pennsylvania 19355. Its telephone number at that address is
(610) 296-0919. In May 1997, the Company will relocate its principal executive
offices to 4th Floor, Gwynedd Hall, Sentry Park West, Blue Bell, Pennsylvania.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$23,195,000 ($26,822,000 if the Underwriters' over-allotment option is
exercised in full), based on an assumed initial public offering price of
$13.00 per share, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company.
The Company estimates that approximately $4-5 million of the net proceeds
will be used to purchase equipment for, and to otherwise establish, a
manufacturing capability in the U.S. and to expand manufacturing capacity in
Finland, approximately $3-4 million will be used to develop maxillo-facial
products and to establish a sales and marketing infrastructure for such
products, approximately $6-8 million will be used for the development of new
resorbable polymers, the development of additional product applications in the
fields of urology and spinal fixation, and related clinical and regulatory
support, and the balance of $6-10 million (or approximately $10-14 million if
the Underwriters' overallotment option is exercised in full) will be used for
working capital and other general corporate purposes, including the repayment
of certain long-term debt. The foregoing represents estimates only; the actual
amounts expended by the Company for these purposes and the timing of such
expenditures will depend on numerous factors, including the status of the
Company's development efforts, actions relating to patent and regulatory
matters, the extent to which the Company's products gain market acceptance and
competition. The long-term debt to be repaid consists of approximately
$440,000 in loans from Finnish financial institutions maturing from 1997 to
2000 at interest rates ranging from 6% to 13% per annum. The Company may use a
portion of the net proceeds to acquire complementary businesses, products or
technologies, although the Company currently has no agreements and is not
involved in any negotiations with respect to any such transactions. Pending
use of the net proceeds of this Offering, the Company plans to invest the net
proceeds in interest-bearing, investment grade securities. The Company intends
to invest in liquid assets in a manner that will not subject it to regulation
under the Investment Company Act of 1940. Although the Company believes that
the net proceeds from this Offering, together with cash flows from operations,
if any, and existing cash and cash equivalents and other capital resources,
will be sufficient to maintain its current and planned operations through
1998, there can be no assurance that the Company will not require additional
financing within two years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
17
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
CAPITALIZATION
The following table sets forth, at December 31, 1996, (i) the actual
capitalization of the Company, assuming completion of the Reverse Stock Split,
(ii) the pro forma capitalization of the Company, giving effect to the
Preferred Stock Conversion and the Warrant Exercise on or before the closing
of this Offering, and (iii) the pro forma capitalization of the Company as
adjusted to reflect the receipt of the estimated net proceeds from the sale of
2,000,000 shares of Common Stock in this Offering at an assumed initial public
offering price of $13.00 per share, after deducting the underwriting discounts
and commissions and estimated offering expenses payable by the Company. This
table should be read in conjunction with the Consolidated Financial Statements
and the related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt less current portion....... $ 590 $ 590 $ 590
Mandatorily redeemable convertible
preferred stock.......................... 5,000 -- --
Stockholders' equity:
Preferred Stock: $.001 par value;
8,000,000 shares authorized, no shares
issued and outstanding on an actual,
pro forma or pro forma as adjusted
basis.................................. -- -- --
Common Stock: $.0019 par value;
31,600,000 shares authorized; 5,318,424
shares issued and outstanding on an
actual basis;
6,638,122 shares issued and outstanding
on a pro forma basis;
8,638,122 shares issued and outstanding
on a pro forma as
adjusted basis(1)...................... 10 13 16
Additional paid-in capital................ 4,892 10,389 33,581
Accumulated deficit....................... (4,800) (4,800) (4,800)
Foreign currency translation adjustment... (269) (269) (269)
------- ------- -------
Total common stockholders' equity
(deficit)............................. (167) 5,333 28,528
------- ------- -------
Total capitalization................... $ 5,423 $ 5,923 $29,118
======= ======= =======
</TABLE>
- --------
(1) Excludes 424,382 shares of Common Stock reserved for issuance pursuant to
stock options outstanding as of December 31, 1996 at a weighted average
exercise price of $3.23 per share. Also excludes an additional 425,618
shares of Common Stock reserved for future grant under the Company's Stock
Option/Stock Issuance Plan as of December 31, 1996. See "Management --
Stock Option/Stock Issuance Plan," "Description of Capital Stock" and
Note 11 of Notes to Consolidated Financial Statements.
(2) As of December 31, 1996 (after giving effect to the Reverse Stock Split),
the Company had outstanding 2,000,000 shares of Preferred Stock and
warrants entitling the holders to purchase a total of 421,065 shares of
Common Stock at an exercise price of $5.70 per share (the "Warrants").
Concurrently with the closing of this Offering, all of the outstanding
shares of Preferred Stock will be converted into 1,052,638 shares of
Common Stock after giving effect to the Reverse Stock Split. The Company
has the right, and intends, to call any unexercised Warrants upon the
closing of this Offering. See "Description of Capital Stock -- Warrants."
18
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of December 31,
1996 was $2,533,374, or $0.38 per share (after giving effect to the Preferred
Stock Conversion and the Warrant Exercise). The net tangible book value per
share of Common Stock represents the amount of the Company's tangible assets
less total liabilities, divided by the 6,638,122 shares of Common Stock
outstanding (after giving effect to the Preferred Stock Conversion and the
Warrant Exercise). Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of this Offering. After giving
effect to the Preferred Stock Conversion, the Warrant Exercise and the sale by
the Company of the 2,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share (after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company), the pro forma net tangible book value of the Company as of
December 31, 1996 would have been $25,728,374, or $2.98 per share. This
represents an immediate increase in net tangible book value of $2.37 per share
to existing stockholders and an immediate dilution in net tangible book value
of $10.26 per share to new investors of Common Stock in this Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $13.00
------
Net tangible book value per share before the Offering.......... .38
Increase per share attributable to new investors............... 2.60
----
Pro forma net tangible book value per share after the Offer-
ing........................................................... 2.98
------
Dilution per share to new investors............................ $10.02
======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1996, the difference between the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by the existing holders of Common Stock and by the new investors, after
giving effect to the Warrant Exercise and Preferred Stock Conversion and
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company, at an assumed initial public
offering price of $13.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 6,638,122 76.8 $ 7,368,975 22.1 $ 1.11
New investors................ 2,000,000 23.2 26,000,000 77.9 13.00
--------- ----- ----------- -----
Total...................... 8,638,122 100.0% $33,368,975 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables (i) assume the conversion of all Preferred Stock into
Common Stock and the exercise of all 421,065 Warrants at or before the closing
of this Offering, (ii) assume no exercise of the Underwriters' over-allotment
option, (iii) exclude 424,382 shares of Common Stock reserved for issuance
pursuant to stock options outstanding as of December 31, 1996, and (iv)
exclude an additional 425,618 shares of Common Stock reserved for future grant
under the Company's Stock Option/Stock Issuance Plan as of December 31, 1996.
See "Management -- Stock Option/Stock Issuance Plan," "Description of Capital
Stock" and Note 11 of Notes to Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated selected financial data is qualified in its
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Prospectus. The Consolidated Statement of Operations data
for the years ended December 31, 1994, 1995 and 1996 and the Company's
Consolidated Balance Sheet data at December 31, 1995 and 1996 are derived from
audited Consolidated Financial Statements of the Company included elsewhere in
this Prospectus. The Consolidated Statement of Operations data with respect to
the years ended December 31, 1992 and 1993 and the Consolidated Balance Sheet
data at December 31, 1992, 1993 and 1994 are derived from unaudited
consolidated financial statements not included in this Prospectus. Such
unaudited consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position and the results of its
operations for those years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................... $ 1,522 $ 1,177 $ 1,280 $ 1,622 $ 5,379
Gross profit................ 951 831 804 1,084 3,202
Operating expenses.......... 1,668 1,135 883 2,439 4,970
Operating loss.............. (717) (304) (79) (1,355) (1,768)
Other income and expense,
net........................ 66 85 (83) (123) (130)
Net loss.................... (651) (219) (162) (1,478) (2,106)
Pro forma net loss per
share(1)................... (0.33)
Shares used in computing pro
forma net loss per
share(1)................... 6,400
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- ---------------------
ACTUAL PRO FORMA(2)
------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital
(deficit).............. $ (364) $ (224) $ (164) $ (576) $ 2,046 $ 2,546
Total assets............ 2,855 2,551 2,029 1,794 8,179 8,679
Long-term debt less
current portion........ 763 890 301 896 590 590
Mandatorily redeemable
convertible preferred
stock.................. -- -- -- -- 5,000 --
Accumulated deficit..... (819) (956) (1,215) (2,693) (4,800) (4,800)
Total stockholders'
equity (deficit)....... 606 333 1,159 (1,036) (168) 5,332
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net loss per share.
(2) Gives effect to the Preferred Stock Conversion and the Warrant Exercise.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto presented elsewhere herein.
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, without
limitation, those discussed in the sections entitled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
The Company was founded in 1984 to develop certain resorbable polymers for
orthopaedic uses. The Company has incurred substantial operating losses since
its inception and, at December 31, 1996, had an accumulated deficit of
approximately $4.8 million. Such losses have resulted principally from
expenses associated with the development and patenting of the Company's Self-
Reinforcing technologies and resorbable implant designs, preclinical and
clinical studies, preparation of submissions to the FDA and foreign regulatory
agencies, the development of sales, marketing and distribution channels and
the development of its manufacturing capabilities. Although the Company's
revenues grew significantly in 1996, no assurance can be given that this trend
will continue or that revenues of any magnitude will exceed expenses incurred
in anticipation of future growth. Accordingly, the Company may incur
significant operating losses in the future as it continues its product
development efforts, expands its marketing, sales and distribution activities
and scales up its manufacturing capabilities. There can be no assurance that
the Company will be able to successfully commercialize its products or that
profitability will be achieved.
The Company first introduced its PGA pins in 1984 and its PGA screws in
1986. In 1987, the Company introduced its first PLLA products, PLLA pins. PLLA
screws were introduced in 1989. Since the introduction of these products, the
Company has expanded its PGA and PLLA pin and screw product lines to address
additional clinical indications. The Company's PGA membrane product was
introduced in 1992, and, in 1995, the Company launched its Meniscus Arrow,
PLLA tacks, and PGA and PLLA urology stents. Prior to 1996, the Company
derived substantially all of its revenue from sales of its PLLA and PGA screws
and pins. A substantial portion of the Company's revenues and revenue growth
in the second half of 1996 resulted from sales of the Meniscus Arrow, which
received FDA clearance in March 1996. To date, all products sold by the
Company have been launched first in international markets. During 1994, 1995
and 1996, international product sales represented 65%, 65% and 32%,
respectively, of the Company's total product sales.
The Company typically sells implant grade, stainless steel surgical
instruments for use with each of its Self-Reinforced, resorbable products. The
margins for these instruments are typically lower than the margins applicable
to the Company's implant products. However, since orthopaedic companies
operating in the U.S. have traditionally loaned rather than sold instruments
to their customers, the Company anticipates that in the future, it will be
necessary for the Company to provide an increasing proportion of its
instrumentation in the U.S. on a loan basis. Similar practices are not common
in international markets. For financial statement purposes, revenues from the
sale of instrumentation systems are included within product sales and costs
associated with the Company's procurement of such systems are included within
cost of goods sold. The Company's instrumentation systems are reusable.
Accordingly, sales and loans of such systems are likely to be most pronounced
in periods shortly after product launches and likely to be less prevalent as
penetration of the market increases over the long term. Thus, the negative
impact on the Company's gross profit margins associated with sales and loans
of a particular instrument system is expected to decrease after a substantial
market penetration has been achieved. Similarly, such impact is likely to
lessen to the extent that sales and loans of instrument systems decrease as a
percentage of total product sales. However, no assurance can be given as to
the extent to which instrumentation sales will depress the Company's gross
profit margins in the future.
21
<PAGE>
The Company sells its products through managed networks of independent sales
agents, distributors and dealers. In the U.S., the Company handles all
shipping and invoicing functions directly and pays commissions to its sales
agents. Outside the U.S., the Company sells its products directly to
distributors and dealers at discounts that vary by product and by market.
Accordingly, the Company's U.S. sales result in higher gross margins than
international sales. The Company anticipates that during the next few years,
the relative percentage of its U.S. product sales to total product sales is
likely to continue to increase. Since the Company pays commissions on sales
made through its U.S. network, an increased percentage of U.S. sales in the
future will likely result in an increase in the percentage of selling, general
and administrative expenses to total sales. This increase will be partially
offset by the higher gross margins received on products sold in the U.S.
Outside of the orthopaedic market, the Company may seek to establish
licensing or distribution agreements with strategic partners to develop
certain products and to market and distribute products that the Company elects
not to distribute through its managed networks of independent sales agents,
distributors and dealers. The Company has licensed its membrane patent for use
in dental and two other applications in Europe to Ethicon GmbH, a subsidiary
of Johnson & Johnson. During 1995 and 1996, Ethicon GmbH paid the Company
approximately $200,000 and $201,000, respectively, in licensing fees. Ethicon
GmbH has agreed to pay royalties to the Company upon the initiation of
commercial sales of its membrane products, which are targeted for commercial
release commencing in the second quarter of 1997. Revenues from the Company's
sales of such products have not been material. Accordingly, no assurance can
be given that royalty payments from Ethicon GmbH, when and if they commence,
will be material. Furthermore, no assurance can be given that the Company will
be able to enter into other license arrangements regarding other products on
satisfactory terms.
The Company has entered into agreements pursuant to which the Company is
obligated to pay royalties based on net sales of certain of the Company's
products, including the Meniscus Arrow. To the extent that sales of the
Meniscus Arrow products and other licensed products increase in future
periods, the Company's license obligations are expected to increase.
The Company has benefited from the research and development activities of
Dr. Pertti Tormala, the founder of the Company, at the Technical University in
Tampere, Finland. Dr. Tormala is currently an Academy Professor at the
Technical University and is permitted by the University to devote his efforts
to developing products for the Company. Dr. Tormala utilizes a group of senior
researchers, graduate students and faculty at the Technical University to
perform research and development projects involving resorbable polymers and
other topics relating to the Company's technology and manufacturing processes.
This arrangement, permitted in Finland as a means of encouraging the
commercialization of technological development, has resulted in substantial
cost savings to the Company while greatly expanding its product development
efforts. Any failure by the Company to obtain the continued services of Dr.
Tormala, or any requirement that the Company fund research at a substantially
increased level, could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has hired
certain senior researchers from the University program and anticipates that,
in the future, more of its product development work will be performed and
funded directly by the Company, thereby increasing the Company's research and
development expenses.
The Company currently manufactures its implant products solely at its
Tampere, Finland plant. The Company intends to use a portion of the proceeds
of this Offering to establish a manufacturing capability in the U.S. The
Company plans to establish this capability either by equipping and operating a
leased facility or contracting with a third party to provide a manufacturing
capability to the Company. The Company believes that on an interim basis,
contract manufacturing may enable the Company to save certain staffing costs
and enable senior management to focus on other aspects of its business.
However, if the Company arranges for a third party to provide contract
manufacturing in the U.S., fees payable to such manufacturer may exceed any
savings in staffing costs and result in higher costs of goods sold and lower
gross profit. Ultimately, in
22
<PAGE>
operating a U.S. facility, the Company will incur certain duplicative
manufacturing costs which could result in higher costs of goods sold and lower
gross profit margins. For information regarding the operations of the Company
by geographic area, see Note 14 of the Notes to the Company's Consolidated
Financial Statements.
While the Company's operating losses have resulted in net operating loss
carryforwards of approximately $2.1 million for income tax reporting purposes,
the extent to which such carryforwards are available to offset future U.S. and
Finnish taxable income is significantly limited as a result of various
ownership changes that have occurred in recent years. Additionally, because
U.S. tax laws limit the time during which these carryforwards may be applied
against future taxes, the Company may not be able to take full advantage of
the U.S. portion of these carryforwards for federal income tax purposes.
Furthermore, income earned by a foreign subsidiary may not be offset against
operating losses of Bionx Implants, Inc. or its U.S. subsidiaries. As a
result, the Company may incur tax obligations (as it has incurred during 1996)
during periods when it reflects a consolidated net operating loss. The
statutory tax rates applicable to the Company and its foreign subsidiaries
vary substantially, presently ranging from approximately 40% in the U.S. to
28% in Finland. Tax rates have fluctuated in the past and may do so in the
future. See Note 12 of Notes to Consolidated Financial Statements.
The Company's results of operations have fluctuated in the past on an annual
and quarterly basis and may fluctuate significantly from period to period in
the future, depending on many factors, many of which are outside of the
Company's control. Such factors include the timing of government approvals,
the medical community's acceptance of the Company's products, the success of
competitive products, the ability of the Company to enter into strategic
alliances with corporate partners, expenses associated with patent matters,
the results of regulatory inspections and the timing of expenses related to
product launches.
RESULTS OF OPERATIONS
Product sales. The Company's product sales increased by 7.1% from $1.3
million in 1994 to $1.4 million in 1995 and by 271.6% to $5.0 million in 1996.
The increase in 1995 reflected the commencement of sales (aggregating
approximately $228,000) of Meniscus Arrow products to Europe and the
commencement of sales through the Company's managed network of independent
sales agents in the U.S. The substantial increase in product sales during 1996
primarily resulted from the U.S. introduction of the Company's Meniscus Arrow
products in the second quarter of 1996; revenues from the sale of Meniscus
Arrow products were approximately $2.4 million in 1996, as compared with $0.2
million in 1995. In addition, the 1996 sales increase reflects increased
utilization of the Company's managed network of independent sales agents in
the U.S., increased sales of the Company's existing products in international
markets and increased instrumentation system sales. Revenues generated from
the sale of instrumentation systems and related loaner fees represented 8%,
15% and 20% of total sales in 1994, 1995 and 1996, respectively, increasing
from approximately $100,000 in 1994 and $200,000 in 1995 to approximately $1.0
million in 1996. The 1996 increase is attributable primarily to the U.S.
introduction of the Meniscus Arrow during the second quarter of 1996; 1996
instrumentation revenues relating to the Meniscus Arrow were approximately
$453,000.
License and grant revenues. License and grant revenues were negligible in
1994, increased to $267,000 in 1995 and increased by 29.3% to $345,000 in
1996. Royalty payments by Ethicon GmbH based upon actual sales are expected to
commence in the second quarter of 1997, although no assurances can be given
with respect to the timing or amount of such payments. Upon the commencement
of such sales by Ethicon GmbH, the Company will be required to cease its
dental membrane sales in Europe.
Gross profit; gross profit margins. The Company's gross profit increased by
34.8% from $804,000 in 1994 to $1,084,000 in 1995 and by 195.5% to $3.2
million in 1996. The increase in gross profit from 1994 to 1995 was primarily
attributable to a $251,000 increase in license and grant revenues. The
substantial increase in the Company's gross profit during 1996 primarily
reflected the increased sales of Meniscus Arrow products after their
introduction in the U.S. in the second quarter of 1996. Overall, the Company's
gross profit margin increased from 62.8% in 1994 to 66.8% in 1995 and declined
to 59.5% in 1996. The improvement in 1995
23
<PAGE>
reflects the increased license and grant revenues. Substantially all of the
decline in 1996 is attributable to the inclusion within products sales and
cost of goods sold of revenues and expenses associated with the purchasing and
sale of instrumentation systems and to the step-up in value of inventory
related to the Reorganization. The Company's gross profit margin applicable to
implant sales, representing implant revenues less related raw materials,
direct labor and overhead and associated variable expenses, increased from
65.1% in 1994 to 66.1% in 1995 and to 66.7% in 1996. The improvement in this
portion of the Company's gross profit margin in 1995 was attributable in large
part to a change in the Company's product mix from primarily PGA products to
primarily PLLA products. In general, the costs associated with manufacturing
PLLA products are substantially less than comparable costs for PGA products.
The improvement in this portion of the Company's gross profit margin in 1996
resulted primarily from increased sales of higher margin Meniscus Arrow
products, increased sales of higher margin PLLA products and the leveraging of
certain fixed manufacturing costs over the Company's expanded revenue base.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 212.2% from $693,000 in 1994 to $2.2
million in 1995 and by 108.4% to $4.5 million in 1996. Such expenses were
54.8% of product sales in 1994, 159.8% of product sales in 1995 and 89.6% of
product sales in 1996. Selling, general and administrative expenses consist
primarily of commissions paid on product sales in the U.S., patent and license
related expenses, costs incurred in connection with the regulatory process,
expenses associated with supporting the Company's managed networks of
independent sales agents, distributors and dealers and, in 1996, amortization
of goodwill associated with the Reorganization. The increases in the dollar
amount of selling, general and administrative expenses during these periods
were primarily attributable to increased commission payment obligations
reflecting the Company's increased product sales in the U.S. and increased
expenses associated with establishing and supporting a managed network of
independent sales agents in the U.S. The substantial increase in the
percentage relationship of such expenses to product sales in 1995 reflects the
investment made by the Company in 1995 in establishing and supporting its U.S.
managed network of independent sales agents. Such expenses were incurred in
anticipation of the product sales growth which the Company experienced in
1996.
Research and development. Research and development expenses increased by
44.7% from $190,000 in 1994 to $274,000 in 1995 and by 67.6% to $460,000 in
1996. These increases reflected an increased volume of product development
work being performed by the Company and increased staffing levels.
Other income and expense. Other income and expense consists of interest
expense and other miscellaneous expense and income items. Interest expense has
remained relatively constant over the past three years.
Income taxes. Due to operating losses in Finland and in the U.S., the
Company did not incur any tax obligations during 1994 or 1995. In 1996, one of
the Company's Finnish subsidiaries recorded a profit, which resulted in a
Finnish tax liability of $208,000.
24
<PAGE>
QUARTERLY PRODUCT SALES
The following table presents unaudited product sales information for the
last eight quarters through December 31, 1996. In the opinion of management,
this information has been prepared on the same basis as the product sales data
included in the Consolidated Financial Statements appearing elsewhere in this
Prospectus. Product sales for any period are not necessarily indicative of
product sales to be expected for any future period.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1995:
Quarter ended March 31............ $ 225
Quarter ended June 30............. 378
Quarter ended September 30........ 335
Quarter ended December 31......... 417
1996:
Quarter ended March 31............ 716
Quarter ended June 30............. 750
Quarter ended September 30........ 1,160
Quarter ended December 31......... 2,408
</TABLE>
The quarterly increases in product sales principally reflect the continuing
development of the Company's managed network of independent sales agents in
the U.S., the introduction in the U.S. of the Company's PLLA screw products
during the fourth quarter of 1995 and the U.S. introduction of the Meniscus
Arrow products during the second quarter of 1996. The increase in product
sales from the first quarter of 1995 to the second quarter of 1995 also
reflects the commencement of sales in the U.S. through the Company's managed
network of independent sales agents during the second quarter. Minimal sales
of the Company's products were made in the U.S. during the first quarter of
1995 while the Company was establishing its U.S. managed network of
independent sales agents. The Company anticipates that in future periods,
third quarter revenues may be adversely impacted due to relatively lower
European sales activity during the summer months.
Revenue trends will depend upon many factors, including demand and market
acceptance for the Company's existing and future products, the timing of
regulatory approvals, the timing and results of clinical trials, the timing of
the introduction of new products by the Company and by competing companies,
the ability of the Company to enter into strategic alliances with corporate
partners and the Company's ability to attract and retain highly qualified
technical, sales and marketing personnel. Accordingly, there can be no
assurance that future revenues will not vary significantly from quarter to
quarter.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied upon bank loans (guaranteed in certain
instances by the Company's principal stockholders), capital contributions by
its principal stockholders and government grants to fund its operations. In
September 1996, the Company completed a private placement of preferred stock
and warrants in which it received net proceeds of approximately $4.9 million.
These net proceeds were used to repay bank debt, to pay down trade debt, to
fund manufacturing and product development efforts and for other working
capital purposes. Recently, the Company made arrangements for a $2.0 million
credit line, secured by the personal property of Bionx Implants, Inc. and its
Biostent subsidiary. Amounts to be advanced thereunder are subject to the
lender's discretion and are limited to specific percentages of certain
domestic receivables and inventory. To date, no amounts have been borrowed
pursuant to this facility.
The Company's cash and cash equivalents increased by $1.5 million from
December 31, 1995 to December 31, 1996 as a result of the Company's September
1996 private placement. The infusion of cash
25
<PAGE>
from that transaction was offset in part by the Company's net loss for the
year, a $1.3 million increase in accounts receivable and a $299,000 increase in
inventory.
As of December 31, 1996, the Company had working capital of $2.0 million. At
that date, the Company had outstanding approximately $800,000 of long-term debt
(including the current portion of such indebtedness); the Company expects to
repay a portion of such long-term debt out of the proceeds of this Offering.
The Company believes that existing capital resources from its September 1996
private placement, cash flow from operations (if, and to the extent,
generated), cash available from its $2.0 million credit line and the
anticipated net proceeds from this Offering will be sufficient to fund its
operations through 1998. However, the Company's future capital requirements and
the adequacy of available funds will depend on numerous factors, including
market acceptance of its existing and future products, the successful
commercialization of products in development, progress in its product
development efforts, the magnitude and scope of such efforts, progress with
preclinical studies, clinical trials and product clearances by the FDA and
other agencies, the cost and timing of its efforts to expand its manufacturing
capabilities, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, and the development of strategic alliances for the
marketing of certain of its products. The Company's operations have not
produced positive cash flows during any of the past three fiscal years. To the
extent that funds generated from the Company's operations, together with its
existing capital resources, the proceeds of this Offering and the interest
earned thereon, are insufficient to meet current or planned operating
requirements, the Company will be required to obtain additional funds through
equity or debt financings, strategic alliances with corporate partners and
others, or through other sources. The terms of any equity financings may be
dilutive to stockholders and the terms of any debt financings may contain
restrictive covenants which limit the Company's ability to pursue certain
courses of action. Principal stockholders of the Company who previously
provided funding to the Company and provided guarantees to sources of credit
have indicated that they do not intend to continue furnishing such assistance.
The Company does not have any committed sources of additional financing, and
there can be no assurance that additional funding, if necessary, will be
available on acceptable terms, if at all. If adequate funds are not available,
the Company may be required to delay, scale-back or eliminate certain aspects
of its operations or attempt to obtain funds through arrangements with
strategic partners or others that may require the Company to relinquish rights
to certain of its technologies, product candidates, products or potential
markets. If adequate funds are not available, the Company's business, financial
condition and results of operations could be materially and adversely affected.
26
<PAGE>
BUSINESS
OVERVIEW
Bionx Implants, Inc. (the "Company") is a leading developer, manufacturer
and marketer of Self-Reinforced, resorbable polymer implants, including
screws, pins, arrows and stents, for use in a variety of applications which
include orthopaedic surgery, urology, dentistry and maxillo-facial surgery.
The Company's proprietary manufacturing processes self-reinforce a resorbable
polymer, modifying the gel-like or brittle polymer structure into a
physiologically strong structure with controlled, variable strength retention
(ranging from three weeks to six months depending upon the medical
indication). The Company currently markets its products through managed
networks of independent sales agents in the U.S. and independent distributors
and dealers in markets outside of the U.S. The Company's nine product lines,
representing more than 100 distinct products, were designed to address
recognized clinical needs. The Company estimates that its products have been
used in over 150,000 surgeries. The Company has received 510(k) clearance from
the FDA for the six product lines that it currently markets in the U.S. The
Company has also received regulatory approvals for its product lines in
certain European and Asian markets.
BACKGROUND
The human skeletal system is comprised of bone, connective tissue (ligaments
and tendons) and cartilage. Bone, which provides the basic support for the
body, may sustain damage by traumatic incident, degenerative disease or
surgical procedures designed to repair or correct skeletal abnormalities
(osteotomy). As a result of the high vascularity of bone, the healing of bone
requires only that the fractured sections be in close proximity to each other.
Bone heals through a process that involves structural stress, either through
load-bearing or use, resulting in the replacement of old, damaged bone with
new healthy tissue. Healing of bone in healthy individuals generally requires
three to 20 weeks, with the fastest healing occurring in children.
Connective tissue, which attaches bones and/or attaches bone to muscle, can
either be torn or forcibly pulled from its point of attachment to bone or
muscle as a result of either trauma or surgical procedures. Ligaments and, to
a lesser degree, tendons are vascular structures that have the capacity to
heal and recreate their healthy structure. A critical factor in the proper
healing of connective tissue is its reconnection or reattachment at the
anatomically correct position to assure the return of functionality to the
connection between bones and/or between bone and muscle. Connective tissue
heals by creating a scar at the point of injury and then gradually replacing
the scar tissue with healthy connective tissue. The more vascular the tissue
involved, the faster the healing process. The healing of connective tissue
generally occurs over a six to 24 week period that requires rest and
immobilization of the tissue.
Cartilage and cartilage-like (cartilaginous) soft tissue, such as the
meniscus of the knee, provide cushion and articulating surfaces upon which
bones impact during normal activity. These tissues can be damaged through
either traumatic injury, long-term physical stress and/or degenerative
disease. Since cartilaginous tissue is less vascular than either bone or
connective tissue, or is avascular, the healing process in this tissue
requires an extremely long time (and may never occur). Unlike bone and
connective tissue, damaged cartilaginous tissue must be surgically assisted in
the healing process. While damaged articulating cartilage has the potential to
partially heal itself by generating replacement tissue, this process can leave
a permanent defect or rupture in the cartilage since the substitute tissue
does not possess the same functional properties as the pre-injury tissue.
Injuries involving skeletal tissue will heal more rapidly when supplemented
by physical manipulation and anatomical realignment. When attempting to repair
skeletal tissue, orthopaedic surgeons perform surgical procedures to recreate
anatomically correct positions and to maintain these positions. The techniques
and tools used by surgeons differ according to the skeletal tissue involved
and the location in the body. However, the objective in each instance is
identical: to reposition the tissue in its correct anatomical position and
provide fixation systems to maintain that position during healing.
TRADITIONAL APPROACHES TO FIXATION
To achieve proper skeletal tissue healing, orthopaedic surgeons either (i)
use implantable devices, including screws, pins, tacks, plates and nails, to
perform various internal fixation and repair techniques and/or (ii) apply
external fixators and immobilization systems, such as casts. These techniques
are designed
27
<PAGE>
to ensure appropriate reduction (close approximation of the separated tissues)
and compression (pressure applied to the reduced tissues to assure maintenance
of the reduction) during the healing process.
Rigid Internal Fixation
Rigid internal fixation (fracture fixation) procedures are performed to
repair bone fractures. These procedures, performed either through an open
incision or through percutaneous, minimally invasive techniques, are designed
to produce correct realignment of bones, to create appropriate reduction and
to fix bones in the anatomically correct position to maximize the potential
for healing. Since the 1950's, rigid internal fixation techniques involving
the internal placement of metal implants have been the standard of care for
fracture management and have resulted in improved healing of fractures. Rigid
internal fixation is intended as a temporary measure to allow for the
initiation of the healing process by creating appropriate reduction. In
practice, most metal implants utilized in rigid internal fixation are not
removed and become a substitute for the strength and functionality of bone.
Such strength and functionality would return to the bone if the fixation
device were removed. Annually, approximately 735,000 rigid internal fixation
procedures are performed in the U.S.
Connective Tissue Fixation
Connective tissue fixation may involve the reattachment of ligaments or
tendons that have been torn at the point of attachment. Alternatively,
ligaments or tendons may tear at a point other than the point of attachment,
requiring reconnection to return functionality. Connective tissue fixation
techniques are performed either through open incisions or through minimally
invasive techniques, and involve the use of tacks, screws, nails or sutures to
effect the anatomical reattachment as close to the original point of
attachment as possible. The same repair options are available to the surgeon
when ligaments are torn in areas other than at their point of attachment. In
both fracture fixation and connective tissue repair, the affected joint or
limb is immobilized for a period of time to promote healing. While connective
tissue fixation techniques have resulted in adequate repairs, metal fixation
devices or suture systems can cause long-term problems and complications,
including local pain and limited joint functionality, since the attachment
site will not heal completely while the device remains in place. Annually,
approximately 360,000 soft tissue fixation procedures are performed in the
U.S.
Cartilage and Cartilaginous Tissue Repair
Repairs to cartilagenous tissue typically involve removal of the torn tissue
or difficult and demanding surgical techniques. Removal of tissue can have
long-term consequences for the patient and may lead to subsequent surgeries.
Since cartilage has minimal vascularity, or is avascular, the healing of
injuries to these tissues must be surgically assisted through complex
arthroscopic or open surgical techniques. For example, suturing torn menisci
is one of the most technically demanding skills in arthroscopic surgery and
may result in surgical complications, including damage to the vascular and
neural system. Annually, approximately 940,000 cartilage repairs and
replacements are performed in the U.S.
LIMITATIONS OF TRADITIONAL APPROACHES
Metal Implants
For more than 30 years, stainless steel, titanium and metal alloy screws,
tacks, pins and plates have been recognized as the standard of care for the
fixation of bone and connective tissue as a result of the implants' strength
and their relatively low reactivity rates. The use of metal implants as the
standard of care has been reinforced through the application of Association
for the Study of Internal Fixation ("ASIF") techniques and the training
received by most orthopaedic surgeons. As a result, the Company believes that
metal fixation devices are currently used in the vast majority of the repairs
of skeletal tissue requiring internal fixation.
Despite the nearly universal acceptance of metal fixation devices, the
medical community has recognized several important limitations associated with
these products. Most importantly, bone repaired with and supported by metal
devices relies upon the implant to perform the load-bearing functions
previously
28
<PAGE>
performed by bone. Physicians refer to this as stress shielding of the healing
bone. Since bones grow and repair in response to stress, bones which are not
called upon to perform their natural load-bearing functions tend to weaken in
the fractured areas. For example, in a study of 17 patients with ankle
fractures fixed with metal screws, bone mineral density decreased on average
by 18.6% as compared to the non-operated ankle. Although it is recommended
that metal implants be removed to deter stress shielding, frequently they are
not removed. Furthermore, motion at the fracture site can cause metal implants
to loosen and to create hollow areas in cancellous (spongy) bone. Connective
tissue fixation techniques using metal implants can cause long-term problems,
including local pain and loss of functionality due to abrasion of the
surrounding tissue by the metal implant. In addition, some patients experience
allergic reactions to certain metal fixation devices which remain implanted
for extended periods of time.
First Generation Resorbable Implants
Resorbable fixation devices were developed in response to the limitations of
metal fixation devices. The first generation of these devices was introduced
in Europe in the mid-1980s and in the U.S. in the late 1980s. The majority of
these devices are either brittle or overly flexible as a result of the
processes, such as injection molding, which are used in their manufacture. The
low strength of these implants has led designers to create overly large
implants with extremely high molecular weights, which, in certain instances,
may have caused local inflammation and irritation at the implant site. In
addition, due to their large size, these implant configurations could be
applied in only certain anatomical areas, which may limit their clinical
utility. For screw-shaped implants, the application of torque to effect a
successful implantation often results in the breaking of the implant and the
release of relatively large particles into joints or soft tissues. Implants
that do not have a discernible strength are limited in their application
because surgeons are familiar with metal implants and demand similar strength
from resorbable implants. Surgeons have reported that certain of the first
generation resorbable implants resorb too quickly and do not provide fixation
for the period required for proper bone or tissue healing. The combination of
these factors has led most surgeons to reject the first generation of
resorbable implants, leaving metal implants as the standard of care.
SELF-REINFORCED, RESORBABLE IMPLANTS
The Company has developed nine proprietary resorbable polymer fixation
implant product lines, including screws, pins, tacks, arrows, membranes and
urology stents, which provide an alternative to metal implants and overcome
the limitations of first generation resorbable fixation devices. By modifying
well-characterized resorbable polymers (e.g., PLLA and PGA) through the use of
several proprietary manufacturing and processing techniques, the Company is
able to create Self-Reinforced, resorbable implants. The Company's Self-
Reinforcing technologies modify a resorbable polymer's properties from a gel-
like or brittle structure into a physiologically strong polymer implant with
controlled, variable strength retention (ranging from three weeks to six
months, depending upon the medical indication) which can be used safely and
reliably in a variety of applications, including orthopaedic surgery, urology,
dentistry and maxillo-facial surgery.
The Company's Self-Reinforcing technology also imparts to the processed
polymer a number of critical characteristics which enhance the
manufacturability of the implants and broaden the clinical applications for
these devices. For example, the polymers can be machined (e.g. lathed, heat-
treated and forged) and modified using custom metal forming techniques. As a
result, the Company has designed and developed a variety of resorbable implant
devices, including pins, screws and other profiled (nonsmooth-surfaced)
implants of clinically appropriate sizes that incorporate machined features,
such as ridges and barbs, for improved fixation.
The resorption of PLLA and PGA occurs in a predictable three step process.
The first two steps are initiated by hydrolysis, which breaks down the polymer
molecules into smaller chains, resulting in an initial reduction in molecular
weight and a slight swelling of the implant, causing it to lock in place. The
third step involves degradation. Unlike first generation unreinforced
resorbable polymers which degraded rapidly into large particles (greater than
1mm) in an uncontrolled process, the Company's Self-Reinforced, resorbable
polymers degrade in a slow controlled fashion into small particles. Only when
the Self-Reinforced, resorbable implant has degraded into small particles will
they be released into the surrounding tissue for final
29
<PAGE>
degradation through cellular absorption. The slow and controlled degradation
of Self-Reinforced, resorbable polymer implants causes the gradual transfer
(ranging from three weeks to six months depending upon the medical indication)
of the weight-bearing load from the implant to the bone.
The Company believes that the principal advantages of its Self-Reinforced,
resorbable implants include:
. Improved Bone Healing. The controlled degradation of the Company's Self-
Reinforced, resorbable implants in bone results in a gradual transfer of
the weight-bearing load from the fixation device to the bone, eliminating
stress shielding. In a trial involving 39 patients with ankle fractures,
bone mineral density decreased on average by 6.4% in those patients in
which the Company's PLLA screws were used, as compared to an 18.6%
average decrease for those patients receiving metal screws. As a result,
the Company believes that its implants promote more effective bone
healing than metal implants.
. Improved Soft Tissue Healing. Fractures and soft tissue injuries that
involve the articulating surfaces of joints have been difficult to
address with metal implants due to the potential for erosion of these
delicate surfaces. In a clinical study of 34 patients who received the
Company's Meniscus Arrow, no such erosion occurred.
. Lower Implant Failure Rate. Competitors' first generation unreinforced,
resorbable implants have a reported failure rate of 7-10% on insertion.
The Company believes, based on clinical experience with its self-
reinforced, resorbable implants and feedback from the medical community,
that the Company's implants have a significantly lower rate of failure.
. Reduced Need for Repeat Surgery. The Company's implants are absorbed by
the body over a controlled period of time, which is based on their
indicated use. This controlled resorption allows the patient to avoid the
cost, trauma and inconvenience of follow-up surgery to remove the
implant. These advantages may be especially beneficial in the treatment
of ankle fractures, which typically involves the removal of the metal
implant. The potential for re-fracture of the site upon removal, which
exists whenever metal implants are removed, is also eliminated.
The Company's use of well known and well characterized polymers has, to
date, allowed for clearance of the Company's orthopaedic products through
510(k) submissions. The FDA is familiar with the toxicological properties of
these polymers, and has not required extensive preclinical or clinical tests
prior to granting marketing clearance. In certain recent cases, clearances
have been obtained within 90 days after submission.
BUSINESS STRATEGY
The Company's goal is to leverage its Self-Reinforcing technology as a
platform for the development and sale of resorbable polymer implants across a
wide range of medical/surgical applications. The key elements of the Company's
business strategy include:
. Develop Proprietary Products by Leveraging the Company's Platform
Technology. The Company intends to leverage its core technology as a
platform for developing new Self-Reinforced, resorbable implants which
allow surgeons to effectively treat specific medical needs where current
treatment modalities are not optimal. For example, the Company has
developed its Meniscus Arrow for use in the repair of tears of the medial
and lateral meniscus and has developed resorbable, self-expanding stents
for use in the urinary tract and for prostate related disease, two
indications in which current therapies have clinical limitations.
. Enhance Core Technology Platform. The Company is developing next
generation polymers and high strength resorbable composites, which are
designed to further enhance the Company's core technology and expand the
applications for its products. The technologies which the Company has
developed to produce Self-Reinforced polymers are applicable to any
resorbable polymer, and may be applied to the development of new, more
durable, stronger, profiled (nonsmooth-surfaced) implants. In addition,
the Company may work with universities and other polymer developers to
expand its proprietary polymer base.
30
<PAGE>
. Leverage Existing Customer Base. Over 1,000 orthopaedic surgeons
worldwide have used the Company's Self-Reinforced, resorbable implants.
Substantially all of these surgeons are repeat customers. The Company
believes that it has developed a reputation for producing high quality,
safe and reliable resorbable implants. The Company intends to leverage
its reputation with its customers to build new markets for its products,
to increase acceptance of its existing products and to accelerate
adoption of products currently under development.
. Maintain Focused Sales and Marketing Efforts. The Company intends to
continue to focus its sales and marketing efforts initially on the
estimated $595 million annual orthopaedic resorbable biomaterial and
meniscal preservation markets. Accordingly, outside the orthopaedic
market, the Company may seek to establish licensing or distribution
agreements with strategic partners to develop certain products and to
market and distribute products that the Company elects not to distribute
through its managed networks of independent sales agents, distributors
and dealers.
. Expand the Company's Manufacturing Capabilities. The Company manufactures
its implant products in Finland. Through the establishment of its managed
network of independent sales agents in the U.S., the Company has
substantially increased its presence in the U.S. With this increased
presence, the Company believes that it will be able to more effectively
support U.S. selling efforts by establishing a manufacturing capability
in the U.S. to supplement its Finnish manufacturing capacity. Management
may seek to arrange for a contract manufacturer to provide this
capability to the Company.
PRODUCTS
The Company currently markets nine product lines representing more than 100
distinct products. The Company also provides specially designed instruments
for use with each of its products. The Company's product lines are described
below:
<TABLE>
<CAPTION>
ANNUAL POTENTIAL
PRODUCT LINES TARGETED INDICATIONS(1) REGULATORY STATUS U.S. PROCEDURES(1)
------------- ------------------------ ---------------------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fracture
Fixation:
SR-PLLA Fractures/Osteotomies Marketed Worldwide 100
Pins
SR-PLLA Fractures/Osteotomies Marketed Worldwide 125
Screws
SR-PGA Fractures/Osteotomies Marketed Worldwide 400
Pins
SR-PGA Fractures/Osteotomies Marketed Worldwide 125
Screws
Tissue
Repair:
Meniscus Meniscus Repair Marketed Worldwide 138
Arrows
SR-PLLA Ligament Attachment Marketed Worldwide 15
Tacks
SR-PGA Alveolar Ridge Marketed Outside of the U.S. NA
Membrane
Urology
Stents:
SR-PGA Post Benign Prostatic Marketed Outside of the U.S. NA
Stents Hyperplasia Swelling FDA Submission in 1998(2)
SR-PLLA Benign Prostatic Marketed Outside of the U.S. NA
Stents Hyperplasia Prophylaxis FDA Submission in 1998(2)
</TABLE>
--------
(1) As described herein, FDA clearances for certain of the Company's
products are limited to specific indications. The Company's estimates
for the number of potential annual procedures in the U.S. have been
derived by the Company on the basis of its analysis of market research
reports compiled by independent third-party sources which the Company
believes to be reliable. Such market research reports contain
approximate total procedure amounts from which the Company has
estimated the number of potential procedures eligible for the targeted
indication. "NA" denotes that data is not available. See "Risk
Factors - Estimates of Procedures Uncertain; Regulatory Submission
Dates Subject to Change."
(2) FDA submission dates reflect the Company's current plans and are
subject to delay or cancellation depending upon contingencies that may
arise in the development process. See "Risk Factors -- Estimates of
Procedures Uncertain; Regulatory Submission Dates Subject to Change"
and " -- Government Regulation."
31
<PAGE>
PLLA and PGA Pins
Fracture fixation pins are indicated for the management of cancellous bone
fractures and osteotomies in the non-loadbearing areas of the skeletal system,
including fractures of the ankle, knee, wrist, elbow, hand and foot. Fractures
in these anatomical areas are most commonly the result of trauma. Osteotomies
in these areas are normally used to correct congenital or induced bone
malformation. The use of metal pins often results in pins protruding from the
body to allow for their removal. This is especially true in certain pediatric
fractures where the current technique is to leave the metal pins protruding
from the joint or bone, with the limb awkwardly positioned, to facilitate the
removal of the pins. This technique is inconvenient to the patient, is
associated with increased levels of infection and results in additional trauma
and expense when the pins are removed.
The Company's resorbable pins, which range in diameter from 1.1mm to 4.5mm
and in length from 10mm to 70mm, can be cut by the surgeon to the precise
length required for an individual patient, thereby reducing the risk of
discomfort and infection. The pins are designed to improve the fixation of
fractures through two design innovations: (i) the pins are slightly oversized
as compared to the drill channel and slightly oval in shape, providing an
improved friction fit as compared with round metal pins; and (ii) the pins
swell slightly when exposed to the moisture in the surgical site, locking the
pin in the drill channel within hours after implantation. The Company's pins
can be used in open surgical procedures and percutaneous and endoscopic
techniques. In the U.S., while the Company's PLLA pins currently are cleared
only for use in bunionectomies, the Company's PGA pins may be used in a
variety of cancellous bone fixations.
PLLA and PGA Screws
Although management of fractures in the cancellous areas of bones with metal
screws and plates is the standard of care, the procedures present orthopaedic
surgeons with several problems. The inherent difference in stiffness between
the metal screw and the bone can cause complications, including inducement of
relative motion at the fracture site. Such motion can cause screws to loosen
and can result in local bone degradation. Metal screws can also protrude from
the bone surface after implantation or break under the healing stresses of
bone and cause irritation in areas of the body where the skin and muscle
covering of the fracture site is thin or contains high concentrations of
nerves.
The Company's screws range in diameter from 2.0mm for delicate hand and foot
procedures to 4.5mm for use in ankle fractures. The Company's screw threads
were specifically designed for use in cancellous fractures. The Company's
screws are designed to take advantage of the swelling properties of Self-
Reinforced materials to achieve optimum fixation with minimal bone damage. In
areas where skin is thin, surgeons may shape the head of the Company's screw
to conform to the bone contour in order to prevent irritation. In anatomical
situations where breakage will occur after healing, the use of the Company's
screws avoids the complications that result from the removal of broken metal
implants. In the U.S., the Company's screws currently are cleared only for use
in treating ankle fractures.
Meniscus Arrows
Tears of the cartilage pads in the knee, known as the menisci, are the most
common knee injuries treated by orthopaedic surgeons in the U.S. Prior to the
introduction of the Company's Meniscus Arrow, the treatment options available
to surgeons were limited to either the removal of the damaged section
(meniscectomy) or surgical repair using a variety of complex suturing
techniques. The efficacy of meniscectomy, historically the preferred approach
given the complex and lengthy nature of the suture repair procedure, has
recently been questioned in peer-reviewed and published studies. These studies
have shown that meniscus removal may be detrimental to the long-term outcome
of the surgery and may lead to complications requiring further, more invasive,
surgeries. The suturing alternative requires surgeons to tie knots
arthroscopically, which is one of the most technically demanding skills in
arthroscopic surgery. Surgical
32
<PAGE>
complications, including damage to the vascular and neural system, can arise
during this time-consuming suturing process, due in part to the necessity of
creating a small opening at the back of the knee to allow for the passing of
sutures and the tying of knots.
The Meniscus Arrow, commercially introduced by the Company in the U.S.
during the second quarter of 1996, is the first resorbable, arthroscopically
implanted fixation device designed for use in the repair of longitudinal,
vertical ("bucket handle") tears of the medial and lateral meniscus. The
Meniscus Arrow is a thin, pointed, barbed shaft with a t-shaped head that is
driven across the meniscal tear, fixing the torn pieces of the meniscus
together. The Meniscus Arrow may be implanted in a straightforward procedure
that has been demonstrated to reduce operating room time by approximately 50%
as compared with suturing and does not require substantial additional training
for its use. This resorbable implant avoids both the long-term consequences of
meniscus removal and complications to the arterial and nervous system that can
arise from the suturing approach. The Company believes that surgeons who were
unwilling to perform meniscus repairs in the past may now attempt such
repairs, thereby potentially increasing the available market.
PLLA Tacks
Management of ruptures of the ligaments of the thumb, including ulnar
collateral ligaments ("skier's thumb" or "gamekeeper's thumb"), is typically
performed using either bone to ligament suturing techniques or metal anchors
designed for use in small bones. These techniques are dependent upon the
surgeon's skill at achieving good fixation and approximation of the torn
section of the ligament without damaging the affected ligament in the suturing
process. Even when suturing is successful, damage to the repaired ligament may
occur at the site of the repair, since the sutures remain in place after the
healing process is complete. Since suturing is performed without direct
visualization of both sides of the wound, damage to nerves and vessels may
also occur.
The Company developed its PLLA tack to provide the surgeon with an easy to
use implant designed to reduce the risk of long-term and intra-operative
tissue damage that may occur in traditional suturing techniques. The insertion
procedure for the Company's tack involves the use of standard surgical
techniques to first create a channel in the ligament and a small drill hole in
the bone, and then attaching the ligament with manual pressure. The Company's
tack is designed to swell in the drill hole in order to provide immediate
fixation and to withstand stresses in the thumb. The degradation of the tack
after healing of the reattachment site reduces the risk of long-term tissue
damage. In the U.S., the Company's PLLA tacks currently are cleared only for
use in repairing ligaments of the thumb.
PGA Membrane
Repair of defects in the gum or jaw to facilitate the use of dental implants
requires the use of membranes to support and contain materials that are
implanted at these sites to assist the body in growing new bone. Current
membranes, made from either non-resorbable materials or collagen sponges, may
limit the surgeon's capabilities to effect good repairs because they either
must be removed in a second surgery or may not provide support for a period
sufficient to complete the healing process. The Company's membrane is a
resorbable sheet of self-reinforced polymer that degrades over a clinically
appropriate period to allow for bone growth and does not require removal in a
second surgery.
The Company has licensed Johnson & Johnson's Ethicon GmbH subsidiary to sell
products based on the Company's membrane patent for use in dental and two
other applications in Europe. Ethicon GmbH has advised the Company that it
expects to commence commercial sales of such products during the second
quarter of 1997. In the U.S., the Company is assessing whether the orthopaedic
market for the membrane product is sufficient for the Company to incur the
expense of pursuing FDA clearance on its own. For the dental surgery market in
the U.S., the Company presently intends to pursue a strategic alliance with a
corporate partner, although no assurance can be given that an arrangement
satisfactory to the Company will
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be negotiated. The Company's membrane products cannot be marketed or sold in
the U.S. until clearance or approval is obtained from the FDA. See "Risk
Factors -- Government Regulation."
PGA Urology Stents
Benign prostatic hyperplasia ("BPH"), a common condition in older men, is
characterized by the enlargement of the prostate gland, which can block the
normal flow of urine. Conventional treatment of BPH typically involves a
number of invasive surgical techniques and/or drug therapies. Such techniques,
including the use of lasers, RF energy and other cutting mechanisms to open an
enlarged prostate to allow for free urine flow, have the side effect of
rebound due to edema after surgery. In order to respond to this problem,
surgeons either catheterize their patients with a catheter for a period of
time after surgery or insert a temporary stent. Both approaches have
drawbacks. Removal of a Foley catheter requires a return to the hospital or
surgical center and may cause significant discomfort for the patient. Also,
the infection rate for patients with Foley catheters has historically been
high. Experience with conventional metal and non-resorbable polymer urology
stents demonstrates that tissue begins to grow over these implants shortly
after surgery is completed. As a result, removal of temporary stents can be
difficult and painful.
The Company has developed the first resorbable, self-expanding stent for use
in urological procedures. The Company's resorbable urinary tract stents are
used to prevent postsurgical urine retention after thermal treatment for BPH.
The design of the Company's stent allows it to be easily inserted under direct
vision with a cystoscope and to have its location checked by the use of
ultrasound. The self-expanding property of the Company's stent allows the
urologist to place a stent of reasonable diameter into the prostatic urethra
and then to have the stent swell and lock itself into position without the
application of other devices, such as a balloon catheter.
In studies conducted by the Company, the Company's PGA stent enabled a
substantial percentage of patients to void on the first or second day after
implantation following laser treatment of BPH. In contrast, the study data
indicated that indwelling catheters do not enable patients to void on their
own for an average of six days after such surgery is performed. The Company
believes that its stent provides the patient with immediate relief of post-
operative edema, avoids the necessity for return to the clinic for catheter
removal, avoids the potential inconvenience associated with the use of an
indwelling system and reduces the potential for infection associated with use
of a catheter in a sensitive area of the body. The Company's stents cannot be
marketed or sold in the U.S. until clearance or approval is obtained from the
FDA. See "Risk Factors --Government Regulation."
Instrumentation
The Company, with the assistance of certain contract manufacturers, has
developed a series of instrumentation systems designed for use with each of
the Company's product lines. The Company distributes its instruments both on
an instrument-by-instrument basis or in kits. The implant grade stainless
steel instruments are manufactured by third-parties and are designed
specifically to enable implantation of a particular product manufactured by
the Company. All of the Company's currently distributed instrumentation
systems are reusable. Accordingly, instrumentation system sales are directed
to new customers and to existing customers who are planning to initiate usage
of one or more of the Company's new or existing products.
PRODUCT DEVELOPMENT
The Company's product development efforts focus upon expanding the use of
the Company's platform technology to address the limitations of traditional
surgical techniques and existing implants. The Company currently has ten
products for 18 different indications in various stages of development. To
date, all of the Company's implants sold in the U.S. have been cleared through
the 510(k) pre-market notification process. However, lengthier and more costly
PMA submissions may be required in order to obtain approval to sell urological
stents and other new products in the U.S.
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The Company is engaged in a number of studies designed to enable the Company
to increase the applications of existing products and to introduce new
products. The following table summarizes recently completed, ongoing and
planned clinical trials for key products currently marketed or in development.
<TABLE>
<CAPTION>
CLINICAL ESTIMATED ANNUAL POTENTIAL
PRODUCT INDICATION PATIENTS DURATION CLINICAL/REGULATORY STATUS(1) U.S. PROCEDURES(2)
------- ---------------------------------- -------- ----------- ----------------------------- ------------------
(IN MONTHS) (IN THOUSANDS)
<C> <S> <C> <C> <C> <C>
ORTHOPAEDICS
PLLA Screw Colles fracture (wrist) 28 12-18 Enrollment complete 16
Endo-brow lifts (face) 50 6-12 Enrollment complete 15
Acetabular cup fixation (hip) 25 18-30 First patients enrolled 7/96 180
Femoral neck fixation (leg) 40 24-36 FDA submission in 1997 165
PGA Screw Salter osteotomies (pediatric hip) 25 36-48 To commence in 1997 NA
PLLA Nail Osteochondritis dessicans (knee) 25 6-12 Enrollment commenced 10/96 9
PLLA Tack Bankhart tears (shoulder) 20 24-36 FDA submission in 1997 87
PLLA Wedge High tibial osteotomy (leg) 25 12-24 To commence in 1997 NA
ACL fixation (knee) 20 18-30 To commence in 1997 149
PLLA Screw/Washer Rotator cuff repair (shoulder) 25 12-30 To commence in 1997 87
UROLOGY
PGA Stent Lumen support post BPH treatment 96 36-48 FDA submission in 1998 300
PLLA Stent Urethral stricture 60 24-36 Enrollment commenced pre-1996 100
PLLA Stent Use with finasteride 60 TBD Enrollment commenced 9/96 NA
GENERAL SURGERY
PLLA Stent Bile duct blockage 10 18-30 Enrollment commenced 1/96 NA
Pancreatic duct blockage 10 18-30 Enrollment commenced pre-1996 NA
MAXILLO-FACIAL SURGERY
PLLA Screw Sagittal split osteotomy (jaw) 47 24-30 FDA submission in 1997 25
PDLA Screw
and Plate Mid-face corrections 50 12-24 First patients enrolled 11/96 110
PLLA Plate Cranial-facial fractures 26 12-24 Enrollment commenced 15
</TABLE>
-------
(1) Regulatory submission dates reflect the Company's plans and are subject
to delay or cancellation depending upon contingencies that may arise in
the development process. See "Risk Factors -- Estimates of Procedures
Uncertain; Regulatory Submission Dates Subject to Change" and "--
Government Regulation."
(2) The Company's estimates for the number of potential annual procedures
in the U.S. have been derived by the Company on the basis of its
analysis of market research reports compiled by independent third-party
sources which the Company believes to be reliable. Such market research
reports contain approximate total procedure amounts from which the
Company has estimated the number of potential procedures eligible for
the targeted indication. "NA" denotes that data is not available. See
"Risk Factors - Estimates of Procedures Uncertain; Regulatory
Submission Dates Subject to Change."
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The Company is also actively involved in other development projects that
have not yet entered into full human clinical trials. These projects include
the following:
PLLA Anchors. Commercially available bone anchors are designed to be
deployed into the bone and to secure soft tissue, such as ligaments and
tendons, to the bone. While a majority of bone anchors used today are
sufficiently strong to reattach torn ligaments, most are difficult to remove
as a result of permanently deployed barbs or self-tapping screw threads. If
removal is not possible, the presence of the first implanted anchor makes it
difficult to deploy revision bone anchors or sequential devices in close
proximity to the first device. As a result, surgeons may be unable to achieve
precise reattachment of the tissue to locations in the bone which are critical
for effective repair. In addition, certain metal anchors do not fit in the
drill hole flush with the surface of the bone and leave a metal surface upon
which the ligament is sutured. Long term contact between the metal anchor
surface and the ligament reduces the area available for reattachment on the
bone surface, creates an area of potential local irritation and, because the
anchor is not at the same level as the surrounding bone, may create an area of
raised tissue that can be felt post-operatively by the patient. Furthermore,
existing anchors hold the tied sutures extremely tightly against the bone,
which may result in long-term tissue damage.
The Company has designed a resorbable anchor to address the principal
shortcomings of existing metal anchors. The design of the Company's anchor
enables it to be inserted without the use of a bone tap, to be easily removed
if misplaced or if the suture breaks, and to accommodate any type of suture.
Since there have been at least five predecessor devices and because the
product design is a modification of the Company's PLLA screw, the Company
believes that the FDA will not require clinical verification of the anchor's
efficacy, although no assurance can be given in this regard. Biomechanical
tests have demonstrated the pull-out (the force necessary to remove the anchor
from the bone) of the Company's anchor to be equal to or greater than that of
certain currently approved products. The Company plans to seek 510(k)
clearance for this product in 1997. See "-- Government Regulation."
Intramedullary Nails. To treat fractures of the forearm and humerus in
children, pediatric surgeons currently use flexible stainless steel wire as a
substitute for nails in order to avoid damaging the growth plates in either
bone of the forearm. While these wires are less invasive and do not stress-
shield growing bones as do metal plates and screws, they may be difficult for
the pediatric surgeon to manipulate in the small bones of a child and may
require removal in the future. To respond to the needs of pediatric surgeons
for a fast, easy to use and safe procedure to manage forearm and humeral
fractures in children while avoiding the need to remove metal implants, the
Company has developed and tested in preclinical studies a resorbable
intramedullary nail made of poly-dl-lactic acid ("PDLA"). The Company believes
that PDLA implants have greater initial strength, higher flexibility and
faster absorption rates than PLLA implants. These performance characteristics,
particularly rapid, safe absorption, are important in children because of
their rapid growth and the traumatic impact on children of surgically removing
permanent implants. Based on the elimination of the need for removal surgery,
the Company believes that its intramedullary nails are a superior alternative
to current techniques for the fixation of displaced fractures in the pediatric
forearm. Preclinical studies have demonstrated that the use of the Company's
resorbable implants in the intramedullary canal do not create local
inflammation or interfere with the normal healing process. The Company plans
to commence a multi-center clinical trial of its intramedullary nails in
children in 1997.
Small Joint Prostheses. There is a growing need for the replacement of
arthritic joints in the fingers and toes. The only current options for the
surgeon are silicone implants which have begun to show long-term problems,
including degradation of silicone, and fusion of the joint, which eliminates
the pain but also limits the functional use of the particular digit. Utilizing
its membrane and screw technologies, the Company has created a new system for
the repair of joints in the fingers and toes. The Company's small joint
replacement prosthesis consists of a flexible pin that penetrates a mesh of
reinforced PDLA. The prosthesis is used as a system to reconnect finger and/or
toe joints after the removal of a diseased joint. The mesh provides the
patient with a temporary, flexible joint that does not interfere with the
natural healing process. Fixed in place
36
<PAGE>
with a pin, the joint is designed to be functional and load-bearing at an
earlier stage than has been demonstrated with silicone implants and to create
a pseudo-joint after resorption.
Product development involves a high degree of risk. There can be no
assurance that the Company's new product candidates in various early stages of
development will prove to be safe and effective, will receive the necessary
regulatory approvals or will ultimately be commercially successful. These
product candidates will require substantial additional investment, laboratory
development, clinical testing and FDA or other agency approval prior to their
commercialization. The Company's inability to successfully develop and
introduce these product candidates on a timely basis or at all, or achieve
market acceptance of such products, could have a material adverse effect on
the Company's business, financial condition and results of operations.
SALES, MARKETING AND DISTRIBUTION
The Company sells its products through managed networks of independent sales
agents in the U.S. and independent distributors and dealers in markets outside
of the U.S. In the U.S., the Company manages a network of agents who are
responsible for particular orthopaedic products and territories. In managing
its U.S. network, the Company maintains a direct relationship with its medical
community customers by handling all shipping and invoicing functions directly
and paying commissions to its sales agents. The Company supports its U.S.
managed network of sales agents with product specialists who supplement the
work of the sales agents, providing training to orthopaedic surgeons with
respect to the features and modalities applicable to particular resorbable
implant products. In Europe, the Company sells its products through networks
of independent distributors and dealers that purchase products from the
Company at discounts that vary by product and by market. These international
distributors and dealers have the primary relationships with the physicians
and hospitals that are using the Company's products. The Company typically
operates under written agreements with its domestic and international sales
agents, distributors and dealers. These agreements grant the dealers the right
to sell the Company's products within a defined territory and permit the
distributors to sell other medical products.
The Company has licensed Johnson & Johnson's Ethicon GmbH subsidiary to sell
in Europe certain products, based on the Company's membrane patent, in
dentistry and two other unrelated fields of use. Under that arrangement, the
Company received license fees in 1995 and 1996 and will be entitled to receive
royalty payments once the licensee commences sales.
MANUFACTURING
The Company currently manufactures all of its products in its Tampere,
Finland facility. All finished goods production, packaging and testing are
conducted in a validated 1,000 square foot clean room with physically separate
areas of varying types of air quality designed specifically for the production
of resorbable polymeric materials and products. Substantially all aspects of
the manufacturing process are subject to, and are designed to comply with, the
FDA's GMP regulations. The facility is subject to inspection by the FDA and
European regulatory agencies. The Company has received an EC Design
Examination and an EC quality system Certificate and is entitled to affix a CE
marking on all of its currently marketed orthopaedic, dental and maxillo-
facial products. See "-- Government Regulation."
The Company employs two separate processes to produce its Self-Reinforced
polymers. The sintering process, used only for PGA products, involves the
compression of polymer threads laid in molds to permit the bonding of such
threads without melting the materials. The die drawing process, used for PLLA,
PGA and PDLA products, runs polymers through a die in order to create
reinforcing elements or fibrils. Both processes are supervised by experienced
personnel and are subjected to quality control checks until final sterility
testing and batch control paperwork have been completed. Microbial testing of
the final product is contracted to an FDA-registered facility in the U.S. Much
of the machinery utilized by the Company in the manufacturing process was
either created by the Company's technical team or has been modified by that
team to meet the Company's requirements.
37
<PAGE>
The raw materials for the Company's PLLA materials are currently available
from three qualified sources. The raw materials for the Company's PGA products
are currently provided to the Company by two qualified sources. These raw
materials have been utilized in products cleared by the FDA and the Company's
suppliers maintain Device Master Files at the FDA that contain basic
toxicology and manufacturing information accessible to the FDA. The Company
does not have long-term supply contracts with any of such suppliers, although
it is currently negotiating a supply agreement with its principal PLLA
supplier. In the event that the Company is unable to obtain sufficient
quantities of such raw materials on commercially reasonable terms, or in a
timely manner, the Company would not be able to manufacture its products on a
timely and cost-competitive basis which, in turn, would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if any of the raw materials for the Company's PLLA
and PGA products are no longer available in the marketplace, the Company would
be forced to further develop its technology to incorporate alternate
components. The incorporation of new raw materials into the Company's existing
products would likely require clearance or approval from the FDA. There can be
no assurance that such development would be successful or that, if developed
by the Company or licensed from third parties, devices containing such
alternative materials would receive FDA clearance on a timely basis, or at
all.
The Company intends to establish manufacturing capabilities in the U.S. in
order to increase its manufacturing capacity for its existing and new
products. The Company anticipates that it will either (i) equip and operate a
leased facility in the eastern U.S. or (ii) contract with a third party to
provide a manufacturing capability to the Company. The Company presently is
exploring both of these alternatives. If the Company chooses to use a contract
manufacturer, the Company would likely equip the manufacturer's facility, with
the objective of ultimately transitioning to a neighboring Company-owned or
Company-leased facility. The Company believes that on an interim basis,
contract manufacturing may enable the Company to save certain staffing costs
and enable senior management to focus on other aspects of its business;
however, savings in staffing costs may be outweighed by fees payable to the
contract manufacturer. Regardless of the approach to be utilized, the Company
currently plans to commence packaging and sterilization functions in the U.S.
by late 1997 and to commence the balance of the manufacturing process in the
U.S. by 1999. While the Company's plans may change, the Company anticipates
that once full manufacturing commences in the U.S. facility, the Company will
seek to manufacture the Company's entire product line both domestically and
abroad. There can be no assurance that the Company will not encounter
difficulties in scaling up production in the U.S., including problems
involving production yield, quality control and assurance, and shortage of
qualified personnel. In addition, the U.S. facility will be subject to GMP
regulations, international quality control standards and other regulatory
requirements. Difficulties encountered by the Company in manufacturing scale-
up or the failure by the Company to establish and maintain the U.S. facility
in accordance with such regulations, standards or other regulatory
requirements could entail a delay or termination of production, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. During 1995 and 1996, the Company experienced
occasional periods of delay in filling product orders due to increases in
demand beyond forecasted levels. The Company is currently upgrading its
production machinery and processes to address this increased demand. No
assurance can be given that the integration of these machines into the
production process will occur within the scheduled time frame or will not
result in difficulties in scale-up that could lead to further delays in
filling orders in the future. See "Certain Transactions."
LICENSES, TRADE SECRETS, PATENTS AND PROPRIETARY RIGHTS
The Company believes that its success is dependent in part upon its ability
to preserve its trade secrets, obtain and maintain patent protection for its
technologies, products and processes, and operate without infringing the
proprietary rights of other parties. As a result of the substantial length of
time and expense associated with developing and commercializing new medical
devices, the medical device industry places considerable importance on
obtaining and maintaining trade secret and patent protection for new
technologies, products and processes.
38
<PAGE>
The Company's patent strategy has been to seek patent protection for the
technologies that produce the Company's Self-Reinforced resorbable polymer
products and, in certain instances, for the products themselves. The Company
owns or has licenses to patents issued in the United States and in various
foreign countries and has patent applications pending at the U.S. PTO and in
the patent offices of various foreign countries. Provided that all requisite
maintenance fees are paid, the Company's four principal U.S. patents (two of
which are owned by the Company and two of which are licensed to the Company on
an exclusive basis) will expire between 2004 and 2008. The two principal U.S.
patents owned by the Company relate to the Company's Self-Reinforced
resorbable polymer products, the Company's sintering process, and resorbable
polymer products produced from the Company's controlled drawing process. The
Company also has pending two principal U.S. patent applications that relate to
the Company's resorbable stent technology. The Company's other patents and
patent applications relate to various uses for Self-Reinforced resorbable
polymers, either alone or in combination with other resorbable polymers or
biocompatible materials, and generally involve specific applications or
improvements of the technologies disclosed in the Company's principal patents
and patent applications. European counterparts to the two principal U.S.
patents that are owned by the Company and the Japanese counterpart to one such
patent are currently the subject of opposition proceedings. One of these
European patents has been revoked by the European Patent Office for lack of
novelty based on an earlier publication. The Company has filed an appeal of
the European Patent Office's revocation decision. The other European patent
and the Japanese patent application are being challenged on lack of novelty
and inventiveness grounds on the basis of disclosures made in patent and other
publications. The Company is vigorously defending its European and Japanese
patent positions in these proceedings. No assurance can be given as to whether
such appeal in Europe will be successful or as to the outcome of the pending
opposition proceedings. In order to clarify and confirm its U.S. patent
position, the Company intends in the second quarter of 1997 to request
reexamination by the U.S. PTO of the two principal U.S. patents owned by the
Company. No assurance can be given as to whether the issues raised in the
reexamination proceedings will be resolved in the Company's favor. The
reexamination process is expected to take up to twelve months or longer. Such
reexamination could result in some or all of the patent claims set forth in
these two U.S. patents being altered to provide narrower coverage or
determined to be unpatentable. No assurance can be given as to the outcome of
the reexamination process. Narrowing of the coverage or a holding of
unpatentability in relation to one or both of these two principal U.S. patents
may significantly ease entry to the U.S. market for the products of the
Company's competitors and could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company also relies upon trade secret protection for certain unpatented
aspects of its proprietary technology, including its Self-Reinforcing
technology. Although the Company has taken steps to protect its trade secrets
and know-how, through the use of confidentiality agreements with its employees
and certain of its business partners and suppliers, there can be no assurance
that these agreements will not be breached, that the Company would have
adequate remedies for any breach, that others will not independently develop
or otherwise acquire substantially equivalent proprietary technology,
information or techniques, that others will not otherwise gain access to or
disclose the Company's proprietary technologies or that any particular
proprietary technology will be regarded as a trade secret under applicable
law. There can also be no assurance that the steps taken by the Company will
prevent misappropriation of its trade secrets. As a result of the reliance
that the Company places on its trade secrets, loss of the Company's trade
secret protection in this area would have a material adverse effect on the
Company's business, financial condition and results of operations.
Additionally, the Company is licensed under two principal U.S. patents.
Pursuant to this license agreement, the Company has the exclusive right in the
U.S. to manufacture, use and sell certain devices for fixation of meniscus
lesions. This license agreement, which requires the Company to pay periodic
royalties, has a term expiring in 2006, unless terminated earlier by the
licensor for breach by the Company. There can be no assurance that these
patents licensed to the Company are valid and enforceable, and, if
enforceable, that they cannot be circumvented or avoided by competitors.
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<PAGE>
There can be no assurance that patent applications to which the Company
holds rights will result in the issuance of patents, that any patents issued
or licensed to the Company will not be challenged and held to be invalid or
narrow in scope, or that the Company's present or future patents will provide
significant coverage for or protection to the Company's present or future
technologies, products or processes. Since patent applications are secret
until patents are issued in the U.S., or corresponding applications are
published in foreign countries, and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, the
Company cannot be certain that it was the first to make its inventions, or
that it was the first to file patent applications for such inventions.
In the event that a third party has also filed a patent application relating
to an invention claimed in a Company patent application, the Company may be
required to participate in an interference proceeding declared by the U.S. PTO
to determine priority of invention, which could result in substantial
uncertainties and cost for the Company, even if the eventual outcome is
favorable to the Company. In addition, there can be no assurance that others
will not obtain access to the Company's know-how or that others will not be,
or have not been, issued patents that may prevent the sale of one or more of
the Company's products or the practice of one or more of the Company's
processes, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. There can be no assurance that the Company would be able
to obtain a license on terms acceptable to the Company or that the Company
would be able to successfully redesign its products or processes to avoid such
patents. In either such case, such inability could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Legal standards relating to the scope of claims and the validity of patents
in the medical device field are still evolving, and no assurance can be given
as to the degree of protection any patents issued to or licensed to the
Company would provide. The medical device industry has been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in the medical device industry have employed intellectual
property litigation to gain competitive advantage. The Company has initiated
an opposition in the European Patent Office challenging the grant of a third
party's European patent relating to a drawing process for manufacturing
resorbable polymer products. Subsequently, another company has instituted its
own opposition against that patent. No assurance can be given that these
oppositions will result in either the revocation of that patent or the
narrowing of its claims. If neither opposition is successful, then no
assurance can be given that the third party will not assert that its European
patent is intringed by sales of one or more of the Company's products or by
the practice of one or more of the Company's processes in any of the eight
countries identified in the European patent. Moreover, there can be no
assurance that the Company will not be subject to claims that one or more of
its products or processes infringe other patents or violate the proprietary
rights of third parties. Defense and prosecution of patent claims can be
expensive and time consuming, regardless of whether the outcome is favorable
to the Company, and can result in the diversion of substantial financial,
management and other resources from the Company's other activities. An adverse
outcome could subject the Company to significant liability to third parties,
require the Company to obtain licenses from third parties, or require the
Company to cease any related product development activities or product sales.
In addition, the laws of certain countries may not protect the Company's
patent rights, trade secrets, inventions, products or processes to the same
extent as in the U.S.
The Company has certain trademark registrations and pending trademark
applications in the U.S. and in various countries. The Company's U.S. and
foreign trademark registrations have 5-20 year terms and are renewable for
additional terms for as long as the Company uses the registered trademark in
the manner recited in the registration and makes the appropriate filings to
maintain and renew registrations. There can be no assurance that any
particular registration, or the mark that is the subject of that registration
will not be held to be invalid, narrow in scope or not owned exclusively by
the Company. In the past, the Company has agreed with third-parties that it
will not use certain trademarks in connection with certain devices. There can
be no assurance that the Company will not enter into other arrangements to
avoid or terminate infringement, opposition, cancellation or other
proceedings, or to induce third-parties to give up or limit the use of their
trademarks, trade names or other designations.
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<PAGE>
COMPETITION
Competition in the medical device industry is intense both in the U.S. and
abroad. In orthopaedics, the Company's principal competitors are the numerous
companies that sell metal implants. The Company competes with the
manufacturers and marketers of metal implants by emphasizing the ease of
implantation of the Company's Self-Reinforced, resorbable implants, the cost
effectiveness of such products and the elimination of risks associated with
the failure to perform removal surgeries. Within the resorbable implant
market, Johnson & Johnson sells an FDA-cleared resorbable product for use in
the fracture fixation market. Smith & Nephew, U.S. Surgical, Zimmer (a
subsidiary of Bristol Myers-Squibb), Howmedica (a division of Pfizer) and
Synthes have reported that they are developing resorbable products for
internal fixation. The Company is competing with Johnson & Johnson and expects
to compete with other manufacturers of resorbable internal fixation devices
primarily on the basis of the physiological strength of the Company's polymers
and the length of the strength retention time demonstrated by the Company's
products.
In knee arthroscopy for meniscal repair, the Company's Meniscus Arrow
products compete with a non-resorbable product marketed by Smith & Nephew and
with a series of suturing techniques developed by orthopaedic surgeons for the
repair of the meniscus. The Company is aware that several companies, including
U.S. Surgical and Innovasive Devices, are developing and testing products with
approaches to meniscus repair similar to the Company's approach.
In urology, several companies have developed temporary metal or non-
resorbable polymer stents for use in the ureter or urethra or for use in the
treatment of prostate disease. The Company is not presently aware of any
substantial development of resorbable stents for this application outside of
the Company's efforts in Europe. The Company believes that the difficulty and
discomfort associated with the subsequent removal of temporary non-resorbable
stents should provide the Company's Self-Reinforced, resorbable urology stents
with a potential competitive advantage.
Overall, the Company believes that the primary competitive factors in the
markets for its products are safety and efficacy, ease of implantation,
quality and reliability, pricing and the cost effectiveness of resorbable
products as compared with non-resorbable products. In addition, the length of
time required for products to be developed and to receive regulatory approval
is an important competitive factor. The Company believes that it competes
favorably with respect to these factors, although there can be no assurance
that it will continue to do so.
The medical device industry is characterized by rapid product development
and technological advancement. The Company's products could be rendered
noncompetitive or obsolete by technological advancements made by the Company's
current or potential competitors. There can be no assurance that the Company
will be able to respond to technological advancements through the development
and introduction of new products. Moreover, many of the Company's existing and
potential competitors have substantially greater financial, marketing, sales,
distribution and technological resources than the Company. Such existing and
potential competitors may be in the process of seeking FDA or other regulatory
approvals, or patent protection, for their respective products or may also
enjoy substantial advantages over the Company in terms of research and
development expertise, experience in conducting clinical trials, experience in
regulatory matters, manufacturing efficiency, name recognition, sales and
marketing expertise or the development of distribution channels. Since the
Company's products compete with procedures that have, over the years, become
standard within the medical community, there also can be no assurance that the
procedures underlying the Company's resorbable products will be able to
replace more established procedures and products. There can be no assurance
that the Company will be able to compete successfully against current or
future competitors or that competition will not have a material adverse effect
on the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION
United States. Products manufactured or marketed by the Company in the U.S.
are subject to extensive regulation by the FDA. Pursuant to the Federal Food,
Drug and Cosmetic Act, as amended, and the
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<PAGE>
regulations promulgated thereunder (the "FDC Act"), the FDA regulates the
clinical testing, manufacture, labeling, distribution and promotion of medical
devices. Noncompliance with applicable requirements can result in, among other
things, warning letters, import detentions, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or
premarket approval for devices, withdrawal of marketing approvals and criminal
prosecution. The FDA also has the authority to request repair, replacement or
refund of the cost of any device manufactured or distributed by the Company.
Under the FDC Act, medical devices are classified into three classes (class
I, II or III), on the basis of the controls deemed necessary by the FDA to
reasonably assure their safety and efficacy. Under the FDA's regulations,
class I devices are subject to general controls (for example, labeling,
premarket notification and adherence to GMPs) and class II devices are subject
to general and special controls (for example, performance standards,
postmarket surveillance, patient registries and FDA guidelines). Generally,
class III devices are those which must receive premarket approval by the FDA
to ensure their safety and efficacy (for example, life-sustaining, life-
supporting and certain implantable devices, or new devices which have not been
found substantially equivalent to legally marketed devices). The Company
believes that its products are class II or class III devices.
Before a new device can be introduced into the market in the U.S., the
manufacturer or distributor generally must obtain FDA marketing clearance
through either a 510(k) premarket notification or a PMA application. The
Company believes that it usually takes from four to twelve months from
submission to obtain 510(k) clearance, although it can take longer, and that
the FDA's review of a PMA application after it is accepted for filing can last
from one to three years, or even longer. If a medical device manufacturer or
distributor can establish, among other things, that a device is "substantially
equivalent" in intended use and technological characteristics to a class I or
class II medical device or a pre-amendment class III medical device for which
the FDA has not called for PMAs, the manufacturer or distributor may seek
clearance from the FDA to market the device by filing a 510(k). The 510(k)
must be supported by appropriate information establishing to the satisfaction
of the FDA the claim of substantial equivalence to a legally marketed
predicate device. In recent years, the FDA has been requiring a more rigorous
demonstration of substantial equivalence, including more frequent requests for
clinical data in 510(k) submissions.
If clinical testing of a device is required and if the device presents a
"significant risk", an Investigational Device Exemption ("IDE") application
must be approved prior to commencing clinical trials. The IDE application must
be supported by data, typically including the results of laboratory and animal
testing. If the IDE application is approved by the FDA and one or more
appropriate Institutional Review Boards ("IRBs"), clinical trials may begin at
a specific number of investigational sites with a maximum number of patients,
as approved by the agency. If the device presents a "nonsignificant risk" to
the patient, a sponsor may begin the clinical trial after obtaining approval
for the study by one or more appropriate IRBs without the need for FDA
approval. In all cases, the clinical trials must be conducted under the
auspices of an IRB pursuant to FDA regulations. The Company's failure to
adhere to regulatory requirements generally applicable to clinical trials and
to the conditions of an IDE approval could result in a material adverse effect
on the Company, including an inability to obtain marketing clearance or
approval for its products. There can be no assurance that any clinical study
proposed by the Company will be permitted by the FDA, will be completed or, if
completed, will provide data and information that supports FDA clearance or
approval.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution unless and
until an order is issued by the FDA finding the product to be substantially
equivalent. In response to a 510(k), the FDA may declare that the device is
substantially equivalent to another legally marketed device and allow the
proposed device to be marketed in the U.S. The FDA, however, may require
further information, including clinical data, to make a determination
regarding substantial equivalence, or may determine that the proposed device
is not substantially equivalent and require a PMA. Such a request for
additional information or determination that the device is not substantially
equivalent would delay market introduction of the product. There can be no
assurance that the Company
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<PAGE>
will obtain 510(k) premarket clearance within satisfactory time frames, if at
all, for any of the devices for which it may file a 510(k).
For any medical device cleared through the 510(k) process, modifications or
enhancements that could significantly affect the safety or effectiveness of
the device or that constitute a major change to the intended use of the device
will require a new 510(k) submission.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to a legally marketed device, the
manufacturer or distributor must seek premarket approval of the proposed
device through submission of a PMA. A PMA must be supported by extensive data,
including laboratory, preclinical and clinical trial data to prove the safety
and effectiveness of the device and extensive manufacturing information.
Following receipt of a PMA, if the FDA determines that the application is
sufficiently complete to permit a substantive review, the FDA will "file" the
application. The PMA approval process can be lengthy, expensive and uncertain.
If granted, the approval of the PMA may include significant limitations on the
indicated uses for which a product may be marketed.
To date, all of the Company's products sold in the U.S. have received 510(k)
clearance. Furthermore, the FDA is generally familiar with the toxicological
properties of polymers used in the Company's orthopaedic products and to date
has not required extensive preclinical or clinical testing with respect to
biocompatibility as a condition of granting 510(k) clearance to those
products. In certain recent submissions for orthopaedic products, the Company
obtained clearance within 90 days of submission. However, the FDA recently
advised the Company that its urology stent will require PMA approval. There
can be no assurance that the FDA will not determine that other products
currently in development by the Company or future products must also undergo
the more costly, lengthy and uncertain PMA approval process or that the FDA's
familiarity with the Company's polymers will shorten the FDA's review time or
reduce testing requirements for either 510(k) clearance or PMA approval.
There can be no assurance that the Company will be able to obtain further
510(k) clearances or PMA approvals, if required, to market its products for
their intended uses on a timely basis, if at all. Moreover, regulatory
approvals, if granted, may include significant limitations on the indicated
uses for which a product may be marketed. Delays in the receipt of or the
failure to obtain such clearances or approvals, the need for additional
clearances or approvals, the loss of previously received clearances or
approvals, unfavorable limitations or conditions of approval, or the failure
to comply with existing or future regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Current FDA enforcement policy prohibits the marketing of approved medical
devices for unapproved uses. The Company's PGA pins have received 510(k)
clearance for the general intended use of "maintenance of alignment of small
fragments of fractured non-load bearing bones in the presence of appropriate
immobilization." The Company has promoted this product for numerous specific
indications within the general framework of the language quoted above.
Although the Company believes that these specific indications are covered by
the 510(k) clearance already received for its PGA pins, there can be no
assurance that the FDA would not consider promotion of this product for the
specific indications to be a change to the intended use of the device
requiring a new 510(k) submission.
Manufacturers of medical devices for marketing in the U.S. are required to
adhere to applicable regulations setting forth detailed GMP requirements,
which include testing, control and documentation requirements. Enforcement of
GMP regulations has increased significantly in the last several years, and the
FDA publicly stated that compliance would be more strictly scrutinized.
Manufacturers must also comply with Medical Device Reporting ("MDR")
requirements that a company report to the FDA any incident in which its
product may have caused or contributed to a death or serious injury, or in
which its product malfunctioned and, if the malfunction were to recur, it
would be likely to cause or contribute to a death or serious injury. Delays in
the receipt of, or the failure to obtain, regulatory clearances and approvals,
the restriction, suspension or revocation of regulatory clearances and
approvals, if obtained, or any failure to
43
<PAGE>
comply with regulatory requirements could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's facilities and manufacturing processes, as well as those of
any suppliers, are subject to periodic inspection by the FDA and other
agencies. In October 1994, the Company's facility in Finland was inspected by
the FDA. The inspector made several observations related to GMPs, which
resulted in a Warning Letter being issued to the Company on February 23, 1995.
The Company then began an exchange of correspondence with the FDA, which
concluded with an October 10, 1995 letter from the FDA stating, among other
things, that the Company's responses to the Warning Letter were "adequate" and
that during the next inspection, the FDA would "verify that the corrections
have been implemented." During April 14 through 17, 1997, the Company was
inspected by the FDA and received four observations related to GMPs, including
one that was deemed a recurring observation from the 1994 inspection. The
Company responded to the FDA in writing on April 17, 1997. In its response,
the Company acknowledged the observations and indicated that three had been
corrected (including the recurring observation) and the correction for the
fourth was underway. No assurance can be given that the FDA will determine
that the Company's responses are satisfactory.
The FDA has recently finalized changes to the GMP regulations, including
design controls, which will likely increase the cost of compliance with GMP
requirements. Changes in existing requirements or adoption of new requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
Company will not incur significant costs to comply with such laws and
regulations in the future or that such laws and regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, environmental protection,
and fire hazard control. There can be no assurance that the Company will not
be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Regulations regarding the development, manufacture and sale of the Company's
products are subject to change. The Company cannot predict the impact, if any,
that such changes might have on its business, financial condition and results
of operations.
International. Sales of medical devices outside the U.S. are subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain clearance required by foreign countries may be longer
or shorter than that required for FDA clearance or approval, and the
requirements may differ. In most instances, the Company currently relies on
its distributors for the receipt of premarket approvals and compliance with
clinical trial requirements in those foreign countries that require them. Many
countries in which the Company intends to operate either do not currently
regulate medical devices or have minimal registration requirements; however,
these countries may develop more extensive regulations in the future that
could adversely affect the Company's ability to market its products. Other
countries have requirements similar to those of the U.S. The disparity in the
regulation of medical devices among foreign countries may result in more rapid
product clearance in certain countries than in others. The products sold by
the Company are subject to premarket approval as well as other regulatory
requirements in many countries.
In order to continue selling its products within the European Economic Area
following June 14, 1998, the Company is required to achieve compliance with
the requirements of the Medical Devices Directive (the "MDD") and affix CE
marking on its products to attest such compliance. To achieve this, the
Company's products must meet the Essential Requirements as defined under the
MDD relating to safety and performance of its products and the Company must
successfully undergo verification of its regulatory compliance ("conformity
assessment") by a Notified Body selected by the Company. The nature of such
assessment will depend on the regulatory class of the Company's products.
Under European law, the Company's products are likely to be in class III. In
the case of class III products, the Company must (as a result of the
regulatory structure which the Company has elected to follow) establish and
maintain a complete quality system for design and manufacture as described in
Annex II of the MDD (this corresponds to a quality system for design
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<PAGE>
described in ISO 9001 and EN 46001 standards). The Notified Body must audit
this quality system and determine if it meets the requirements of the MDD. In
addition, the Notified Body must approve the specific design of each device in
class III. The Company received an EC Design Examination and an EC quality
system Certificate from a Notified Body on January 23, 1997. As part of the
design approval process, the Notified Body must also verify that the products
comply with the Essential Requirements of the MDD. In order to comply with
these requirements, the Company must, among other things, complete a risk
analysis and present sufficient clinical data. The clinical data presented by
the Company must provide evidence that the products meet the performance
specifications claimed by the Company, provide sufficient evidence of adequate
assessment of unwanted side-effects and demonstrate that the benefits to the
patient outweigh the risks associated with the device. The Company will be
subject to continued supervision by the Notified Body and will be required to
report any serious adverse incidents to the appropriate authorities. The
Company also will be required to comply with additional national requirements
that are beyond the scope of the MDD. The Company is entitled to affix a CE
marking on all of its currently marketed orthopaedic, dental and maxillo-
facial products. Submission of the required design dossier for the Company's
stent products is scheduled for late 1997. Failure to obtain a CE marking for
the Company's stent products by June 14, 1998 would mean that the Company
would be unable to sell such products in the European Economic Area unless and
until compliance was achieved. There can be no assurance that the Company will
be able to achieve and/or maintain compliance required for CE marking for any
or all of its products or that it will be able to produce its products in a
timely and profitable manner while complying with the requirements of the MDD
and other regulatory requirements.
THIRD-PARTY REIMBURSEMENT
In the U.S. and other markets, health care providers such as hospitals and
physicians, that purchase medical devices, such as the Company's products,
generally rely on third-party payors, including Medicare, Medicaid and other
health insurance plans, to reimburse all or part of the cost of the procedure
in which the medical device is being used. The Company believes that, to date,
domestic health care providers have been reimbursed in full for the cost of
procedures which utilize the Company's products. However, there can be no
assurance that third-party reimbursement for such procedures will be
consistently available or that such third-party reimbursement will be
adequate. There is significant uncertainty concerning third-party
reimbursement for the procedures which utilize any medical device
incorporating new technology. Reimbursement by a third-party payor may depend
on a number of factors, including the payor's determination that the use of
the Company's products are clinically useful and cost-effective, medically
necessary and not experimental or investigational. Since reimbursement
approval is required from each payor individually, seeking such approvals can
be a time consuming and costly process which, in the future, could require the
Company to provide supporting scientific, clinical and cost-effectiveness data
for the use of the Company's products to each payor separately. Congress and
certain state legislatures have considered reforms in the health care industry
that may affect current reimbursement practices, including controls on health
care spending through limitations on the growth of Medicare and Medicaid
spending. The development of managed care programs in which the providers
contract to provide comprehensive health care to a patient population at a
fixed cost per person has also given rise to substantial pressure on health
care providers to lower costs.
Outside the U.S., the success of the Company's products is also dependent in
part upon the availability of reimbursement and health care payment systems.
These reimbursement and health care payment systems vary significantly by
country, and include both government sponsored health care and private
insurance plans. Accordingly, there can be no assurance that third-party
reimbursement available under any one system will be available for procedures
utilizing the Company's products under any other reimbursement system. Several
governments have recently attempted to dramatically reshape reimbursement
policies affecting medical devices. Typically, the Company's international
independent distributors have obtained any necessary reimbursement approvals.
The ability of hospitals and physicians to obtain appropriate reimbursement
from government and private third-party payors for procedures in which the
Company's products are used is critical to the success
45
<PAGE>
of the Company. Failure by such users of the Company's products to obtain
sufficient reimbursement from third-party payors for procedures in which the
Company's products are used or adverse changes in government and private
payors' policies toward reimbursement for such procedures would have a
material adverse effect on the Company's business, financial condition and
results of operations.
PRODUCT LIABILITY AND INSURANCE
The Company's business is subject to product liability risks inherent in the
testing, manufacturing and marketing of the Company's products. There can be
no assurance that product liability claims will not be asserted against the
Company or its licensees. While the Company maintains product liability
insurance, there can be no assurance that this coverage will be adequate to
protect the Company against future product liability claims. In addition,
product liability insurance is expensive and there can be no assurance that
product liability insurance will be available to the Company in the future, on
terms satisfactory to the Company, if at all. A successful product liability
claim or series of such claims brought against the Company in excess of its
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of December 31, 1996, the Company employed 14 full-time employees in the
U.S. and 33 full-time employees in Finland. Of its full-time employees, at
that date 14 were engaged in sales and marketing, six were engaged in
research, development, regulatory and quality assurance matters, 24 were
engaged in manufacturing and three were engaged in financial and
administrative services. The Company also contracts with independent
consultants from time to time. The Company's Finnish production and office
employees are members of a union and the terms of their employment are
governed in part by a collective bargaining agreement. The Company believes
that it maintains satisfactory relations with its employees.
FACILITIES
The Company currently operates two facilities, a central manufacturing
facility in Tampere, Finland that is part owned and part leased by the Company
and office space in Malvern, Pennsylvania that is leased by the Company on a
month-to-month basis. The Finnish facility, comprising approximately 10,000
square feet, is located in an industrial science park adjacent to the
Technical University at Tampere. Currently, that facility houses the Company's
manufacturing, quality control and product development functions and serves as
the Company's European customer service and central shipping location. The
Company operates its corporate headquarters, its executive offices and its
worldwide marketing and sales operations from its 2,500 square foot office
space in Pennsylvania.
The Company intends to relocate from its existing facility in Malvern,
Pennsylvania in May 1997. It has entered into a five year lease covering 7,300
square feet located in Blue Bell, Pennsylvania, which space will serve as the
Company's corporate headquarters, executive offices and worldwide marketing
and sales office. The initial annual rent on this space will be approximately
$120,000, representing an approximate $90,000 increase over the current annual
rent on the Malvern facility. In addition, in order to establish a U.S.
manufacturing presence, the Company anticipates that it will either (i) equip
and operate a leased facility in the eastern U.S. or (ii) contract with a
third party to provide a manufacturing capability to the Company. No specific
site has been selected. See "-- Manufacturing" and "Certain Transactions."
46
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
President, Chief Executive Officer and
David W. Anderson................ 44 Director
Executive Vice President, Research and
Pertti Tormala................... 51 Director
Michael J. O'Brien............... 36 Vice President, Finance and Administration
and Chief Financial Officer
Pertti Viitanen.................. 46 Managing Director of the Company's Finnish
subsidiaries
Stephen A. Lubischer............. 34 Vice President, U.S. Sales
Terry D. Wall(1)................. 55 Chairman of the Board
David J. Bershad(1).............. 57 Director
Anthony J. Dimun(2).............. 53 Director
David H. MacCallum(2)............ 59 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
DAVID W. ANDERSON has been the President and Chief Executive Officer and a
member of the Board of Directors of Bionx Implants, Inc. since its inception
in 1995. He has served as the Chief Executive Officer of the Company's
operating subsidiaries since December 1994. Prior to joining the Company, he
was the President and Chief Executive Officer of Kensey Nash Corporation, a
developer of cardiology products, from 1992 to 1994. From 1989 to 1992, Mr.
Anderson was a Vice President of LFC Financial Corp., a private investment and
venture capital company, with responsibility for healthcare. From 1986 to
1989, he was a founder and Executive Vice President of Osteotech, Inc., a high
technology orthopaedic company. Mr. Anderson also served in a number of
operations and general management positions with Schering Plough Corporation,
a pharmaceutical and health care products manufacturer, from 1978 to 1986.
PERTTI TORMALA is a founder of the Company's Finnish subsidiaries and has
directed the Company's research and development work since the mid 1980's. He
has been a director of Bionx Implants, Inc. since its inception. Professor
Tormala is the Chairman of the Institute of Biomaterials at the Technical
University at Tampere and is an international lecturer on the science and
application of bioabsorbable Self-Reinforced polymers in medicine. In 1995,
Professor Tormala was elected to an Academy Professor Chair by the Finnish
Academy. He has written and published a substantial number of peer reviewed
articles, many on resorbable polymers. Professor Tormala received a Masters
Degree and Ph.D. in Polymer Chemistry from the University of Helsinki.
MICHAEL J. O'BRIEN joined the Company in November 1996 as Vice President,
Finance and Administration, and Chief Financial Officer. From January 1996 to
October 1996, Mr. O'Brien served as a financial consultant to Biocyte
Corporation and Immunotherapy, Inc. From July 1993 to January 1996,
Mr. O'Brien was the Chief Financial Officer, and from December 1994 to January
1996 Mr. O'Brien was the President and acting Chief Executive Officer, of
Biocyte Corporation, a biopharmaceutical company engaged in stem cell
transplantation. From September 1986 to February 1993, he held senior finance
and operations positions at international sites with The Ultimate Corporation,
a computer hardware reseller, and from February 1993 to July 1993, he served
as a consultant to The Ultimate Corporation. He began his career as an auditor
with the accounting firm of Deloitte & Touche.
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<PAGE>
PERTTI VIITANEN has been the Managing Director of the Company's Finnish
operations since 1990. Prior to joining the Company, he was the production and
export manager for a major Finnish plastics manufacturer from 1981 to 1990.
From 1968 to 1981, Mr. Viitanen held positions of increasing responsibility in
sales and operations at companies in the paper and machine tool industries.
Mr. Viitanen received a Masters in Science Degree in Plastics Technology from
the Technical University at Tampere.
STEPHEN A. LUBISCHER joined the Company in April 1996 as Vice President,
U.S. Sales. Prior to joining the Company, Mr. Lubischer held positions in
sales and distribution management at Interpore International, a manufacturer
and marketer of bone substitute materials, from 1990 to April 1996. He also
held sales positions with the Criticon subsidiary of Johnson & Johnson from
1987 to April 1990.
TERRY D. WALL has been a director of Bionx Implants, Inc. since its
inception and a director of the Company's operating subsidiaries since 1992.
He has served as the President and Chief Executive of Vital Signs, Inc.
("Vital Signs"), a manufacturer of disposable anesthesia and respiratory
devices, since he founded that company in 1972. Prior to establishing Vital
Signs, he held various sales and marketing positions with The Foregger Co.,
the medical division of Westinghouse Corp., and the medical division of
American Optical Corp. Mr. Wall is also a director of EchoCath, Inc.
("EchoCath") and Exogen, Inc.
DAVID J. BERSHAD has been a director of Bionx Implants, Inc. since its
inception and a director of the Company's operating subsidiaries since 1992.
Mr. Bershad is, and has been for more than the past five years, a senior
partner with the New York law firm of Milberg Weiss Bershad Hynes & Lerach,
LLP. Mr. Bershad is also a director of Vital Signs.
ANTHONY J. DIMUN has been a director of Bionx Implants, Inc. since its
inception and a director of the Company's operating subsidiaries since 1992.
For more than the past five years, he has served as Executive Vice President
and Chief Financial Officer of Vital Signs. Prior to joining Vital Signs on a
permanent basis in 1991, he served as a Senior Vice President of First
Atlantic Capital Ltd., a U.S. affiliate of an international merchant banking
group, from 1989 to 1991, a financial consultant during 1988, a partner in the
accounting firm of Goldstein Golub and Kessler (from 1978 to 1987) and a
senior audit manager in the accounting firm of Ernst & Young LLP. He is also a
director of Vital Signs and EchoCath.
DAVID H. MACCALLUM has been a director of Bionx Implants, Inc. since its
inception and a director of the Company's operating subsidiaries since 1992.
Since May 1994, Mr. MacCallum has been the Managing Director for Life Sciences
Investment Banking at UBS Securities LLC. Prior to commencing his association
with UBS Securities LLC, Mr. MacCallum served from 1983 to May 1994 as the Co-
Head, Investment Banking for Hambrecht & Quist LLC. Mr. MacCallum is also a
director of MiniMed, Inc.
BOARD OF DIRECTORS AND OFFICERS
In accordance with the terms of the Company's Certificate of Incorporation
to be effective upon the completion of this Offering, the Board of Directors
of the Company (the "Board") will be divided into three classes, denominated
Class I, Class II and Class III, with members of each class holding office for
staggered three-year terms. Messrs. Anderson and Wall will be Class I
directors whose terms will expire at the 1998 annual meeting of stockholders,
Messrs. Bershad and Tormala will be Class II directors whose terms will expire
at the 1999 annual meeting of stockholders and Messrs. Dimun and MacCallum
will be Class III directors whose terms will expire at the 2000 annual meeting
of stockholders (in all cases subject to the election and qualification of
their successors or to their earlier death, resignation or removal). At each
annual stockholder meeting commencing with the 1998 annual meeting, the
successors to the directors whose terms expire will be elected to serve from
the time of their election and qualification until the third annual meeting of
stockholders following their election or until a successor has been duly
elected and qualified. Officers serve at the discretion of the Board.
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The Audit Committee of the Board was established in February 1997 to review,
act on and report to the Board with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, the fees to be paid to the auditors, the performance of the
Company's independent auditors and the accounting practices of the Company.
The Compensation Committee of the Board was established in February 1997 to
determine the salaries and incentive compensation of the employee-officers of
the Company and to provide recommendations for the salaries and incentive
compensation of the other employees and the consultants of the Company. The
Compensation Committee will also administer the Company's benefit plans.
EXECUTIVE COMPENSATION
During 1996, the only executive officer of the Company who received in
excess of $100,000 in compensation from the Company was David W. Anderson, the
Company's Chief Executive Officer. The following table sets forth the
compensation paid by the Company during 1996 to the Chief Executive Officer
and to the Company's four other most highly compensated executive officers
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ---------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) UNDERLYING OPTIONS(#) COMPENSATION
--------------------------- -------- ------- --------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
David W. Anderson....... $151,600 $40,000 -- -- $7,708(2)
President and Chief
Executive Officer
Stephen A.
Lubischer(3)........... 74,622 -- -- 52,632(4) 7,462(2)
Vice President, U.S.
Sales
Michael J. O'Brien(5)... 9,167 -- -- 65,790(6) 917(2)
Vice President, Finance
and Administration,
and
Chief Financial Officer
Pertti Tormala.......... 84,680 -- -- -- 26,400(7)
Executive Vice
President, Research
Pertti Viitanen......... 80,725 -- -- -- --
Managing Director of
the Company's Finnish
subsidiaries
</TABLE>
- --------
(1) Perquisites and other personal benefits do not exceed ten percent of
salary plus bonus for any of the Named Executive Officers.
(2) Represents amounts paid on behalf of the Named Executive Officer for
various employee benefits selected by such individual pursuant to a
cafeteria plan.
(3) Mr. Lubischer joined the Company as its Vice President, U.S. Sales in
April 1996. He is currently paid an annual salary of $100,000.
(4) In September 1996, Mr. Lubischer was granted options covering 39,474
shares of Common Stock, of which options covering 15,790 shares are vested
and options covering 23,684 shares will vest in three equal annual
installments on December 31, 1997, 1998 and 1999. In November 1996, Mr.
Lubischer was granted options covering an additional 13,158 shares vesting
ratably over a five year period.
(5) Mr. O'Brien joined the Company as its Vice President, Finance and
Administration, and Chief Financial Officer in November 1996. He is
currently paid an annual salary of $110,000.
(6) Mr. O'Brien was granted his options upon commencement of employment. Of
the shares covered by his options, 15,790 shares vest on each of November
24, 1997 and 1998, 13,158 shares vest on November 24, 1999 and 10,526
shares vest on each of November 24, 2000 and 2001.
(7) Represents royalty payments due to Professor Tormala under a now
superceded employment agreement with respect to 1996 product sales.
49
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, with David W.
Anderson, its President and Chief Executive Officer. The term of the agreement
will expire on December 31, 1998. Pursuant to the agreement, Mr. Anderson
receives minimum annual compensation of $160,000 and is entitled to receive a
performance based bonus. Mr. Anderson is also entitled to receive all health
insurance benefits generally made available to the Company's employees as well
as a monthly car allowance of $500. The agreement further provides that if Mr.
Anderson's employment is terminated without cause by the Company prior to the
expiration of the initial term, or if Mr. Anderson terminates the agreement
for good reason prior to the expiration of the initial term, Mr. Anderson will
be entitled to base salary and health insurance benefits continuation for a
period of one year after the date of termination.
The Company has also entered into a new employment agreement with Pertti
Tormala effective December 1996. The agreement provides for a term expiring in
2002. Pursuant to the agreement, Professor Tormala will receive a base salary
of 540,000 FIM (approximately $120,000) and is eligible to receive cash
bonuses granted by the Company's Board of Directors. Professor Tormala is also
entitled to a car, certain pension benefits and reimbursement of all
reasonable travel and entertainment expenses. Under the agreement, all
patents, patent applications and other industrial property rights developed by
Professor Tormala relating to the Company's research and development
activities are the sole property of the Company. The agreement permits
Professor Tormala to spend up to 16 hours per month working on a business to
be spun-off from the Company prior to the consummation of this Offering. See
"Certain Transactions."
STOCK OPTION INFORMATION
The following table sets forth certain information concerning stock options
granted during the year ended December 31, 1996 to the Named Executive
Officers who received stock options during that year. In accordance with the
rules of the Securities and Exchange Commission (the "Commission"), the
following table also sets forth the potential realizable value over the term
of the options (the period from the grant date to the expiration date) based
on assumed rates of stock price appreciation of 5% and 10% compounded
annually. These amounts do not represent the Company's estimate of future
stock price performance. Actual realizable values, if any, of stock options
will depend on the future performance of the Common Stock. No stock
appreciation rights were granted during the fiscal year ended December 31,
1996.
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE PER EXPIRATION -----------------------
NAME GRANTED (#)(1) 1996 SHARE ($/SHARE)(2) DATE 5% 10%
---- -------------- ------------- ------------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Lubischer.... 39,474 26.8% $4.75 9/2/06 $ 118,126 $ 298,128
13,158 8.9 9.50 11/23/06 78,751 198,752
Michael J. O'Brien...... 65,790 44.6 9.50 11/23/06 393,754 993,758
</TABLE>
- --------
(1) These options were granted under the Company's Stock Option/Stock Issuance
Plan. For information regarding the vesting of these options, see the
notes to the Summary Compensation Table.
(2) The exercise price per share of the options was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board.
(3) The potential realizable value is calculated based on the term of the
option at the date of grant (10 years). It is calculated assuming that the
fair market value of the Company's Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the
entire term of the options and that the options are exercised and sold on
the last day of their term for the appreciated stock price.
50
<PAGE>
No stock options or stock appreciation rights were exercised by the Named
Executive Officers during 1996 and no stock appreciation rights were
outstanding as of December 31, 1996. The following table sets forth certain
information with respect to the value of stock options held by the Named
Executive Officers as of December 31, 1996.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996(#) DECEMBER 31, 1996(1)($)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David W. Anderson........... 83,104 193,905 $1,005,351 $2,345,766
Stephen A. Lubischer........ 15,790 36,842 130,268 241,446
Michael J. O'Brien.......... -- 65,790 -- 230,265
</TABLE>
- --------
(1) Based on a value equal to an assumed initial public offering price of
$13.00 per share, minus the per share exercise price, multiplied by the
number of shares underlying the options.
STOCK OPTION/STOCK ISSUANCE PLAN
The Company's Stock Option/Stock Issuance Plan (the "Plan") was adopted by
the Company's Board of Directors and stockholders in September 1996. A total
of 850,000 shares of Common Stock have been authorized for issuance under the
Plan. In no event may any one person participating in the Plan receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 278,947 shares in any calendar year.
The Plan is divided into four separate components: (i) the Discretionary
Option Grant Program under which employees, non-employee directors,
consultants and other independent advisors who provide services to the Company
may, at the discretion of the plan administrator, be granted options to
purchase shares of Common Stock; (ii) the Stock Issuance Program under which
such persons may, in the plan administrator's discretion, be issued shares of
Common Stock directly, either through the immediate purchase of such shares at
a price not less than the fair market value of the Common Stock on the date of
issuance or as a bonus for services rendered to the Company; (iii) the Salary
Investment Option Grant Program under which employees designated by the plan
administrator may elect to have a portion of their base salary invested each
year in options to purchase shares of Common Stock at an exercise price equal
to thirty-three and one-third percent (33 1/3%) of the fair market value of
the Common Stock on the grant date; and (iv) the Automatic Option Grant
Program under which eligible non-employee directors shall automatically, at
periodic intervals, receive option grants to purchase shares of Common Stock
at an exercise price equal to one hundred percent (100%) of the fair market
value of the Common Stock on the grant date.
The Discretionary Option Grant, the Salary Investment Option Grant and the
Stock Issuance Programs will be administered by the Compensation Committee of
the Company's Board of Directors. The Compensation Committee, as plan
administrator, has full authority to determine which eligible persons are to
receive option grants or stock issuances, the time or times when such option
grants or stock issuances are to be made, the number of shares subject to each
such grant or issuance, the status of any granted option as either an
incentive option or a non-statutory option under the Federal tax laws, the
vesting schedule (if any) applicable to the option grant or stock issuance and
the maximum term for which any granted option is to remain outstanding. The
Automatic Option Grant Program is self-executing, with all grants thereunder
being made in strict compliance with the express terms of that program, and no
administrative discretion will be exercised by the Board of Directors or any
committees with respect to those grants.
Prior to the adoption of the Plan, the Company committed itself to grant
options to certain employees at specified option exercise prices which, at the
time such commitments were made, were intended to represent the fair market
value of the Common Stock. Options granted under these commitments will be
51
<PAGE>
governed by the Discretionary Option Grant Program, subject to the commitments
made with respect to the exercise price and the term of such options.
Should the Company's stockholders approve a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the assets of the Company, in which the stockholders of the Company
before the transaction own less than 50% of the voting securities of the
surviving or successor corporation following the transaction (a "Corporate
Transaction"), each outstanding option under the Discretionary Option Grant
Program will automatically vest in full, unless such option will be assumed or
replaced with an equivalent incentive program by the successor corporation.
Any options so assumed or replaced, and in the event of a change in control of
the ownership of the Company each outstanding option under this program, will
automatically vest in full if the optionee's service with the Company is
involuntary terminated within 18 months following the effective date of the
Corporate Transaction or the change in control.
In the event of any Corporate Transaction or change in control while the
optionee remains in service to the Company, each outstanding option under the
Salary Investment Option Grant Program will automatically vest in full and
will remain exercisable until the earlier of the expiration of the option term
or the expiration of the two year period from the optionee's cessation of
service with the Company. Upon the occurrence of a hostile take-over,
optionees under the Salary Investment Option Grant Program will have a 30 day
period in which to surrender to the Company each option granted to him or her
thereunder in exchange for a cash distribution from the Company equal to the
excess of the take-over price of the shares subject to the surrendered option
over the aggregate exercise price payable for such shares.
Upon any Corporate Transaction, all the shares of Common Stock subject to
repurchase rights under the Stock Issuance Program will immediately vest in
full, unless those repurchase rights are assigned to the successor
corporation. Any shares under repurchase rights so assigned, and in the event
of a change in control all shares subject to repurchase rights under the Stock
Issuance Program, will immediately vest in full if the optionee's service with
the Company is involuntary terminated within 18 months following the effective
date of the Corporate Transaction or the change in control.
Tandem stock appreciation rights may be issued under the Plan which will
allow optionees to surrender their outstanding options in exchange for an
appreciation distribution from the Company equal to the excess of (i) the fair
market value of the vested shares of Common Stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares. Such
appreciation distribution may be made in cash or in shares of Common Stock.
Furthermore, limited stock appreciation rights may be issued to officers and
directors of the Company under the Plan which, upon the occurrence of a
hostile take-over, permit such individuals holding options with such limited
stock appreciation rights in effect for at least six months the unconditional
right to surrender such options in return for a cash distribution from the
Company in an amount equal to the excess of (i) the take-over price of the
vested shares surrendered under the option over (ii) the aggregate exercise
price payable for such shares.
The plan administrator has the authority to effect, with the consent of the
affected option holders, the cancellation of outstanding options under the
Discretionary Option Grant Program in return for new options covering the same
or a different number of shares with an exercise price based on the fair
market value of the Common Stock on the new grant date.
Under the Automatic Option Grant Program, each non-employee director first
elected or appointed to the Board of Directors after the date of this
Offering, will automatically be granted a non-statutory option for shares of
Common Stock equal to the greater of (i) 3,000 or (ii) the number equal to
$30,000 divided by the price at which the Common Stock is offered in this
Offering, provided such individual has not been in the prior employ of the
Company. In addition, at each annual stockholders meeting after this Offering,
each individual with at least six months service on the Board of Directors as
a non-employee director and who will continue to serve as a non-employee
director following the meeting will automatically be granted a non-statutory
option for 3,000 shares of Common Stock, provided such individual has
continued his or her service
52
<PAGE>
as a non-employee director for a period of at least one year after he or she
ceases serving as an employee of the Company.
Each automatic grant will have a term of ten years, subject to earlier
termination following the optionee's cessation of service on the Board of
Directors as provided in the Plan. Fifty percent of the shares subject to an
automatic grant will vest on the date of grant, 25% one year after the date of
grant, and the remaining 25% two years after the date of grant.
In the event of a Corporate Transaction or change in control, the shares of
Common Stock under the Automatic Option Grant Program will automatically vest
in full. Upon the occurrence of a hostile take-over, the optionee will have a
30 day period in which to surrender to the Company each automatic option held
by him or her in exchange for a cash distribution from the Company equal to
the excess of the take-over price of the shares subject to the surrendered
option over the aggregate exercise price payable for such shares.
The Plan will terminate on September 3, 2006, unless sooner terminated
pursuant to its terms.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i)
any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful payments of dividends
or unlawful stock repurchases or redemptions, or (iv) any transaction from
which the director derived an improper personal benefit. Such limitation of
liability does not apply to liabilities arising under the federal and state
securities and environmental laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
The Company's by-laws also provide that the Company shall indemnify, to the
fullest extent permitted by law, all present and former directors and
officers, and any such person serving or who previously served as an officer
or director with any other enterprise at the Company's request, in connection
with any proceeding threatened, pending or instituted against such party by
reason of their serving in such capacity.
Section 145 of the Delaware General Corporation Law generally allows the
Company to indemnify the parties described in the preceding paragraph for all
expenses (including attorneys' fees), judgments, fines, and amounts in
settlement actually paid and reasonably incurred in connection with any
proceedings so long as such party acted in good faith and in a manner
reasonably believed to be in or not opposed to the Company's best interests
and, with respect to any criminal proceedings, if such party had no reasonable
cause to believe his or her conduct to be unlawful. Indemnification may be
provided by the Company only if the applicable standard of conduct set forth
in Section 145 has been met by the indemnified party upon a determination made
(i) by a majority vote of directors who are not parties to such proceedings,
even though less than a quorum, or (ii) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion,
or (iii) by the stockholders.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Board of Directors performed all of the responsibilities of
the Compensation Committee. Mr. Wall, who is the Chairman of the Board of the
Company, Mr. Anderson, who is the President and Chief Executive Officer of the
Company, and Professor Tormala, who is an Executive Vice President of the
Company, participated in all discussions and decisions regarding salaries and
incentive compensation for all employees of the Company, except that Mr.
Anderson and Professor Tormala were excluded from discussions regarding their
own salary and incentive compensation. Mr. Wall has not received any salary or
incentive compensation from the Company.
53
<PAGE>
CERTAIN TRANSACTIONS
In September 1996, the Company consummated its Reorganization. Pursuant to
the Reorganization, (i) the U.S. and Finnish stockholders of the Company's
four operating subsidiaries contributed the capital stock of those entities to
Bionix, B.V. (the "Dutch Company") and Bionx Implants, Inc. (the "Parent
Company"), (ii) the Dutch Company contributed to the Parent Company the
capital stock of the operating companies that it received from such
stockholders, (iii) the Parent Company issued 2,684,211 shares of Common Stock
to the Dutch Company, (iv) the Company's four operating entities became
wholly-owned subsidiaries of the Parent Company, (v) each of the Company's
Finnish stockholders received capital stock of the Dutch Company and (vi) each
of the Company's U.S. investors received capital stock of both the Dutch
Company and the Parent Company. The shares issued to the Company's directors,
executive officers and principal shareholders or their affiliated entities
pursuant to the Reorganization were as follows: (i) David Anderson: 131,222
shares of the Company's Common Stock and shares representing 1.3% of the
equity and 3.3% of the voting power of the Dutch Company's capital stock; (ii)
David J. Bershad: 254,732 shares of the Company's Common Stock and shares
representing 1.9% of the equity and 4.9% of the voting power of the Dutch
Company's capital stock; (iii) Anthony J. Dimun: 129,416 shares of the
Company's Common Stock and shares representing 1.3% of the equity and 3.3% of
the voting power of the Dutch Company's capital stock; (iv) David H.
MacCallum: 97,179 shares of the Company's Common Stock and shares representing
1.0% of the equity and 2.6% of the voting power of the Dutch Company's capital
stock; (v) Pentti Rokkanen: shares representing 16.5% of the equity and 8.5%
of the voting power of the Dutch Company's capital stock; (vi) Pertti Tormala:
shares representing 41.9% of the equity and 21.6% of the voting power of the
Dutch Company's capital stock; (vii) Pertti Viitanen: shares representing 5.4%
of the equity and 2.8% of the voting power of the Dutch Company's capital
stock; and (viii) Terry D. Wall: 1,966,400 shares of the Company's Common
Stock and shares representing 18.0% of the equity and 46.5% of the voting
power of the Dutch Company's capital stock.
No shares of the Company's capital stock were issued prior to the
Reorganization. Immediately prior to the Reorganization, the relative
ownership of the capital stock of the Company's four operating subsidiaries
(excluding shares of any of the four operating companies owned by any of the
other four operating subsidiaries) was as follows:
<TABLE>
<CAPTION>
U.S. FINNISH
STOCKHOLDERS STOCKHOLDERS
------------ ------------
<S> <C> <C>
Bioscience....................................... 61.2% 38.8%
Biocon Class A Shares............................ 57.7 42.3
Biocon Class B Shares............................ 58.2 41.8
Biostent......................................... 100.0 --
Orthosorb........................................ 100.0 --
</TABLE>
Upon consummation of the Reorganization, the Dutch Company owned 51% of the
outstanding Common Stock (2,684,211 shares) and the U.S. stockholders owned
49% of the outstanding Common Stock (2,578,949 shares). At that time, the U.S.
stockholders owned 27.5% of the equity and 60.6% of the voting power of the
Dutch Company's capital stock and the balance of such equity and voting power
was owned by the Finnish stockholders. The US. stockholders controlled the
U.S. subsidiaries, 61% of Bioscience and 58% of Biocon prior to the
Reorganization, with the balance of Bioscience and Biocon controlled by the
Finnish stockholders. As such, the Reorganization was accounted for as a
recapitalization except for the component associated with the Finnish
stockholders, which was accounted for as a purchase. See Note 1 of the Notes
to the Company's Consolidated Financial Statements.
Promptly after the Reorganization was consummated, the Company issued a
total of 2,000,000 shares of its Preferred Stock (convertible into a total of
1,052,638 shares of Common Stock) and Warrants covering 421,065 shares of
Common Stock to several U.S. investors in exchange for an aggregate capital
contribution of $5,000,000. In this round of financing, T. Rowe Price
Threshold Fund III, L.P. ("Threshold") acquired 1,200,000 shares of Preferred
Stock and Warrants covering 252,632 shares for an aggregate purchase price of
$3,000,000, David J. Bershad acquired 120,000 shares of Preferred Stock and
Warrants covering 25,264 shares for an aggregate purchase price of $300,000,
Anthony J. Dimun (through an affiliated entity) acquired 40,000 shares of
Preferred Stock and Warrants covering 8,422 shares for an aggregate purchase
price of
54
<PAGE>
$100,000, David H. MacCallum (through an affiliated entity) acquired 20,000
shares of Preferred Stock and Warrants covering 4,211 shares for an aggregate
purchase price of $50,000 and Terry D. Wall (through an affiliated entity)
acquired 160,000 shares of Preferred Stock and Warrants covering 33,685 shares
for an aggregate purchase price of $400,000. Each share of Preferred Stock
will convert into approximately 0.526 of a share of Common Stock upon
consummation of this Offering. Messrs. Bershad, Dimun, MacCallum and Wall were
directors of the Company at the time of this financing. Upon completion of the
issuance of Series A Preferred Stock and Warrants and after giving effect to
the Preferred Stock Conversion and the issuance of 55,264 shares of Common
Stock to a former employee occurring simultaneously with the Series A
Preferred Stock and Warrant transaction but without giving effect to any
exercise of outstanding options or Warrants, (i) the Dutch Company owned 42.1%
of the outstanding Common Stock, (ii) the initial U.S. stockholders owned
directly an additional 43.3% of the outstanding Common Stock (excluding shares
indirectly owned by virtue of their ownership of capital stock of the Dutch
Company) and (iii) all other stockholders of the Company owned 14.6% of the
outstanding Common Stock.
As stated elsewhere herein, the Company's Preferred Stock will be
automatically converted into Common Stock, and the unexercised Warrants will
be called, upon closing of this Offering. Holders of the Preferred Stock and
Warrants (including Threshold and Messrs. Bershad, Dimun, MacCallum and Wall
or their affiliated entities) have rights to demand registration under the
Securities Act of shares of Common Stock issuable pursuant to the conversion
of the Preferred Stock and pursuant to the exercise of the Warrants on two
occasions beginning six months after the closing of this Offering. Such
investors also have the right to cause the Company to register such shares
under the Securities Act pursuant to a "shelf" registration statement
commencing one year after this Offering. In addition, in the event that the
Company proposes to register any of its securities or the securities of any
other shareholder under the Securities Act, the current holders of the
Preferred Stock and Warrants will have rights, subject to certain exceptions
and limitations, to have shares of Common Stock issuable upon conversion of
the Preferred Stock or upon exercise of the Warrants included in such
registration statement. See "Description of Capital Stock --Registration
Rights of Certain Holders."
From October 1994 through April 1995, the Company was a party to a
distribution agreement with a subsidiary of Vital Signs which entitled that
subsidiary to distribute the Company's products in the U.S. on a non-exclusive
basis. During the term of that agreement, the Vital Signs subsidiary paid the
Company approximately $105,000 for products purchased for distribution by such
subsidiary. Pursuant to that relationship, the Company borrowed $100,000 from
Vital Signs at an interest rate of nine percent per annum. In addition, upon
termination of the distribution agreement, the Company agreed to pay the Vital
Signs subsidiary $87,000 upon return of certain inventory. That amount, as
well as all principal and interest due on such borrowing, was paid by the
Company in 1996. Terry D. Wall, the Chairman of the Board of the Company, is
the principal stockholder and Chief Executive Officer of Vital Signs and he,
Anthony J. Dimun and David J. Bershad are directors of Vital Signs. The
Company believes that the terms of these transactions were no less favorable
to the Company than terms that would be available from similarly situated
unrelated parties.
During the three years ended December 31, 1996, Professor Tormala (an
officer, director and principal beneficial stockholder of the Company) earned
royalty payments totaling approximately $182,000 from the Company pursuant to
the terms of an employment agreement that was terminated as of December, 1996
and license agreements covering certain of the Company's products. In lieu of
continuing royalty payments under the employment agreement, Professor
Tormala's new employment agreement provides for an increase in his base
salary. See Note 5 of the Notes to the Company's Consolidated Financial
Statements.
Pentti Rokkanen, M.D., who beneficially owns 7.0% of the Company's
outstanding Common Stock, provides consulting services to the Company. During
the three years ended December 31, 1996, a total of approximately $95,000 of
consulting fees were accrued and ultimately paid to Professor Rokkanen.
As described elsewhere herein, the Company presently is considering the
possibility of contracting with a third party to provide a manufacturing
operation to the Company in the eastern U.S. If the Company
55
<PAGE>
pursues such an arrangement, it will solicit bids from reliable medical device
manufacturers, including Thomas Medical Products, Inc. ("Thomas"), a wholly-
owned subsidiary of Vital Signs. Messrs. Wall, Dimun and Bershad, each of whom
are directors of Vital Signs, will not participate in any such determination
pertaining to Thomas.
Terry Wall, Pertti Tormala and the Company are each one-third equity owners
in a business organized to engage in developing, manufacturing and selling
polymer-based advanced drug delivery systems (the "Business"). The Company
acquired its interest in the Business from an unrelated individual in 1996 in
exchange for a payment of $85,000 and has not incurred any expenses relating
to the Business since that time. The Business has no tangible assets and is
expected to be in the development stage for a period of at least four years.
The Board of Directors has concluded that in light of the substantial
expenditures that would be required in order to bring any of the Business'
products to market, it is in the best interests of the Company and its
stockholders for the Company to forego its development of the Business and to
spin-off the Business. The Company intends to distribute its interest in the
Business to stockholders of record of the Company as of a date prior to the
closing of this Offering. Accordingly, investors in this Offering will not
have an ownership interest in the Business. Professor Tormala's employment
agreement with the Company enables him to dedicate certain of his services to
the Business, but provides that he may not work more than 16 hours per month
during business hours on matters pertaining to the Business. See "Management -
Employment Agreements."
During 1994 and 1995, Messrs. Wall, Anderson, Bershad, Dimun and MacCallum
contributed $494,000, $150,000, $61,000, $33,333 and $11,667, respectively, to
subsidiaries of the Company in exchange for shares of capital stock of such
subsidiaries. Such shares were exchanged for shares of Common Stock and shares
of the Dutch Company's capital stock pursuant to the Reorganization.
Through December 31, 1996, the Company granted executive officers and
directors options to purchase a total of 395,431 shares of Common Stock with
exercise prices ranging from $0.9025 to $9.50 per share. Specifically, (i)
David W. Anderson, a director and the Company's Chief Executive Officer and
President, was granted options to purchase 277,009 shares of Common Stock at
an exercise price of $0.9025 per share; (ii) Michael J. O'Brien, the Company's
Vice President, Finance and Administration and Chief Financial Officer, was
granted options to purchase 65,790 shares of Common Stock at an exercise price
of $9.50 per share; and (iii) Stephen A. Lubischer, the Company's Vice
President, U.S. Sales, was granted options to purchase 39,474 shares of Common
Stock at an exercise price of $4.75 per share and options to purchase 13,158
shares of Common Stock at an exercise price of $9.50 per share. The options
granted to Messrs. Anderson, O'Brien and Lubisher have ten year terms and were
granted pursuant to the Company's Stock Option/Stock Issuance Plan. See
"Management--Stock Option/Stock Issuance Plan". Of the options granted to Mr.
Anderson, 60% are presently fully vested, 20% will vest on March 31, 1998 and
the remainder will vest on March 31, 1999. For information regarding the
vesting of Mr. O'Brien's options and Mr. Lubisher's options, see "Management--
Executive Compensation." For information regarding employment agreements with
executive officers, see "Management - Employment Agreements."
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of December 31, 1996, and
as adjusted to reflect the sale of Common Stock offered by the Company hereby,
for (i) each person who is known by the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each of the Company's directors, (iii)
each Named Executive Officer and (iv) all directors and Named Executive
Officers as a group.
<TABLE>
<CAPTION>
PERCENT OF TOTAL(1)
--------------------
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAMES OF BENEFICIAL OWNER(2) OWNED(1) OFFERING OFFERING(3)
- ---------------------------- ------------ -------- -----------
<S> <C> <C> <C>
Bionix, B.V.(4).............................. 2,684,211 42.1 30.1
Terry D. Wall(5)............................. 2,568,715 40.1 29.2
T. Rowe Price Threshold Fund III, L.P.(6) ... 884,211 13.3 10.1
David W. Anderson(7)......................... 249,167 3.9 2.8
David J. Bershad(8).......................... 393,886 6.2 4.5
Anthony J. Dimun(9).......................... 193,571 3.0 2.2
Stephen A. Lubischer(10)..................... 15,790 * *
Michael J. O'Brien........................... -- -- --
David H. MacCallum(11)....................... 138,813 2.2 1.6
Pentti Rokkanen(12).......................... 443,217 7.0 5.0
Pertti Tormala(13)........................... 1,124,818 17.7 12.8
Pertti Viitanen(14).......................... 144,840 2.3 1.6
All directors and Named Executive Officers
as a group (nine persons)(15)............... 4,829,600 73.8 54.3
</TABLE>
- --------
(*) Less than 1%.
(1) Applicable percentage ownership is based on 6,371,062 shares of Common
Stock outstanding as of December 31, 1996 (giving pro forma effect to the
Preferred Stock Conversion) together with applicable stock options and
Warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, based
on factors including voting and investment power with respect to shares.
Shares of Common Stock subject to the Warrants and shares of Common Stock
subject to stock options currently exercisable, or exercisable within 60
days after December 31, 1996, are deemed outstanding for computing the
percentage ownership of the person holding such stock options or Warrants,
but are not deemed outstanding for computing the percentage ownership of
any other person. In light of the Commission's rules regarding the
calculation of beneficial ownership with respect to exercisable Warrants,
each holder of Warrants is deemed to be the beneficial owner of all shares
covered by such holder's Warrants. Each owner of an equity interest in the
Dutch Company is deemed to beneficially own a percentage of the shares of
the Common Stock owned by the Dutch Company equal to such owner's
proportionate equity interest in the Dutch Company.
(2) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. Unless otherwise indicated, the address of all 5% shareholders is
c/o the Company, 279B Great Valley Parkway, Malvern, Pennsylvania 19355.
The address of T. Rowe Price Threshold Fund III, L.P. is 100 E. Pratt
Street, Baltimore, Maryland 21202.
(3) In calculating the percentage ownership after this Offering, this table
assumes that no holders of Warrants utilize a cashless exercise approach
and that, as a result, a total of 421,065 shares of Common Stock are
issued upon the closing of this Offering pursuant to the exercise of
Warrants.
(4) The capital stock of the Dutch Company is owned by the former stockholders
of the Company's operating subsidiaries. The Board of Directors of the
Dutch Company consists of David W. Anderson (who is also the chief
executive officer of the Dutch Company), David J. Bershad, Anthony J.
Dimun, David H. MacCallum, Pertti Tormala, Pertti Viitanen, Terry D. Wall
and Pentti Rokkanen, all but the last of whom are directors or executive
officers of the Company. Messrs. Anderson, Bershad, Dimun, MacCallum and
Wall beneficially own capital stock of the Dutch Company representing, in
the aggregate, approximately 23.5% of the equity and 60.6% of the voting
power of the Dutch Company's capital stock. Messrs. Tormala, Viitanen and
Rokkanen own capital stock of the Dutch Company representing, in the
aggregate, approximately 63.8% of the equity and 32.9% of the voting power
of the Dutch Company's capital stock. The remaining equity and voting
power of the Dutch Company's capital stock is allocated among several
other Finnish investors.
(5) Mr. Wall's shares include 33,685 shares of Common Stock issuable upon the
exercise of Warrants and 484,419 shares of Common Stock owned by the Dutch
Company, representing Mr. Wall's proportionate equity interest in the
2,684,211 shares of Common Stock owned by the Dutch Company. Mr. Wall has
the right to cause the Dutch Company to transfer such 484,419 shares to
him
57
<PAGE>
pursuant to an agreement with the Dutch Company. All of Mr. Wall's shares of
Common Stock and of the Dutch Company's capital stock are held in an
investment partnership which he controls.
(6) Such Fund's shares include 252,632 shares of Common Stock issuable upon
the exercise of Warrants.
(7) Mr. Anderson's shares include 83,104 shares of Common Stock issuable upon
the exercise of vested stock options and 34,841 shares of Common Stock
owned by the Dutch Company, representing Mr. Anderson's proportionate
equity interest in the 2,684,211 shares of Common Stock owned by the
Dutch Company. Mr. Anderson has the right to cause the Dutch Company to
transfer such 34,841 shares to him pursuant to an agreement with the
Dutch Company. Pursuant to the Company's Stock Option/Stock Issuance
Plan, Mr. Anderson has transferred to a trust established for his son
vested stock options covering 61,947 of the afore-mentioned 83,104
shares.
(8) Mr. Bershad's shares include 25,264 shares of Common Stock issuable upon
the exercise of Warrants and 50,732 shares of Common Stock owned by the
Dutch Company, representing Mr. Bershad's proportionate equity interest
in the 2,684,211 shares of Common Stock owned by the Dutch Company. Mr.
Bershad has the right to cause the Dutch Company to transfer such shares
to him pursuant to an agreement with the Dutch Company. A total of
254,732 of Mr. Bershad's shares of Common Stock and all of Mr. Bershad's
shares of the Dutch Company's capital stock are held in an investment
partnership which he controls.
(9) Mr. Dimun's shares include 8,422 shares of Common Stock issuable upon the
exercise of Warrants and 34,680 shares of Common Stock owned by the Dutch
Company, representing Mr. Dimun's proportionate equity interest in the
2,684,211 shares of Common Stock owned by the Dutch Company. Mr. Dimun
has the right to cause the Dutch Company to transfer such 34,680 shares
to him pursuant to an agreement with the Dutch Company. All of
Mr. Dimun's shares of Common Stock and of the Dutch Company's capital
stock and all of his Warrants are held in entities which he controls.
(10) Mr. Lubischer's shares represent shares of Common Stock issuable upon the
exercise of vested options.
(11) Mr. MacCallum's shares include 4,211 shares of Common Stock issuable upon
the exercise of Warrants and 26,896 shares of Common Stock owned by the
Dutch Company, representing Mr. MacCallum's proportionate equity interest
in the 2,684,211 shares of Common Stock owned by the Dutch Company. Mr.
MacCallum has the right to cause the Dutch Company to transfer such
shares to him pursuant to an agreement with the Dutch Company. A total of
10,527 of Mr. MacCallum's shares of Common Stock and all of his Warrants
are held in an entity which he controls.
(12) Represents Professor Rokkanen's proportionate equity interest in the
2,684,211 shares of Common Stock owned by the Dutch Company. Professor
Rokkanen has the right to cause the Dutch Company to transfer such
443,217 shares to him pursuant to an agreement with the Dutch Company.
(13) Represents Professor Tormala's proportionate equity interest in the
2,684,211 shares of Common Stock owned by the Dutch Company. Professor
Tormala has the right to cause the Dutch Company to transfer such
1,124,818 shares to him pursuant to an agreement with the Dutch Company.
That agreement enables Professor Tormala to direct the voting by the
Dutch Company of a specified number of shares of the Company's Common
Stock held by the Dutch Company. As of December 31, 1996, that specified
number equals 2,052,643, representing Professor Tormala's proportionate
equity interest in the 2,684,211 shares of Common Stock owned by the
Dutch Company (1,124,818 shares) and the proportionate equity interest of
all other Finnish investors in such 2,684,211 shares (927,825 shares).
The table above excludes from Professor Tormala's beneficial ownership
the 927,825 shares attributable to the equity interests of such other
Finnish investors.
(14) Represents Mr. Viitanen's proportionate equity interest in the 2,684,211
shares of Common Stock owned by the Dutch Company. Mr. Viitanen has the
right to cause the Dutch Company to transfer such 144,840 shares to him
pursuant to an agreement with the Dutch Company.
(15) Includes 71,582 shares of Common Stock issuable upon the exercise of
Warrants, 98,894 shares of Common Stock issuable upon the exercise of
vested stock options, and 1,901,226 shares of Common Stock owned by the
Dutch Company, representing the directors' and Named Executive Officers'
proportionate equity interest in the 2,684,211 shares of Common Stock
owned by the Dutch Company. The directors and Named Executive Officers as
a group beneficially own approximately 70.8% of the equity and
approximately 85.0% of the voting power associated with the capital stock
of the Dutch Company. The directors and Named Executive Officers of the
Company as a group have a right to vote all of the 2,684,211 shares of
Common Stock owned by the Dutch Company. If all such 2,684,211 shares
were deemed to be beneficially owned by the Company's directors and Named
Executive Officers, such persons as a group would be deemed to be the
beneficial owners of 5,612,585 shares of Common Stock, representing 85.8%
of the shares outstanding before this Offering and 63.1% of the shares
outstanding after this Offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 31,600,000 shares of
Common Stock and 8,000,000 shares of Preferred Stock (after giving effect to a
reduction in the authorized shares of Preferred Stock which will result from
the mandatory conversion of the outstanding shares of Preferred Stock upon the
closing of this Offering). The following summaries of certain provisions of
the Common Stock and Preferred Stock do not purport to be complete and are
subject to, and qualified in their entirety by, the provisions of the
Company's Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus forms a part, and by
applicable law.
COMMON STOCK
As of January 31, 1997, there were 6,638,122 shares of Common Stock
outstanding, as adjusted to reflect the conversion of all outstanding shares
of Preferred Stock and the Warrant Exercise at or before the closing of this
Offering. Such shares were held of record by 21 stockholders.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable, and the shares of Common Stock to be issued upon
the closing of this Offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not
possible to state the actual effect of the issuance of any shares of Preferred
Stock upon the rights of holders of the Common Stock until the Board of
Directors determines the specific rights of the holders of such Preferred
Stock. However, the effects might include, among other things, restricting
dividends on the Common Stock, diluting the voting power of the Common Stock,
impairing the liquidation rights of the Common Stock and delaying or
preventing a change in control of the Company without further action by the
stockholders. The Company has no present plans to issue any shares of
Preferred Stock.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of approximately 1,320,000 shares of Common Stock (the
"Registrable Securities"), after giving effect to the mandatory conversion of
the outstanding shares of Preferred Stock and the Warrant Exercise at or
before the closing of this Offering, or their transferees are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement
between the Company and the holders of Registrable Securities. Subject to
certain limitations in that agreement, the holders of a majority of the
Registrable Securities may require, on two occasions beginning six months
following the date of this Prospectus, that the Company register the
Registrable Securities for public resale. If the Company registers any of its
Common Stock either for its own account or for the account of other security
holders, the holders of Registrable Securities are entitled to include their
shares of Common Stock in the registration statement, subject to the ability
of the underwriters to limit the number of shares included in the offering
(but to not less than 30% of the offering). The holders of Registrable
Securities may also require the Company to register all or a portion of their
Registrable Securities
59
<PAGE>
on Form S-3 when use of such form becomes available to the Company, provided,
among other things limitations, that the proposed aggregate selling price (net
of any underwriters' discounts or commissions) is at least $1 million. All
registration expenses must be borne by the Company and all selling expenses
relating to Registrable Securities must be borne by the holders of the
securities being registered.
WARRANTS
As of April 15, 1997, the Company had outstanding Warrants entitling the
holders to purchase a total of 421,065 shares of Common Stock at an exercise
price of $5.70 per share. To the extent that the Warrants are not exercised
prior to the closing of this Offering, the Company will call the Warrants upon
the closing of this Offering. Upon such call, the holders of the Warrants must
either pay the exercise price in cash or arrange for a cashless exercise in
which the Company will issue to each holder a number of shares of Common Stock
having a fair market value equal to (x) the amount by which the fair market
value of one share of Common Stock exceeds $5.70 multiplied by (y) the number
of Warrants exercised. Except as otherwise indicated herein, this Prospectus
assumes that a total of 267,060 shares of Common Stock will be issued upon
exercise of the Warrants and that the Company will receive net proceeds of
$500,000 in connection with such exercises.
CERTAIN CHANGE OF CONTROL PROVISIONS
Bionx Implants, Inc. is a Delaware corporation and is subject to Section 203
of the Delaware General Corporation Law, an anti-takeover law. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years following the time the person became an interested stockholder, unless
(with certain exceptions) the "business combination" or the transaction in
which the person became an interested stockholder is approved in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock.
The authorization of undesignated Preferred Stock makes it possible for the
Board of Directors to issue Preferred Stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
the Company. Upon consummation of this Offering, the Company's Certificate of
Incorporation will provide for staggered terms for members of the Board of
Directors and will eliminate the right of stockholders to act without a
meeting. The amendment of the staggered term and stockholder meeting
provisions would require approval of at least two-thirds of the outstanding
capital stock of each class of capital stock entitled to vote thereon.
Additionally, the Bylaws of the Company will, upon consummation of this
Offering, establish an advance notice procedure for stockholder proposals and
for nominating candidates for election as directors.
The above-mentioned provisions of Delaware law and of the Company's
Certificate of Incorporation and Bylaws may have the effect of delaying,
deterring or preventing a change in control of the Company, may discourage
bids for the Common Stock at a premium over the prevailing market price, and
may adversely affect the market price, and the voting and other rights of the
holders, of the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Stocktrans, Inc.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could materially and adversely affect the market prices of the Common
Stock prevailing from time to time. Sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions described
below lapse could also materially and adversely affect the prevailing market
price of the Common Stock and the ability of the Company to raise equity
capital in the future.
Upon completion of this Offering, the Company will have 8,638,122 shares of
Common Stock outstanding, assuming no exercise of options after December 31,
1996 and after giving effect to the Preferred Stock Conversion and the Warrant
Exercise. Of these shares, the 2,000,000 shares sold in this Offering will be
freely tradable without restriction under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 6,638,122 shares of Common Stock held by
existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration such as Rule 144 or Rule 144(k) under the
Securities Act. The Company's directors, executive officers and certain other
stockholders of the Company that beneficially own or have dispositive power
over 6,461,273 shares of Common Stock outstanding prior to this Offering,
including Common Stock to be issued upon the closing of this Offering pursuant
to the conversion of the Company's Preferred Stock and pursuant to the
exercise of all outstanding Warrants, have entered into lock-up agreements
under which they have agreed not to sell, offer, make any short sale or
otherwise dispose of or enter into any contract, arrangement or commitment to
sell or otherwise dispose of any shares of Common Stock or securities
convertible or exchangeable or exercisable for any rights to purchase or
acquire Common Stock owned by them for a period of 180 days after the date of
this Prospectus, without the prior written consent of UBS Securities LLC. UBS
Securities LLC has advised the Nasdaq Stock Market that it will not grant any
such consent prior to September 4, 1997 with respect to shares issued pursuant
to the Preferred Stock Conversion and the Warrant Exercise. Holders of 176,849
shares of Common Stock are subject to similar restrictions for a period of one
year. The Company has entered into a similar six month lock-up agreement,
except that the Company may grant options and issue stock under its current
stock option and stock purchase plans, and pursuant to other currently
outstanding options.
Approximately 90 days after the completion of this Offering, the Company
intends to file a registration statement on Form S-8 under the Securities Act
to register the future issuance of all shares of Common Stock reserved for
issuance under the Company's Stock Option/Stock Issuance Plan. As of December
31, 1996, an aggregate of 424,382 shares of Common Stock were reserved for
issuance pursuant to outstanding options and 425,618 shares of Common Stock
have been reserved for future grant under the Company's Stock Option/Stock
Issuance Plan. Such registration statement will automatically become effective
upon filing. Accordingly, shares registered thereunder will, subject to Rule
144 limitations applicable to affiliates, be available for sale in the public
market, except to the extent that such shares are subject to vesting
restrictions with the Company or certain contractual restrictions on sale or
transfer (including options covering 395,431 shares which are subject to Lock-
up Agreements).
No shares of Common Stock, other than the 2,000,000 shares offered hereby
and 3,846 shares subject to options which will be vested on or after the
effective date of such Registration Statement on Form S-8 and which are held
by persons who have not executed lock-up agreements, will be available for
immediate sale prior to the expiration of the lock-up agreements. The
6,638,122 shares held by existing stockholders will become eligible for public
resale upon expiration of the lock-up agreements, subject in some cases to
volume limitations imposed by Rule 144, subject to an exclusion of those
shares of Common Stock acquired upon payment of the cash exercise price of
Warrants and subject to the Company's ability or obligation to register any of
these shares for resale at any time after the lock-up agreements expire.
After this Offering, the holders of approximately 1,320,000 shares of Common
Stock (after giving effect to the Preferred Stock Conversion and the Warrant
Exercise) will be entitled to certain demand and piggyback rights with respect
to the registration of such shares under the Securities Act. If such holders,
by exercising
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<PAGE>
their demand registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price of the Company's Common Stock. If the Company,
either on its own behalf or on behalf of certain shareholders, were to
initiate a registration and include shares held by such holders pursuant to
the exercise of their piggyback registration rights, such sales could have an
adverse effect on the Company's ability to raise needed capital. See "Certain
Transactions" and "Description of Capital Stock - Registration Rights of
Certain Holders."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for a minimum
holding period (which the Securities and Exchange Commission has reduced from
two years to one year, effective in April 1997), including the holding period
of any prior owner, except an affiliate, is entitled to sell in "broker's
transactions" or to market makers, within any three month period commencing
90 days after the date of this Prospectus, a number of shares that does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then outstanding (approximately 86,000 shares immediately after this Offering)
or (ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the required filing of a Form 144 with respect to
such sale. Sales under Rule 144 are generally subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for a minimum holding period (reduced from three years to two years,
effective April 29, 1997), is entitled to sell such shares without being
required to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701 under the
Securities Act, persons who purchase shares upon exercise of options granted
prior to the effective date of this Offering are entitled to sell such shares
90 days after the effective date of this Offering in reliance on Rule 144,
without having to comply with the holding period requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC,
Hambrecht & Quist LLC and Volpe Brown Whelan & Company, LLC are acting as
representatives (the "Representatives"), have agreed to purchase from the
Company the following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS SHARES
------------ ---------
<S> <C>
UBS Securities LLC.................................................
Hambrecht & Quist LLC..............................................
Volpe Brown Whelan & Company, LLC..................................
---------
Total.......................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if
any Underwriter defaults in its obligations to purchase shares, and the
aggregate obligations of the Underwriters so defaulting do not exceed ten
percent of the shares offered hereby, the remaining Underwriters, or some of
them, must assume such obligations.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering
price set forth on the cover of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters
may allow and such dealers may reallow a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock, the Offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock to cover over allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares
of Common Stock to be purchased by it shown in the above table bears to the
total number of shares of Common Stock offered hereby. The Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a
syndicate short position. In addition, the Underwriters may bid for and
purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
in the Offering if the syndicate repurchases previously distributed Common
Stock in syndicate covering transactions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
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The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own or have dispositive power over
substantially all of the shares of Common Stock outstanding prior to this
Offering, including Common Stock to be issued upon the closing of this
Offering pursuant to the conversion of the Company's Preferred Stock and
pursuant to the exercise of Warrants, have agreed that they will not, without
the prior written consent of UBS Securities LLC, offer, sell or otherwise
dispose of any shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them for periods ranging from
180 days to one year after the date of this Prospectus. UBS Securities LLC has
advised the Nasdaq Stock Market that it will not grant any such consent prior
to September 4, 1997 with respect to shares issued pursuant to the Preferred
Stock Conversion and the Warrant Exercise. The Company has agreed that it will
not, without the prior written consent of UBS Securities LLC, offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus, except that the Company may grant options and
issue shares under its current Stock Option/Stock Issuance Plan and may issue
shares pursuant to other currently outstanding options. David H. MacCallum,
the Managing Director for Life Sciences Investment Banking at UBS Securities
LLC, is a director of the Company.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of five percent of the number of shares of Common Stock
offered hereby.
In September 1996, an entity affiliated with Hambrecht and Quist LLC and
certain individuals affiliated with UBS Securities LLC purchased in connection
with the Company's Series A Preferred Stock financing an aggregate of 240,000
shares of Series A Preferred Stock at a price of $2.49 per share and Warrants
to purchase 50,526 shares of Common Stock at a price of $.0475 per Warrant
with an exercise price of $5.70 per share. Such Preferred Stock will convert
into 126,318 shares of Common Stock and the Warrants will be exercised prior
to, or upon, the closing of this Offering. Upon such conversion and assuming
the exercise in full of such Warrants, the entity affiliated with Hambrecht &
Quist LLC will beneficially own 147,370 shares of the Company's Common Stock
and the individuals affiliated with UBS Securities LLC will beneficially own,
in the aggregate, 29,479 shares (excluding shares unrelated to the Preferred
Stock and Warrants) of the Company's Common Stock. Such securities have been
deemed to be compensation received by the Underwriters in connection with this
Offering.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price was determined through
negotiations among the Company and the Representatives. Among the factors
considered in such negotiations were prevailing market conditions, certain
financial information of the Company, market valuations of other companies
that the Company and the representatives of the Underwriters believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant. The initial public offering price set forth on the cover page of
this Prospectus should not, however, be considered an indication of the actual
value of the Common Stock. Such price is subject to change as a result of
market conditions and other factors. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to this Offering at or above the initial
offering price.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., Roseland, New
Jersey. Certain legal matters will be passed upon for the Underwriters by
Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The consolidated financial statements of Bionx Implants, Inc. as of December
31, 1995 and 1996, and for each of the years in the three-year period ended
December 31, 1996, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent Certified
Public Accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
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The statements in this Prospectus under the captions "Risk Factors --
Uncertainties Relating to Licenses, Trade Secrets, Patents and Proprietary
Rights" and "Business -- Licenses, Trade Secrets, Patents and Proprietary
Rights" on matters of U.S. intellectual property law have been reviewed and
approved by Kenyon & Kenyon, New York, New York, U.S. intellectual property
counsel for the Company, as experts in U.S. intellectual property law, and are
included herein in reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 29549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. To the
extent that statements contained in this Prospectus as to the contents of any
contract or any other document relate to a contract or document that is filed
as an exhibit to the Registration Statement, reference is made to the copy of
such contract or document. For further information with respect to the Company
and such Common Stock, reference is made to the Registration Statement and to
the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected by
anyone without charge at the Commission's principal office in Washington, D.C.
and copies of all or any part of the Registration Statement may be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the
Commission. The Commission also maintains a site on the World Wide Web that
will contain reports, proxy and information statements and other information
regarding the Company. The address for such site is http://www.sec.gov.
65
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and 1996................ F-3
Consolidated Statements of Operations for the Years ended December 31,
1994, 1995, and 1996 ................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
ended December 31, 1994, 1995, and 1996................................. F-5
Consolidated Statements of Cash Flows for the Years ended December 31,
1994, 1995, and 1996.................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Bionx Implants, Inc.:
We have audited the accompanying consolidated balance sheets of Bionx
Implants, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December
31, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bionx
Implants, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
January 24, 1997, except
for the first paragraph of
Note 15 which is as of February 24, 1997
F-2
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
PRO FORMA
DECEMBER 31, 1996
1995 1996 (NOTE 2)
----------- ---------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note
2).............................. $ 50,662 1,593,131 2,093,131
Inventory, net (note 3).......... 731,644 1,030,809 1,030,809
Trade accounts receivable, net of
allowance of $97,325 as of
December 31, 1996............... 398,168 1,708,432 1,708,432
Grants receivable................ 7,730 122,711 122,711
Deferred offering costs (note
15)............................. -- 194,981 194,981
Prepaid expenses and other
current assets.................. 170,065 153,005 153,005
----------- ---------- ----------
Total current assets............... 1,358,269 4,803,069 5,303,069
Investments........................ 104,161 100,334 100,334
Deposits........................... -- 43,964 43,964
Plant and equipment, net (note 4).. 331,808 432,952 432,952
Goodwill and intangibles, net...... -- 2,798,863 2,798,863
----------- ---------- ----------
Total assets....................... $ 1,794,238 8,179,182 8,679,182
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQ-
UITY (DEFICIT)
Current liabilities:
Trade accounts payable........... $ 908,695 848,127 848,127
Long-term debt, current portion
(note 7)........................ 363,293 223,037 223,037
Related party (note 5)........... 198,096 163,184 163,184
Current income tax liability..... -- 205,065 205,065
Accrued and other current liabil-
ities (note 6).................. 464,225 1,317,196 1,317,196
----------- ---------- ----------
Total current liabilities.......... 1,934,309 2,756,609 2,756,609
----------- ---------- ----------
Long-term debt (note 7)............ 896,204 590,336 590,336
----------- ---------- ----------
Series A mandatorily redeemable
convertible preferred stock, par
value $0.001 per share;
2,000,000 shares authorized,
none issued and outstanding at
December 31, 1995 and 2,000,000
shares issued and outstanding as
of December 31, 1996 (converts
into 1,052,638 pro forma common
shares as of December 31, 1996
upon consummation of the
offering contemplated herein)
(note 8)........................ -- 5,000,000 --
----------- ---------- ----------
Stockholders' equity (deficit)
(notes 8,9,15):
Preferred stock, par value $0.001
per share, 8,000,000 shares
authorized and none issued and
outstanding................... -- -- --
Common stock, par value $0.0019
per share, 31,600,000 shares
authorized and 5,318,424 shares
issued and outstanding as of
December 31, 1996 (6,638,122 pro
forma common shares as of
December 31, 1996 upon
conversion of the Series A
preferred stock in conjunction
with the Offering contemplated
herein)......................... 1,343,316 10,105 12,612
Additional paid-in capital....... 580,998 4,891,632 10,389,125
Accumulated deficit.............. (2,693,442) (4,799,923) (4,799,923)
Foreign currency translation
adjustment...................... (267,147) (269,577) (269,577)
----------- ---------- ----------
Total stockholders' equity (defi-
cit).............................. (1,036,275) (167,763) 5,332,237
----------- ---------- ----------
Commitments and contingencies
(note 10)
Total liabilities and stockholders'
equity (deficit).................. $ 1,794,238 8,179,182 8,679,182
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Product sales.......................... $1,264,733 1,354,719 5,033,952
License and grant revenues (note 13)... 15,682 266,887 345,203
---------- ---------- -----------
Total revenues....................... 1,280,415 1,621,606 5,379,155
---------- ---------- -----------
Cost of goods sold....................... 476,447 538,013 2,177,511
---------- ---------- -----------
Gross profit............................. 803,968 1,083,593 3,201,644
---------- ---------- -----------
Selling, general and administrative...... 693,159 2,164,340 4,510,212
Research and development................. 189,530 274,213 459,666
---------- ---------- -----------
Total operating expenses................. 882,689 2,438,553 4,969,878
---------- ---------- -----------
Operating loss........................... (78,721) (1,354,960) (1,768,234)
---------- ---------- -----------
Other income and expenses:
Interest expense....................... (93,250) (98,021) (86,906)
Other, net............................. 10,208 (25,035) (42,951)
---------- ---------- -----------
Total other income (expense), net.... (83,042) (123,056) (129,857)
---------- ---------- -----------
Loss before provision for income taxes... (161,763) (1,478,016) (1,898,091)
Provision for income taxes (note 12)..... -- -- (208,390)
---------- ---------- -----------
Net loss................................. $ (161,763) (1,478,016) (2,106,481)
========== ========== ===========
Pro forma net loss per share (note 2).... $ (0.33)
===========
Shares used in computing pro forma net
loss per share (note 2)................. 6,400,271
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON
STOCK FOREIGN TOTAL
PAR VALUE ADDITIONAL CURRENCY STOCKHOLDERS'
PREFERRED OR STATED PAID-IN ACCUMULATED TRANSLATION EQUITY
STOCK VALUE CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
--------- ----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994
(unaudited)............ $-- 494,406 299,998 (1,053,663) (188,529) (447,788)
Proceeds from the
issuance of common
stock................ -- 269,577 95,000 -- -- 364,577
Foreign currency
translation
adjustment........... -- -- -- -- (35,210) (35,210)
Net loss.............. -- -- -- (161,763) -- (161,763)
---- ----------- --------- ---------- -------- ----------
Balance, December 31,
1994................... -- 763,983 394,998 (1,215,426) (223,739) (280,184)
Proceeds from the
issuance of common
stock................ -- 579,333 186,000 -- -- 765,333
Foreign currency
translation
adjustment........... -- -- -- -- (43,408) (43,408)
Net loss.............. -- -- -- (1,478,016) (1,478,016)
---- ----------- --------- ---------- -------- ----------
Balance, December 31,
1995................... -- 1,343,316 580,998 (2,693,442) (267,147) (1,036,275)
Effect of
reorganization
(note 1)............. -- (1,333,266) 4,366,028 -- -- 3,032,762
Proceeds from the
issuance of common
stock................ -- 55 49,820 -- -- 49,875
Issuance costs--Series
A mandatorily
redeemable
convertible preferred
stock................ -- -- (105,214) -- -- (105,214)
Foreign currency
translation
adjustment........... -- -- -- -- (2,430) (2,430)
Net loss.............. -- -- -- (2,106,481) -- (2,106,481)
---- ----------- --------- ---------- -------- ----------
Balance, December 31,
1996................... $-- 10,105 4,891,632 (4,799,923) (269,577) (167,763)
==== =========== ========= ========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(161,763) (1,478,016) (2,106,481)
--------- ---------- ----------
Adjustments to reconcile net loss to
net cash
used in operating activities:
Depreciation and amortization........ 61,432 71,194 144,225
Other non-cash charges............... - - 69,050
Change in assets and liabilities:
(Increase) decrease in accounts re-
ceivable........................... 12,785 19,772 (1,310,264)
Increase in inventory............... (82,196) (150,547) (299,165)
Increase in grants receivable....... -- -- (114,981)
Increase in deferred insurance
costs.............................. -- -- (194,981)
(Increase) decrease in prepaid ex-
pense and other assets............. (3,000) (54,589) 17,060
Increase in deposits................ -- -- (43,964)
Increase (decrease) in accounts pay-
able............................... 10,721 79,047 (60,568)
Increase (decrease) in related par-
ty................................. -- 198,096 (34,912)
Increase in current tax liability... -- -- 205,065
Increase (decrease) in accrued and
other liabilities.................. 133,682 (240,309) 852,971
--------- ---------- ----------
133,424 (77,336) (770,464)
--------- ---------- ----------
Net cash used in operating activities... (28,339) (1,555,352) (2,876,945)
--------- ---------- ----------
Cash flows from investing activities:
Purchases of plant and equipment...... (3,008) (37,316) (80,520)
Purchases of investments.............. -- (2,056) --
Proceeds from sale of investments..... -- -- 3,827
--------- ---------- ----------
Net cash used in investing activities... (3,008) (39,372) (76,693)
--------- ---------- ----------
Cash flow from financing activities:
Proceeds from long-term debt.......... -- 484,139 --
Repayment of long-term debt........... (196,445) -- (446,124)
Net proceeds from the issuance of pre-
ferred stock......................... -- -- 4,894,786
Proceeds from the issuance of common
stock................................ 364,577 765,333 49,875
--------- ---------- ----------
Net cash provided by financing activi-
ties................................... 168,132 1,249,472 4,498,537
--------- ---------- ----------
Net effects of foreign exchange rate
differences............................ (35,210) (43,408) (2,430)
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents............................ 101,575 (388,660) 1,542,469
Cash and cash equivalents at beginning
of period.............................. 337,747 439,322 50,662
--------- ---------- ----------
Cash and cash equivalents at end of pe-
riod................................... $ 439,322 50,662 1,593,131
========= ========== ==========
Supplemental disclosure of cash flow in-
formation:
Cash paid for interest................. $ -- 54,213 195,035
Cash paid for taxes.................... -- -- 3,325
========= ========== ==========
Non-cash investing activities:
Issuance of common stock related to the
reorganization........................ $ -- -- $3,032,762
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION
Basis of Presentation
Bionx Implants, Inc. (the Company) was incorporated in October, 1995 as a
Delaware corporation. In 1996, the Company completed a reorganization,
described more fully below, whereby four corporate entities that constituted
the business activities of the Company were reorganized into Bionx Implants,
Inc. The shareholders of the four separate corporations who were shareholders
having a common interest in the combined activities of the business exchanged
their share pro-rata, directly or indirectly, for the shares of Bionx
Implants, Inc.
Given the common ownership relationship of the four predecessor corporations
and the subsequent reorganization into the Company described below, the
accompanying financial statements include the four predecessor corporations'
financial statements combined as of December 31, 1995 and for each of the
years ended December 31, 1994, 1995 and for the period January 1, 1996 to
September 2, 1996 and consolidated as of December 31, 1996 and for the period
from September 3, 1996 to December 31, 1996.
Reorganization
In September 1996, the Company completed its reorganization. A group of
common stockholders controlled the U.S. subsidiaries and 61% of Bioscience,
Ltd. and approximately 58% of Biocon, Ltd. prior to the reorganization, with
the balance of the Finnish subsidiaries controlled by a group of minority
shareholders (the Minority Interest). The reorganization was accounted for as
a recapitalization except for the component associated with the Minority
Interest, which was accounted for as a purchase. The purchase price for the
Minority Interest has been allocated to assets acquired and liabilities
assumed based on their fair market value at the date of the reorganization.
The fair value of the assets acquired and liabilities assumed, is summarized
as follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................... $1,579
Property and equipment........................................... 224
Intangibles...................................................... 800
Goodwill......................................................... 2,064
Current liabilities.............................................. (834)
Long-term liabilities............................................ (273)
</TABLE>
Pursuant to the reorganization, (i) the Company's four operating entities
became wholly-owned subsidiaries of the Company, (ii) each of the Company's
Finnish shareholders received capital stock of a Dutch company, and (iii) each
of the Company's United States investors received capital stock of both a
Dutch company and the Company. Upon consummation of the reorganization, the
sole assets of the Dutch company were 2,684,211 shares of the Company's common
stock. As a result of the reorganization, the Company has four wholly-owned
subsidiaries--Orthosorb, Inc., Biostent, Inc., Bioscience, Ltd., and
Biocon, Ltd.
Shortly after the reorganization was completed, the Company issued a total
of 2,000,000 share of its Series A mandatorily redeemable preferred stock
("Series A") and 421,065 common stock warrants to certain accredited investors
in exchange for an aggregate capital contribution of $5,000,000.
Business Purpose
The Company is a leading developer, manufacturer and marketer of self-
reinforced, resorbable polymer implants, including screws, pins, arrows and
stents, for use in a variety of applications which include
F-7
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
orthopaedic surgery, urology, dentistry and maxillo-facial surgery. The
Company's proprietary manufacturing processes self-reinforce a resorbable
polymer, modifying the gel-like or brittle polymer structure into a
physiologically strong structure with controlled, variable strength retention
(ranging from three weeks to six months depending upon the medical indication).
The Company currently markets its nine product lines through managed networks
of independent agents, distributors and dealers.
Since inception, the Company has sustained operating losses and has not
generated positive cash flow from operations. The Company plans to continue to
finance its future operations with proceeds from the sale of capital stock,
such as the proposed initial public offering contemplated by the prospectus
("Offering"), and revenues from future product sales, royalty payments and
license and government grant payments, if any. The Company's future operations
are dependent upon the successful execution of planned financings, such as the
Offering, and ultimately, upon achieving profitable operations, if ever. If the
Offering contemplated herein is not consummated, it will be necessary for the
Company to seek other sources of capital or adjust its proposed future
operating plans.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its four wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
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 liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less when purchased to be cash equivalents. Cash and cash
equivalents include cash on hand and in the bank as well as short-term
securities. The carrying amount of cash and cash equivalents approximates its
fair value due to its short-term nature.
Inventory
Inventory is valued at the lower of cost or market, with cost being
determined under a first-in, first-out (FIFO) method. Reserves are established
for excess and obsolete inventory on a specific identification basis.
Investments
Investments consist of certain real property interests in Finland. The
Company can classify its equity securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and intent
to hold the security until maturity. All of the Company's investments are
classified as held-to-maturity and are recorded at amortized cost, adjusted for
F-8
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the amortization or accretion of premiums or discounts. All other investments
would be classified as available-for-sale.
A decline in the market value below cost that is deemed to be other than
temporary results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the security is
established. Dividend and interest income are recognized when earned. The
amortized cost approximates market value as of December 31, 1995 and 1996.
Plant and Equipment
Major additions and replacements of assets are capitalized at cost.
Maintenance, repairs, and minor replacements are expensed as incurred.
Machinery and equipment are depreciated using the straight-line method over a
five to fifteen-year period. Leasehold improvements and equipment acquired
under capital lease are amortized using the straight-line method over the
estimated useful life of the asset or the lease term, whichever is shorter.
Upon retirement or sale, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is credited or charged to operations.
Intangibles
Patents and rights are stated at cost. Amortization of patents is recorded
using the straight-line method over the remaining legal lives of the patents
generally for periods ranging up to 12 years.
Goodwill
Goodwill is amortized on a straight-line basis over 20 years. On a periodic
basis, the Company evaluates the carrying value of intangible assets based
upon expectations of undiscounted cash flows.
Certain Risks and Concentrations
The Company extends unsecured trade credit in connection with its commercial
sales to a diversified customer base comprised of both foreign and domestic
entities, most of which are concentrated in the healthcare industry.
The Company invests its excess cash in deposits with major U.S. financial
institutions and money market funds. To date, the Company has not experienced
any losses on its cash equivalents and money market funds.
The Company's products require approvals or clearances from the U.S. Food
and Drug Administration (FDA) and international regulatory agencies prior to
commercialized sales. There can be no assurance that the Company's products
will receive any of the required approvals or clearances. If the Company were
denied such approvals or clearances, or such approvals or clearances were
delayed, it would have a material adverse impact on the results of operations
and financial position of the Company.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, Disclosures About
Fair Value of Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. Cash, trade accounts receivable,
prepaid expenses and other current assets, trade accounts payable and accrued
expenses reported in the combined balance
F-9
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sheets equal or approximate fair value due to their short maturities. Based on
the borrowing rates currently available to the Company, the fair value of all
of the Company's loans is approximately $700,000.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
Effective January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosures required by SFAS
No. 123.
Revenue Recognition
Revenue from product sales is recognized upon shipment and passage of title
to the customer. Revenue from license fees is recognized when the required
milestones are met. Revenue from grant agreements is recognized in the period
in which the related expenses are incurred and in accordance with the Company's
obligations under the terms of the respective grants.
Research and Development
All research and development costs are expensed as incurred.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, Foreign Currency Translation. Substantially all assets
and liabilities of the foreign subsidiaries are translated at year-end exchange
rates and income and expense items are translated at an average exchange rate
for the year. Exchange adjustments resulting from foreign currency transactions
are generally recognized in operations, while adjustments resulting from the
translation of financial statements are reflected as a separate component of
stockholders' equity (deficit). The Company does not hedge its currency
translation exposure.
Accounting for Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No.109, Accounting for Income Taxes.
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits which are
not expected to be realized. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that such tax rate change
is enacted.
F-10
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share is computed using the weighted average number of
common shares outstanding giving effect to certain adjustments described below.
Common equivalent shares from stock options are excluded from the computation
of pro forma net loss per share as their effect is anti-dilutive, except that,
pursuant to Securities and Exchange Commission (SEC) Staff Accounting Bulletins
and SEC staff policy, common stock and common stock equivalent shares issued at
prices below the anticipated initial public offering price during the preceding
twelve months of the offering have been included in the computation as if they
were outstanding for all periods presented (using the treasury stock method and
the anticipated offering price).
Pursuant to SEC staff policy, the calculation of shares used in computing pro
forma net loss per share also includes the weighted average number of common
equivalent shares of Series A preferred stock and warrants that will
automatically convert into shares of common stock upon completion of the
Offering (using the if-converted method) from their respective original dates
of issuance.
The following table sets forth the calculation of the total number of shares
used in the computation of pro forma net loss per common share:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Weighted average common shares outstanding....................... 5,281,020
Weighted average of incremental shares assumed to be outstanding
related to common stock options and warrants granted and
convertible preferred stock based on the treasury stock method.. 778,951
Weighted average convertible preferred stock (if converted
method)......................................................... 340,300
---------
Weighted average common and common equivalent shares used in
computation of pro forma net loss per common share.............. 6,400,271
=========
</TABLE>
Pro Forma Balance Sheet (Unaudited)
The unaudited pro forma balance sheet as of December 31, 1996 reflects the
conversion of the existing 2,000,000 shares of Series A mandatorily redeemable
convertible preferred stock into 1,052,638 shares of common stock (adjusted for
the common stock reverse split), which conversion is contingent upon the
closing of the Offering. In addition, the unaudited pro forma balance sheet as
of December 31, 1996 assumes that a total of 267,060 shares of Common Stock
will be issued upon the exercise of outstanding warrants and that the Company
will receive net proceeds of $500,000 in connection with such exercises.
(3) INVENTORY
Inventory consists of the following components as of December 31, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Raw materials............................................. $ 80,108 101,122
Finished goods............................................ 812,557 1,210,033
--------- ---------
892,665 1,311,155
Less reserves............................................. (161,021) (280,346)
--------- ---------
$ 731,644 1,030,809
========= =========
</TABLE>
F-11
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) PLANT AND EQUIPMENT
Plant and equipment consist of the following components as of December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Machinery and production equipment......................... $ 658,711 831,015
Computer equipment......................................... 13,829 14,613
--------- --------
672,540 845,628
Less accumulated depreciation.............................. (340,732) (412,676)
--------- --------
$ 331,808 432,952
========= ========
</TABLE>
(5) RELATED PARTY TRANSACTIONS
Under an employment agreement dated August 21, 1992, the Company was
obligated to pay an executive officer (Dr. Pertti Tormala) a 2 percent royalty
on sales of certain products for which the Company received a patent after
August 1992. This agreement also required that the Company pay a minimum
royalty of approximately $2,200 per month. Dr. Tormala and another employee are
parties to an additional agreement that provides royalties on sales of a
specific product patented prior to 1992, again subject to certain annual
minimums. The aggregate amount of all royalties due to employees related to
these agreements was $98,096 and $163,184 as of December 31, 1995 and 1996,
respectively.
The December 31, 1995 related party balance also included a $100,000
interest-bearing loan from Vital Signs, Inc., a company for which the Chairman
of the Board and another director of the Company are executives. This loan was
repaid in 1996.
The Company's product development efforts are dependent upon Dr. Tormala, who
is a founder, director, and executive officer of the Company and is currently
an Academy Professor at the Technical University in Tampere, Finland and as
such is permitted by the University to devote his efforts to developing new
products for the Company. This executive utilizes a group of senior
researchers, graduate students, and faculty at the Technical University to
perform research and development projects involving resorbable polymers and
other topics impacting the Company's technology and processes. This
arrangement, partially funded by the Company and permitted in Finland as a
means of encouraging the commercialization of technological development, has
resulted in substantial cost savings to the Company while substantially
expanding its product development effort. The Company's funding obligation,
which amounted to $0, $0 and approximately $167,000 during the years ended
December 31, 1994, 1995 and 1996, respectively, consists of providing the
University with reasonable compensation for University resources (including
graduate students) utilized by the Company.
(6) ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following components as
of December 31, 1995 and 1996:
F-12
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Commissions and royalties.................................... $ 21,948 359,687
Wages........................................................ 133,495 184,920
Withholding tax and social security.......................... 177,940 157,325
Interest..................................................... 130,842 77,252
Inventory purchases.......................................... -- 23,002
Professional fees............................................ -- 305,492
Value-added and other taxes.................................. -- 78,981
Other........................................................ -- 130,537
-------- ---------
$464,225 1,317,196
======== =========
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consists of the following components as of December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
---------- --------
<S> <C> <C>
Loans from financial institutions......................... $ 595,134 546,930
Loans from Finnish government............................. 352,911 226,483
Bank note payable......................................... 300,000 --
Other debt................................................ 11,452 39,960
---------- --------
1,259,497 813,373
Less current portion...................................... (363,293) (223,037)
---------- --------
$ 896,204 590,336
========== ========
</TABLE>
The loans from the financial institutions are payable in semi-annual and
annual installments with interest rates ranging from 3.7 to 13.0 percent. The
loans from the Finnish government are made in order to support technology
development and are payable in annual installments with an interest rate of 1
percent. The bank note payable was a demand bank note which accrued interest at
the prime rate. The bank note was repaid with the proceeds of the Series A
mandatorily convertible preferred stock offering.
The loans are secured by all of the assets of the Finnish subsidiaries.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996 are as follows: 1997, $223,037; 1998, $238,153;
1999, $242,830; 2000, $60,856 and 2001, $48,497.
(8) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company issued 2,000,000 shares of its Series A mandatorily redeemable
convertible preferred stock (Series A Preferred), and warrants to purchase
421,065 shares of common stock (at an exercise price of $5.70 per share) in
September 1996. Net proceeds to the Company were $4,894,786.
The holders of Series A Preferred are not entitled to dividends, unless
declared by the Company. Dividends, if any, are non-cumulative. As of December
31, 1996, no such dividends have been declared on the Series A.
The holders of Series A Preferred are entitled to a liquidation preference
over all other types of capital stock. The preference equals $2.50 per share
together with all accrued and unpaid dividends plus an amount equal to the
Series A Preferred pro rata share of all remaining Company assets available for
distribution. In addition, each share of Series A Preferred is convertible into
common stock at a conversion ratio of 1 for 1.9.
F-13
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Further, such conversion becomes automatic immediately prior to the closing of
an initial public offering for the sale of the Company's common stock at an
aggregate gross sales proceeds of not less than $10,000,000 at a price of
$9.50 per share or more.
In connection with the Series A Preferred offering, the Company issued
warrants covering 421,065 shares. The warrants entitle the holders to purchase
from the Company a total of 421,065 shares of common stock at an exercise
price of $5.70 per share, subject to adjustment as defined. Until such time as
the warrants are exercised in full or expire, the purchase price and the
number of shares of common stock (or other securities) issuable upon exercise
of the warrants are subject to adjustment for dilution, as defined. The
warrants expire on September 5, 2001. The Company may require the exercise of
the warrants upon the occurrence and satisfaction of certain conditions
applicable to the closing of the Company's proposed Offering.
The Company is obligated to redeem the Series A Preferred at its redemption
value, at any time after August 2001, upon the written request of a majority
of the Series A Preferred stockholders.
(9) COMMON STOCKHOLDERS' EQUITY
Common stockholders' equity consists of the following as of December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ----------------------------
ADDITIONAL ADDITIONAL
COMMON PAID-IN COMMON PAID-IN
SHARES STOCK CAPITAL SHARES STOCK CAPITAL
------ ---------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Biocon, Ltd.:
Class A, at stated
value................ 10,647 $ 240,101 $ -- -- $ -- $ --
Class B, at stated
value................ 3,587 80,033 -- -- -- --
Bioscience, Ltd., at
stated value........... 4,050 1,023,180 -- -- -- --
Biostent, Inc., at
stated value........... 1,031 1 9,999 -- -- --
OrthoSorb, Inc., at
stated value........... 1,031 1 570,999 -- -- --
Bionx Implants, Inc. ... -- -- -- 5,318,424 10,105 4,891,632
---------- -------- --------- ------- ----------
$1,343,316 $580,998 5,318,424 $10,105 $4,891,632
========== ======== ========= ======= ==========
</TABLE>
In September 1996, 55,264 shares of common stock were issued to a former
employee, in accordance with the terms of his employment, at a price of $.9025
per share, the estimated fair market value of such stock on the date that such
commitment was made, as determined by the Board of Directors. See note 1 for a
discussion of the reorganization in September 1996.
(10) COMMITMENTS AND CONTINGENCIES
The Company leases offices and laboratory facilities, equipment, and
vehicles under various noncancelable operating lease arrangements. Future
minimum rental commitments required by such leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1997 ........................................................ $137,739
1998 ........................................................ 111,902
1999 ........................................................ 109,890
2000 ........................................................ 99,231
2001......................................................... 99,231
</TABLE>
F-14
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense for the years ended December 31, 1994, 1995 and 1996
aggregated $105,041, $90,815 and $98,755, respectively.
(11) STOCK OPTION PLANS
In September 1996, the Board of Directors adopted a stock option plan (the
1996 Option Plan) under which the number of common shares which may be granted
under the Option Plan, as amended, cannot exceed 850,000 shares. The 1996
Option Plan permits the granting of both incentive stock options and non-
qualified options. Options are exercisable over a period determined by the
Board of Directors, but no longer than ten years after the grant date.
At December 31, 1996, there were 425,618 additional shares available for
grant under the 1996 Option Plan. The per share weighted-average fair value of
stock options granted during 1995 and 1996 was $0.46 and $5.86 on the date of
grant using the Black Scholes option-pricing model with the following weighted-
average assumptions: 1995--expected dividend yield 0%, risk-free interest rate
of 7.06%, and an expected life of 10 years; 1996--expected dividend yield 0%,
risk-free interest rate of 6.50%, and an expected life of 10 years.
The Company applies APB Opinion No. 25 in accounting for its 1996 Option Plan
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net loss:
As reported......................................... $(1,478,016) $(2,106,481)
Pro forma (unaudited) .............................. (1,530,121) (2,188,475)
</TABLE>
Since no stock options or warrants were granted prior to January 1, 1995, the
pro forma net loss reflects the full impact of calculating compensation cost
for stock options under SFAS No. 123.
A summary of activity under the 1996 Option Plan from January 1, 1994 to
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
RANGE OF EXERCISE
SHARES PRICES PER SHARE
------- -----------------
<S> <C> <C>
Balance, January 1, 1994.............................. -- $ --
Granted............................................. -- --
------- ------------
Balance, December 31, 1994............................ -- --
Granted............................................. 277,009 0.9025
------- ------------
Balance, December 31, 1995............................ 277,009 0.9025
Granted............................................. 147,373 4.75-9.50
------- ------------
Balance, December 31, 1996............................ 424,382 $0.9025-9.50
======= ============
Shares exercisable at December 31, 1996............... 102,740 $0.9025-4.75
======= ============
</TABLE>
As part of an employment agreement, an officer and stockholder of the Company
was granted an option in 1995 to purchase an equivalent of 277,009 common
shares at an exercise price of $.9025 per share, the deemed fair market value
at the grant date as determined by the Board of Directors. These options vest
30% on each of the first and second and 20% on each of the third and fourth
anniversaries of the grant date and are exercisable over a period no longer
than ten years after the grant date.
F-15
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 2, 1996, the Company granted various employees options to
acquire 58,686 shares of common stock at $4.75 per share, the deemed fair
value at the date of grant as determined by the Board of Directors. A total of
19,635 shares vested during 1996 and the balance substantially vest 20% per
year on each of the next four years at December 31.
On November 24, 1996, the Company granted various employees options to
acquire 88,687 shares of common stock at $9.50 per share, the deemed fair
value at the grant date as determined by the Board of Directors. A grant of
options covering 65,790 shares vests as follows: 15,790 on each of the first
and second anniversaries of the date of grant, 13,158 on the third anniversary
of the date of grant, and 10,526 on the fourth and fifth anniversaries of the
date of grant. The remaining options covering 22,897 shares vest 20% per year
on each of the next five anniversaries of the date of grant.
(12) INCOME TAXES
At December 31, 1996, the Company and its subsidiaries had available U.S.
and Finnish net operating loss carryforwards ("NOL") of approximately $2.1
million for income tax reporting purposes, which are available to offset
future taxable income, if any, through 2011.
The Tax Reform Act of 1986 (the "Act") provides for a limitation on the
annual use of U.S. NOL carryforwards (following certain ownership changes, as
defined by the Act) that could significantly limit the Company's ability to
utilize certain carryforwards. The Company has experienced various ownership
changes, as defined by the Act, as a result of past financings as well as the
proposed Offering. Accordingly, the Company's ability to utilize the
aforementioned carryforwards may be limited. Additionally, because tax law
limits the time during which these carryforwards may be applied against future
taxes, the Company may not be able to take full advantage of these
carryforwards for income tax purposes.
Income tax expense attributable to the loss before provision for taxes was
$208,390 for the year ended December 31, 1996 and differed from the amounts
computed by applying the U.S. federal income tax rate of 35 percent to pretax
loss as a result of the following:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Computed "expected" tax benefit..................................... $(664,332)
Increase (reduction) in income taxes resulting from:
Difference in the foreign tax rates............................... (47,430)
Change in the valuation allowance for Federal deferred tax
assets........................................................... 896,930
Other, net........................................................ 23,222
---------
Income tax expense.................................................. $ 208,390
=========
</TABLE>
F-16
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the Federal, foreign and state deferred tax assets at December 31,
1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 350,893 787,485
Research and development costs........................ 177,537 184,125
Depreciation adjustments.............................. 55,661 60,937
Inventory-related items............................... 93,761 615,638
Recognition of accrued expenses or reserves for
financial statement reporting purposes but not for
income tax reporting purposes........................ 64,408 128,844
--------- ----------
Total gross deferred tax assets....................... 742,260 1,777,029
Less valuation allowance.............................. (742,260) (1,777,029)
--------- ----------
Net deferred tax assets................................. $ -- --
========= ==========
</TABLE>
The net change in the total valuation allowance for the years ended December
31, 1994, 1995, and 1996 were increases of approximately $79,195, $155,140 and
$1,034,769, respectively.
(13) LICENSE AND GRANT REVENUE
In May 1995, the Company entered into an exclusive license agreement with
Ethicon GmbH (a wholly-owned subsidiary of Johnson & Johnson) to market a
product based on the Company's patents for bioresorbable membranes. As part of
this agreement, Ethicon GmbH paid the Company nonrefundable license fees and
milestone revenue of $199,904 and $201,287 for the years ended December 31,
1995 and 1996, respectively. The license agreement requires Ethicon GmbH to pay
royalties based upon net sales of these products. This license agreement
terminates upon the later of the expiration of all of the Company's patent
rights covering its membrane technology or 20 years.
In addition, the Company has applied for grants from the Finnish government
to conduct research on resorbable polymers. The revenue from such grants was
$15,682, $66,983 and $143,916 for the years ended December 31, 1994, 1995 and
1996, respectively. In connection with such grants, the Company typically
commits to perform research projects and to report on the status of, and the
conclusions drawn from, its projects.
F-17
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) GEOGRAPHIC INFORMATION
To date, the Company has manufactured its products solely in its facility in
Finland. The Company sells products in the U.S. through a network of
independent sales agents managed from its U.S. headquarters and sells products
internationally through a network of independent distributors and dealers
managed from the Company's facility in Finland. Information regarding the
Company's product sales, net losses and identifiable assets by geographic area
is set forth below.
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Year ended
December 31, 1994
Product sales:
Customers................. $ 440,348 $ 824,385 $ -- $ 1,264,733
Intercompany.............. -- -- -- --
----------- ---------- ----------- -----------
Total product sales......... 440,348 824,385 -- 1,264,733
Net loss.................... (15,200) (146,563) -- (161,763)
Identifiable assets......... 340,191 1,931,892 (242,725) 2,029,358
Year ended
December 31, 1995
Product sales:
Customers................. $ 477,952 $ 876,767 $ -- $ 1,354,719
Intercompany.............. -- 985,354 (985,354) --
----------- ---------- ----------- -----------
Total product sales......... 477,952 1,862,121 (985,354) 1,354,719
Net loss.................... (1,323,214) 79,601 (234,403) (1,478,016)
Identifiable assets......... 745,329 2,310,037 (1,261,128) 1,794,238
Year ended
December 31, 1996
Product sales:
Customers................. $ 3,412,204 $1,621,748 $ -- $ 5,033,952
Intercompany.............. -- 3,506,864 (3,506,864) --
----------- ---------- ----------- -----------
Total product sales......... 3,412,204 5,128,612 (3,506,864) 5,033,952
Net loss.................... (2,269,215) 1,409,278 (1,246,544) (2,106,481)
Identifiable assets......... 5,061,627 7,277,748 (4,160,193) 8,179,182
</TABLE>
(15) SUBSEQUENT EVENTS
Reverse Stock Split
On February 24, 1997, the Company effected a 1 for 1.9 reverse stock split.
All common shares, per share and pro forma amounts in the accompanying
consolidated financial statements have been retroactively adjusted for all
periods presented to reflect this common stock reverse split for all periods
presented. Preferred stock amounts, other than the shares of common stock into
which the Series A Preferred is convertible, have not been retroactively
adjusted to reflect the reverse stock split.
F-18
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Initial Public Offering (Unaudited)
On February 14, 1997, the Board of Directors authorized the filing of a
registration statement for the Offering with the Securities and Exchange
Commission for the sale of 2,000,000 shares of common stock. If the Offering is
consummated under the terms presently anticipated, all 2,000,000 shares of the
Series A Preferred outstanding as of the closing date of the Offering will be
automatically converted into 1,052,638 shares of common stock on a 1 for 1.9
basis and the Company will have the right to require the exercise of warrants
to purchase 421,065 shares of common stock. No dividends will be payable with
respect to such preferred stock. The deferred offering costs associated with
the Offering, which represent legal and printing costs, will be recorded as a
reduction of stockholders' equity (deficit) if the Offering is consummated. If
the Offering is not consummated, the deferred offering costs will be charged to
operations.
Spin-Off (Unaudited)
Two of the Company's shareholders and the Company are each one third equity
owners in a business organized to engage in developing, manufacturing and
selling polymer-based advanced drug delivery systems (the "Business"). On
February 14, 1997, the Board of Directors concluded that in light of the
substantial expenditures that would be required in order to bring any of the
Business' products to market, it is in the best interests of the Company and
its shareholders for the Company to forego its development of the Business and
to spin-off the Business. The Company intends to distribute its interest in the
Business to shareholders of record of the Company as of a date prior to the
effective date of the Offering.
F-19
<PAGE>
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if
given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Underwriters. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
security other than the Common Stock offered hereby, nor does it constitute an
offer to sell or a solicitation of an offer to buy any of the securities
offered hereby to any person in any jurisdiction in which it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 18
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 21
Business................................................................. 27
Management............................................................... 47
Certain Transactions..................................................... 54
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 64
Experts.................................................................. 64
Additional Information................................................... 65
Financial Statements..................................................... F-1
</TABLE>
-----------------
Until May , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
2,000,000 Shares
[LOGO] BIONX IMPLANTS INC.
Common Stock
-----------------
PROSPECTUS
April , 1997
-----------------
UBS Securities
Hambrecht & Quist
Volpe Brown Whelan & Company
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market application and listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 9,758
NASD filing fee.................................................... 3,720
Nasdaq National Market application and listing fee................. 40,019
Printing and engraving costs....................................... 100,000
Legal fees and expenses............................................ 500,000
Accounting fees and expenses....................................... 160,000
Blue Sky fees and expenses......................................... 20,000
Directors' and officers' liability insurance....................... 135,000
Transfer Agent..................................................... 5,000
Miscellaneous expenses............................................. 11,503
--------
Total.......................................................... $985,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation
and its directions and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
The Company's Certificate of Incorporation provides that the Company shall
indemnify to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, and the Company's by-laws provide that the Company
shall indemnify to the fullest extent permitted by law, all present and former
directors and officers, and any such person serving or agreeing to serve as an
officer or director (or, in the case of the Certificate of Incorporation in
any other capacity), with any other enterprise at the Company's request, in
connection with any proceeding threatened, pending or instituted against such
party by reason of their serving or agreeing to serve in such capacity. The
Company's Certificate of Incorporation also permits indemnification of the
Company's agents extending to the limits created by Delaware law. The
Company's By-Laws describe certain procedures applicable to indemnification
rights.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement will provide for indemnification by the Underwriters of the
Registrant and its officers and directors for certain liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's incorporation in October 1995, the Registrant has
issued and sold the following unregistered securities.
1. In September 1996, the Registrant issued and sold 5,263,160 shares of
Common Stock pursuant to the Reorganization upon the transfer to the
Registrant of all of the capital stock of four operating subsidiaries.
2. In September 1996, the Registrant issued and sold 2,000,000 shares of
Preferred Stock and warrants to purchase 421,065 shares of Common Stock (at an
exercise price of $5.70 per share) to investors at an aggregate price of
$5,000,000. The Preferred Stock will automatically convert into Common Stock
upon consummation of this Offering. This Registration Statement assumes that a
total of 267,060 shares of Common Stock will be issued upon exercise of such
warrants and that the Registrant will receive net proceeds of $500,000 in
connection with such exercises.
II-1
<PAGE>
3. In September 1996, the Registrant issued and sold 55,264 shares of its
Common Stock to a former employee at an aggregate price of approximately
$50,000. Such sale was made to honor a pre-existing commitment to the former
employee.
The Registrant from time to time has granted stock options to purchase
shares of Common Stock to certain officers and employees. The following table
sets forth certain information regarding such grants:
<TABLE>
<CAPTION>
RANGE OF
NO. OF SHARES EXERCISE PRICES
------------- ---------------
<S> <C> <C>
1995........................................... 277,009 $ .9025
1996........................................... 147,373 $4.75-$9.50
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon an exemption from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering or (ii) Rule
701 under the Securities Act. No underwriters were involved in connection with
the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of the Registrant as currently in
effect.
3.2* Form of Restated Certificate of Incorporation to be filed after the
closing of the Offering made under this Registration Statement.
3.3* Bylaws of the Registrant, as currently in effect.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
10.1* Reorganization Agreement dated as of September 5, 1996.
10.2* Form of Registrant's 1996 Stock Option/Stock Issuance Plan.
10.3* Form of Amended and Restated Employment Agreement between the
Registrant and David W. Anderson.
10.4 Form of Employment Agreement between the Registrant's Subsidiary and
Pertti Tormala, as amended.
10.5* Form of Proprietary Information and Inventions Agreement.
10.6* Investors' Rights Agreement, dated as of September 6, 1996, between the
Registrant and certain holders of the Registrant's securities.
10.7* Stock Purchase Agreement between the Registrant and Purchasers of the
Company's Preferred Stock and Warrants.
10.8+ License Agreements between the Registrant's Subsidiary and Saul N.
Schreiber.
10.9+ License Agreement among the Registrant's Subsidiary, Pertti Tormala,
Markku Tamminmaki and Menifix I/S.
10.10+ Licensing, Manufacturing and Distribution Agreement among the
Registrant's Subsidiary, Pertti Tormala and various Danish and Finnish
inventors.
10.11* Shareholders' Agreement among Bionix, B.V. and certain shareholders of
the Company.
10.12 Headquarters Lease.
10.13 Security Agreements and Secured Promissory Note.
21.1* List of Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP (including a report regarding the
financial statement schedule).
23.2 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (included
in Exhibit 5.1).
23.3 Consent of Kenyon & Kenyon.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Certain portions of this exhibit have been omitted based upon a request for
confidential treatment. The omitted portions of this exhibit have been
separately filed with the Securities and Exchange Commission.
II-2
<PAGE>
(b) Financial Statement Schedules
This Registration Statement includes the following financial statement
schedule:
(a) Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 3 TO ITS REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE TOWN OF MALVERN, STATE OF PENNSYLVANIA, ON THE 23ND DAY OF APRIL, 1997.
BIONX IMPLANTS, INC.
/s/ David W. Anderson
By: _________________________________
David W. Anderson
(President and Chief Executive
Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 3 TO THE REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
President, Chief
/s/ David W. Anderson Executive Officer April 23, 1997
- ------------------------------------- and Director
DAVID W. ANDERSON (Principal
Executive Officer)
/s/ David J. Bershad* Director
- ------------------------------------- April 23, 1997
DAVID J. BERSHAD
/s/ Anthony J. Dimun* Director
- ------------------------------------- April 23, 1997
ANTHONY J. DIMUN
II-4
<PAGE>
SIGNATURE TITLE DATE
Director
- -------------------------------------
DAVID H. MACCALLUM
/s/ Pertti Tormala* Director
- ------------------------------------- April 23, 1997
PERTTI TORMALA
/s/ Terry D. Wall* Director
- ------------------------------------- April 23, 1997
TERRY D. WALL
Vice President,
/s/ Michael J. O'Brien* Finance and April 23, 1997
- ------------------------------------- Administration,
MICHAEL J. O'BRIEN Chief Financial
Officer, Treasurer
and Secretary
(Principal
Financial and
Accounting Officer)
/s/ David W. Anderson
*By__________________________________
David W. Anderson
Attorney-in-Fact
II-5
<PAGE>
SCHEDULE II
BIONX IMPLANTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CHARGED CHARGED CHARGED
BALANCE TO BALANCE TO BALANCE TO BALANCE
AT COSTS AND AT COSTS AND AT COSTS AND AT
CLASSIFICATION 12/31/93 EXPENSES DEDUCTIONS 12/31/94 EXPENSES DEDUCTIONS 12/31/95 EXPENSES DEDUCTIONS 12/31/96
- -------------- -------- --------- ---------- -------- --------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inventory Reserves.. $-- -- -- -- 161,021 -- 161,021 119,325 -- 280,346
==== === === === ======= === ======= ======= === =======
Accounts Receivable
Reserves........... $-- -- -- -- -- -- -- 97,325 -- 97,325
==== === === === ======= === ======= ======= === =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2* Form of Restated Certificate of Incorporation to be filed after
the closing of the Offering made under this Registration
Statement.
3.3* Bylaws of the Registrant, as currently in effect.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A.
10.1* Reorganization Agreement dated as of September 5, 1996.
10.2* Form of Registrant's 1996 Stock Option/Stock Issuance Plan.
10.3* Form of Amended and Restated Employment Agreement between the
Registrant and David W. Anderson.
10.4 Form of Employment Agreement between the Registrant's Subsidiary
and Pertti Tormala, as amended.
10.5* Form of Proprietary Information and Inventions Agreement.
10.6* Investors' Rights Agreement, dated as of September 6, 1996,
between the Registrant and certain holders of the Registrant's
securities.
10.7* Stock Purchase Agreement between the Registrant and Purchasers
of the Company's Preferred Stock and Warrants.
10.8+ License Agreements between the Registrant's Subsidiary and Saul
N. Schreiber.
10.9+ License Agreement among the Registrant's Subsidiary, Pertti
Tormala, Markku Tamminmaki and Menifix I/S.
10.10+ Licensing, Manufacturing and Distribution Agreement among the
Registrant's Subsidiary, Pertti Tormala and various Danish and
Finnish inventors.
10.11* Shareholders' Agreement among Bionix, B.V. and certain
shareholders of the Company.
10.12 Headquarters Lease.
10.13 Security Agreements and Secured Promissory Note.
21.1* List of Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP (including a report regarding
the financial schedule).
23.2 Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. (to
be included in Exhibit 5.1).
23.3 Consent of Kenyon & Kenyon.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Certain portions of this exhibit have been omitted based upon a request for
confidential treatment. The omitted portions of this exhibit have been
separately filed with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
2,000,000 Shares
BIONX IMPLANTS, INC.
Common Stock
FORM OF UNDERWRITING AGREEMENT
------------------------------
_________ __, 1997
UBS Securities LLC
Hambrecht & Quist LLC
Volpe Brown Whelan & Company, LLC
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Bionx Implants, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell 2,000,000 shares (the "Firm Shares") of its authorized but
unissued Common Stock, $.0019 par value per share (the "Common Stock"), to the
several underwriters listed on Schedule A to this Agreement (collectively, the
----------
"Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to 300,000 additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 2(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares."
The Company wishes to confirm as follows its agreements with you (the
"Representatives") and the other Underwriters on whose behalf you are acting in
connection with the several purchases by the Underwriters of the Shares.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(a) A registration statement on Form S-1 (File No. 333-22359)
including a prospectus relating to the Shares and each amendment thereto has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and
<PAGE>
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective
will be filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing all Rule 430A
Information (as hereinafter defined) will be filed by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations on or
before the second business day after the date hereof (or such earlier time as
may be required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean
such registration statement (including all exhibits and financial statements at
the time such registration statement becomes or became effective) and, in the
event any post-effective amendment thereto becomes effective prior to the
Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended; provided, however, that such term shall include all
Rule 430A Information deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by Rule 430A
of the Rules and Regulations and shall also mean any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations with respect to the
Shares. The term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus included
in the Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall mean
the prospectus relating to the Shares in the form in which it is first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no filing pursuant to Rule 424(b) of the Rules and Regulations is required,
shall mean the form of final prospectus included in the Registration Statement
at the time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations. The term
"Offering Memorandum" as used in this Agreement shall mean the Offering
Memorandum consisting of the Prospectus and a Canadian wrap-around used in
connection with the offering of the Shares in Canada.
(b) The Company has not received, and has no notice of, any order of
the Commission preventing or suspending the use of any Preliminary Prospectus,
or instituted proceedings for that purpose, and each Preliminary Prospectus, at
the time of filing thereof, conformed in all material respects to the
requirements of the Act and the Rules and Regulations. When the Registration
Statement became or becomes, as the case may be, effective (the "Effective
Date") and at all times subsequent thereto up to and at the Closing Date (as
hereinafter defined), any later date on which Option Shares are to be purchased
(the "Option Closing Date") and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, (i) the Registration Statement and
Prospectus, and any amendments or
2
<PAGE>
supplements thereto, will contain all statements which are required to be stated
therein by, and will comply with the requirements of, the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The foregoing
representations and warranties in this section 1(b) do not apply to any
statements or omissions made in reliance on and in conformity with the
information contained in the section of the Prospectus entitled "Underwriting"
(except for the sixth paragraph thereof) and the information in the last
paragraph on the front cover page of the Prospectus. The Company has not
distributed any offering material in connection with the offering or sale of the
Shares other than the Registration Statement, the Preliminary Prospectus, the
Prospectus, the Offering Memorandum or any other materials, if any, permitted by
the Act.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement. The Company is
duly qualified to do business as a foreign corporation in good standing in each
jurisdiction where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its Subsidiaries (as
hereinafter defined) taken as a whole (a "Material Adverse Effect"). Except for
its interest in Bioabsorbable Concepts, Inc. ("Newco"), which will be
distributed to the stockholders in the manner described in the Prospectus, the
Company has no subsidiaries (as defined in the Rules and Regulations) other than
BioScience, OY, a company formed under Finnish law ("Bioscience"), Biocon, OY, a
company formed under Finnish law ("Biocon"), Orthosorb Inc., a New Jersey
corporation ("Orthosorb"), and Biostent, Inc., a New Jersey corporation
("Biostent") (collectively, the "Subsidiaries"). The Company owns 100% of the
outstanding capital stock of each of the Subsidiaries. Other than the
Subsidiaries and Newco, the Company does not own, directly or indirectly, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity. Complete and correct copies of the certificates of
incorporation and of the bylaws, or other corporate organizational documents, of
the Company and the Subsidiaries and all amendments thereto have been delivered
to the Representatives, and except as set forth in the exhibits to the
Registration Statement no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
Each Subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or leasing
of the properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a Material Adverse Effect.
All of the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable and
are owned by the Company or another of the Subsidiaries subject to no security
interest, other encumbrance or adverse claims. Except as otherwise set forth in
the Reorganization
3
<PAGE>
Agreement set forth as an exhibit to the Registration Statement pursuant to
which Biocon shall merge into BioScience, and Orthosorb and Biostent shall merge
into the Company, no options, warrants or other rights to purchase, agreements
or other obligation to issue or other rights to convert any obligation into
shares of capital stock or ownership interests in the Subsidiaries are
outstanding.
(d) The Company has full power and authority (corporate and otherwise)
to enter into this Agreement and to perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by applicable laws or
equitable principles and except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting creditors' rights generally or by general equitable principles.
The performance of this Agreement by the Company and the consummation by the
Company of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any indenture, mortgage, deed of trust, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, or any lease, contract or
other agreement or instrument to which the Company or any Subsidiary is a party
or by which its properties are bound, or (ii) the certificate of incorporation
or bylaws of the Company or any Subsidiary or (iii) any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body to which the Company or any Subsidiary is subject. The Company is not
required to obtain or make (as the case may be) any consent, approval,
authorization, order, designation or filing by or with any court or regulatory,
administrative or other governmental agency or body as a requirement for the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or under state securities or blue sky ("Blue Sky")
laws or under the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") or under applicable Canadian securities law.
(e) The Company and the Subsidiaries are not (i) in violation of their
certificate of incorporation or bylaws, or (ii) in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness, which default would
have a Material Adverse Effect, or (iii) in default in the performance or
observance of any contract, indenture, mortgage, loan agreement, joint venture
or other agreement or instrument to which they are a party or by which their or
any of their properties are bound, which default would have a Material Adverse
Effect, or (iv) in violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court or governmental agency or body to
which the Company or the Subsidiaries are subject, including, but not limited
to, the United States Food and Drug Administration (the "FDA").
(f) Except as disclosed in the Prospectus, there is not pending or, to
the Company's knowledge, threatened, any action, suit, claim, proceeding or
investigation against the Company or its Subsidiaries or any of their respective
officers or any of their respective properties, assets or rights before any
court or governmental agency or body or
4
<PAGE>
otherwise which might reasonably be expected to result in a Material Adverse
Effect or prevent consummation of the transactions contemplated hereby. There
are no statutes, rules, regulations, agreements, contracts, leases or documents
that are required to be described in the Prospectus, or to be filed as exhibits
to the Registration Statement by the Act or by the Rules and Regulations that
have not been accurately described in all material respects in the Prospectus or
filed as exhibits to the Registration Statement.
(g) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and were
not issued in violation of any preemptive right, resale right, right of first
refusal or similar right. The authorized and outstanding capital stock of the
Company conforms in all material respects to the description thereof contained
in the Registration Statement, the Offering Memorandum and the Prospectus (and
such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable. Except as set forth in the Prospectus, no
preemptive right, co-sale right, registration right, right of first refusal or
other similar rights of securityholders exists with respect to any of the Shares
or the issue and sale thereof other than those that have been expressly waived
prior to the date hereof. No holder of securities of the Company has the right
to cause the Company to include such holder's securities in the Registration
Statement. No further approval or authorization of any security holder, the
Board of Directors or any duly appointed committee thereof or others is required
for the issuance and sale or transfer of the Shares, except as may be required
under the Act, the Exchange Act, under state securities or Blue Sky laws, or
under Canadian securities laws. Except as disclosed in or contemplated by the
Prospectus, the Offering Memorandum and the financial statements of the Company,
and the related notes thereto, included in the Prospectus and the Offering
Memorandum, the Company does not have outstanding any options or warrants to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option plan and the options or other rights granted and exercised
thereunder, set forth in the Prospectus and the Offering Memorandum accurately
and fairly presents, in all material respects, the information required to be
shown with respect to such plan, options and rights.
(h) KPMG Peat Marwick LLP, independent accountants (the
"Accountants"), who have examined the financial statements, together with the
related schedule and notes, of the Company filed with the Commission as a part
of the Registration Statement, which are included in the Prospectus, are
independent public accountants within the meaning of the Act and the Rules and
Regulations. The financial statements of the Company, together with the related
schedule and notes, forming part of the Registration Statement, the Offering
Memorandum and the Prospectus, fairly present the financial position and the
results of operations of the Company at the respective dates and for the
respective periods to which they apply. All financial statements, together with
the related schedules and notes, filed with the Commission as part of the
Registration Statement have been prepared in
5
<PAGE>
accordance with generally accepted accounting principles as in effect in the
United States consistently applied throughout the periods involved except as may
be otherwise stated in the Registration Statement. The selected and summary
financial data included in the Registration Statement, the Offering Memorandum
and the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with the financial statements presented therein.
No other financial statements or schedules are required by the Act or the Rules
and Regulations to be included in the Registration Statement. The statistical
data included in the Registration Statement and the Offering Memorandum is
accurate in all material respects and presents fairly the information shown
therein.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement, the Offering Memorandum and the Prospectus,
there has not been (i) any material adverse change, or any development which, in
the Company's reasonable judgment, is likely to cause a material adverse change,
in the business, properties or assets described or referred to in the
Registration Statement, or the results of operations, condition (financial or
otherwise), business or operations of the Company and its Subsidiaries taken as
a whole, (ii) any transaction which is material to the Company and its
Subsidiaries taken as a whole, except transactions in the ordinary course of
business, (iii) any obligation, direct or contingent, which is material to the
Company and its Subsidiaries taken as a whole, incurred by the Company or its
Subsidiaries, except obligations incurred in the ordinary course of business,
(iv) except as described in the Prospectus, any change in the capital stock or
material change in the outstanding indebtedness of the Company or its
Subsidiaries or (v) except as described in the Prospectus, any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company. Neither the Company nor its Subsidiaries has any material contingent
obligation which is not disclosed in the Registration Statement. Except as set
forth in the Registration Statement, the Offering Memorandum and Prospectus, the
Company and the Subsidiaries own or lease all such properties as are necessary
to their operations as now conducted or as proposed to be conducted in the
foreseeable future.
(j) Except as set forth in the Prospectus and the Offering Memorandum,
(i) the Company and each Subsidiary have good and marketable title to all
material properties and assets described in the Prospectus and the Offering
Memorandum as owned by them, free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest, or restriction, (ii)
the agreements to which the Company or any Subsidiary is a party described in
the Prospectus and the Offering Memorandum are valid agreements, enforceable
against the Company or such Subsidiary in accordance with their terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles, and, to the Company's knowledge,
the other contracting party or parties thereto are not in material breach or
default under any of such agreements and (iii) The Company and the Subsidiaries
have valid and enforceable leases for the properties described in the Prospectus
and the Offering Memorandum as leased by it, and such leases conform in all
material respects to the description thereof, if any, set forth in the
Registration Statement.
(k) The Company and each Subsidiary now hold and at the Closing Date
and any later Option Closing Date, as the case may be, will hold, all licenses,
certificates,
6
<PAGE>
approvals and permits from all state, United States, foreign and other
regulatory authorities, including, but not limited to, the FDA and any foreign
regulatory authorities performing functions similar to those performed by the
FDA, that are material to the conduct of the business of the Company (as such
business is currently conducted), all of which are valid and in full force and
effect (and there is no proceeding pending or, to the knowledge of the Company,
threatened which may cause any such license, certificate, approval or permit to
be withdrawn, cancelled, suspended or not renewed). All of the descriptions in
the Registration Statement and Prospectus of the legal and governmental
proceedings by or before the FDA or any foreign, state or local government body
exercising comparable authority are true, complete and accurate in all material
respects.
(l) Since 1990, the Company and each Subsidiary have filed on a timely
basis all necessary federal, state and foreign income, franchise and other tax
returns and have paid all taxes shown thereon as due, and the Company has no
knowledge of any tax deficiency which has been or might be asserted against the
Company or any Subsidiary which might have a Material Adverse Effect. All
material tax liabilities are adequately provided for within the financial
statements of the Company.
(m) The Company and its Subsidiaries maintain insurance of the types
and in the amounts adequate for their business and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering clinical trial liability, product liability
and real and personal property owned or leased against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(n) Neither the Company nor its Subsidiaries are involved in any
material labor dispute or disturbance nor, to the knowledge of the Company, is
any such dispute or disturbance threatened.
(o) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(p) Except as set forth in the Prospectus and the Offering Memorandum
under the captions "Risk Factors -- Uncertainties Relating to Licenses, Trade
Secrets, Patents and Proprietary Rights" and "Business -- Licenses, Trade
Secrets, Patents and Proprietary Rights," (i) the Company or its Subsidiaries
own or possess valid and enforceable licenses for all inventions, patents,
patent applications, trademarks (registered or unregistered), trademark
applications, tradenames, copyrights, manufacturing processes, formulae, trade
secrets, know-how, and other intangible property and assets (collectively,
"Intellectual Property") necessary to the conduct of their businesses now
conducted as described in the Prospectus and the Offering Memorandum and the
Company is not aware of
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any facts which would form a reasonable basis for a claim that the Company does
not own or possess valid and enforceable licenses of all Intellectual Property
necessary to the conduct of the Company's and its Subsidiaries' businesses
proposed to be conducted as described in the Prospectus and the Offering
Memorandum; (ii) the Company has no knowledge that it or any Subsidiary lacks or
will be unable to obtain any rights or licenses to use any of the Intellectual
Property necessary to conduct the businesses now conducted or proposed to be
conducted by it as described in the Prospectus and the Offering Memorandum;
(iii) the Company believes that there are no third parties who have or will be
able to establish rights to any of the Intellectual Property, except for the
ownership rights of the owners of the Intellectual Property which is licensed to
the Company or its Subsidiaries and except for the rights of secured parties
under security interests disclosed in the Prospectus; (iv) to the Company's
knowledge, except as referenced in the opinions referenced in Sections 2 and 3
of Appendix A annexed hereto, there is no infringement by third parties of any
of the Intellectual Property; (v) there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others challenging
the Company's rights of title or other interest in or to any Intellectual
Property, and the Company is unaware of any facts which would form a reasonable
basis for any such claim; (vi) except as referenced in the opinion referenced in
Section 3 of Appendix A annexed hereto there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others challenging
the validity or scope of any Intellectual Property, and the Company is unaware
of any facts which would form a reasonable basis for any such claim; (vii) there
is no pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others that the Company or its Subsidiaries or their
products or processes infringe or otherwise violate any patent, trademark,
copyright, trade secret or other proprietary right of others, and the Company is
unaware of any facts which would form a reasonable basis for any such claim;
(viii) to the Company's knowledge, there are no grounds for an interference
proceeding before the USPTO in relation to any of the patents or patent
applications currently owned by the Company or its Subsidiaries; (ix) to the
Company's knowledge, there are no facts which would bar the grant of a patent
from each of the patent applications within the Intellectual Property; (x) other
than the patents and patent applications identified on Schedule C attached
hereto, there are no other patents or patent applications owned or licensed by
the Company or its Subsidiaries which are material to their businesses as now
conducted, or to its knowledge as proposed to be conducted, as described in the
Prospectus and the Offering Memorandum; (xi) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by any current
or former employee, consultant or agent of the Company seeking either ownership
rights to any invention or compensation from the Company for any invention made
by such employee, consultant or agent in the course of his/her employment with
the Company, nor, to the Company's knowledge, can any such action, suit,
proceeding or claim, if instituted, be sustained; and (xii) there is no act or
omission of which the Company is aware that may render any patent or patent
application within the Intellectual Property unpatentable, unenforceable or
invalid. The Prospectus and the Offering Memorandum fairly and accurately
describe the Company's rights with respect to the Intellectual Property.
(q) The Company and each Subsidiary are conducting their businesses in
compliance in all material respects with all of the laws, rules and regulations
of the jurisdictions in which it is conducting business, including, but not
limited to, (i) the laws,
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rules and regulations administered or promulgated by the FDA or any foreign,
state or local government body exercising comparable authority and (ii) any
laws, rules and regulations applicable to the import and export of the Company's
and Subsidiaries' products.
(r) The Company is not, and, upon the sale of the shares to be issued
and sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.
(s) Neither the Company nor any of its Subsidiaries has incurred any
liability for a fee, commission, or other compensation on account of the
employment of a broker or finder in connection with the transactions
contemplated by this Agreement other than the underwriting discounts and
commissions contemplated hereby.
(t) The Company and each of its Subsidiaries is (i) in material
compliance with any and all applicable United States, foreign, state and local
environmental laws, rules, regulations, treaties, statutes and codes promulgated
by any and all governmental authorities relating to the protection of human
health and safety, the environment or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all material permits,
licenses or other approvals required of it under applicable Environmental Laws
to conduct its business as currently conducted, and (iii) is in compliance with
all terms and conditions of any such permit, license or approval, except where
such noncompliance with Environmental Laws, failure to receive required permit
licenses or other approvals would not, individually or in the aggregate, have a
Material Adverse Effect. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or threatened relating to the Environmental Laws
or to the Company's or its Subsidiaries' activities involving Hazardous
Materials. "Hazardous Materials" means any material or substance (i) that is
prohibited or regulated by any environmental law, rule, regulation, order,
treaty, statute or code promulgated by any governmental authority, or any
amendment or modification thereto, or (ii) that has been designated or regulated
by any governmental authority as radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment. The Company and the
Subsidiaries have not engaged in the generation, use, manufacture,
transportation or storage of any Hazardous Materials on any of the Company's or
Subsidiaries' properties or former properties, except where such use,
manufacture, transportation or storage is in compliance in all material respects
with Environmental Laws. No Hazardous Materials have been treated or disposed
of on any of the Company's or Subsidiaries' properties or on properties formerly
owned or leased by the Company or Subsidiaries during the time of such ownership
or lease, except in compliance in all material respects with Environmental Laws.
No spills, discharges, releases, deposits, emplacements, leaks or disposal of
any Hazardous Materials have occurred on or under or have emanated from any of
the Company's or Subsidiaries' properties or former properties during the time
of the Company's or Subsidiaries' ownership or lease thereof and the Company is
not aware of any spills, discharges, releases, deposits, emplacements, leaks or
disposal of any Hazardous Materials that have occurred on or under or have
emanated from any of the Company's or Subsidiaries' properties or former
properties prior to the Company's or Subsidiaries' ownership or lease thereof.
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(u) Neither the Company nor any of its Subsidiaries has engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's or its Subsidiaries' properties or former
properties, except where such use, manufacture, transportation or storage is in
compliance in all material respects with Environmental Laws. No Hazardous
Materials have been treated or disposed of on any of the Company's or its
Subsidiaries' properties or on properties formerly owned or leased by the
Company or any Subsidiary during the time of such ownership or lease, except in
compliance in all material respects with Environmental Laws. No spills,
discharges, releases, deposits, emplacements, leaks or disposal of any Hazardous
Materials have occurred on or under or have emanated from any of the Company's
or its Subsidiaries' properties or former properties.
(v) Neither the Company nor any of its Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any foreign, United States or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States.
(w) The Company has obtained agreements from each beneficial owner of
the Company's Common Stock listed on Schedule B to this in form and substance
----------
identical to the Agreement attached hereto as Appendix B. The Company has
----------
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
its officers, directors and stockholders have agreed to such or similar
restrictions (the "Lock-up Agreements") presently in effect or effected hereby.
The Company hereby represents and warrants that it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of UBS
Securities LLC.
(x) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. The Shares have been duly authorized for quotation on The Nasdaq
Stock Market, Inc. Automated Quotation National Market System ("Nasdaq National
Market"). The Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from the Nasdaq National Market, nor has the
Company received any notification that the Commission or the Nasdaq National
Market is contemplating terminating such registration or listing.
(y) Excluding any actions taken by a certain managing director of UBS
Securities LLC who is also a director of the Company, neither the Company nor,
to its knowledge, any of its officers, directors or affiliates has taken, and at
the Closing Date and at any later Option Closing Date, neither the Company nor,
to its knowledge, any of its officers, directors or affiliates will have taken,
directly or indirectly, any action which has constituted, or might reasonably be
expected to constitute, the stabilization or manipulation of the price of sale
or resale of the Shares.
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(z) The Company has timely and properly filed with the Commission all
reports and other documents required to have been filed by it with the
Commission pursuant to the Act and the Rules and Regulations. True and complete
copies of all such reports and other documents have been delivered to you.
(aa) The Company is in compliance with all provisions of Florida
Statutes (S)517.075 and the regulations thereunder, relating to issuers doing
business with Cuba.
(ab) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company or the Subsidiaries to or for the benefit of any of
the officers or directors of the Company or any of the members of the families
of any of them that are required to be disclosed in the Registration Statement,
the Offering Memorandum and the Prospectus that are not so disclosed. Except as
disclosed in Prospectus, there are no business relationships or related party
transactions required to be disclosed therein by Item 404 of Regulation S-K of
the Commission.
2. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
the Firm Shares to the several Underwriters, and each of the Underwriters agrees
to purchase from the Company the respective aggregate number of Firm Shares set
forth opposite its name on Schedule A, plus such additional number of Firm
----------
Shares which such Underwriter may become obligated to purchase pursuant to
Section 2(b) hereof. The price at which such Firm Shares shall be sold by the
Company and purchased by the several Underwriters shall be $_____ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 2, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified on Schedule A.
----------
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 hereof) to purchase and pay for
the number of Shares agreed to be purchased by such Underwriter or Underwriters,
the non-defaulting Underwriters shall have the right within twenty-four (24)
hours after such default to purchase, or procure one or more other Underwriters
to purchase, in such proportions as may be agreed upon between you and such
purchasing Underwriter or Underwriters and upon the terms herein set forth, all
or any part of the Shares which such defaulting Underwriter or Underwriters
agreed to purchase. If the non-defaulting Underwriters fail so to make such
arrangements with respect to all such Shares and portion, the number of Shares
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis (as adjusted
by you in such manner as you deem advisable to avoid fractional shares) to
absorb the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such Shares exceeds 10% of the
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total number of Shares which all Underwriters agreed to purchase hereunder. If
the total number of Shares which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company shall have the right, within twenty-four (24)
hours next succeeding the 24-hour period referred to above, to make arrangements
with other underwriters or purchasers reasonably satisfactory to you for
purchase of such Shares and portion on the terms herein set forth. In any such
case, either you or the Company shall have the right to postpone the Closing
Date determined as provided in Section 4 hereof for not more than seven business
days after the date originally fixed as the Closing Date pursuant to said
Section 4 in order that any necessary changes in the Registration Statement, the
Offering Memorandum, the Prospectus or any other documents or arrangements may
be made. If the aggregate number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase exceeds 10% of the total number of Shares which
all Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the Shares which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
to any non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company. Nothing in this paragraph (b), and
no action taken hereunder, shall relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase all or any
portion of the Option Shares from the Company at the same price per share as the
Underwriters shall pay for the Firm Shares. Said option may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or telecopied
notice by you to the Company setting forth the aggregate number of shares of the
Option Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Shares, and payment therefor,
shall be made as provided in Section 4 hereof. Each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, the exact number of shares to be
adjusted by you in such manner as you deem advisable to avoid fractional shares.
3. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering of the Shares in the
United States by the Underwriters shall be as set forth in the Prospectus. The
terms of the private placement of the Shares in Canada by the Underwriters shall
be as set forth in the Offering Memorandum. The Underwriters may from time to
time change the public offering and private placement prices after the closing
of the initial public offering and the private placement in Canada,
respectively, and increase or decrease the concessions and discounts to dealers
as they may determine.
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(b) You, on behalf of the Underwriters, represent and warrant that (i)
the information set forth in the last paragraph on the front cover page, and the
table under paragraph 1 and paragraph 6 under the caption "Underwriting" in the
Registration Statement, the Offering Memorandum, any Preliminary Prospectus and
the Prospectus relating to the Shares (insofar as such information relates to
the Underwriters) constitutes the only information furnished by the Underwriters
to the Company for inclusion in the Registration Statement, the Offering
Memorandum, any Preliminary Prospectus, and the Prospectus, and that the
statements made therein are correct and do not omit to state any material fact
required to be stated therein or necessary to make the statements made therein
in light of the circumstances under which they were made not misleading, and
(ii) the Underwriters have not distributed and will not distribute prior to the
Closing Date or on any Option Closing Date, as the case may be, any offering
material in connection with the offering and sale of the shares other than the
Preliminary Prospectus, the Prospectus, the Registration Statement, the Offering
Memorandum and other materials permitted by the Act and applicable Canadian
securities law.
4. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the Option Shares
(if the option granted pursuant to Section 2(c) hereof shall have been exercised
not later than 1:00 p.m., New York time, on the date at least two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Brobeck, Phleger & Harrison LLP, 1633 Broadway, New York, New York 10019 at
10:00 a.m., New York City time, on the fourth business day after the date of
this Agreement, or at such time on such other day, not later than seven full
business days after such fourth business day, as shall be agreed upon in writing
by the Company and you (the "Closing Date").
(b) If the option granted pursuant to Section 2(c) hereof shall be
exercised after 1:00 p.m., New York City time, on the date two business days
preceding the Closing Date, and on or before the 30th day after the date of this
Agreement, delivery of certificates for the Option Shares, and payment therefor,
shall be made at the office of Brobeck, Phleger & Harrison LLP, 1633 Broadway,
New York, New York 10019 at 10:00 a.m., New York City time, on the third
business day after the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be made to
the Company or its order, by wire transfer in same day funds. Such payment
shall be made upon delivery of certificates for the Shares to you for the
respective accounts of the several Underwriters against receipt therefor signed
by you. Certificates for the Shares to be delivered to you shall be registered
in such name or names and shall be in such denominations as you may request at
least three business days before the Closing Date, in the case of Firm Shares,
and at least two business days prior to the Option Closing Date, in the case of
the Option Shares. Such certificates will be made available to the Underwriters
for inspection, checking and packaging at a location in New York, New York,
designated by the Underwriters not less than one full business day prior to the
Closing Date or, in the case of the Option Shares, by 3:00 p.m., New York time,
on the business day preceding the Option Closing Date.
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It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later Option Closing Date. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; it will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed. If the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a), the Company will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (1) or (4)
of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission. If for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed. The Company will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information. Promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the reasonable opinion of counsel
to the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the Underwriters.
The Company will promptly prepare and file with the Commission, and promptly
notify you of the filing of, any amendments or supplements to the Registration
Statement or Prospectus which may be necessary to correct any statements or
omissions, if, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event shall have occurred as a result of
which the Prospectus or any other prospectus relating to the Shares as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In case any
Underwriter is required to deliver a prospectus within the nine-month period
referred to in Section 10(a)(3) of the Act in connection with the sale of the
Shares, the Company will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act. The Company will file no
amendment or supplement to the Registration Statement or Prospectus that shall
not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing or
which is not in compliance with the Act and Rules and Regulations or the
provisions of this Agreement.
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<PAGE>
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the initiation or threat of any proceeding for that
purpose; and it will promptly use its best efforts to prevent the issuance of
any such stop order or to obtain its withdrawal at the earliest possible moment
if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation, or to execute a general consent to service
of process in any jurisdiction, or to make any undertaking with respect to the
conduct of its business. In each jurisdiction in which the Shares shall have
been qualified, the Company will make and file such statements, reports and
other documents in each year as are or may be reasonably required by the laws of
such jurisdictions so as to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Shares, or as
otherwise may be required by law.
(d) The Company will furnish to you, as soon as available, copies of
the Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus, the Offering
Memorandum and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the Act, all
in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the 45th day following the
end of the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement, an earnings statement (which will
be in reasonable detail but need not be audited) complying with the provisions
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and
covering a twelve-month period beginning after the effective date of the
Registration Statement, and will advise you in writing when such statement has
been made available.
(f) During a period of five years after the date hereof, the Company,
as soon as practicable after the end of each respective period, will furnish to
its stockholders annual reports (including financial statements audited by
independent certified public accountants) and will furnish to its stockholders
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will, upon request, furnish to you and the other several
Underwriters hereunder (i) concurrently with making such reports available to
its stockholders, statements of operations of the Company for each of the first
three quarters in the form made available to the Company's stockholders; (ii)
concurrently with the furnishing thereof to its stockholders, a balance sheet of
the Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity and of cash flow of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
nationally recognized independent certified public accountants; (iii)
concurrently
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with the furnishing of such reports to its stockholders, copies of all reports
(financial or other) mailed to stockholders; (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the Nasdaq National Market by the Company
(except for documents for which confidential treatment is requested); and (v)
every material press release and every material news item or article in respect
of the Company or its affairs which was generally released to stockholders or
prepared for general release by the Company. During such five-year period, if
the Company shall have any active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company are consolidated with any subsidiaries, and shall be accompanied by
similar financial statements for any significant subsidiary that is not so
consolidated.
(g) The Company shall not, during the 180 days following the effective
date of the Registration Statement, except with your prior written consent as
Representatives, file a registration statement covering any of its shares of
capital stock, except that one or more registration statements on Form S-8 may
be filed at any time following the effective date of the Registration Statement.
(h) The Company shall not, during the 180 days following the effective
date of the Registration Statement, except with your prior written consent as
Representatives, issue, sell, offer or agree to sell, grant, distribute or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
options, rights or warrants with respect to shares of Common Stock, or any
securities convertible into or exchangeable for Common Stock, other than (i) the
sale of Shares hereunder, (ii) the grant of options or the issuance of shares of
Common Stock under the Company's stock option plans or stock purchase plan, as
the case may be, existing on the date hereof, (iii) the issuance of shares of
Common Stock upon exercise of the currently outstanding options or warrants
described in the Registration Statement or upon conversion of the Company's
outstanding Series A Preferred Stock described in the Registration Statement and
Prospectus.
(i) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(j) The Company will maintain a Transfer Agent and, if necessary under
the jurisdiction of incorporation of the Company, a Registrar (which may be the
same entity as the Transfer Agent) for its Common Stock.
(k) The Company will use its best efforts to maintain listing of its
shares of Common Stock on the Nasdaq National Market.
(l) The Company will file Form SR in conformity with the requirements
of the Act and the Rules and Regulations.
(m) The Company is familiar with the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such a
manner so as to ensure that the Company
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was not and will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(n) If at any time during the 180-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth above
consult with you in good faith regarding the necessity of disseminating a press
release or other public statement responding to or commenting on such rumor,
publication or event and, if the Company in its reasonable judgment determines
that such a press release or other public statement is appropriate, the
substance of any press release or other public statement.
6. EXPENSES.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), the Offering
Memorandum (including fees relating to the filing of reports in Canada),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the reproduction of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, the Preliminary Blue Sky Memoranda and any
Supplemental Blue Sky Memoranda and any instruments related to any of the
foregoing; the issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any; the cost of all stock
certificates representing the Shares and Transfer Agents' and Registrars' fees;
the fees and disbursements of corporate, patent and regulatory counsel for the
Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), the Offering
Memorandum, Preliminary Prospectuses and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and expenses incident to
securing any required review and the cost of qualifying the Shares under the
laws of such jurisdictions within the United States as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); listing
application fees of the Nasdaq National Market; and all other expenses directly
incurred by the Company in connection with the performance of its obligations
hereunder.
(b) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, the Company will, in
addition to paying the expenses described in clause (a) above, reimburse the
several Underwriters for all out-of-pocket expenses (including reasonable fees
and disbursements of Underwriters' Counsel) incurred by the Underwriters in
reviewing the Registration Statement and the Prospectus and in preparing the
Offering Memorandum and in otherwise investigating, preparing to market or
marketing the Shares.
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The Company will in no event be liable to any of the several Underwriters for
any loss of anticipated profits from the sale by them of the Shares.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Option Closing Date, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 9:00 a.m., New York City time, on the date following the date of this
Agreement, or such later time or date as shall be consented to in writing by
you. If the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement, the Offering Memorandum
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this subsection.
(c) You shall have received, at no cost to you, on the Closing Date
and on any later Option Closing Date, as the case may be, the opinions of (i)
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., U.S. corporate counsel to the
Company, (ii) Kenyon & Kenyon, special U.S. patent counsel to the Company, (iii)
Tampereen Patenttitoimisto, special foreign patent counsel to the Company, (iv)
Hogan & Hartson, special FDA counsel to the Company, (v) Medical Technology
Consultants - BRI International, special European regulatory counsel to the
Company, and (vi) Merilampi, Martilla & Laitasalo, Finnish counsel to the
Company, dated the Closing Date or such later Option Closing Date, in the forms
attached hereto on Appendix A, addressed to the Underwriters and with reproduced
----------
copies of signed counterparts thereof for each of the Representatives.
(d) You shall have received from Brobeck, Phleger & Harrison LLP,
Underwriters' Counsel, an opinion or opinions, dated the Closing Date or on any
later Option Closing Date, as the case may be, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all corporate
proceedings undertaken by the Company and other legal matters relating to this
Agreement and the transactions contemplated hereby
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as you may reasonably require, and the Company shall have furnished to such
counsel such documents as it may have reasonably requested for the purpose of
enabling it to pass upon such matters.
(e) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a letter from the Accountants addressed
to the Company and the Underwriters, dated the Closing Date or such later Option
Closing Date, as the case may be, confirming that it is an independent certified
public accountant with respect to the Company within the meaning of the Act and
the Rules and Regulations thereunder and based upon the procedures described in
its letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
three days prior to the Closing Date or any such later Option Closing Date, as
the case may be, (i) confirming that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later Option
Closing Date, as the case may be; and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
that are necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of more
recent financial statements, data or information. The letter shall not disclose
any change, or any development involving a prospective change, in or affecting
the business or properties of the Company which, in your reasonable judgment,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In addition, you shall have received
from the Accountants a letter addressed to the Company and made available to you
for the use of the Underwriters stating that its review of the Company's system
of internal accounting controls, to the extent it deemed necessary in
establishing the scope of its latest examination of the Company's financial
statements, did not disclose any weaknesses in internal controls that it
considered to be material weaknesses. All such letters shall be in a form
reasonably satisfactory to the Representatives and their counsel.
(f) You shall have received on the Closing Date and on any later
Option Closing Date, as the case may be, a certificate of the President and the
Chief Financial Officer of the Company, dated the Closing Date or such later
date, to the effect that as of such date (and you shall be satisfied that as of
such date):
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or any later Option Closing Date, as the case may be; and the
Company has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied at or prior to
the Closing Date or any later Option Closing Date, as the case may be;
(ii) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus has
been issued, and no proceedings for that purpose have been instituted
or are pending or, to the best of their knowledge, threatened under
the Act;
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(iii) They have carefully reviewed the Registration Statement,
the Offering Memorandum and the Prospectus; and, when the Registration
Statement became effective and at all times subsequent thereto up to
the delivery of such certificate, the Registration Statement, Offering
Memorandum, the Prospectus and any amendments or supplements thereto
contained all statements and information required to be included
therein or necessary to make the statements therein not misleading;
and when the Registration Statement became effective, and at all times
subsequent thereto up to the delivery of such certificate, none of the
Registration Statement, the Prospectus or the Offering Memorandum or
any amendment or supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented Registration Statement, Prospectus or Offering
Memorandum that has not been so set forth; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement, the Offering Memorandum and
the Prospectus, except as disclosed therein, there has not been (A)
any material adverse change in the properties or assets described or
referred to in the Registration Statement, the Offering Memorandum and
the Prospectus or in the condition (financial or otherwise),
operations, business or prospects of the Company and its Subsidiaries
taken as a whole, (B) any transaction which is material to the Company
and its Subsidiaries taken as a whole, except transactions entered
into in the ordinary course of business, (C) any obligation, direct or
contingent, incurred by the Company or its Subsidiaries, which is
material to the Company and its Subsidiaries taken as a whole, (D) any
change in the capital stock or outstanding indebtedness of the Company
or its Subsidiaries which is material to the Company and its
Subsidiaries taken as a whole or (E) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company.
(g) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder,
including, but not limited to, a certificate setting forth the material U.S. or
foreign patents and patent applications owned by, or licensed to, the Company
and/or its Subsidiaries.
(h) The Firm Shares and the Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq National Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The
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Company will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) below, the Company
agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any 462(b) registration statement)
or in the Offering Memorandum or any post-effective amendment thereto (including
any 462(b) registration statement), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or in the
Offering Memorandum or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission is contained in the section of the Prospectus
entitled "Underwriting" (except for the sixth paragraph thereof) or the last
paragraph of text on the cover page of the Prospectus or in the section of the
Offering Memorandum entitled "Representation by Purchasers," and (2) the
indemnity agreements of the Company contained in this paragraph (a) with respect
to any Preliminary Prospectus or Offering Memorandum shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Shares which is the
subject thereof (or to the benefit of any person controlling such Underwriter)
if at or prior to the written confirmation of the sale of such Shares a copy of
the Prospectus (or the Prospectus as amended or supplemented or, in the case of
purchasers resident in Ontario, Canada, the revised Offering Memorandum) was not
sent or delivered to such person (excluding any documents incorporated therein
by reference) and the untrue statement or omission of a material fact contained
in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented or, in the case of purchasers resident in
Ontario, Canada, the revised Offering Memorandum) unless the failure is the
result of noncompliance by the Company with paragraph (a) of Section 5 hereof.
The indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 1 hereof
shall
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remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its executive officers, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or in the Offering Memorandum or any post-effective amendment thereto
(including any 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or in the Offering Memorandum or the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that in the cases of clauses (i) and (ii) above, such
statement or omission is contained in the Section of the Prospectus entitled
"Underwriting" (except for the sixth paragraph thereof) or the last paragraph on
the cover page of the Prospectus or in the section of the Offering Memorandum
entitled "Representations by Purchasers." The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 8 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be
available to any party who shall fail so to give the Notice if the party to whom
such Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was prejudiced
by the failure to give the Notice, but the omission so to notify such
indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified
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party for contribution or otherwise than on account of such indemnity agreement.
Any indemnifying party shall be entitled at its own expense to participate in
the defense of any action, suit or proceeding against, or investigation or
inquiry of, an indemnified party. Any indemnifying party shall be entitled, if
it so elects within a reasonable time after receipt of the Notice by giving
written notice (the "Notice of Defense") to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, at its or their own expense to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such consent
has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 8, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses,
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claims, damages or liabilities referred to in paragraph (a) or (b) of this
Section 8 (i) in such proportion as is appropriate to reflect the relative
benefits received by each indemnifying party from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each indemnifying party in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, or actions in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Shares received by the Company and the total
underwriting discount received by the Underwriters, as set forth in the table on
the cover page of the Prospectus, bear to the aggregate public offering price of
the Shares. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this paragraph (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 8).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such
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Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 8 and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act or in the Offering Memorandum as required by Canadian securities law.
9. TERMINATION. This Agreement may be terminated by you at any time on
or prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, (i) if the Company shall have failed, refused or been unable,
at or prior to the Closing Date, or on or prior to any later Option Closing
Date, as the case may be, to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, by such trading exchanges or by order of the Commission
or any other governmental authority having jurisdiction, or if a banking
moratorium shall have been declared by federal or New York authorities, or (iii)
if the Company shall have sustained a loss by strike, fire, flood, accident or
other calamity of such character as to have a Material Adverse Effect regardless
of whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic conditions
or financial markets in the United States as in the judgment of the
Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
judgment of the Representatives, adversely affects the marketability of the
Shares, or (vi) if since the respective dates as of which information is given
in the Registration Statement, the Offering Memorandum and the Prospectus, there
shall have occurred any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial or
otherwise, of the Company or the business affairs, management, or business
prospects of the Company, whether or not arising in the ordinary course of
business, or (vii) if any foreign, federal or state statute, regulation, rule or
order of any court or other governmental authority shall have been enacted,
published, decreed or otherwise promulgated which in the judgment of the
Representatives materially and adversely affects or will materially and
adversely affect the business or operations of the Company, or trading in the
Common Stock shall have been suspended, or (viii) there shall have occurred a
material adverse decline in the value of
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securities generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market or (ix) action shall be taken by any foreign,
federal, state or local government or agency in respect of its monetary or
fiscal affairs which, in the judgment of the Representatives, has a material
adverse effect on the securities markets in the United States. If this
Agreement shall be terminated in accordance with this Section 9, there shall be
no liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
Section 6.
If you elect to terminate this Agreement as provided in this Section 9, the
Company shall be notified promptly by you by telephone, telecopy or telegram,
confirmed by letter.
10. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section 8 of this
Agreement, the Company hereby agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 8 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 10 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
(b) In addition to their other obligations under Section 8 of this
Agreement, the Underwriters hereby agree to reimburse on a quarterly basis the
Company for all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (b) of Section 8 of this
Agreement, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 10 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the Company shall promptly refund it and (ii) the Company shall
provide to the Underwriter, upon request, reasonable assurances of its ability
to effect any refund, when and if due.
11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 8 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 8, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained.
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The term "successors and assigns" as herein used shall not include any
purchaser, as such purchaser, of any of the Shares from any of the several
Underwriters.
12. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telecopy and, if to the Underwriters, shall
be mailed, telecopied or delivered to UBS Securities LLC, 299 Park Avenue, New
York, NY 10171, Attention: Mr. Richard Messina, with a copy to Brobeck, Phleger
& Harrison LLP, 1633 Broadway, 47th Floor, 10019, Attention: Alexander D. Lynch;
and if to the Company, shall be mailed, telecopied or delivered to it at its
office, Bionx Implants, Inc., 279B Great Valley Parkway, Malvern, PA 19355,
Attention: David W. Anderson, with a copy to Lowenstein, Sandler, Kohl, Fisher &
Boylan P.A., 64 Livingston Avenue, Roseland, New Jersey 07068, Attention: Peter
H. Ehrenberg. All notices given by telecopy shall be promptly confirmed by
letter.
13. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers, and (ii) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
You will act as Representatives of the several Underwriters in all dealings
with the Company under this Agreement, and any action under or in respect of
this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
27
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
BIONX IMPLANTS, INC.
By:______________________________
David W. Anderson
President
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
HAMBRECHT & QUIST LLC
VOLPE BROWN WHELAN & COMPANY LLC
By: UBS SECURITIES LLC
By: ______________________________
Title:
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
----------
28
<PAGE>
SCHEDULE A
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
------------ ---------
UBS Securities LLC ..................................
Hambrecht & Quist LLC ...............................
Volpe Brown Whelan & Company LLC ....................
Total ..... [ ]
==========
<PAGE>
SCHEDULE B
Lock-Up Agreements
------------------
David W. Anderson
David J. Bershad
Anthony J. Dimun
David H. MacCallum
Pertti Tormala
Terence D. Wall
Stephen A. Lubischer
Michael J. O'Brien
Pertti Viitanen
Bershad Investment Group, L.P.
Bionix, B.V.
BTAR Associates, L.P.
Delaware Charter Guarantee & Trust
Company/Custodian FBO
David H. MacCallum
Desert Orthopedics and Rehabilitation Ltd.
Profit Sharing Plan
Lori Gonye
H&Q Bionix Investors, L.P.
Janney Montgomery Scott Inc.
Custodian FBO Richard Landis
Profit Sharing Plan
Kevin Kotler
Landmark Financial Associates II, L.P.
Samuel E. Navarro
Jeffrey O'Donnell
Samuel N. and Elaine S. Schreiber
Family Trust
Stage Right Ltd. Defined Benefits
Pension Plan
Strategic Concepts Inc. Profit
Sharing Plan
T. Rowe Price Threshold Fund III
TDW Associates, L.P.
Russell Stravitz
<PAGE>
SCHEDULE C
MATERIAL PATENTS AND PATENT APPLICATIONS
<PAGE>
APPENDIX A
----------
1. OPINION OF COUNSEL TO THE COMPANY
---------------------------------
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. shall opine to the
effect that:
(A) The Company has been duly organized and is validly existing as a
corporation, and is in good standing under, the laws of the State of Delaware;
(B) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and Prospectus, and has all licenses, permits, consents,
orders, approvals and authorizations of any federal or state government
authority that are necessary to conduct its business as described in the
Registration Statement and the Prospectus, except where failure to have such
licenses, permits, consents, orders, approvals and authorizations would not have
a Material Adverse Effect; the Company is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in the United
States where to such firm's knowledge, the Company owns or leases properties and
where the failure to so qualify would have a Material Adverse Effect;
(C) To our knowledge, other than the Subsidiaries and NEWCO, the
Company does not own any equity, trust or other ownership interests, directly or
indirectly, any corporation, association or other entity. Each Subsidiary has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and Prospectus, and has all
licenses, permits, consents, orders, approvals and authorizations of any federal
or state government authority that are necessary to conduct their business as
described in the Registration Statement and the Prospectus, except where failure
to have such licenses, permits, consents, orders, approvals and authorizations
would not have a Material Adverse Effect. Each Subsidiary is duly qualified to
do business as a foreign corporation in good standing in each jurisdiction where
the ownership or leasing of the properties or the conduct of its business
requires such qualification, except where the failure to so qualify would not
have a Material Adverse Effect. All of the outstanding shares of capital stock
of each of the Subsidiaries have been duly authorized and validly issued, are
fully paid and non-assessable and are owned by the Company, in each case subject
to no security interest, other encumbrance or adverse claim; to the best of such
counsel's knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligation into shares of capital stock or ownership interests in the
Subsidiaries are outstanding;
(D) The authorized capital stock of the Company consists of 8,000,000
shares of Preferred Stock, $.001 par value, of which there are no outstanding
shares, and 31,600,000 shares of Common Stock, $.0019 par value, of which there
are outstanding __ shares (including the Firm Shares plus the number of Option
Shares issued on the date
A-1
<PAGE>
hereof) [and such additional number of shares, if any, as may have been issued
after the date of the Prospectus and prior to the Closing Date, pursuant to the
Company's option plan]; the authorized shares of the Company's Common Stock have
been duly authorized; the issued and outstanding shares of the Company's capital
stock have been duly authorized and validly issued and are fully paid and
nonassessable, and have been issued in compliance with all federal and state
securities laws and have not been issued in violation of any preemptive right,
co-sale right, registration right, right of first refusal or other similar right
known to such counsel;
(E) The Shares to be issued by the Company pursuant to this Agreement
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and by all requisite corporate action will be, upon issuance and
delivery against payment therefor in accordance with the terms hereof, validly
issued, fully paid and nonassessable, and, to the knowledge of such counsel, not
in violation of any preemptive right, co-sale right, registration right, right
of first refusal or other similar right, which rights have not previously been
waived, in connection with the purchase or sale of any of the Shares;
(F) The Company has full corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the Firm
Shares or the Option Shares, as the case may be, to be issued and sold by it
hereunder;
(G) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the Prospectus has
been issued under the Act and no proceedings for that purpose have been
instituted or are pending or threatened under the Act; any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b) of the Rules
and Regulations has been made in the manner and within the time period required
by such Rule 424(b) and any required filing of an abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule 462(b);
(H) The Registration Statement, the Prospectus, and each amendment or
supplement thereto on and after the effective date (other than the financial
statements, financial and statistical data and supporting schedules included
therein, as to which such counsel need express no opinion), comply as to form in
all material respects with the requirements of the Act and the applicable Rules
and Regulations and to such counsel's knowledge, there are no agreements,
contracts, leases or documents of a character required to be described in, or
filed as an exhibit to, the Registration Statement which are not described or
filed as required by the Act and the applicable Rules and Regulations;
(I) The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is correct, and the
form of certificate evidencing the Common Stock complies with the applicable
provisions of Delaware law;
A-2
<PAGE>
(J) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the Delaware general
corporation law, and the description of the certificate of incorporation and
bylaws are accurate and fairly and correctly present the information required to
be presented by the Act or the Rules and Regulations in all material respects;
and such counsel does not know of any statutes, rules or regulations required to
be described in the Registration Statement or the Prospectus that are not
described or referred to therein as required;
(K) The statements under the captions "Risk Factors -- Shares Eligible
for Future Sale," " -- Potential Anti-Takeover Effects of Delaware Law and the
Company's Certificate of Incorporation and Bylaws," "Management - Employment
Agreements," " -- Stock Option/Stock Issuance Plan" and " -- Compensation
Committee Interlocks and Insider Participation," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus, and in Items 14 or 15 of the Registration Statement, insofar as such
statements constitute a summary of documents referred to therein or matters of
law, are accurate summaries and fairly and correctly present, in all material
respects, the information called for with respect to such documents and matters;
provided that such counsel shall be entitled to rely on representations of the
Company with respect to certain factual matters contained in such statements,
and provided further that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that such representations
are not true and correct in all material respects;
(L) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions herein contemplated do not and
will not (a) conflict with or result in a breach of any of the terms or
provisions of or, constitute a default under, the certificate of incorporation
or bylaws of the Company, or any statute, rule or regulation applicable to the
Company (except that no opinion need to be expressed with respect to compliance
with federal, state or Canadian securities laws) or (b) to the knowledge of such
counsel, result in the creation or imposition of any lien or encumbrance upon
any of the assets of the Company pursuant to the terms or provisions of, or
result in a material breach or violation of any of the terms or provisions of,
or constitute a default or result in the acceleration of any obligation under,
any indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement, other evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by which its property is bound or
(c) to the knowledge of such counsel, conflict with or result in a violation or
breach of, or constitute a default under, any applicable license, authorization,
approval, permit, judgment, franchise, order, writ or decree of any court or
governmental agency or body;
(M) No authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the consummation of the transactions therein contemplated except
such as may have been obtained under the Act and the Rules and Regulations or
such as may be required under foreign or state securities or Blue Sky laws or by
the bylaws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters.
A-3
<PAGE>
(N) The Company, Orthosorb and Biostent are not in violation of their
certificates of incorporation or bylaws. To the best of such counsel's
knowledge, the Company, Orthosorb and Biostent are not in breach of or default
with respect to any provision of any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument by which they or any
of their properties may be bound or affected, except where such breach or
default would not have a Material Adverse Effect, and nothing has come to the
attention of such counsel to give it reason to believe that the Company is in
compliance with all laws, rules, regulations, judgments, decrees, orders and
statutes of any court or jurisdiction to which it is subject, except where
noncompliance would not have a Material Adverse Effect;
(O) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, there are no pending or threatened
actions, suits, claims, proceedings or investigations that, if successful, would
have a Material Adverse Effect or would limit, revoke, cancel, suspend, or cause
not to be renewed any existing license, certificate, registration, approval or
permit, known to such counsel, from any state, federal, or regulatory authority
that is material to the conduct of the business of the Company or the
Subsidiaries, taken as a whole, as presently conducted, or that is of a
character otherwise required to be disclosed in the Registration Statement or
the Prospectus under the Act or the applicable Rules and Regulations;
(P) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having registration
rights with respect to shares of Common Stock or other securities of the Company
have, with respect to the offering contemplated hereby, waived such rights or
such rights have otherwise been waived or such rights have expired by reason of
lapse of time following notification of the Company's intent to file the
Registration Statement.
(Q) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Firm Shares or the Option Shares;
(R) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company," as such term is
defined in the Investment Company Act of 1940, as amended;
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officers, directors and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement and the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective the Registration
Statement (except as to financial statements, financial and statistical data and
supporting
A-4
<PAGE>
schedules contained therein, as to which such counsel need express no opinion)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the Closing Date or any later Option Closing Date, as the
case may be, the Registration Statement or the Prospectus (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under,which they were made, not misleading.
Counsel rendering the foregoing may rely (i) as to questions of law
not involving the laws of the State of New Jersey, the United States or the
General Corporation Law of the State of Delaware, upon opinions of local
counsel, and (ii) as to questions of fact upon representations or certificates
of officers of the Company and of governmental officials, as the case may be, in
which case its opinion shall state that it is so doing and that it has no actual
knowledge of any material misstatement or inaccuracy in such opinions,
representations or certificates, and that they believe that they and the
Underwriters are justified in relying on such opinions or certificates. Copies
of any opinion, representation or certificate so relied upon shall be delivered
to you, as Representatives of the Underwriters, and to Underwriters' Counsel.
A-5
<PAGE>
2. OPINION OF U.S. PATENT COUNSEL.
------------------------------
Kenyon & Kenyon shall indicate that they served as special counsel to
the Company with respect to patents and proprietary rights, and shall deliver an
opinion in form and substance agreeable to the Representatives and to
Underwriters' Counsel.
A-6
<PAGE>
3. OPINION OF FOREIGN PATENT COUNSEL.
---------------------------------
Tampereen Patenttitoimisto, shall indicate that they served as special
counsel to the Company with respect to patents and proprietary rights, and shall
deliver an opinion in form and substance agreeable to the Representatives and to
Underwriters' Counsel.
A-7
<PAGE>
4. OPINION OF FDA COUNSEL.
----------------------
Hogan & Hartson shall indicate that they served as special counsel to
the Company with respect to FDA matters and shall opine that:
I. The statements in the Prospectus under the captions "Risk Factors
- -- Government Regulation," and "Business -- Government Regulation," insofar as
such statements purport to summarize applicable provisions of the Food, Drugs
and Cosmetics Act and the regulations promulgated thereunder, are accurate
summaries in all material respects of the provisions purported to be summarized
under such captions in the Prospectus; and
II. No facts have come to such counsel's attention which causes such
counsel to believe that the statements in the Prospectus under the captions
"Risk Factors -- Government Regulation," and "Business -- Government
Regulation," insofar as such statements relate to FDA regulatory matters, at the
time the Registration Statement became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or as of the
date hereof contains an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Such counsel may advise you that, in rendering their opinion, they
have relied on certain factual representations of the Company and that they have
not independently verified the accuracy and completeness of such
representations.
A-8
<PAGE>
5. OPINION OF EUROPEAN REGULATORY COUNSEL.
--------------------------------------
Medical Technology Consultants - BRI International Ltd. shall indicate
that they served as special counsel to the Company with respect to foreign
regulatory matters and shall opine that:
I. The statements in the Prospectus under the captions "Risk Factors
- -- Government Regulation" and "Business -- Government Regulation --
International" insofar as such statements summarize provisions of applicable
European statutes and regulations, are accurate summaries in all material
respects of the provisions purported to be summarized under such captions in the
Prospectus;
II. No facts have come to the attention of such counsel that causes
such counsel to believe that the statements in the Prospectus under the caption
"Risk Factors -- Government Regulation" and "Business -- Government Regulation -
- - International," insofar as such sections relate to European regulatory
matters, at the time the Registration Statement became effective, or at the
Closing Date or any later Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Such counsel may advise you that, in rendering their opinion, they
have relied on certain factual representations of the Company and that they have
not independently verified the accuracy and completeness of such
representations.
A-9
<PAGE>
6. OPINION OF FINNISH COUNSEL
--------------------------
Merilampi, Martilla & Laitasalo, shall indicate that they served as
Finnish counsel to the Company, and shall deliver an opinion in form and
substance agreeable to the Representatives and to Underwriters' Counsel.
A-10
<PAGE>
EXHIBIT 5.1
April 23, 1997
Bionx Implants, Inc.
279B Great Valley Parkway
Malvern, PA 19355
Dear Sirs:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act"), of 2,300,000 shares of common stock (the "Shares") of
Bionx Implants, Inc., a Delaware Corporation (the "Company"), we have examined
such corporate records, certificates and other documents and such questions of
law as we have considered necessary or appropriate for the purposes of this
opinion.
On the basis of such examination, we advise you that, when the
Company's Registration Statement on Form S-1 (No. 333-22359) has become
effective under the Act, the terms of the Shares and of their issue and sale
have been duly established in conformity with the Company's certificate of
incorporation so as not to violate any applicable law or agreement or instrument
then binding on the Company, and the Shares have been duly issued and sold as
<PAGE>
Bionx Implants, Inc.
Page 2
contemplated in such Registration Statement, the Shares will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to such
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included within such Registration Statement.
Very truly yours,
LOWENSTEIN, SANDLER, KOHL, FISHER
& BOYLAN, P.A.
By: /s/ Peter H. Ehrenberg
-----------------------------
Peter H. Ehrenberg
PHE:kc
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
1. Parties:
a) Bionx Implants, Inc., a corporation organized under the laws of
the State of Delaware, U.S.A. and a manufacturer and marketer of Self-
Reinforced, resorbable polymer implants used in a variety of
applications including orthopaedic surgery, urology, dentistry and
maxillo-facial surgery (the "Corporation").
b) Professor Pertti Tormala ("Tormala")
2. Purpose of the Agreement:
In order to maintain the high standard of product development of the
Corporation and its subsidiaries, and, further to support the
fulfillment of the Corporation's strategic objectives on a worldwide
basis, Tormala and the Corporation have agreed to the following terms
and conditions of employment. This agreement supersedes all previous
agreements between the parties hereto and their affiliates or
subsidiaries.
3. Status of Tormala:
Tormala is appointed as Executive Vice President, Research and
Development of the Corporation, with full responsibilities for the
research and development staff and facilities of the Corporation.
Tormala will report in his capacity as Executive Vice President to the
President and Chief Executive Officer of the Corporation.
4. Term:
The initial term of this agreement will be five (5) years, commencing
as of January 1, 1997 and terminating on December 31, 2001. The
parties may agree that after the initial term, this agreement will
automatically renew for one (1) year periods until notice by either
party. The notice period in this agreement will be six (6) months.
5. Remuneration:
The remuneration of Tormala during the period of this agreement will
be the following:
Tormala will receive a base salary of FIM 45,000 per month, payable
twice monthly by the Corporation's Finnish subsidiaries. Tormala and
the Corporation agree that Tormala's base salary (which represents an
increase over the base salary
<PAGE>
previously payable to Tormala and a reduction in the amount of time
commitment required of Tormala) is intended to provide Tormala with
reasonable compensation for Tormala's assignment of all intellectual
and industrial property rights to all of the products Tormala
develops, creates or invents during the term of this agreement
(subject only to the exceptions set forth in Section 11 hereof).
Tormala will also be eligible for cash bonuses, if and when awarded,
when granted by the Compensation Committee of the Board of Directors
of the Corporation. Tormala will also be eligible to participate in
the Corporation's 1996 Stock Option/Stock Issuance Plan.
The Corporation will also provide Tormala with a car, paid for by the
Corporation, and will reimburse Tormala for all reasonable travel and
entertainment costs required by the Corporation for the performance of
this duties.
Tormala and the Corporation agree that effective as of January 1,
1997, the Corporation will no longer pay Tormala a royalty under (i)
the License Agreement, dated December 14, 1988, among Tormala, Markku
Tamminmaki, Menefix I/S and a Finnish subsidiary of the Corporation,
(ii) the License, Manufacturing and Distribution Agreement, dated
September 28, 1989, among Tormala, a Finnish subsidiary of the
Corporation and other Danish and Finnish inventors and (iii) any other
agreement entered into between Tormala and the Corporation or the
Corporation's Finnish subsidiaries.
6. Pension Benefits:
Tormala's pension benefits shall be in accordance with the Finnish TEL
system.
7. Holiday Benefits:
Tormala is entitled to a four week summer holiday and a two-week
winter holiday. Tormala will decide the vacation periods and will
notify the President and CEO of his plans in advance.
8. Daily working time:
Tormala will have no defined daily work period. However, Tormala
agrees to use his best efforts and the substantial majority of his
time available to the Corporation to further the development of the
Corporation's products and to give all his support to the other
activities of the Corporation. Tormala agrees not to devote more than
16 hours per month during normal business hours to a business which
(i) shall be spun off from the Corporation and (ii) shall be engaged
in the development, manufacture or sale of polymer-based advanced drug
delivery systems.
-2-
<PAGE>
9. Other employment:
The Corporation is aware of Tormala's present activities at the
Tampere University and related duties and agrees that the conduct of
these duties may continue at their present levels.
10. Non-competition:
Tormala undertakes that during a period of 36 months after the
termination of this agreement he will not directly or indirectly have
an interest in or be engaged, concerned or involved in businesses or
scientific activities competing with the business activities of the
Corporation or its subsidiaries.
The period noted above will not apply if Tormala's employment is
terminated without cause by the Corporation.
11. Industrial property rights:
Tormala agrees that all patents, patent applications, know-how,
technical data and other industrial and intellectual property rights
relating to the Corporation's research and development activities in
which Tormala may have any interest whatsoever, regardless of the area
of application, have been irrevocably transferred by Tormala to, and
will continue to be the property of, the Corporation. All such
intellectual and industrial rights developed by or under the direction
of Tormala during the term of this agreement are also hereby
transferred to the Corporation by Tormala. The only exceptions to
this irrevocable transfer are the following agreements: (1) the
agreement between Tormala and TEKES covering the use of Ultrasound in
Tableting and, (2) the agreement between Tormala and Orion Pharma
covering the use of proprietary Polyorthoesters in drug delivery
formulations specific to molecular entities that are the proprietary
property of Orion.
12. Applicable law and disputes:
This Agreement is governed by Finnish law.
All disputes concerning the terms and interpretation of this Agreement
are to be resolved in accordance with the law on arbitration. The
sole arbitrator, if and when the parties cannot reach an agreement,
shall be determined by the Finnish Central Chamber of Commerce on
request of either of the parties.
This Agreement has been prepared in two identical copies, one to each
party.
-3-
<PAGE>
Dated: As of January 1, 1997.
BIONX IMPLANTS, INC.
By:
/s/ David W. Anderson
________________________
David W. Anderson, President
/s/ Pertti Tormala
_________________________
Pertti Tormala
-4-
<PAGE>
EXHIBIT 10.8
Certain portions of this exhibit have been omitted based upon a request for
confidential treatment. The omitted portions of this exhibit have been
separately filed with the Securities and Exchange Commission.
LICENSE AGREEMENT
THIS AGREEMENT dated as of May 1, 1995 (hereinafter the "Effective Date")
between Saul N. Schreiber, a citizen of the United States of America, whose
address is 5501 19th Avenue, Phoenix, Arizona, U.S.A. 85015 (hereinafter
"SCHREIBER") and Biocon Oy, a Finnish corporation, whose address is P. O. BOX 3,
FIN-33721 Tampere, Finland (hereinafter "BIOCON"'.).
WITNESSETH:
WHEREAS, SCHREIBER is the owner of U.S. Patents NOs. 4,873,976 and 4,635,637
and has the right to license others under such patents; and
WHEREAS, BIOCON desires to acquire an exclusive license under the patents;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, SCHREIBER and BIOCON agree as follows:
I. Definitions
1.1 "Licensed Patents" means U.S. Patent No. 4,873,976 and any
reissue or re-examination thereof, and U. S. Patent No. 4,635,637 and any
reissue or re-examination thereof.
1.2 "Subsidiary" means a corporation, company, or other entity more
than fifty percent (50%) of whose outstanding shares or securities (representing
the right, other than as affected by events of default, to vote for the election
of directors or other managing authority) are, now or hereafter, owned or
controlled, directly or indirectly, by a party hereto, but such corporation,
company, or other entity shall be deemed to be a Subsidiary only as long as such
ownership or control exists.
1.3 "Licensed Entity" means Bioscience, Inc., BIOCON and all
Subsidiaries of BIOCON sublicensed under Article III and all Sublicensees of
BIOCON under Article IV.
1.4 "Relicensed Product" means an insertable suture intended for
repairing body tissue and coming within the scope of any of the apparatus claims
1-18 and 24-31 of the Licensed Patent No. 4,873,976 or any claim of Licensed
Patent No. 4,635,637.
1.5 "Licensed Method" means a method of repairing a tear in a
meniscus and coming within the scope of any of method claims 19-23 of the
Licensed Patent No. 4,873,976.
1.6 "Net Selling Price" means the price invoiced by a Licensed
Entity to an unaffiliated purchaser for a Licensed Product less the following:
any actual discounts, allowances and commissions; any insurance and freight
charges and any taxes, customs duties and other government charges included in
such invoice price; any amounts repaid or credited because of
<PAGE>
returned Licensed Products and retroactive price deductions. If the price
invoiced by Licensed Entity in any transaction with respect to any Licensed
Product is less than its Fair Market Value, the Net Selling Price shall be the
Fair Market Value.
1.7 "Fair Market Value" means the Net Selling Price that Licensed
Entity would realize (assuming a reasonable and fair recovery of cost to
Licensed Entity and a reasonable profit margin) if the relevant Licensed Product
were sold to an unaffiliated buyer in an arm's length sale in the same country,
in the same quantity, and contemporaneously with the relevant transaction.
1.8 "Approval Date" shall mean the date on the first of the month
immediately following the date on which the FDA issues its approval of the sale
and use in the United States of America of the Licensed Product and the Licensed
Method.
1.9 "Approval Year" shall mean the year commencing with the Approval
Date.
2.0 "Reporting Quarter" shall mean each three month period
commencing with the Effective Date.
II. LICENSES
2.1 Subject to Articles V and VI, SCHREIBER grants to BIOCON and to
Bioscience Inc., the parent corporation of BIOCON, an irrevocable, exclusive
license under the Licensed Patents to make, have made, import, have imported,
use, sell and otherwise dispose of Licensed Products, to practice the Licensed
Method. Whenever the term "sold'' is employed, it is intended also to embrace
the words ''used'' and the phrase ''otherwise disposed of"; the words "sales"
and "selling'' are to be interpreted correspondingly. SCHREIBER also grants to
customers of BIOCON and to those in privity with BIOCON an immunity from suit
under any of the method claims of Licensed Patent No. 4,873,976.
2.2 SCHREIBER agrees not to assert any claim of infringement of the
Licensed Patents against any customer, mediate and immediate, of a Licensed
Entity with respect to any Licensed Product and/or with respect to any practice
of the Licensed Method in the circumstance in which (a) the Licensed Product has
been obtained directly or indirectly from a Licensed Entity and (b) the
applicable royalty has been paid pursuant to this agreement.
III. EXTENSION OF LICENSE TO SUBSIDIARIES
The license granted herein shall include the right of BIOCON to license its
Subsidiaries. Each Subsidiary so sublicensed shall be bound by the terms and
conditions of this agreement (except to the extent that the obligations of such
terms and conditions are fulfilled on its behalf by BIOCON under the provisions
of Article V as if it were named herein in place of BIOCON). Any sublicense
granted to a Subsidiary shall automatically, and without the requirement of
individual notice, terminate on the date such sublicensed Subsidiary ceases to
be a
-2-
<PAGE>
Subsidiary of BIOCON, or this agreement is terminated under any of the
provisions of Article VI, whichever is earlier.
IV. SUBLICENSES
4.1 BIOCON shall have the exclusive right under the Licensed Patents
to grant sublicenses to others at royalty rates not less than those required to
be paid in accordance with Article V of this Agreement.
4.2 With respect to sublicenses granted by BIOCON under this Article
4.1, BIOCON shall pay over to SCHREIBER that portion of royalties received from
its sublicensees necessary to yield SCHREIBER returns on Licensed Products, sold
by such sublicensees equal to the amounts which SCHREIBER would have received
from BIOCON on equivalent Licensed Products sold by it.
4.3 Termination under any of the provisions of Article VI of the
license granted to BIOCON in this Agreement shall terminate all sublicenses
which may have been granted by BIOCON, provided that any sublicensee may elect
to continue its sublicense by advising SCHREIBER in writing, within (60) sixty
days of the sublicensee's receipt of written notice of such termination, of its
election, and of its agreement to assume in respect to SCHREIBER all the
obligations (including obligations for payment) contained in its sublicensing
agreement with BIOCON. Any sublicense granted by BIOCON shall contain provisions
corresponding to those of this paragraph respecting termination and the
conditions of continuance of sublicenses.
V. ROYALTIES
5.1 Within thirty (30) days after the date of execution of this
Agreement by SCHREIBER, BIOCON shall pay to SCHREIBER the amount of
[CONFIDENTIAL PORTION OMITTED AND FILED SEPERATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
5.2 BIOCON agrees to pay a sales royalties to SCHREIBER for each
Licensed Product sold by a Licensed Entity in the amount of [CONFIDENTIAL
PORTION OMITTED AND FILED SEPERATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION]
5.3 BIOCON shall calculate the amount of royalties due to Schreiber
in accordance with Article 5.2 for each Licensed Product which, when made or
sold by Licensed Entity or by a sublicensee of BIOCON would, but for the license
granted hereunder, constitute infringement of any claim of the Licensed Patents.
Licensed Products which are built and used solely for the purposes of product
development, testing, and marketing of Licensed Products, including those used
for verification of design, qualification of design, reliability testing, and
demonstration units, and also those which are given as samples without charge to
physicians, hospitals, and the like for the purpose of promoting sales of the
Licensed Products are exempt from royalty.
-3-
<PAGE>
5.4 Licensed Entity agrees to maintain accurate records of its
operations under this license and shall require the maintenance of similar
records by its sublicensed Subsidiaries and sublicensees. Within forty-five
(45) days after the termination of each Reporting Quarter commencing with the
Effective Date and extending throughout the continuance of this agreement,
Biocon shall submit to SCHREIBER a report detailing:
(a) the receipts for sales of Licensed Products by Licensed Entity and by
any sublicensee of Licensed Entity pursuant to Article IV during such Reporting
Quarter;
b) the product identification applicable to each Licensed Product
reported;
(c) the deductions allowed under Article 1.6; and
(d) the computation of any royalty payable under Article 2 for such
Reporting Quarter; and at the same time as submitting such report shall pay the
amount due.
5.5 All sums of money specified in Article V are to be paid in lawful
money of the United States of America and shall be remitted via wire transfer to
[CONFIDENTIAL PORTION OMITTED AND FILED SEPERATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
5.6 Licensed Entity shall permit the records prescribed under Article
5.4 to be inspected during regular business hours twice during each year of this
agreement by auditors paid for by SCHREIBER as to whom BIOCON has no reasonable
objection, but only to the extent necessary to verify the sums due and payable.
VI. TERM OF AGREEMENT; TERMINATION
6.1 The term of this agreement is from the Effective Date until the
expiration date of the Licensed Patent No. 4,873,976, unless terminated earlier
under Articles 6.2 or 6.4.
6.2 This agreement shall terminate only in accordance with the
following provisions:
(a) Termination by BIOCON:
BIOCON shall have the right to terminate this agreement only by giving three
months prior written notice to SCHREIBER.
(b) Termination By Final Adjudication:
This agreement will terminate automatically in the event of an adjudication
by a court of competent jurisdiction that all relevant claims of the Licensed
Patents are invalid, which decision is not timely appealed, or if appealed, is
affirmed.
-4-
<PAGE>
6.3 Any termination pursuant to Article 6.2 shall not relieve
Licensed Entity of any obligation or liability accrued prior to such
termination, and such termination shall not affect in any manner any rights of
SCHREIBER under this agreement prior to such termination.
6.4 SCHREIBER has the right to terminate this agreement:
a. forthwith by written notice to BIOCON only if Licensed Entity is
in breach of any of its terms or obligations, and, following written notice
given by SCHREIBER identifying such breach, fails to rectify that breach; or
where the breach is incapable of rectification, fails to make amends to
SCHREIBER'S satisfaction within forty-five (45) days beginning with the date of
the note; or
b. by notice to BIOCON in the event that BIOCON has:
(1) failed to submit to the FDA within one year following the
Effective Date a request for clearance of the Licensed Product; or
(2) failed to secure approval of the Licensed Product from the U.S.
Food & Drug Administration within four (4) years after the Effective Date.
VII. WARRANTY
SCHREIBER represents and warrants that he has the full right and power to
grant the license and release of Articles II and III and that there are no
outstanding agreements, assignments or encumbrances inconsistent with the
provisions of this license and release, and that there are no patents or patent
applications owned by him anywhere in the world, other than United States Patent
No. 4,873,976 and 4,635,637 and which are directed to insertable sutures
intended for repairing body tissue.
VIII. NOTICES AND OTHER COMMUNICATIONS
Any notice or other communication required or permitted to be given to
either party shall be sufficiently given on the date of mailing if sent to such
party by registered or certified mail (sent air mail or otherwise by the fastest
service available) postage prepaid, addressed to it at its address set forth
below, or to such other address as it may designate by written notice given to
the other party.
-5-
<PAGE>
In the case of BIOCON:
Biocon Oy
P. O. Box 3
FIN-33721 Tampere,
Finland
and
David W. Anderson
President and C.E.O.
Bioscience Inc.
279B Great Valley Parkway
Malvern, Pennsylvania 19355
In the case of SCHREIBER:
Saul N. Schreiber
5501 19th Avenue,
Phoenix, Arizona,
U.S.A. 85015
IX. TRANSFERABILITY OF RIGHTS AND OBLIGATIONS
9.1 Any license or release granted in this agreement by a party in
respect to the Licensed Patents shall be binding upon any successor of the party
in ownership or control of the Licensed Patents.
9.2 The obligations of BIOCON to make reports, pay royalties, and
maintain records in respect to any subsisting license under this agreement shall
run in favor of any person or legal entity which is a successor or assignee of
SCHREIBER in respect to SCHREIBER's benefits under the agreement.
9.3 The licenses received by any party under this agreement shall
pass to any assigns for the benefit of creditors of the Licensed Entity and to
any receiver of its assets, or to any person or corporation succeeding to its
entire business in Licensed Products as a result of sale, consolidation,
reorganization, or otherwise, provided such assignee, receiver, person, or legal
entity shall, without delay, accept in writing the provisions of this agreement
and agree to become in all respects bound thereby in the place and stead of the
licensed party, but may not otherwise be transferred without the written consent
of the licensed party.
X. KNOW-HOW AND TRADE SECRETS
No license or other right is granted by this agreement to either party,
directly or by implication, estoppel, or otherwise of any trade secrets or know-
how. Neither party is required to furnish or disclose to the other any technical
information.
-6-
<PAGE>
XI. APPLICABLE LAW
Recognizing that there is a large body of law of the state of New York
related to commercial transactions, the parties hereto agree that this agreement
shall be construed, and the legal relations between the parties hereto be
determined in accordance with the laws of the State of New York, United States
of America.
XII. ARBITRATION
Provided the parties hereinafter agree in writing, and then only to the
extent agreed in writing, any controversy or claim arising under or related to
this Agreement shall be settled by arbitration in accordance with the Center for
Public Resources Rules for Non-Administered Arbitration of Patent and Trade
Secret Disputes in effect on the date such controversy or claim first arises.
Such arbitration shall be conducted by a single arbitrator; however, if either
party deems the issue or issues are of major importance, it may elect that the
arbitration shall be conducted before a panel of three arbitrators. The
arbitrator(s) shall be appointed by the Center for Public Resources.
Notwithstanding the choice of law provision of Article XI, the arbitration shall
be governed by the United States Arbitration Act, 9 U.S. (S)1-16. The place of
the arbitration shall be Washington D.C. Insofar as the proceeding relates to
issues of patent validity, or scope of patent claims, as distinct from the terms
of this agreement, it shall also be governed by 35 U.S.C. (S)294, to the extent
applicable. In the event the parties hereto do not agree that the controversy or
claim should be settled by arbitration, then either party may seek resolution of
the controversy or claim in a court of competent jurisdiction.
XIII. FDA APPROVAL/MARKETING
13.1 BIOCON agrees to keep SCHREIBER reasonably informed regarding
BIOCON's efforts to secure approval from the U. S. Food & Drug Administration.
13.2 BIOCON agrees to take reasonable steps to use SCHREIBER's name in
connection with the marketing and sale of the Licensed Products.
XIV. MISCELLANEOUS
14.1 This agreement becomes operative and binding on the parties as of
the Effective Date only when it has been executed by each party.
14.2 No amendment or modification of this agreement shall be valid or
binding upon the parties unless made in writing and signed by or on behalf of
each party.
14.3 This agreement embodies the entire understanding of the parties
and supersedes all previous communications, representations, or understandings,
either oral or written, between the parties relating to the subject matter
hereof.
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<PAGE>
14.4 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of, or to affect the meaning
or interpretation of, this agreement.
IN WITNESS WHEREOF the parties hereto have caused this agreement to be duly
executed as follows:
SAUL N. SCHREIBER
Date: May 22, 1995 By: /s/ Saul N. Schreiber
------------------------------- -----------------------------
(Seal)
BIOCON OY
Date: June 6, 1995 By: /s/ Pertti Tormala
------------------------------- ------------------------------
(Seal)
-8-
<PAGE>
EXHIBIT 10.9
Certain portions of this exhibit have been omitted based upon a request for
confidential treatment. The omitted portions of this exhibit have been
separately filed with the Securities and Exchange Commission.
LICENSE AGREEMENT
This agreement is made by and between Mr. Pertti Tormala, address Runeberginkatu
3 A 1, 33710 Tampere, Finland, Mr. Markku Tamminmaki, address Kukkolankatu 23,
33400 Tampere, Finland (hereinafter jointly referred to as "the Finnish Team",
and
Menifix I/S (Peter Albrecht Olsen and Gert Kristensen), address Nivaenge 173,
DK-2990 Niva, Denmark (hereinafter jointly referred to as "the Danish Team") and
Biocon Oy, whose registered office is at Runeberginkatu 3 A 1 33710 Tampere,
Finland (hereinafter jointly referred to as "Biocon") on the other part.
1. BACKGROUND
The Finnish and Danish team are developing in cooperation a [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION].
The invention is based on the [[CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]. Biocon Oy is the owner
of patents and know-how relating to said products.
The cooperation has proceeded on such a level that the patent shall be applied
for the device in Finland during the next months.
The parties to this agreement desire to launch industrial production of this
device as soon as possible.
2. DEFINITIONS
In this agreement:
a) [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] invented and developed by the team and any development
hereof made by the parties.
b) "Exclusive Territory" shall mean the world.
c) "Confidential information" shall mean all scientific, commercial or technical
data and information including but not limited to information relating to market
reports and surveys, customer lists, trade secrets, documents, correspondence,
methods, skills, practices, training, procedures, research, machinery,
equipment, instruments, expertices, discoveries, inventions, improvements, data
drawings, designs, calculations, specifications, techniques and processes
regarding the DEVICE.
<PAGE>
3. OBJECT OF THE AGREEMENT
The team hereby grants to Biocon the exclusive right to make or to have made,
use and sell the DEVICE in the Exclusive Territory.
The team undertakes to conduct research work and to use its best efforts in
order to develop further and improve the characteristics of the DEVICE.
The team shall provide Biocon with such information, specifications and data
with respect to the DEVICE as shall be necessary to improve Biocon's potentially
to carry out the targets in this agreement.
The team agrees to keep Biocon continuously informed of all research and
development results in regard to the DEVICE during the development process.
The rights granted to Biocon include any additional modifications and
improvements of the DEVICE.
Biocon shall inform the team about any changes and improvements of the DEVICE.
After the agreement of Biocon the tram can participate in international
congresses and present research results [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
4. SUBLICENSES
Biocon is entitled to grant sublicenses within the Exclusive Territory at its
sole discretion. Such sublicensing shall not relieve Biocon of any obligation
under this Agreement. Biocon must include in possible license agreements the
paragraph that the team is entitled to the royalties of all marketed Products
according to this Agreement regardless which company manufactures or markets the
products. Biocon is obliged to inform the team of sublicenses.
5. PATENTS
Biocon is entitled at its own expense and at its sole discretion to take any and
all necessary measures in order to apply for patents for the DEVICE in the
Exclusive Territory. In the patent applications the team shall be reported as
the inventor and Biocon as the applicant.
Biocon is also entitled to register this agreement with the proper patent and
other authorities as such time as the registration is possible in accordance
with the legislation of the country in question. The team undertakes to provide
Biocon with all necessary authorization and documents for these purposes. The
team is entitled to receive a copy of all patent applications filed by Biocon.
-2-
<PAGE>
6. COMMISSION
In consideration of the license granted by the team to Biocon in accordance with
the terms and conditions in this agreement, Biocon agrees to pay the team a
royalty net of any withholding company taxes as follows:
(a)
an initial sum of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]. This down payment shall be divided within
the teams as follows:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
This payment shall be effected upon after initial presentation of any research
group of results in congress or paper which results show that this method is
recommendable for surgical use. This payment shall be non-refundable to the Team
and shall not be credited against the royalty payments referred to hereinafter.
(b)
The amount of the royalty shall be [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of the DEVICE sold by
Biocon whilst the patent applications are still pending and not a single patent
has been granted. This royalty shall be divided within the teams as follows:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION]
Provided that the patent in accordance with the above terms shall be granted
Biocon agrees retroactively to pay the team an additional royalty of
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] of the DEVICE sold by Biocon for the period from signing
this agreement until the granting of the said patent. This royalty shall be
divided within the team on such a manner that the Danish Team shall receive of
the total royalty of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] and the Finnish Team [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
The term "net selling price" means the gross amount billed for Products less
trade or quantity discounts, transportation charges or allowances, credits or
allowances, any tax, excise, or other governmental charge upon the production,
sale, transportation, delivery or use of said Products.
-3-
<PAGE>
(c)
Irrespective of sales actually made by Biocon, the minimum royalties payable to
the team shall not be less than [CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
- - [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] in the first 12 month after initial presentation of any
research group of results in a congress or paper which results show that this
method is recommendable for surgical use.
- - [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] in the next 12 month
- - [CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] in the next 12 month and [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] in
each succeeding 12 months that this agreement subsists.
The right to such a part of a minimum royalty which has not accrued as aforesaid
shall accrue at the end of each 12 months.
(d)
The royalty shall be paid quarterly no later than 30 days after the end of such
period as evidenced by statements provided by Biocon for the previous period.
Delay in payment results in payment of interest of [CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] delay.
7. ACCOUNTS AND RECORDS
Biocon will keep at its principal place of business full and accurate accounts
and records of all relevant invoices and other documents connected with the
manufacture and sale of the DEVICE including all such particulars as will enable
the royalty to be determined and will, at reasonable times permit a chartered
accountant nominated by the Danish Team to inspect such documents in the
possession or control of Biocon which relate in a relevant information relating
to such documents and such other information as may be necessary or appropriate
to enable the amount of royalties to be calculated.
8. TRADEMARK
Biocon is entitled to use any trademark of its choice for the DEVICE upon
informing the team.
9. UNFAIR COMPETITION AND INFRINGEMENT OF RIGHTS
The parties shall inform one another of all acts of unfair competition and all
infringements of patents or similar rights which have come to their notice.
Biocon agrees to bear all expenses of any possible defensive action against such
acts and infringements. The team agrees to give Biocon all information,
assistance and authority to enable Biocon to ensure the necessary legal
protection.
-4-
<PAGE>
All damage collected or any profits from any action referred to above shall be
for the sole benefit of Biocon.
10. SECRECY AND COMPETITION CLAUSE
The parties shall undertake to treat as strictly confidential and not to divulge
to any third party any of the Confidential Information disclosed by the other
party and not to make use of any such Confidential Information than in co-
operation with the other party.
Once this agreement has been signed the team shall refrain from any competitive
action against Biocon whether direct or indirect as regards the DEVICE or
competetive products within the Exclusive Territory.
Biocon agrees during the term of this agreement to refrain from manufacturing or
selling or distributing directly or indirectly any products competing with the
DEVICE.
11. CHANGES IN THE MARKET SITUATION
In case the DEVICE despite of the patent granted would face competition and
provided further, that this competition would have essential effects on the
market situation the parties shall conduct negotiations to agree on a reduced
minimum royalty, which, however shall not be reduced below [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of the
DEVICE.
On the other hand, if the sale of the DEVICE becomes a great success the parties
shall conduct negotiations to agree on an increased royalty.
12. TERMS AND TERMINATION
This agreement comes into force once it has been duly signed by the parties.
Provided that a patent protecting the exploitation of the DEVICE shall be
granted this agreement shall be valid in different countries until the
corresponding patent rights have been expired.
Provided that the patent applications for the DEVICE shall be rejected, or if
only such patents are granted which do not actually protect the industrial
exploitation of the DEVICE, this agreement shall be valid for an initial period
of twelve (12) years from the date hereof.
This agreement may be terminated forthwith for cause by either party if the
other party fails to fulfill any of its obligations under this agreement and
such default is not
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<PAGE>
remedied within 30 days of the date on which a written
notice hereof has been dispatched, the right to ask for damages being reserved.
Notice of termination shall be given by registered letter.
The team shall have the option to terminate this agreement if Biocon is adjudged
bankrupt or placed in the hand of receiver or otherwise enters into any scheme
for composition with creditors or makes any assignment of all or substantially
all its assets for the benefit of creditors.
In case of termination of this agreement all patent rights and know-how belongs
to the Team.
13. GOVERNING LAW AND ARBITRATION
This agreement shall be governed by the laws of Sweden.
Any dispute arising out of or in connection with this agreement shall finally be
settled in Stockholm without recourse to any court, in accordance with the rules
of conciliation and arbitration of Central Chamber of Commerce of Sweden by one
or more arbitrators designated in conformity with the rules of the above
Chamber.
14. NOVELTY
The Team does not warrant the novelty of DEVICE.
15. QUALITY OF DEVICE
Biocon shall manufacture products of high quality.
The Team shall be entitled to inspect whether products manufactured under the
license are of the required quality.
16. MAINTENANCE IN FORCE OF ANY PATENTS UNDER THIS AGREEMENT
Biocon shall keep in force any patents granted for the DEVICE. However, if the
team and Biocon find in agreement that the patents have lost their significance
e.g. because of several competitive products with equal quality, Biocon can if
it desires expire the patents.
17. WIDENING OF RESEARCH
Biocon can start to deliver devices, like clamps to surgical research groups for
research purposes to other countries than Denmark three (3) months after the
first thirty (30) sterile clamps have been delivered to the Danish Team for
research purposes.
-6-
<PAGE>
This agreement on 6 numbered pages (1-6), has been executed in three original
counterparts, one for Biocon, one for the Danish Team and one for the Finnish
Team.
Copenhagen 14. 12. 1988
/s/ Pertti Tormala /s/ Peter Albrecht Olson
- ----------------------- -----------------------------
(Pertti Tormala) (Peter Albrecht Olson)
(Menifix I/S)
/s/ Markku Tamminmaki /s/ Gert Kristensen
- --------------------------- ------------------------
(Markku Tamminmaki) (Gert Kristensen)
BIOCON OY
/s/ Pertti Tormala
- -----------------------
-7-
<PAGE>
EXHIBIT 10.10
Certain portions of this exhibit have been omitted based upon a request for
confidential treatment. The omitted portions of this exhibit have been
separately filed with the Securities and Exchange Commission.
LICENSE, MANUFACTURING AND DISTRIBUTION AGREEMENT
-------------------------------------------------
This agreement is made between:
Mr. Gert Kristensen and Mr. Peter Albrecht Olsen, address Nivavaenge
173, DR-2990 Niva, Denmark and Mr. Klaus Fredskilde, address Staget 24, DK-3070
Snekkeasten, Denmark hereinafter jointly referred to as "Danish Inventors" and
Mr. Pertti Tormala, address Runeberginkatu 3 A, SF-33710 Tampere, Finland, Mr.
Markku Tamminmaki, address Kukkolankatu 23, SF-33400 Tampere, Finland and Mrs.
Marja Pellinen, address Aaltosenkatu 31-33 B 12, SF-33500 Tampere, Finland
hereinafter jointly referred to as "Finnish Inventors"
and
Biocon Oy (including its subsidiaries, daughter companies or
corresponding), whose registered office is at Runeberginkatu 3 A, Sf-33710
Tampere, Finland hereinafter referred to as "Biocon".
All the above inventors and Biocon are hereinafter jointly referred to
as "parties".
1. BACKGROUND
The Finnish Inventors, Gert Kristensen, Peter Albrecht Olsen and
Biocon Oy are developing in cooperation a [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
The invention is based on [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]. Biocon Oy is the owner
of patents and know-how relating to said products.
The cooperation has proceeded on such a level that the patent
application shall be filed for the device in near future.
The Parties are developing together [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
The parties to this agreement define in this agreement the rights and
duties of parties to INSTRUMENT.
<PAGE>
2. DEFINITIONS
In this agreement:
a) [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]
b) [CONFIDNETIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]
c) "Exclusive Territory'' shall mean the world.
d) "Confidential information" shall mean all scientific, commercial
or technical data and information including but not limited to information
relating to market reports and surveys, customer lists, trade secrets,
documents, correspondence, methods, skills, practices, training, procedures,
research, machinery, equipment, instruments, expertices, discoveries,
inventions, improvements, data drawings, designs, calculations, specifications,
techniques and processes regarding the INSTRUMENT.
3. OBJECT OF THE AGREEMENT
The parties hereby grant to Biocon the exclusive right to manufacture
or to have manufactured the INSTRUMENT in the Exclusive Territory. The parties
hereby also grant to Biocon the exclusive right to use and sell the INSTRUMENT
in the Exclusive Territory.
The parties undertake to conduct research and development work and to
use their best efforts in order to develop further and improve the
characteristics of the instrument.
The parties shall provide Biocon with such information, specifications
and data with respect to the INSTRUMENT as shall be necessary to improve
Biocon's potentiality to carry out the targets in this agreement.
The parties agree to keep Biocon continuously informed of all research
and development results in regard to the INSTRUMENT during the development
process.
The rights granted to Biocon include any additional modifications and
improvements of the INSTRUMENT.
-2-
<PAGE>
Biocon shall inform the parties about any changes and improvements of
the DEVICE and INSTRUMENT.
After the agreement of Biocon the parties can participate in
international congresses and present research results [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
4. SUBLICENSES
Biocon will negotiate with a manufacturing company (the Company A) to
grant for it the exclusive right to manufacture INSTRUMENTS for Biocon. Biocon
is also entitled to grant sublicenses at its sole discretion to use and to sell
INSTRUMENTS within the Exclusive Territory. Such sublicensing shall not relieve
Biocon of any obligation under this Agreement. Biocon must include in possible
license agreements the paragraph that the Danish and Finnish Inventors are
entitled to the royalties of all marketed INSTRUMENTS according to this
Agreement regardless which company manufactures or markets the products. Biocon
is obliged to inform the parties of sublicenses.
5. PATENTS
Biocon is entitled at its own expense and at its sole discretion to
take any and all necessary measures in order to file for patents for the
INSTRUMENT in the Exclusive Territory. In the patent applications the Danish
and Finnish Inventors shall be reported as the inventor and Biocon as the
applicant.
Biocon is also entitled to register this agreement with the proper
patent and other authorities as such time as the registration is possible in
accordance with the legislation of the country in question. The Danish and
Finnish Inventors undertake to provide Biocon with all necessary authorization
and documents for these purposes. The Danish and Finnish Inventors are entitled
to receive a copy of all patent applications filed by Biocon.
-3-
<PAGE>
6. COMMISSION
6.1. Commission to be paid by Biocon
In consideration of the licenses granted by the parties to Biocon in
accordance with the terms and conditions in this agreement, Biocon agrees to pay
the Danish and Finnish Inventors a royalty net of any withholding company taxes
as follows:
The amount of the royalty shall be [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of the INSTRUMENTS
sold by Biocon whilst the patent applications are still pending and not a single
patent has been granted. This royalty shall be divided within the teams as
follows:
- [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]
- [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]
Provided that the patents in accordance with the above terms shall be
granted Biocon agrees retroactively to pay the Danish and Finnish Inventors an
additional royalty of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION] of the INSTRUMENTS sold by Biocon for
the period from signing this agreement until the granting of the said patent.
This royalty shall be divided within the team on such a manner that the Danish
Inventors shall receive of the total royalty of [CONFIDENTIAL PORTION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] and the
Finnish Inventors [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION].
The term "net selling price" means the gross amount billed for
Products less trade or quantity discounts, transportation charges or allowances,
credits or allowances, any tax, excise or other governmental charge upon the
production, sale, transportation, delivery of use of said Products.
6.2. Commission to be paid by Company A.
Biocon is obliged to include in agreement with Company A the paragraph
that the Company A shall pay to the Danish and Finnish [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY]
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<PAGE>
WITH THE SECURITIES AND EXCHANGE COMMISSION]. These royalties are defined in the
similar way as the royalties to be paid by Biocon defined in paragraph 6.1. The
royalties to be paid by Company A will be divided by Danish and Finnish
Inventors in the similar way as the royalties to be paid by Biocon.
6.3. Minimum royalty
Biocon and Company A are jointly obliged to pay at equal basis to the
Danish and Finnish Inventors the following minimum royalty. Irrespective of
sales actually made by Biocon and Company A, the minimum royalties payable to
the Danish and Finnish Inventors shall not be less than
- [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] in the first 12 month after initial
presentation by any research group of results in a congress or paper which
results show that Instrument is recommendable for surgical use.
- [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] US Dollars in the next 12 month
- [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] US Dollars in the next 12 month and
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] in each succeeding 12 months that this agreement subsists.
The right to such a part of a minimum royalty which has not accrued as
aforesaid shall accrue at the end of each 12 months.
6.4. Terms of paying
The royalties shall be paid annually no later than 90 days after the
end of such period as evidenced by statements provided by Biocon and Company A
for the previous period. Delay in payment results in payment of interest of
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] delay.
7. ACCOUNTS AND RECORDS
-5-
<PAGE>
Biocon will keep at its principal place of business full and accurate
accounts and records of all relevant invoices and other documents connected with
the manufacture and sale of the INSTRUMENT including all such particulars as
will enable the royalty to be determined and will, at reasonable times permit a
chartered accountant nominated by the Danish or Finnish Inventors to inspect
such documents in the possession or control of Biocon which relate in a relevant
information relating to such documents and such other information as may be
necessary or appropriate to enable the amount of royalties to be calculated.
8. TRADEMARK
Biocon is entitled to use any trademark of its choice for the
INSTRUMENT upon informing the parties.
9. UNFAIR COMPETITION AND INFRINGEMENT OF RIGHTS
The parties shall inform one another of all acts of unfair competition
and all infringements of patents or similar rights which have come to their
notice. Biocon agrees to bear all expenses of any possible defensive action
against such acts and infringements. The Danish and Finnish Investors agree to
give Biocon all information, assistance and authority to enable Biocon to ensure
the necessary legal protection.
All damage collected or any profits from any action referred to above
shall be for the sole benefit of Biocon.
10. SECRECY AND COMPETITION CLAUSE
The parties shall undertake to treat as strictly confidential and not
to divulge to any third party any of the Confidential Information disclosed by
the other party and not to make use of any such Confidential Information than in
co-operation with the other parties.
Once this agreement has been signed the Danish and Finnish Inventors
shall refrain from any competitive action against Biocon whether direct or
indirect as regards the INSTRUMENT or competitive products within the Exclusive
Territory.
Biocon agrees during the term of this agreement to refrain from
manufacturing or selling or distributing directly or indirectly any products
competing with the INSTRUMENT.
-6-
<PAGE>
11. CHANGES IN THE MARKET SITUATION
In case the INSTRUMENT despite of the patent granted would face
competition and provided further, that this competition would have essential
effects on the market situation the parties shall conduct negotiations to agree
on a reduced minimum royalty, which, however shall not be reduced below
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] of the INSTRUMENTS sold by Company A and [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION] of the INSTRUMENTS sold by Biocon.
On the other hand, if the sale of the INSTRUMENT becomes a great
success the parties shall conduct negotiations to agree on an increased royalty.
12. TERMS AND TERMINATION
This agreement comes into force once it has been duly signed by the
parties.
Provided that a patent protecting the exploitation of the INSTRUMENT
shall be granted this agreement shall be valid in different countries until the
corresponding patent rights have been expired.
Provided that the patent applications for the INSTRUMENT shall be
rejected, or if only such patents are granted which do not actually protect the
industrial exploitation of the INSTRUMENT, this agreement shall be valid for an
initial period of twelve (12) years from the date hereof.
This agreement may be terminated forthwith for cause by any party if
one of the parties fails to fulfill any of its obligations under this agreement
and such default is not remedied within 30 days of the date on which a written
notice hereof has been dispatched, the right to ask for damages being reserved.
Notice of termination shall be given by registered letter.
The Danish and Finnish Investors shall have the option to terminate
this agreement if Biocon is adjudged bankrupt or placed in the hand of receiver
or otherwise enters
-7-
<PAGE>
into any scheme for composition with creditors or makes any assignment of all or
substantially all its assets for the benefit of creditors.
In case of the above termination of this agreement all patent rights
and know-how belongs to the Danish and Finnish Inventors.
13. GOVERNING LAW AND ARBITRATION
This agreement shall be governed by the laws of Sweden.
Any dispute arising out of or in connection with this agreement shall
finally be settled in Stockholm without recourse to any court, in accordance
with the rules of conciliation and arbitration of Central Chamber of Commerce of
Sweden by one or more arbitrators designated in conformity with the rules of the
above Chamber.
14. NOVELTY
The Danish and Finnish Inventors do not warrant the novelty of
INSTRUMENT.
15. QUALITY OF INSTRUMENT
The Danish and Finnish Inventors shall be entitled to inspect whether
products manufactured under the license are of the required quality.
16. MAINTENANCE IN FORCE OF ANY PATENTS UNDER THIS AGREEMENT
Biocon shall keep in force any patents granted for the INSTRUMENT.
However, if the parties find in agreement that the patents have lost their
significance, e.g. because of several competitive products with equal quality,
Biocon can if it desires expire the patents.
-8-
<PAGE>
This agreement on 9 numbered pages (1-9), has been executed in seven
original counterparts, one for Biocon, three for the Danish Inventors and three
for the Finnish Inventors.
September 28, 1989
/s/ Pertti Tormala /s/ Peter Albrecht-Olsen
------------------ ------------------------
(Pertti Tormala) (Peter Albrecht-Olsen)
/s/ Markku Tamminmaki /s/ Gert Kristensen
- --------------------- -------------------
(Markku Tamminmaki) (Gert Kristensen)
/s/ Marja Pellinen /s/ Klaus Redskilde
- ------------------ -------------------
(Marja Pellinen) (Klaus Redskilde)
/s/ Pertti Tormala
- ------------------
BIOCON OY
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<PAGE>
EXHIBIT 10.12
THIS IS A CONFIDENTIAL DOCUMENT
This Lease (the "Lease"), dated as of the 18th day of March 1997
is made by and between LANDLORD (as hereinafter defined) and TENANT (as
hereinafter defined).
ARTICLE I: DEFINITIONS
1.01 DEFINED TERMS. The following terms shall have the meanings
specified in this Section, unless otherwise specifically provided. Other terms
may be defined in other parts of this Lease. All square foot measures and
Tenant's Share are subject to actual mesure before execution of the lease.
(a) LANDLORD: 1777 Sentry Parkway Office Associates, L.P.,
a New Mexico limited partnership
(b) LANDLORD'S ADDRESS: 1777 Sentry Parkway Office Associates, L.P.
330 Garfield Street Suite 200 Santa Fe, New
Mexico 87501
Attn: Ms. Cheryl Willoughby
WITH A COPY TO:
Axiom Real Estate Management, Inc.
1600 Market Street, Suite 1900
Philadelphia, Pennsylvania 19103
Attn: Vice President, Property Management
(c) TENANT: Bionx Implants, Inc.
a Delaware Corporation having offices at
(d) TENANT'S ADDRESS: 279B Great Valley Parkway
Malvern, PA 19355
(e) BROKER: Grubb & Ellis, Inc., and C/B Commercial
(f) PROJECT: Sentry Park West, Blue Bell, Pennsylvania,
including the land described in Exhibit A
and all buildings and other improvements now
or hereafter located thereon. For purposes
of this Lease, the rentable square footage
of the Project shall be deemed to be two
hundred sixteen thousand (216,000) square
feet of rentable floor area. This
computation of rentable square footage shall
be binding and conclusive on the parties,
and their successors and assigns.
(g) BUILDING: The building known as Gwynedd Hall, Sentry
Park West, Blue Bell, Pennsylvania.
(h) PREMISES: The portion of the Building located on the
4th floor thereof as shown by cross-hatching
on the Building floor plan(s) attached
hereto as Exhibit B. For purposes of this
Lease, the rentable square footage of the
Premises shall be deemed to be seven
thousand two hundred seventy two (7,272)
square feet of rentable floor area. This
computation of rentable square footage shall
be binding and conclusive on the parties,
and their successors and assigns.
(i) TERM: Five (5) years, plus (if the
Commencement Date is not the first day of a
calendar month) the period from the
<PAGE>
Commencement Date through the last day of
the calendar month in which the Commencement
Date occurs.
(j) ESTIMATED May 17, 1997 or four (4) to six (6) weeks
COMMENCEMENT DATE: after the date of the execution and
delivery of this Lease by Landlord and
Tenant.
(k) COMMENCEMENT DATE: As defined in Section 4.01.
(1) EXPIRATION DATE: The fifth anniversary of (a) if the
Commencement Date is the first day of a
calendar month, the day before the
Commencement Date, or (b) if the
Commencement Date is not the first day of a
calendar month, the last day of the calendar
month in which the Commencement Date occurs.
For example, if the Commencement Date were
July 1, 1996, the Expiration Date would be
the applicable anniversary of June 30, 1996;
if the Commencement Date were July 15, 1996,
the Expiration Date would be the applicable
anniversary of July 31, 1996. If the Term
has been extended or this Lease has been
renewed, the Expiration Date shall be the
last day of the Term as so extended or
renewed.
(m) LEASE YEAR: The period from the Commencement Date
through the day before the one-year
anniversary of the Commencement Date (or if
the Commencement Date is not the first day
of a calendar month, the one-year
anniversary of the last day of the month in
which the Commencement Date occurs), and
each one-year period (or portion thereof if
the Lease is terminated during any such one-
year period) thereafter during the Term.
(n) BASE RENT: As set forth below:
Annual Base Rent Schedule
-------------------------
Portion of Terrn Base Rent Per Annum
---------------- -------------------
Lease Year 1 $119,988.00
Lease Year 2 $119,988.00
Lease Year 3 $123,624.00
Lease Year 4 $127,260.00
Lease Year 5 $130,896.00
(o) TENANT'S SHARE: 3.367%
(p) SECURITY DEPOSIT: $9,999.00
(q) TENANT IMPROVEMENT
ALLOWANCE: N/A
(r) BASE YEAR: The calendar year 1998.
(s) OPERATING EXPENSE Tenant's Share of the Operating Expenses
ALLOWANCE: (as defined in Section 6.02(b)(iii)) for
the Base Year.
(t) TAX ALLOWANCE: Tenant's Share of the Real Property Taxes
(as defined in Section 6.02(b)(i)) for the
Base Year.
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<PAGE>
(u) UTILITY ALLOWANCE: Tenant's Share of the Utility Costs (as
defined in Section 6.02(b)(ii)) for the Base
Year.
ARTICLE II: DEMISE AND LEASE
2.01 DEMISE AND LEASE. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, subject to the provisions of this Lease, the
"Premises" specified in Section l.01(h) hereof located within the "Building"
specified in Section 1.01(g) hereof, which Building is a portion of the
"Project" identified in Section 1.01(f) hereof. The land on which the Project is
located is more particularly described in Exhibit A attached hereto and the
Premises are shown by cross-hatching on the Building floor plan(s) attached
hereto as Exhibit B. Tenant acknowledges that the sole purpose of the attached
floor plan(s) is to identify the location of the Premises in the Building.
Landlord makes no representation or warranty in the attached floor plan(s) as to
the usable or rentable square footage of the Premises. All square foot mesures
and Tenant's Share are subject to actual measure before execution.
2.02 REPRESENTATIONS AND WARRANTIES; TAKING OF POSSESSION. Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Premises, the Building, the
Common Areas (as defined in Section 2.03 below), or the Project or their
suitability for the conduct of Tenant's business. By taking possession of the
Premises, Tenant accepts the Premises, the Tenant Improvements (as defined in
Section 3.01 below) and the Building as completed or substantially completed (as
defined in Section 3.02 below).
2.03 COMMON AREAS. In addition to the Premises, Tenant shall have the
non-exclusive right to use in common with other tenants and/or occupants of the
Building and the Project, subject to the Rules and Regulations referred to in
Section 18.09 hereof and all covenants, conditions and restrictions now or
hereafter affecting or encumbering the Project, the following areas appurtenant
to the Premises: the Building's common entrances, lobbies, rest rooms,
elevators, stairways and accessways, loading and unloading areas, trash areas,
parking areas and facilities, roadways, sidewalks, walkways, parkways, plazas,
driveways and landscaped areas, and similar areas and facilities situated within
the Building and the exterior areas of the Project (collectively, the "Common
Areas"). Tenant acknowledges that Landlord shall have no obligation to construct
or complete any additional buildings or improvements to the Common Areas.
Tenant's right to utilize the Common Areas shall at all times be subject to
Landlord's reserved rights therein as described in Section 18.08 hereof.
ARTICLE III: IMPROVEMENTS
3.01 TENANT IMPROVEMENTS. The Premises are or shall be improved by
Landlord with the tenant improvements (the "Tenant Improvements") more
particularly described in the Work Letter Agreement attached hereto as Exhibit C
(the "Work Letter Agreement"). Landlord shall exercise reasonable efforts to
make the Premises Ready for Occupancy (as defined in Section 3.02 below) not
later than the Estimated Commencement Date set forth in Section 1.01(j) hereof.
If, however, the Premises are not completed on or before the Estimated
Commencement Date, this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom.
3.02 COMPLETION AND DELIVERY. The Premises shall be deemed ready for
occupancy ("Ready for Occupancy") when the Tenant Improvements have been
completed or substantially completed by Landlord and delivered, tendered or made
available to Tenant. The term "substantially completed" as used in this Lease
shall mean the date of issuance of a certificate of occupancy (temporary or
permanent) for the Premises by the municipality in which the Premises are
located, or if no certificate of occupancy is required, the date of substantial
completion of the Tenant Improvements as certified by Landlord's architect,
which certification shall be conclusive and binding upon Landlord and Tenant.
The Tenant Improvements shall be deemed substantially completed notwithstanding
the fact that minor details of construction, mechanical adjustments or
decorations which do not materially interfere with Tenant's use and enjoyment of
the Premises
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<PAGE>
(items normally referred to as "punch list" items) remain to be performed. By
taking possession of the Premises, Tenant accepts the Premises, the Tenant
Improvements and the Building as completed or substantially completed, except
that in the latter case, on or about the date of Tenant's taking possession of
the Premises, Landlord and Tenant shall together prepare a list of incomplete
and/or corrective items needed at the Premises (which shall not include any
items requiring repair or correction due to damage caused in connection with
Tenant's taking possession of the Premises or due to the negligence or willful
misconduct of Tenant its agents, employees or contractors). If properly
includable as part of the Tenant Improvements, Landlord shall diligently
complete, as soon as reasonably possible, any items of work and adjustment on
such list as are not completed when the Premises are Ready for Occupancy.
Landlord will give Tenant reasonable advance notice of the date on which
Landlord expects the Premises to be Ready for Occupancy.
ARTICLE IV: TERM
4.01 TERM. The Term shall commence upon the earliest of the following
dates (the "Commencement Date"): (a) the date on which the Premises are Ready
for Occupancy (or, if the date on which the Premises are Ready for Occupancy is
delayed and such delay is caused by Tenant's delays in reviewing or approving
plans and specifications, Tenant's requests for materials, finishes or
installations other than "building standard", Tenant's changes in plans and
specifications, or other acts, omissions or delays of Tenant, the Commencement
Date shall be the date that falls the total number of days of delay attributable
to such causes prior to the date on which the Premises are Ready for Occupancy,
as reasonably determined by Landlord); or (b) the date upon which Tenant takes
possession or beneficial occupancy of the Premises with Landlord's written
consent. The Term shall expire at 11:59 p.m. on the Expiration Date set forth in
Section 1.01(1), unless sooner terminated as hereinafter provided.
4.02 NOTICE OF COMMENCEMENT DATE. Upon ascertaining the Commencement
Date, Landlord shall deliver to Tenant a written confirmation of the
Commencement Date, in the form attached hereto as Exhibit D (the "Notice of
Commencement"). The Notice of Commencement shall be binding upon Tenant unless
Tenant objects thereto in a writing delivered to Landlord within five (5)
business days of Tenant's receipt of the Notice of Commencement. However,
Landlord's failure to send the Notice of Commencement shall not delay the
commencement of or any of Tenant's obligations under this Lease if Tenant takes
possession or beneficial occupancy of the Premises with Landlord's written
consent prior to the Commencement Date set forth in the Notice of Commencement.
4.03 RENEWAL OPTIONS. Provided Tenant is not in default at the time the
option described in this paragraph is exercised and at the time of the
expiration of the original Term, Tenant shall have the right and option to renew
this Lease (the "Renewal Option") for one (1) additional term of five (5) years
(the "Renewal Term") to commence immediately upon expiration of the original
Term of this Lease. Tenant may exercise the Renewal Option only by delivery
written notice to Landlord not later than nine (9) months, nor earlier than
twelve (12) months, prior to the expiration of the original Term of this Lease.
Such notice shall be given to Landlord in accordance with Section 18.01 hereof.
If Tenant timely exercises the Renewal Option and is not in default at the
expiration of the original Term of this Lease (unless such default is waived by
Landlord at Landlord's sole discretion; such default may not be used by Tenant
as a means of negating the effectiveness of an earlier exercise by Tenant of the
Renewal Option), this Lease shall continue during the Renewal Term upon the same
covenant, terms and conditions applicable to the original Term of this Lease,
except for base rent and other provisions which by their nature are applicable
to the original Term of this Lease, except for base rent and other provisions
which by their nature are applicable only to the original Term of this Lease.
Base rent for the renewal term shall be $18.50 for year one of the renewal term
and said base rent shall escalate by $.50 per rentable square foot in subsequent
years 2, 3, 4 and 5 of the renewal term.
4.04 TERMINATION OPTION. Provided Tenant is not in default at the time
the option described in this paragraph is exercised, Tenant shall have the
option to terminate this Lease on the last day of the thirty sixth (36th) month
during the original five (5) year Term of this Lease.
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<PAGE>
Such options shall be exercised only by delivering to Landlord (i) before the
expiration of the twenty seventh (27th) month during the original five (5) year
Term of notice of Tenant's exercise of such option ("Tenant's Exercise Notice")
and (ii) on or before the day on which the monthly installment of Base Rent for
the twenty eighth (28th) month during the original five (5) year Term of the
Lease is due, and together with such installment, the Termination Fee (as
hereinafter defined). The Termination Fee (which Termination fee shall be in
addition to, and not in substitution of, any Rent payable by Tenant under this
Lease), shall be sixty three thousand six hundred thirty dollars ($63,630.00).
Provided Tenant time and properly exercises its termination option
described in this Section 4.04 in the manner set forth above, the Term of this
Lease shall expire as of the early termination date set forth above, and such
early termination date shall become the Expiration ate for all purposes of this
Lease.
ARTICLE V: RENT
5.01 BASE RENT. The Base Rent shall be in the amount(s) set forth in
Section 1.01(n) hereof. The Base Rent shall be adjusted at the time and in the
manner set forth in Section 1.01(n) hereof (if any), and one-twelfth (1/12th) of
the annual Base Rent shall be paid in advance on the first day of each and every
month during the Term, without notice, demand or setoff. If the Commencement
Date is not the first day of a calendar month, Base Rent for the fractions of
the month in which the Commencement Date occurs shall be prorated based upon the
actual number of days in such fractional month. Upon executing this Lease,
Tenant shall pay the installment of Base Rent attributable to the first full
calendar month of the Term for which a full monthly installment of Base Rent is
payable hereunder.
5.02 ADDITIONAL RENT. In additional to Base Rent, Tenant shall pay to
Landlord all sums of money or other charges required to be paid by Tenant under
this Lease, including but not limited to charges required to be paid by Tenant
under this Lease for Operating Expenses, Real Property Taxes, Utility Costs (all
as defined in Article VI hereof) and Electricity Charges (as defined in Section
7.02(a) hereof) (all such sums being herein deemed "Additional Rent", which term
excludes Base Rent and the Security Deposit), and whether or not same are
designated "Additional Rent" and whether or not same are payable to Landlord or
any other entity. Any Additional Rent provided for in this Lease shall become
due with each monthly installment of Base Rent unless otherwise provided.
5.03 MANNER OF PAYMENT. Rent, payable under this Lease shall be paid in
lawful money of the United States of America without prior notice or demand
therefor and without any deduction, defense, counterclaim, setoff or abatement
whatsoever. Rent shall be paid to Landlord at Landlord's Address set forth in
Section 1.01(b) hereof or at such other place as Landlord may direct in writing.
The term "Rent" as used in this Lease shall refer collectively to "Base Rent"
and "Additional Rent".
5.04 LATE PAYMENT AND INTEREST. If any payment of Rent or any other
charge payable by Tenant hereunder is not paid promptly when due, Tenant shall
pay to Landlord a late payment charge equal to ten percent (10%) of the amount
of such delinquent payment in addition to the delinquent payment, regardless of
whether or not a notice of default has been given by Landlord. In addition,
Tenant shall pay interest on such late payment and late charge from and after
the expiration of five (5) days following the original due date of the late
payment at an interest rate (the "Interest Rate") equal to the lesser of (a) the
prevailing prime rate as published by Chase Manhattan Bank, N.A., at its New
York office (or a successor bank selected by Landlord upon written notice to
Tenant), plus three (3) percentage points, or (b) the maximum rate permitted by
applicable law, until such amounts are paid. Landlord and Tenant recognize that
the damages which Landlord will suffer as a result of Tenant's failure to timely
pay Rent or other amounts due to Landlord are difficult or impracticable to
ascertain, and agree that said interest and late charge constitute a reasonable
estimate of the damages which Landlord will suffer in the event of Tenant's late
payment. This Section 5.04 shall not relieve Tenant from payment of Rent or
other amounts due to Landlord at the times and in the manners herein specified.
Acceptance by Landlord of any such interest and late charge shall not constitute
a waiver of Tenant's default
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<PAGE>
with respect to said overdue amount, nor prevent Landlord from exercising any
other rights or remedies available to Landlord.
5.05 SECURITY DEPOSIT. Tenant has deposited the Security Deposit
specified in Section 1.01(p) hereof as a security deposit with Landlord. The
payment of the Security Deposit is a current and absolute payment by Tenant to
Landlord, and the Security Deposit is and shall remain the sole and absolute
property of Landlord, subject only to Tenant's right to have the Security
Deposit returned to Tenant in accordance with and subject to the terms of this
Section 5.05. The Security Deposit shall secure Tenant's full and faithful
performance of all of Tenant's obligations under this Lease, including, without
limitation, the obligation to pay Rent and other monetary amounts, to maintain
the Premises and repair damages thereto and to surrender the Premises to
Landlord in a clean condition and in good repair upon termination of this Lease
as required pursuant to Section 18.05 below. Landlord shall not be required to
keep the Security Deposit separate from Landlord's general funds, nor shall
Tenant be entitled to interest on the Security Deposit. If Tenant fails to
perform any of Tenant's obligations hereunder, Landlord, without any obligation
to do so, may apply all or any portion of the Security Deposit toward
fulfillment of Tenant's unperformed obligations. If Landlord does so apply any
portion of the Security Deposit, Tenant, upon demand by Landlord, shall
immediately pay Landlord a sufficient amount to restore the Security Deposit to
the full original amount. Tenant's failure to restore the Security Deposit to
its full original amount within five (5) business days after receipt of such
demand shall, without any further notice or demand required, constitute an Event
of Default (as defined in Article XIV hereof). Use by Landlord of the Security
Deposit, or any part thereof, to satisfy any of Tenant's obligations hereunder
shall not constitute a waiver of Tenant's default with respect to such
nonperformance for which amounts are expended, nor prevent Landlord from
exercising any other rights or remedies available to Landlord. Within thirty
(30) days after the termination of this Lease, if Tenant has then performed all
of Tenant's obligations hereunder, Landlord shall return the Security Deposit,
or the remaining balance thereof, to Tenant. If Landlord sells or otherwise
transfers Landlord's rights or interest under this Lease, Landlord shall deliver
the Security Deposit, or the remaining balance thereof, to the transferee,
whereupon Landlord shall be released from any further liability to Tenant with
respect to the Security Deposit.
Tenant covenants that it shall not assign, pledge, hypothecate, mortgage
or otherwise encumber the Security Deposit during the Term of this Lease.
Notwithstanding Tenant's covenant set forth above, violation of which shall be
an Event of Default under this Lease, in the absence of evidence satisfactory to
Landlord of any assignment of the right to receive the Security Deposit, or the
remaining balance thereof, Landlord may return the Security Deposit to the
original Tenant regardless of one or more assignments of Tenant's interest in
such Security Deposit. In such event, upon the return of the Security Deposit,
or the remaining balance thereof, to the original Tenant, Landlord shall be
completely relieved of liability hereunder.
ARTICLE VI: ADDITIONAL RENT AND CHARGES
6.01 TENANT'S OBLIGATION FOR TAXES. In addition to amounts due from
Tenant in accordance with Section 6.02 below, Tenant shall pay or cause to be
paid, prior to delinquency, any and all taxes and assessments levied upon all
trade fixtures, inventories and other personal property placed in and/or upon
the Premises by Tenant. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant, and if Landlord pays
the taxes based upon such increased assessment, Tenant shall, upon demand, repay
to Landlord, as Additional Rent, the taxes so levied or the portion of such
taxes resulting from such increase in the assessment.
6.02. TENANT'S SHARE OF REAL PROPERTY TAXES, UTILITY COSTS, AND
OPERATING EXPENSES.
(a) ESTIMATED EXPENSES. If the parties' representatives cannot
agree on Operating Statement audits, the parties agree to select a third,
independent accountant to resolve
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any dispute, such determination to be binding on the parties. Tenant shall pay
to Landlord, as Additional Rent, the following (the "Escalation Amounts"):
(i) REAL PROPERTY TAXES. The amount by which Tenant's
Share of Real Property Taxes (as defined below) paid by Landlord during each
calendar year or portion thereof during the Term (except for the Base Year)
exceeds the Tax Allowance (as defined in Section 1.01(t)) (or in the event of a
portion of a calendar year, the fraction of the Tax Allowance that is equivalent
to the portion of the calendar year in question);
(ii) UTILITY COSTS. The amount by which Tenant's Share
of Utility Costs (as defined below) paid by Landlord during each calendar year
or portion thereof during the Term (except for the Base Year) exceeds the
Utility Allowance (as defined in Section 1.01(u)) (or in the event of a portion
of a calendar year, the fraction of the Utility Allowance that is equivalent to
the portion of the calendar year in question); and
(iii) OPERATING EXPENSES. The amount by which Tenant's
Share of Operating Expenses (as defined below) paid by Landlord during each
calendar year or portion thereof during the Term (except for the Base Year)
exceeds the Operating Expense Allowance (as defined in Section 1.01(s)) (or in
the event of a portion of a calendar year, the fraction of the Operating Expense
Allowance that is equivalent to the portion of the calendar year in question).
Prior to the commencement of each calendar year of the Term, except for the Base
Year, Landlord shall deliver to Tenant an estimate of the annual Escalation
Amounts payable by Tenant pursuant to this provision, and Tenant shall pay to
Landlord on the first of each month in advance, one-twelfth (1/12th) of
Landlord's estimated amount. At the end of each year there shall be an
adjustment made to account for any difference between the actual and the
estimated Escalation Amounts for such calendar year. If Tenant has overpaid the
Escalation Amounts owing pursuant to this provision, and provided Tenant is not
in default hereunder, Landlord shall refund such overpayment to Tenant;
provided, however, that Landlord shall have the right, in its sole discretion,
to credit such overpayment to unpaid Rent payable by Tenant under this Lease,
whether or not same is then due. Notwithstanding anything to the contrary
contained in this Lease, if Tenant's Share of Real Property Taxes, Utility Costs
or Operating Expenses during any calendar year during the Term of this Lease is
less than the Allowance for such item, such shortfall shall not be applied to
reduce the amounts payable by Tenant for Tenant's Share of such other items. If
Tenant has underpaid the Escalation Amounts owing pursuant to this provision,
Tenant shall pay the total amount of such deficiency to Landlord as Additional
Rent with the next payment of Rent due under this Lease following written notice
of said deficiency from Landlord to Tenant. Any Escalation Amounts attributable
to the Term of this Lease which would not otherwise be due until after the date
of the expiration or earlier termination of this Lease, shall, if the exact
amount is uncertain at the time this Lease expires or terminates, be paid by
Tenant to Landlord upon such expiration or termination in an amount to be
reasonably determined by Landlord, with an adjustment to be made once the exact
amount is known. Such obligation shall survive the expiration or earlier
termination of this Lease.
Tenant shall be provided, following the end of each calendar year during
the Term of this Lease, with a statement showing in reasonable detail the
separate charges for Real Property Taxes, Utility Costs, and Operating Expenses
for the such calendar year for which such charges were due (the "Operating
Statement"). If Tenant disputes the amount or characterization of any item
contained in the Operating Statement, Tenant shall have the right to designate
an independent certified public accountant that is not being compensated by
Tenant on a contingency fee basis to audit Landlord's records upon which such
Operating Statement is based, provided (i) Tenant first pays all sums due as
shown on the Operating Statement and (ii) Tenant first provides to Landlord the
written agreement of such accountant that such accountant (a) shall keep the
results of such audit confidential and will not disclose the results thereof or
any information obtained in connection therewith to any party other than
Landlord and Tenant and (b) shall not solicit any other tenant of the Project to
conduct a similar audit on such tenant's behalf. Such audit shall be conducted
and completed no later than sixty (60) days following Tenant's receipt of the
Operating Statement in question. The fee for any audit conducted on Tenant's
behalf shall be borne solely by Tenant. All information obtained through
Tenant's audit, as well as all information with respect to any compromise,
settlement, or adjustment reached
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between Landlord and Tenant in connection with such audit, shall be held in
strict confidence by Tenant and its officers, agents, and employees; and Tenant
shall, as a condition to Tenant's right to conduct any such audit, cause
Tenant's auditor to execute an agreement binding such auditor and such auditor's
officers, agents, and employees to such obligation of confidentiality. Tenant
shall not disclose the results of such audit or any information obtained in
connection therewith to any party other than Landlord. Landlord shall have the
right, at its sole expense, to have Tenant's audit reviewed by another certified
public accounting firm selected by Landlord, whose determination shall be
conclusive and binding on both Landlord and Tenant. Any adjustment required
between Landlord and Tenant following such review shall be made in accordance
with the procedure set forth in the immediately preceding paragraph. Any audit
and subsequent adjustment in payment shall be deemed to be conclusive settlement
of the dispute. If Tenant does not notify Landlord of a dispute within sixty
(60) days of receipt of such Operating Statement, Tenant shall be deemed to have
accepted Landlord's calculations as conclusive.
(b) DEFINED TERMS.
(i) REAL PROPERTY TAXES. For purposes of this
Lease, "Real Property Taxes" shall mean any and all federal, state and local
governmental taxes, assessments and charges of any kind or nature, whether
general, special, ordinary or extraordinary, which Landlord shall pay or become
obligated to pay because of or in connection with the ownership, leasing,
renting, management, control or operation of the Project or of the personal
property, fixtures, machinery, equipment, systems and apparatus located therein
or used in connection therewith. Real Property Taxes shall include, without
limitation, real estate taxes, personal property taxes, sewer rents, water
rents, assessments (special or otherwise), transit taxes, and ad valorem taxes.
Real Property Taxes shall also include all tees, costs and expenses (including,
without limitation, reasonable legal fees and court costs) paid by Landlord in
connection with protesting or contesting, or seeking a refund or reduction of,
any of the aforesaid Real Property Taxes, regardless of whether the Landlord is
ultimately successful. If at any time during the Term hereof, a tax or excise on
rents or income or other tax however described (herein called "Rent Tax") is
levied or any political subdivision thereof, on account of the Rent hereunder or
the interest of Landlord under this Lease, such Rent Tax shall constitute and be
included in Real Property Taxes, provided, however, that in no event shall
Tenant be obligated (a) to pay for any year any greater amount as a result of
such Rent Tax than would have been payable by Tenant had the rentals paid to
Landlord under all Project leases (being the rentals upon which such taxes are
imposed) been the sole taxable income of Landlord for the year in question or
(b) to pay or to reimburse Landlord for any tax of any kind assessed against
Landlord on account of any such Rent Tax having been reimbursed to Landlord by
Tenant or any third party.
For the purposes of determining Real Property Taxes for any given
calendar year, the amount to be included for such calendar year (a) from special
taxes or assessments payable in installments, shall be the amount of the
installments (and any interest) due and payable during such calendar year, (b)
from all other Real Property Taxes, shall be the amount of the payments thereof
due and payable during such calendar year, and (c) from any adjustments
(including, without limitation, a refund) to any Real Property Taxes by the
taxing authority, when such adjustment has resulted in a corresponding
adjustment payment by or to Landlord, shall constitute an adjustment to Real
Property Taxes for the calendar year to which such adjustment is applicable,
regardless of when such adjustment is made or received by Landlord, as the case
may be. Landlord shall refund to Tenant Tenant's Share of any net refund (after
deducting therefrom all reasonable expenses incurred in obtaining such refund)
received by Landlord of any Real Property Taxes paid by Tenant pursuant to the
terms of this Lease, up to the amount paid by Tenant on account of such refunded
Real Property Taxes.
Real Property Taxes shall not include any net income (except Rent Tax as
hereinabove provided), capital, stock, succession, transfer, franchise, gift,
estate or inheritance taxes, unless the same shall be imposed in lieu of all or
any portion of Real Property Taxes.
(ii) UTILITY COSTS. For purposes of this Lease,
"Utility Costs" shall consist of all costs incurred for gas, water, sewer,
power, heating, lighting, air conditioning and ventilation consumed by the
Project and the servicing thereof (including costs mandated by laws
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or regulations of governmental entities) and not otherwise separately metered
and paid for by individual tenants of the Project.
(iii) OPERATING EXPENSES. For purposes of this Lease,
"Operating Expenses" shall mean any expenses, costs and disbursements (other
than Real Property Taxes and Utility Costs) of every kind and nature, paid or
incurred by Landlord in connection with the ownership, leasing, management,
maintenance, operation and repair or all or any part of the Project (adjusted
for vacancy as hereafter provided), and/or in connection with the personal
property, fixtures, machinery, equipment, systems and apparatus located at the
Project or used in connection therewith, including, without limitation (the
following list is for definitional purposes only and shall not impose any
obligations upon Landlord to incur the expenses or provide the services listed):
(1) premiums and other insurance costs for insurance maintained by Landlord
pursuant to this Lease or otherwise for the benefit of the Project; (2) wages,
salaries and related expenses of all on-site employees engaged in operation,
management, maintenance and security, including without limitation, payroll
taxes and similar government charges with respect thereto, insurance,
retirement, fringe benefits and uniform allowances payable to employees; (3) all
supplies, materials and equipment (including rentals) used in such operation,
management, maintenance and repair; (4) all maintenance, security and service
costs; (5) all janitorial costs, including refuse removal and window cleaning;
(6) costs incurred in the management of the Building (including supplies),
together with a fee for the management of the Project and the rental cost of an
on-site management office; (7) consultant, legal and accounting expenses, but
not including the cost of audits by certified public accountants; (8) costs of
operating and maintaining elevator(s) (if any); (9) all maintenance, repair and
replacement costs relating to the Project, including sidewalks, landscaping,
snow removal, signs (other than tenant signs), service areas, mechanical rooms,
parking and plaza areas, building exteriors, driveways, including any
assessments against the Project pursuant to any covenants, conditions or
restrictions, reciprocal easement agreements, tenancy in common agreements or
similar restrictions or agreements; (10) painting, decorating and furbishing of
the Project and repairing, restriping and resurfacing the parking facilities and
parking areas of the Project; (11) roof system maintenance and repairs; (12)
amortization of capital improvements to the extent such capital improvements are
installed or used to reduce the costs of other items included in Operating Costs
(whether or not such costs in respect of the same are in fact reduced) or to the
extent such improvements are required by laws, rules, ordinances or regulations
enacted following the commencement of the Term; (13) any personal property taxes
levied on or attributable to personal property used in connection with the
operation, management, maintenance and/or repair of the Project; (14) the cost
of permits, certificates and licenses required in connection with the Project or
any portion thereof or any areas used in connection therewith (except building
permits and other development permits), and any other costs levied, assessed or
imposed by or at the direction of, or resulting from statutes or regulations or
interpretations thereof promulgated by any federal or governmental authority in
connection with the use or occupancy of the Project; and (15) any other expenses
of any kind whatsoever reasonably incurred in managing, operating, maintaining
and repairing the Project.
Operating Expenses shall be reduced by: to the extent actually received
by Landlord, the net proceeds (after deduction of all costs of recovery thereof,
including legal fees) of insurance and damages paid by third parties; specific
costs incurred for the account of, separately billed to, and paid by specific
tenants; repairs or replacements to the extent that the cost of the same is
recovered by Landlord pursuant to original construction warranties; interest on
debt or capital retirement of debt; costs of capital improvements except as
expressly provided in the immediately preceding paragraph; and Landlord's cost
of tenant leasehold improvements, leasing commissions and legal fees arising
from lease disputes.
(iv) TENANT'S SHARE. For purposes of this Lease
"Tenant's Share" means the percentage set forth in Section 1.01(o). Tenant's
Share is not meant, nor shall Tenant's Share be construed, to be a
representation by Landlord as to the rentable or usable square footage of the
Premises.
(c) ADJUSTMENT FOR OCCUPANCY. Notwithstanding any provision
herein to the contrary, in the event the Project is less than ninety-five
percent (95%) occupied during all or any portion of any calendar year of the
Term, an adjustment shall be made in computing variable
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Operating Expenses and Utility Costs for such year so that the same shall be
computed for such year as though the Project had been ninety-five percent (95%)
occupied during such year.
ARTICLE VII: SERVICES AND UTILITIES
7.01 LANDLORD'S SERVICES.
(a) BASIC SERVICES. Landlord shall furnish the following services
without charge (except for Tenant's Share of the costs of such services included
in Operating Expenses, or except as otherwise specifically provided in this
Lease): (i) heat and air conditioning required for the occupancy of the
Premises, between 8 A.M. and 6 P.M. Monday through Friday ("Business Hours"),
excluding Saturdays, Sundays and holidays (current Building holidays are listed
on Exhibit E annexed hereto, subject to change from time to time upon reasonable
advance written notice by Landlord), and the electricity to power same; (ii)
access and elevator service, including at least one weekend elevator; (iii) rest
room supplies and hot and cold water to restrooms and kitchens having sinks;
(iv) cleaning services as set forth in the Project Janitorial Specifications,
annexed hereto as Exhibit F. on weekdays, excluding holidays and weekends; (v)
snow removal; and (vi) such other services as Landlord may elect to provide from
time to time. Landlord shall have the right to modify the terms and/or frequency
of the services provided, so long as Landlord gives at least five (5) days
notice of any changes, and such changes do not materially diminish the services
described herein. The terms of Landlord's provision of certain of the services
listed above shall be additionally governed by the following provisions:
(i) HEAT. Landlord shall furnish heat to provide a
temperature and humidity condition required, in Landlord's reasonable judgment,
for comfortable occupancy of the Premises under normal business operations in
the absence of machines or equipment which may affect the temperature or
humidity otherwise maintained in the Premises. Such heat shall be provided daily
during Business Hours (Saturdays, Sundays and holidays excepted). Tenant agrees
to keep and cause to be kept closed all windows in the Premises and at all times
to cooperate fully with the Landlord in the operation of the heating system and
to abide by all reasonable regulations and requirements which Landlord may
prescribe to permit the proper functioning and protection of the heating system.
Landlord reserves the right to stop the heating system when necessary by reason
of accident or emergency or for repairs, alterations, replacements or
improvements, which in the judgment of the Landlord are desirable or necessary,
until said repairs, alterations, replacements or improvements shall have been
completed.
(ii) AIR CONDITIONING. Landlord shall furnish air
conditioning to provide a temperature and humidity condition required, in
Landlord's reasonable judgment, for comfortable occupancy of the Premises under
normal business operations in the absence of machines or equipment which may
affect the temperature or humidity otherwise maintained in the Premises. Such
air conditioning shall be provided daily during Business Hours (Saturdays,
Sundays and holidays excepted). Tenant agrees to keep and cause to be kept
closed all windows in the Premises and at all times to cooperate fully with the
Landlord in the operation of said system and to abide by all reasonable
regulations and requirements which Landlord may prescribe to permit the proper
functioning and protection of the air conditioning system. Landlord reserves the
right to stop the air conditioning system when necessary by reason of accident
or emergency or for repairs, alterations, regular maintenance, replacements or
improvements, which in the judgment of the Landlord are desirable or necessary,
until said repairs, alterations, regular maintenance, replacements or
improvements shall have been completed.
Whenever heavy concentration of personnel, motor, machines
or equipment, including telephone equipment, used in the Premises adversely
affects the temperature or humidity otherwise maintained by the air conditioning
system, Landlord reserves the right to install supplementary air conditioning
units in the Premises and the cost thereof, including all. of the costs relating
to the installation and the cost of operation and maintenance thereof, shall be
Additional Rent hereunder and shall be paid by Tenant to Landlord upon demand.
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(iii) ELEVATORS. Landlord shall provide passenger
elevator service in common with Landlord and the other tenants of the Building
24 hours per day every day (subject, however, to temporary shut downs for
repairs and maintenance). Freight elevator service shall at all times be subject
to scheduling by Landlord. Landlord shall provide limited passenger elevator
service at all times (except in the case of an emergency) during which normal
passenger elevator service is not furnished.
(iv) WATER. Landlord shall furnish cold water from
public municipal water mains from regular Building outlets for drinking,
lavatory and toilet purposes, drawn through fixtures installed by Landlord or by
Tenant with Landlord's prior written consent, and hot water for public lavatory
purposes from the regular supply of the Building. Tenant shall pay Landlord at
reasonable rates fixed by Landlord for water furnished for any other purpose as
Additional Rent hereunder, which rates shall equal Landlord's cost therefor.
Tenant shall not waste or permit the waste of water.
(v) JANITORIAL SERVICE. Tenant shall not provide
janitor services in the Premises without the prior written consent of Landlord
and then only at Tenant's sole responsibility, cost and expense, by contractors
or employees at all times satisfactory to Landlord in its sole discretion.
(b) NON-BUSINESS HOURS. Tenant shall have the right to use the
Premises beyond Business Hours and on weekends and holidays upon the express
condition that Tenant shall be responsible, at its sole cost and expense, for
any and all building services required and attributable to such excess use,
charged at the rates reasonably determined by Landlord from time to time.
Payment for excess use of services shall be deemed Additional Rent and shall be
paid to Landlord monthly, together with Base Rent.
(c) INTERRUPTION, ETC., OF SERVICES. Landlord shall not be in
default hereunder or be liable for any damages directly or indirectly resulting
from, nor shall the Rent be abated or suspended by reason of, (i) the
interruption or curtailment of the use of the Premises as a result of the
installation of any equipment in connection with the Premises or the Building;
(ii) any failure to furnish or delay in furnishing any services required to be
provided by Landlord, unless such failure or delay is caused solely by any
condition created by Landlord's negligence or willful misconduct or by
Landlord's failure to respond within a reasonable period of time to any written
request for service or repair for which Landlord is obligated under this Lease;
(iii) the limitation, curtailment, rationing or restriction of the use of water
or electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises, the Building or the Project; (iv) any defects
to, or damage from, heating, ventilating or air conditioning systems, or
components of the foregoing, which are installed, repaired or modified by Tenant
in or serving the Premises; or (v) damage caused by water leakage, sewage,
steam, gas, odors or plumbing overflows. Landlord shall use reasonable efforts
to remedy any interruption in the furnishing of such services so as to minimize
any interference with the use of the Building by the tenants thereof (including
Tenant).
(d) HVAC. If the Tenant Improvements contemplated by Article III,
or any part thereof, are performed by Tenant and include the heating,
ventilating and air conditioning system for the Premises, Landlord shall not be
responsible for the quality of such system, but only for the supply of cooled or
warmed air from the Building's central system to the distribution system in the
Premises. Tenant shall maintain in good working condition and repair any
supplemental heating, ventilating and air conditioning unit or system installed
in the Premises by or on behalf of Tenant (including maintenance mandated by any
law or regulation, including without limitation applicable requirements of the
Occupational Safety and Health Administration), and shall maintain, at Tenant's
sole cost and expense, a maintenance contract on any such unit or system. In
addition, Tenant shall be solely responsible for compliance with all present and
future laws or regulations (including without limitation requirements of the
Occupational Safety and Health Administration that relate to the Premises)
regarding the indoor air quality of the Premises to the extent related to such
supplemental unit or system. Any such supplemental unit or system shall, unless
otherwise determined by Landlord, remain at the Premises at the expiration or
earlier termination of the Term of this Lease, and, together with the
maintenance contract maintained thereon, shall be the property of Landlord.
Tenant shall furnish
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to Landlord copies of all such maintenance contracts, as well as evidence of the
renewal thereof at least thirty (30) days prior to the expiration thereof. If,
in connection with the Tenant Improvements contemplated by Article III or any
other alterations or improvements to the Premises performed by or on behalf of
Tenant, any heating, ventilating and air conditioning equipment or units are
installed upon the roof of the Building, Tenant shall be solely responsible for
the cost of the maintenance thereof (including maintenance mandated by any law
or regulation, including without limitation applicable requirements of the
Occupational Safety and Health Administration), at Landlord's option the removal
thereof upon the expiration or earlier termination of this Lease, and shall also
be solely responsible for the cost of the repair of any damage caused to the
roof of the Building by the installation, maintenance, operation or removal of
such equipment or units.
(e) LIGHT BULBS AND ELECTRICAL FIXTURES. Tenant covenants and
agrees that it shall make no alterations or additions to the electric equipment
and/or appliances in the Premises without the prior written consent of Landlord
in each instance. Landlord shall maintain the light fixtures in the Premises and
install any lamps, bulbs, ballasts or starters to be used by Tenant in the
Premises, all as an Operating Expense except that any light fixtures, ballasts,
starters and bulbs which are not Building standard items shall be repaired or
replaced by Landlord at Tenant's expense. Landlord reserves the right to stop
the electrical system when necessary by reason of accident or emergency or for
repairs, alterations, regular maintenance, replacements or improvements, which
in the judgment of Landlord are desirable or necessary, until said repairs,
alterations, regular maintenance, replacements or improvements shall have been
completed. Landlord shall use commercially reasonable efforts to complete its
work and return the electrical system to normal working order in a reasonably
timely fashion. Landlord shall endeavor to notify Tenant if and when the
electrical system will be stopped due to repairs.. Bulbs for lighting fixtures
shall be initially installed as part of the Tenant Improvements. Replacement
bulbs shall be provided and installed by Landlord at Tenant's expense.
7.02 ELECTRICITY.
(a) Landlord shall furnish the electricity which Tenant shall
require in the Premises for normal lighting and other normal and customary
office uses during Business Hours. Tenant shall pay as Additional Rent the
monthly charge for its electrical usage based on an electric submeter measuring
the electricity actually consumed at the Premises at the tariff applicable to
Landlord.
ARTICLE VIII: INSURANCE
8.01 LANDLORD'S INSURANCE. During the Term, Landlord shall procure and
maintain in full force and effect with respect to the Building a policy or
policies of all-risk insurance (including sprinkler, vandalism and malicious
mischief coverage, and any other endorsements required by the holder of any fee
or leasehold mortgage) in an amount equal to one hundred percent (100%) of the
full insurance replacement value (replacement cost new, including debris
removal, and demolition) thereof. Tenant shall not permit any use of the
Premises which would jeopardize or conflict with the insurance coverage
maintained by Landlord or cause the premium charged to Landlord to increase
higher than such premium otherwise would be for a general office building of
comparable use and size. If the annual premiums charged Landlord for such
casualty insurance exceed the standard premium rates because the nature of
Tenant's operations results in increased exposure, then Tenant shall, upon
receipt of premium invoices from Landlord, reimburse Landlord for such increased
amount as Additional Rent. Landlord shall have the right, at its option, to keep
and maintain in full force and effect during the Term such other insurance in
such amounts and on such terms as Landlord and/or any mortgagee or beneficiary
of any trust deed against the Building and/or the Project may reasonably require
from time to time, in form, in amounts and for insurance risks against which a
prudent Landlord would protect itself, including but not limited to rental
abatement, public liability and property, elevator, worker's compensation,
boiler and machinery, earthquake and flood insurance.
8.02 PUBLIC LIABILITY. Tenant shall, at its own cost and expense, keep
and maintain in full force during the Term and any other period of occupancy of
the Premises by Tenant a policy
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or policies of comprehensive public liability insurance insuring Tenant's
activities with respect to the Premises, the Building, the Common Areas and the
Project, against loss, damage, or liability for personal injury or death of any
person, or loss or damage to property occurring in, upon or about the Premises
in an amount of not less than One Million Dollars ($1,000,000) combined single
limit (with inflation endorsement) or such larger amounts as may hereafter be
reasonably requested by Landlord. The policy shall (a) insure the hazards of the
Premises and Tenant's operations thereon, (b)include independent contractor and
contractual liability coverage (covering the indemnity contained in Section 8.09
hereof), (c) name Landlord, Landlord's property management firm for the Project
and any mortgagees designated by Landlord as an additional insured; (d) contain
a cross-liability provision; and (e) contain a provision that the insurance
provided Landlord hereunder shall be primary and non-contributing. In addition,
Tenant shall, at its sole cost and expense, keep and maintain in full force and
effect during the Term a Two Million Dollar ($2,000,000.00) umbrella policy on
terms reasonably acceptable to Landlord.
8.03 TENANT'S PROPERTY AND OTHER INSURANCE. Tenant shall, at its own
cost and expense, keep and maintain in full force during the Term and any other
period of occupancy of the Premises by Tenant, a policy or policies of standard
form property insurance insuring against the perils of fire, extended coverage,
vandalism, malicious mischief, special extended coverage ("all-risk") and
sprinkler leakage. This insurance policy shall be upon all property owned by
Tenant, for which Tenant is legally liable or that was installed at Tenant's
expense, and which is located in the Building, including, without limitation,
furniture, fittings, installations, fixtures (other than the Tenant Improvements
installed by Landlord), and any other personal property, in an amount not less
than one hundred percent (100%) of the full replacement cost thereof. This
insurance policy shall also insure direct or indirect loss of Tenant's earnings
attributable to Tenant's inability to use fully or obtain access to the Premises
or the Building, together with workers' compensation coverage as required by
state law.
8.04 ADDITIONAL INSURANCE. Tenant shall carry such insurance against
such other hazards and in such amounts as may be customarily carried by tenants
of similar properties as Landlord may reasonably require for its protection from
time to time.
8.05 FORM OF INSURANCE/CERTIFICATES. All policies required to be carried
by Tenant hereunder shall be written in form and content satisfactory to
Landlord and shall be issued by insurance companies approved by Landlord which
are licensed in the state in which the Building is located and holding a general
policy holder's rating of "A" and a financial rating of "X" or better, as set
forth in the most current issue of Best's Insurance Guide, and shall provide
that the policy is not subject to invalidation as to Landlord's interest by
reason of any act or omission of Tenant, its officers, agents, employees,
invitees, licensees, servants, subtenants, concessionaires or contractors
("Tenant's Agents"). Tenant shall furnish to Landlord, prior to Tenant's entry
on the Premises and thereafter within thirty (30) days prior to the expiration
of each such policy, a certificate of insurance (or renewal thereof) issued by
the insurance carrier of each policy of insurance carried by Tenant pursuant
hereto. Said certificates shall expressly provide that such policies shall not
be cancelable or subject to reduction of coverage or otherwise be subject to
modification except after thirty (30) days prior written notice to Landlord and
any designated mortgagee. Tenant may carry the insurance required hereunder
under a blanket policy, provided such blanket policy allocates to the Premises
coverage in amounts satisfactory to Landlord, and further provided that all
other requirements for insurance set forth in this Article VIII are met by such
blanket policy.
8.06 TENANT'S FAILURE. If Tenant fails to maintain any insurance
required in this Lease, Tenant shall be liable for any loss or cost resulting
from said failure. This Section shall not be deemed to be a waiver of any of
Landlord's rights and remedies under any other section of this Lease. If
Landlord obtains any insurance which it is the responsibility of Tenant to
obtain under this Article VIII, Landlord shall deliver to Tenant a written
statement setting forth the cost of any such insurance, and Tenant shall
promptly reimburse said amount to Landlord upon demand, together with interest
thereon at the Interest Rate from the date of demand until payment in full.
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8.07 WAIVER OF SUBROGATION. Landlord and Tenant each hereby release the
other, its officers, directors, employees and agents, from liability or
responsibility (to the other or anyone claiming through or under them by way of
subrogation or otherwise) for any loss or damage to property covered by valid
and collectible fire insurance with standard extended coverage endorsement, even
if such loss or damage shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible. However, this
release shall apply only if the releasor's insurance policy contains a clause or
endorsement providing that any such release shall not adversely affect or impair
such policy or prejudice the right of the releaser to recover thereunder.
Landlord and Tenant each agree that any fire and extended coverage insurance
policies carried by each of them respectively and covering the Premises or their
contents will include such clauses or endorsements as long as the same shall be
obtainable without extra cost, or, if extra cost shall be charged therefor, so
long as the other party pays such extra cost upon advice to the other of the
amount of the extra cost.
8.08 TENANT'S PROPERTY AND FUTURES. Tenant assumes the risk of damage to
any furniture, equipment, machinery, goods, supplies or fixtures which are or
remain the property of Tenant or as to which Tenant retains the right of removal
from the Premises.
8.09 INDEMNIFICATION OF LANDLORD. In amplification of Article XVII and
not in limitation thereof, Tenant shall indemnify, defend and hold harmless
Landlord, Landlord's agents, contractors and employees, the Premises, the
Building and the Project from and against (i) any and all liability, penalties,
losses, damages, costs and expenses, demands, causes of action, claims or
judgments arising from any injury to any person or persons (including death) or
any damage to any property as a result of the use, maintenance, occupation or
operation of the Premises, the Building or the Project by Tenant or Tenant's
Agents or resulting from any breach or default in the performance of any
obligation to be performed by Tenant under the terms of this Lease, or arising
from any act, neglect, fault or omission of Tenant or any of Tenant's Agents,
and (ii) all legal fees, expert fees or other professional fees and court
charges incurred in connection with any of such matters and the defense of any
action arising out of the same or in discharging the Premises, the Building or
the Project, or any part thereof, from any and all liens, charges or judgments
which may accrue or be placed thereon by reason of any act or omission of Tenant
or any of Tenant's Agents; provided, however, that Tenant shall not be required
to indemnify Landlord for any damage or injury of any kind arising as a result
of the sole negligence or willful misconduct of Landlord and/or its agents,
contractors or employees. In no event shall Landlord nor any partner, director,
officer, agent or employee of Landlord be liable for any personal injury or
death or property damage caused by other lessees or persons in or about the
Premises, the Building or the Project, or caused by public or quasi-public work,
or for consequential damages arising out of any loss of the use of the Premises
or any equipment or facilities therein by Tenant or any persons claiming through
or under Tenant; nor shall Landlord or any partner, director, officer, employee
or agent of Landlord be liable for (i) any damage to property entrusted to
employees or security officers of the Building or the Project, (ii) loss or
damage to any property by theft, (iii) any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain which may leak from any part of the Building, the
Common Areas or the Project or from the pipes, appliances or plumbing work
therein or from the roof, street or subsurface or from any other place or
resulting from dampness or any other cause, or (iv) any interference with light
or other incorporeal hereditaments.
8.10 NOTIFICATION FROM TENANT. Tenant shall give prompt notice to
Landlord in case Tenant is or becomes aware of fire or accidents in the
Premises, the Building, the Common Areas or any other portion of the Project or
of any defects therein.
ARTICLE IX: REPAIR AND MAINTENANCE
9.01 TENANT REPAIRS AND MAINTENANCE. Except as otherwise set forth in
Section 9.02 below, Tenant shall, at Tenant's sole cost and expense, keep and
maintain the entire Premises, including without limitation, all interior walls,
doors, ceilings, fixtures, drapes, lights (including emergency lighting fixtures
in the Premises), ballasts, subfloors and floor coverings thereof, in good
repair and in a clean and safe condition. Tenant shall also be responsible for
maintenance of
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certain heating, ventilating and air conditioning equipment and/or units as set
forth in Section 7.01(d). Tenant shall also comply with and observe the
requirements of all laws and regulations of any applicable public authority and
the requirements of all insurance policies relating to the Premises. Except for
ordinary wear and as otherwise provided in this Lease, Tenant shall, at all
times during the Term hereof, at its sole expense, keep all Tenant's movable and
removable fixtures located in or appurtenant to the Premises in good order,
repair and condition.
9.02 LANDLORD REPAIRS AND MAINTENANCE. Subject to reimbursement pursuant
to Section 6.02 hereof, Landlord shall, except as otherwise set forth in this
Lease, maintain in good condition and repair the Common Areas and the structural
and exterior portions of the Building, and the plumbing, heating, ventilating,
air conditioning, elevator and electrical systems installed or furnished by
Landlord. Landlord shall not be liable for any failure to make any repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need for such repairs or maintenance is given
to Landlord by Tenant. Except as set forth in Article XII hereof, there shall be
no abatement of Rent due to, and Landlord shall have no liability by reason of
any injury to or interference with Tenant's business arising from, the making of
any repairs, alterations or improvements in or to any portion of the Building,
the Project or the Premises or in or to fixtures, appurtenances and equipment
therein. Except as may otherwise be expressly set forth herein, Tenant affirms
that (a) neither Landlord nor any agent, employee or officer of Landlord has
made any representation regarding the condition of the Premises, the Building,
the Common Areas or the Project and (b) Landlord shall not be obligated to
undertake any remodeling, improvement, painting or decorating at any time during
the Term or any renewal or extension thereof.
9.03 NON-LIABILITY OF LANDLORD. Notwithstanding anything to the contrary
contained in Section 9.02 above or elsewhere in this Lease, Landlord shall not
be in default hereunder nor be liable for any damages directly or indirectly
resulting from, nor shall the Rent be abated or suspended by reason of, (a) the
interruption or curtailment of the use of the Premises as a result of the
performance of Landlord's obligations under this Article or the installation of
any equipment in connection with the Premises, the Project or the Building or
(b) any other condition described in Section 7.01(c) which may occur during the
performance of Landlord's obligations hereunder. Landlord shall use reasonable
efforts to perform its required obligations under this Lease so as to minimize
any interference with the use of the Building by the tenants thereof (including
Tenant).
9.04 INSPECTION OF PREMISES. Upon reasonable prior notice (except in an
emergency) Landlord may enter the Premises to complete construction undertaken
by Landlord on the Premises or the Building, to inspect, clean, improve or
repair the same, to inspect the performance by Tenant of the terms and
conditions hereof, to show the Premises to prospective purchasers, tenants and
lenders, and for all other purposes as Landlord shall reasonably deem necessary
or appropriate. Tenant hereby waives any claim for damages or any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss in, upon or about the
Premises, except as otherwise provided in Article XII hereof.
ARTICLE X: FIXTURES, PERSONAL PROPERTY AND ALTERATIONS
10.01 FIXTURES AND PERSONAL PROPERTY. Tenant, at Tenant's expense, may
install any necessary trade fixtures, equipment and furniture in the Premises,
provided that such items are installed and are removable without damage to the
structure of or systems and/or equipment serving the Building. Notwithstanding
the foregoing, Tenant shall not install any vending machines, ice machines,
safes or fireproof file cabinets in the Premises without Landlord's prior
written consent. Said trade fixtures, equipment and furniture shall remain
Tenant's property and shall be removed by Tenant upon the expiration or earlier
termination of this Lease. Landlord reserves the right to approve or disapprove
installation of curtains, draperies, shades, paint or other interior
improvements on wholly aesthetic grounds; same must be approved in writing by
Landlord prior to installation, or Landlord may remove or replace such items at
Tenant's sole expense. As a covenant which shall survive the expiration or
earlier termination of this Lease, Tenant shall repair, at Tenant's sole
expense, all damage caused by the installation or removal of
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said trade fixtures, equipment, furniture or aesthetic improvements and shall
restore the affected areas to a condition reasonably compatible with the
remainder of the Premises as determined by Landlord. If Tenant fails to remove
the foregoing items prior to or upon the expiration or earlier termination of
this Lease, Landlord, at its option and without any liability whatsoever to
Tenant for loss thereof or damage thereto, may keep and use same or remove any
or all of them and cause them to be stored or sold in accordance with applicable
law, and Tenant shall, upon demand of Landlord, pay to Landlord as Additional
Rent hereunder all costs and expenses incurred by Landlord in so storing and/or
selling said items.
10.02 ALTERATIONS. Tenant shall not make any improvements or alterations
in or additions, changes or installations to the Premises (collectively,
"Alterations") without submitting plans and specifications therefor to Landlord,
and obtaining Landlord's prior written consent in each instance, which Landlord
shall not unreasonably withhold or delay. Notwithstanding the foregoing,
however, no Alterations shall be permitted to the outside dimensions of the
Premises or the Building, existing bearing walls and columns, exterior walls,
roof, structural ceiling or foundations, nor shall Tenant install any electrical
equipment that would overload the lines in the Premises or interfere with the
electrical usage of other tenants, or install any Alterations visible from the
exterior of the Building, unless approved in writing by Landlord in Landlord's
sole discretion. All Work shall be performed (a) at the sole cost and expense of
Tenant by employees of contractors employed by Landlord, or with Landlord's
written consent given prior to letting of the contract, by contractors employed
by Tenant under a written contract previously approved in writing by Landlord,
and (b) on such terms and under such conditions as Landlord, in its reasonable
discretion, shall determine as will protect the Premises and the Building from
improper contractors' work and against the imposition of any lien resulting from
Alterations; without limiting the foregoing, if Landlord consents to any
Alterations, such Alterations shall be performed subject to the following
requirements:
(1) If the Alterations are to be done by Tenant's contractors, Tenant
shall furnish to Landlord, prior to commencement thereof, building permits and
certificates of appropriate insurance and bonds satisfactory in all respects to
Landlord. Tenant shall also furnish to Landlord, if Landlord so requests,
security for the payment of all costs to be incurred in connection with the
Alterations.
(2) If required by Landlord, Tenant shall secure at Tenant's own cost
and expense a completion and lien indemnity bond satisfactory to Landlord for
any Alterations. Upon completion of any Alterations, Tenant shall furnish
Landlord with contractors' affidavits and full and final waivers of lien, each
conforming to the applicable Pennsylvania statutory requirements, as-built plans
of any Alterations and receipted bills covering all labor and materials expended
and used. Insofar as applicable to the work or material for which payment is
requested or notice or lien claim is made, Landlord in its sole discretion shall
make available for partial or final payment or release thereof such funds as may
have been deposited with it by Tenant for the estimated cost of such work.
(3) Any Alterations permitted to be undertaken by Tenant's contractors
shall be performed in such a fashion and by such means as necessary to maintain
peace and harmony among the other contractors serving the Project and the other
tenants and so as not to cause interference with the continuance of work to be
performed and services to be rendered to the Project or the other tenants.
(4) All Alterations shall comply with all insurance requirements and
with all applicable laws, ordinances and regulations. All Alterations shall be
constructed in a good and workmanlike manner, and only good grades of material
shall be used with a quality equal to or better than that used in the Building.
(5) Tenant shall permit Landlord to supervise all Alterations within the
Premises. Landlord shall charge a supervisory fee not to exceed (a) fifteen
percent (15%) of the total cost of the Alterations, including, without
limitation, all labor and material costs, if Landlord's employees or contractors
perform the Alterations, and (b) ten percent (10~o) of the total cost of the
Alterations, including, without limitation, all labor and material costs, if
Tenant's employees or contractors perform the Alterations.
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(6) By approving any request for Alterations submitted by Tenant,
Landlord does not (i) expressly or implicitly covenant or warrant that any plans
or specifications are accurate, safe or sufficient or that the same comply with
any applicable laws, ordinances, building codes, or the like, or (ii) consent to
the imposition of any lien on the Premises or the Building for any work
performed or materials delivered in connection with any such Alterations. Tenant
shall be solely responsible for compliance with applicable laws, ordinances,
building codes, and/or the like, and for obtaining all necessary permits and
governmental approvals and for construction of said improvements in compliance
with same. Further, Tenant shall indemnify, defend and hold harmless Landlord
and the Premises from any loss, cost or expense, including reasonable legal
fees, incurred by Landlord as a result of any defects in design, materials or
workmanship resulting from such Alterations.
(7) All Alterations shall become the property of Landlord, unless
Landlord directs that such Alterations be removed by Tenant at the expiration or
earlier termination of this Lease (which direction, as to Alterations for which
Tenant has obtained Landlord's consent as provided herein, shall be made by
Landlord, if at all, at the time Landlord grants such consent). In such case,
Tenant, at Tenant's sole expense, shall remove the Alterations and repair all
damage resulting from such removal and shall restore the affected areas to a
condition reasonably compatible with the remainder of the Premises as reasonably
determined by Landlord, or, at Landlord's option, shall pay to Landlord all
costs arising from such removal and restoration.
If Tenant desires telegraphic, telephonic, burglar alarm, computer
installations or signal service beyond that which is to be provided, if any, as
part of the Tenant Improvements (all of which shall be at Tenant's sole cost and
expense), Landlord shall, upon request, direct where and how all connections and
wiring for such service shall be introduced and run. In the absence of any such
directions, Tenant shall make no borings, cutting or install any wires or cable
in or about the Premises.
10.03 LIENS. Any mechanic's lien filed against the Premises or the
Building or any notice which is received by either Landlord or Tenant or filed
for work or materials furnished or claimed to be furnished and deriving from
Alterations or for materials or work claimed to have been furnished to Tenant or
the Premises shall be released and discharged of record by Tenant, in either
case, within fifteen (15) business days after such filing or receipt, whichever
is applicable, at Tenant's expense. If Tenant chooses to contest such claim or
notice or lien, Tenant may do so in place of causing the release and discharge
thereof, provided that within said fifteen (l5) business day period, (i) Tenant
provides Landlord with a title indemnity or bond or other adequate security
covering any possible lien or claim that may arise from the failure to release
and discharge such claim, notice or lien; (ii) Tenant contests such claim,
notice or lien in good faith by appropriate proceedings that operate to stay
enforcement thereof; and (iii) Tenant promptly pays and discharges any final
adverse judgment entered in any such proceeding. If Tenant has not caused the
release or discharge or begun appropriate proceedings to contest such claim,
notice or lien, within said fifteen (15) business days, Landlord may, but shall
not be obligated to, pay the amount necessary to remove the same without being
responsible for making an investigation as to the validity or accuracy thereof,
and the amount so paid, together with all costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred by Landlord in connection
therewith, shall be deemed Additional Rent hereunder payable upon demand. Tenant
has no power or authority to cause or permit any lien or encumbrance of any kind
whatsoever, whether created by act of Tenant, operation of law or otherwise, to
attach to or be placed upon Landlord's title or interest in the Premises, the
Building or the Project, and any and all liens and encumbrances created by
Tenant shall attach to Tenant's interest only.
ARTICLE XI: USE AND COMPLIANCE WITH LAWS
11.01 SIGNS. Tenant shall not paint, display, inscribe, place or affix
any sign, picture, advertisement, notice, lettering, or direction on any part of
the outside of the Premises, the Building or the Project or visible from the
outside of the Premises, the Building or the Project or in any lobby corridor,
hallway, entrance or other public part of the Building or the Project; however,
Landlord shall prescribe a uniform pattern for tenant identification signs to be
placed
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on the outside of the main door leading into the Premises. If a sign is required
by Tenant, then at Tenant's expense (including, without limitation, all expenses
incurred by Landlord to obtain any necessary permit or approval but Landlord
shall have no obligation to obtain a variance for any such sign), Landlord shall
cause such sign to be placed in position. Tenant shall be entitled to
representation in any interior building directory or similar listing of all of
the tenants in the Building. Landlord shall have the right at any time and from
time to time to remove any sign in order to paint or make repairs, alterations
or improvements to the Premises, the Building or the Common Areas, and to charge
Tenant for the cost incurred by Landlord to remove Tenant's sign at the
termination or earlier expiration of this Lease.
11.02 USE. Tenant shall only use the Premises for general office
purposes and for no other use without the prior written consent of Landlord.
Tenant, in Tenant's use and occupancy of the Premises, shall not subject or
permit the Premises, the Building and/or the Project to be used in any manner
which would tend to damage any portion thereof, or which would increase the cost
of any insurance paid by Landlord with respect thereto. Tenant shall not do or
permit anything to be done in or about the Premises, the Building, the Common
Areas and/or the Project which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building, the Common Areas and/or
Project, or use or allow the Premises or any portion of the Project to be used
for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit a nuisance in, on or about the Premises, the Building,
the Common Areas and/or the Project. Tenant shall comply with all restrictive
covenants and obligations created by private contracts which affect the use and
operation of the Premises, the Building, the Common Areas and/or the Project.
Landlord reserves the right to prescribe the weight and position of all files,
safes and heavy equipment which Tenant desires to place in the Premises so as to
properly distribute the weight thereof. Further, Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted to
the Building structure or to any other space in the Building shall be so
installed, maintained and used by Tenant so as to eliminate such vibration or
noise. Tenant shall be responsible for all structural engineering, fees and
costs required to determine structural load.
11.03 COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS. Tenant shall, at
Tenant's sole cost and expense, (a) comply with all "Legal Requirements" and
"Insurance Requirements," (as such terms are hereinafter defined) applicable to
the Premises and the use thereof, (b) maintain and comply with all permits,
licenses and other authorizations required by any government authority or agency
or quasi-government authority or agency for Tenant's use of the Premises and for
the proper operation, maintenance and repair of the Premises, and (c) promptly
and accurately respond in writing to all reasonable inquiries (including without
limitation requests for documents) of Landlord pertaining to Legal Requirements,
Insurance Requirements or related matters. For purposes herein, "Insurance
Requirements" means all terms of any insurance policy maintained by Landlord or
Tenant with respect to the Premises and all requirements of the National Board
of Fire Underwriters (or any other body exerting similar functions) applicable
to or affecting all or any part of the Premises. "Legal Requirements" means all
statutes, codes, ordinances, orders, regulations or directives of any government
authority or agency or quasi-government authority or agency, which now or at any
time hereafter may be applicable to Tenant or to the Premises, or any part
thereof, or any means of access thereto, including, without limitation any laws
pertaining to the regulation of the environment and Hazardous Materials (as
hereafter defined).
11.04 LANDLORD'S INSPECTION AND TESTING.
(a) TENANT'S NONCOMPLIANCE. Landlord and any employee,
representative, agent or contractor of Landlord may enter the Premises at any
time and from time to time during normal business hours for purposes of
inspecting same, and conducting tests thereupon, as Landlord reasonably deems
necessary to determine whether Tenant is in compliance with all applicable Legal
Requirements and Insurance Requirements (as such terms are defined above), but
Landlord shall not be obligated to do so. In the event Landlord has determined
that Tenant is in noncompliance, Landlord shall notify Tenant of such fact,
setting forth in such notice the basis for Landlord's determination, and Tenant
shall promptly remedy the noncompliance. If Tenant fails to promptly remedy the
noncompliance, Landlord shall have the right, but not the obligation, to take
such actions as it deems advisable to remedy the noncompliance and all costs
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and expenses incurred thereby, including without limitation legal fees and
consultant fees, shall be deemed to be Additional Rent payable by Tenant upon
demand, together with interest thereon at the Interest Rate from the date of
demand until paid in full.
(b) NOTICE TO TENANT; COSTS. Unless an emergency exists, as
determined by Landlord in its reasonable discretion, Landlord agrees to notify
Tenant at least one (1) business day prior to the date Landlord desires to
conduct such investigation and testing at the Premises, and agrees to conduct
same in a commercially reasonable manner so as to minimize the disruption to
Tenant's operations. The costs of such investigation and tests shall be included
as an Operating Expense; provided, however, that if it is determined that Tenant
is not in compliance with this Lease, said costs and expenses shall be deemed
Additional Rent payable by Tenant upon demand, together with interest thereon at
the Interest Rate from the date of demand until paid in full.
11.05 HAZARDOUS MATERIALS. In amplification of Tenant's obligations
under Section 11.03 above and not in limitation thereof, Tenant further agrees
to conduct its business operations at the Premises in compliance with all
applicable environmental laws, orders, regulations and ordinances now existing
or hereafter enacted, and to perform any act or obligation, at Tenant's sole
cost and expense, arising from or in connection with such compliance, to the
extent such compliance is required due to the nature of Tenant's business or due
to Tenant's specific use and/or occupancy of, or any act or omission of Tenant
in or about, the Premises. Tenant shall not cause or permit any Hazardous
Materials (as defined hereinbelow) to be generated, disposed of, or brought
upon, kept or used in or about the Premises, the Building and/or the Project by
Tenant, its agents, employees, contractors, licensees or invitees, except such
incidental quantities of Hazardous Materials as are commonly used in offices
(such as copier fluid, typewriter correction fluids and ordinary cleaning
solvents), provided that such incidental quantities are at all times used, kept
and stored in a manner that complies with all Legal Requirements now or
hereafter pertaining to any such Hazardous Materials. As used herein, "Hazardous
Materials" means any toxic or hazardous waste, pollutant or substance,
including, without limitation, asbestos, PCBs, petroleum products and
by-products, substances defined or listed as hazardous substances or toxic
substances or similarly defined in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 69601,
et seq.; the Resource Conservation Recovery Act, 42 U.S.C. 86901, et seq.; the
Clean Water Act, 33 U.S.C. 81251, et seq.; and the Clean Air Act, 42 U.S.C.
87401, et seq.; together with all regulations to the foregoing, and any
hazardous or toxic substance or pollutant now or hereafter regulated under any
federal, state or local environmental law, regulation or ordinance, including
those yet to be enacted, as all of such laws and regulations may be amended from
time to time.
11.06 ENVIRONMENTAL LIENS. Tenant shall promptly notify Landlord of any
liens of which Tenant becomes aware, threatened or attached against the
Premises, the Building or the Project pursuant to any environmental law, rule,
regulation or ordinance. Tenant further agrees, at its sole cost and expense, to
promptly discharge and remove any such lien arising from the violation by Tenant
of any environmental law, rule, regulation or ordinance, within thirty (30) days
from the date Tenant first receives notice of such lien or in such shorter
period of time in the event that the holder of such lien has commenced steps to
cause the Premises, the Building or the Project to be sold pursuant to such
lien, in which event Tenant shall also immediately pay the claim and remove the
lien from the Premises, the Building and/or the Project. If Tenant fails to do
so within said period, Landlord shall be entitled to exercise all of its
available rights and remedies.
11.07 INDEMNIFICATION. If Tenant breaches the covenants and obligations
set forth in this Article XI, or, if the presence of Hazardous Materials on, in
or about the Premises, the Building or the Project caused by Tenant, its agents,
employees, contractors, licensees or invitees results in contamination of all or
any portion of the Project or any other property, whether or not adjacent
thereto, or if contamination by Hazardous Materials otherwise occurs for which
Tenant is legally liable for damage resulting therefrom, then Tenant shall
indemnify, defend and hold free and harmless Landlord from and against any and
all claims, judgments, damages, penalties, fines, costs, liabilities and losses
(including, without limitation, sums paid in private rights of action or in
settlement of claims, legal fees, consultant fees and expert fees) which arise
during or
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after the Term as a result of such contamination. This indemnification by Tenant
of Landlord shall include, without limitation, any and all costs incurred with
respect to any investigation of site conditions and any cleanup, remedial,
removal or restoration work required by any federal, state or local governmental
agency or political subdivision because of the presence of such Hazardous
Materials in, on or about the Premises, the Building, the Project, or the soil
or groundwater on or under the Project.
11.08 LANDLORD'S RIGHT TO CURE. In the event Tenant fails to comply with
any provision of this Article XI, Landlord may, at its option but without
obligation, and without notice to Tenant, perform any and all of Tenant's
required obligations and otherwise cure such default as it deems appropriate in
its sole and absolute discretion. All costs and fees incurred by Landlord in the
exercise of such right, including without limitation consultant fees and legal
fees, shall be deemed Additional Rent payable by Tenant upon demand, together
with interest thereon at the Interest Rate from the date of demand until paid in
full.
11.09 SURVIVAL. The provisions of Sections 11.05, 11.06, 11.07, and
11.08, and this Section 11.09 (the "Surviving Sections") shall survive the
termination or earlier expiration of this Lease. Without limiting the foregoing,
the indemnities, environmental representations and covenants, and the
obligations imposed by the Surviving Sections on Tenant shall survive the
scheduled expiration or earlier termination of this Lease. The parties hereto
expressly acknowledge and agree that Landlord would not enter into this Lease
but for the provisions of the Surviving Sections and the survival thereof.
ARTICLE XII: DAMAGE AND DESTRUCTION
12.01 RECONSTRUCTION. If the Premises are damaged or destroyed during
the Term, Landlord shall, except as hereinafter provided, diligently repair or
rebuild them to substantially the condition in which they existed immediately
prior to such damage or destruction as determined by Landlord. If Landlord is
obligated or elects to repair or restore as herein provided, Landlord shall be
obligated to make repair or restoration of only those portions of the Building
and the Premises which were initially provided at Landlord's expense, and the
repair and/or restoration of items within the Premises not provided at
Landlord's expense shall be the obligation of Tenant. If any damage or
destruction is caused by Tenant or Tenant's Agents, then Tenant shall be
responsible for the cost of all necessary repair and reconstruction.
12.02 RENT ABATEMENT. Rent due and payable hereunder shall be abated
proportionately during any period in which, by reason of any damage or
destruction, there is substantial interference with the operation of Tenant's
business in the Premises, as reasonably determined by Landlord having regard to
the extent to which Tenant may be required to curtail and/or cease operating its
business in the Premises. Such abatement shall continue for the period
commencing with such damage or destruction and ending with a substantial
completion by Landlord of the work of repair or reconstruction which Landlord is
obligated or undertakes to perform. If Landlord determines that continuation of
Tenant's business is not practical pending reconstruction, and if Landlord does
not elect to or is unable to provide alternative temporary space for
continuation of such business, then Rent due and payable hereunder shall abate
until reconstruction is substantially completed or until business is totally or
partially resumed, whichever is the earlier. Notwithstanding anything to the
contrary contained in this Section 12.02, however, there shall be no abatement
of Rent to the extent any of such damage is a result of the negligence or
intentional wrongdoing of Tenant or Tenant's Agents. In no case shall Tenant be
entitled to any compensation or damages for loss in the use in the whole or any
part of the Premises and/or any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration. For purposes herein, the term
"substantially completed," or any variation thereof, shall have the same meaning
as set forth in Section 3.02 hereof.
12.03 EXCESSIVE DAMAGE OR DESTRUCTION. If the Building is or the
Premises are damaged or destroyed to the extent that Landlord determines that
such damage or destruction cannot, with reasonable diligence, be fully repaired
or restored by Landlord by the earlier of (i) one hundred eighty (180) days
after the date of the damage or destruction or (ii) the expiration of the Term
hereof (either, as applicable, the "Repair Date"), Landlord may terminate this
Lease.
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Notwithstanding the fact that the Premises have been damaged or destroyed,
Landlord shall determine whether the Building can be fully repaired or restored
by the Repair Date, and Landlord's determination shall be binding upon Tenant.
Landlord shall notify Tenant of its determination, in writing, within forty-five
(45) days after the date of the damage or destruction. If Landlord determines
that the Building can be fully repaired or restored by the Repair Date, or if it
is determined that such repair or restoration cannot be made by the Repair Date
but Landlord does not elect to terminate, then this Lease shall remain in full
force and effect and Landlord shall diligently repair and restore the damage as
soon as reasonably possible. If Landlord is delayed from repairing and/or
restoring the damage to the Premises within twelve (12) months after the
occurrence of such damage or destruction (subject to extension for Force
Majeure, as described in Section 18.23 below, which shall for the purposes of
this Section 12.03 include but not be limited to delays caused by the insurance
adjustment process), Landlord or Tenant may at any time thereafter (but prior to
the substantial completion of said repair and/or restoration by Landlord)
terminate this Lease by ten (10) days prior written notice to the other,
whereupon Landlord and Tenant shall (except as otherwise expressly provided in
this Lease) be released from any further obligations under this Lease.
12.04 UNINSURED CASUALTY. Notwithstanding anything contained in this
Lease to the contrary, in the event of damage to or destruction of all or any
portion of the Premises or the Building for which Landlord is responsible, which
damage or destruction is not fully covered by the insurance proceeds received by
Landlord under the insurance policies required under Article VIII hereinabove,
Landlord may terminate this Lease by written notice to Tenant given within
forty-five (45) days after the date of notice to Landlord that said damage or
destruction is not so covered. If Landlord does not elect to terminate this
Lease (and does not terminate this Lease pursuant to any other Section of this
Article XII), the Lease shall remain in full force and effect and the Premises
and/or the Building shall be repaired and rebuilt in accordance with the
provisions for repair set forth in this Article XII.
12.05 WAIVER. With respect to any destruction which Landlord is
obligated to repair or may elect to repair under the terms of this Article XII,
Tenant hereby waives all rights to terminate this Lease pursuant to rights
otherwise presently or hereafter accorded by law to tenants, except as expressly
provided herein.
12.06 MORTGAGEE'S RIGHT. Notwithstanding anything herein to the
contrary, if the holder of any indebtedness secured by a mortgage or deed of
trust covering the Building and/or the Project requires that the insurance
proceeds be applied to such indebtedness, then Landlord shall have the right to
terminate this Lease by delivering written notice of termination to Tenant
within fifteen (15) days after such requirement is made upon Landlord. Upon any
termination of this Lease under the provisions hereof, the parties shall be
released without further obligation to the other from the date possession of the
Premises is surrendered to Landlord, except for items which are theretofore
accrued and are then unpaid and for obligations which survive termination of
this Lease.
12.07 DAMAGE NEAR END OF TERM. Notwithstanding anything to the contrary
CONTAINED in this Article XII, Landlord shall not have any obligation whatsoever
to repair, reconstruct or restore the Premises when the damage resulting from
any casualty covered under this Article XII occurs during the last two (2) years
of the Term of this Lease or any extension thereof, and in such event Landlord
shall have the option to terminate this Lease in the manner set forth in Section
12.03 above.
ARTICLE XIII: EMINENT DOMAIN
13.01 EMINENT DOMAIN. In case the whole of the Premises, or such part
thereof as, in the reasonable determination of Landlord, shall substantially
interfere with Tenant's use and occupation thereof, or such portion of the
Building or Project as, in the reasonable determination of Landlord, shall
substantially interfere with Landlord's ability to perform its obligations under
this Lease, shall be taken for any public or quasi-public purpose by any lawful
power or authority by exercise of the right of appropriation, condemnation or
eminent domain, or be sold in lieu of or to prevent such taking, either party
shall have the right to terminate this Lease effective as of
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the date possession is required to be surrendered to said authority. In the case
of a taking of a portion of the Premises, in the event the amount of property or
the type of estate taken shall not, in the reasonable determination of Landlord,
substantially interfere with the conduct of Tenant's business, Landlord shall
promptly proceed to restore the Premises to substantially their same condition
prior to such partial taking (less the portion thereof lost in such
condemnation), and the Base Rent and Tenant's Share shall be proportionately
reduced by the portion of the Premises which Tenant shall have been deprived of
on account of said taking, effective as of the date possession is required to be
surrendered to the condemning authority. In the event, however, that such taking
is for temporary use only, this Lease shall continue in full force and effect,
and Tenant shall continue to comply with all of the provisions hereof, except as
such compliance shall be rendered impossible or impracticable by reason of such
temporary taking. Rent shall abate during the course of a temporary taking of
the Premises or a portion thereof to the extent and for the period of time that
the Premises or portion thereof so taken shall have been rendered untenantable.
13.02 DISPOSITION OF AWARDS. All awards to be paid in connection with
any exercise of eminent domain shall belong to Landlord without any
participation by Tenant. Tenant hereby assigns to Landlord any share of any
award which may be granted to Tenant. Notwithstanding the foregoing, Tenant may
apply separately to the condemning authority for any compensation which may be
separately awarded to Tenant by law, such as moving expenses, provided that such
compensation does not form any part of or diminish Landlord's award.
13.03 MORTGAGEE'S RIGHT. Notwithstanding anything herein to the
contrary, if the holder of any indebtedness secured by a mortgage or deed of
trust covering the Building and/or the Project requires that the condemnation
proceeds be applied to such indebtedness, then Landlord shall have the right to
terminate this Lease by delivering written notice of termination to Tenant
within fifteen (15) days after such requirement is made upon Landlord. Upon any
termination of this Lease under the provisions hereof, the parties shall be
released without further obligation to the other from the date possession of the
Premises is surrendered to Landlord, except for items which are theretofore
accrued and are then unpaid and for obligations which survive termination of
this Lease.
ARTICLE XIV: DEFAULT
14.01 EVENTS OF DEFAULT. In addition to Events of Defaults specified in
other sections of this Lease, the occurrence of any of the following events
shall constitute an "Event of Default" on the part of the Tenant with or without
notice from Landlord: (a) Tenant shall fail to pay Rent on its due date or fail
to make any other payment when required pursuant to this Lease; (b) Tenant shall
abandon or vacate any substantial portion of the Premises, whether or not Tenant
is in default of the Rent payments due under this Lease; (c) Tenant shall file a
petition or be adjudged a debtor or bankrupt or insolvent under the United
States Bankruptcy Code, as amended, or any similar law or statute of the United
States or any State, or if a petition under any of such laws shall be filed
involuntarily against Tenant and such petition is not dismissed within thirty
(30) days after Tenant receives notice of same; (d) a receiver or trustee shall
be appointed for all or substantially all of the assets of Tenant; (e) Tenant
shall make a transfer in fraud of creditors or shall make an assignment for the
benefit of creditors; (f) except as otherwise provided in subsections (a)
through (e) above or otherwise expressly provided in other Sections of this
Lease, Tenant shall fail to comply with any term, provision or covenant of this
Lease and such failure is not cured within fifteen (15) days after written
notice thereof to Tenant (said notice being in lieu of, and not in addition to,
any notice required as a prerequisite to an unlawful detainer or similar action
or claim); or (g) Tenant does any act, or any other circumstance occurs, which
this Lease expressly provides is an Event of Default hereunder.
14.02 REMEDIES.
(a) ACCELERATION AND DAMAGES. Upon the occurrence of any Event of
Default set forth in this Lease, and in addition to any other remedies available
to Landlord at law or in equity, Landlord shall have the immediate option to
terminate this Lease and all rights of Tenant hereunder. In the event that
Landlord shall elect to terminate this Lease, then Landlord
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may recover from Tenant: (i) any unpaid Rent which had accrued at the time of
such termination, plus (ii) unpaid Rent for the unexpired balance of the Term
and any exercised renewal option, plus (iii) any other amount necessary to
compensate Landlord for all the damage proximately caused by Tenant's failure to
perform Tenants obligations under this Lease or which in the ordinary course of
events would be likely to result therefrom, less (iv) the net proceeds of any
reletting after deducting all costs incurred by Landlord in connection with such
reletting attributable to the unexpired balance of the Term, including without
limitation costs of cleaning, altering or refitting the Premises, advertising,
broker fees, and legal fees for preparation and negotiation of replacement
leases ("Relet Charges"). Rent which accrued through the date of termination
shall include interest thereon at the Interest Rate, and Rent which would have
accrued for all periods after the date of termination shall be discounted to its
present value using the discount rate of ten percent (10%). The total Rent
thereby due shall accrue interest at the Interest Rate until paid in full.
(b) SUMMARY DISPOSSESS. Landlord may regain possession of the
Premises (but Landlord shall have no obligation to do so) through summary
dispossess proceedings or through any other lawful means.
(c) REMOVAL OF CONTENTS BY LANDLORD. Upon the occurrence of
any Event of Default, Landlord also shall have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant, without
service of notice or resort to legal process (all of which Tenant expressly
waives), and Landlord shall have no liability whatsoever to Tenant therefor,
including without limitation liability for trespass or conversion. No re-entry
or taking possession of the Premises by Landlord pursuant to this Section
14.02(c) shall be construed as an acceptance of a surrender of the Premises or
an election to terminate this Lease unless a written notice of such intention is
given to Tenant or unless the termination thereof is decreed by a court of
competent jurisdiction, and Tenant's liability under this Lease shall continue
until the date the Term and any exercised renewal option would have expired had
such termination not occurred.
(d) OPTION TO RELET. In the event of the vacation or
abandonment of the Premises by Tenant or in the event that Landlord shall elect
to re-enter as provided above or shall take possession of the Premises pursuant
to legal proceedings or pursuant to any notice provided by law, then, if
Landlord does not elect to terminate this Lease, Landlord may from time to time,
without terminating this Lease, either recover all Rent as it becomes due or
relet the Premises or any part thereof on such terms and conditions as Landlord
as its sole discretion may deem advisable, with the right to make alterations
and repairs to the Premises. In the event Landlord re-lets the Premises, Tenant
shall remain responsible for the difference in Rent received by Landlord on
account of such reletting and the Rent which would have been paid by Tenant
hereunder during the Term of this Lease and any exercised renewal option plus
all Relet Charges incurred by Landlord. Landlord shall be entitled to all
surplus earned on such reletting without accounting to Tenant therefor.
In the event that Landlord shall elect to so relet, then rents received
by Landlord from such reletting shall be applied: first, to the payment of any
Relet Charges; second, to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord; third, to the payment of Rent due and unpaid
hereunder, and the residual, if any, shall be held by Landlord and applied to
payment of future Rent as the same shall become due and payable hereunder.
Should that portion of such rents received from such reletting during the month
which is applied to the payment of Rent be less than the Rent payable during
that month by Tenant hereunder, then Tenant shall pay any such deficiency to
Landlord immediately upon demand therefor by Landlord and such amount shall
accrue interest at the Interest Rate from the date of demand until paid in full.
Landlord shall have the right to bring suit for collection of Rent on a monthly
basis without prejudice to Landlord's right to enforce collection of Rent for
any subsequent month.
Notwithstanding any provision hereof to the contrary, Landlord shall
have no obligation or duty to relet or attempt to relet the Premises if other
unoccupied space exists at the Building.
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(e) WAIVER OF REDEMPTION. Tenant hereby waives, to the extent
legally permissible, for itself and all persons claiming by, through or under
it, any right of redemption or for restoration of this Lease under any present
or future law in the event Tenant shall be dispossessed for any cause or in case
Landlord shall obtain possession of the Premises as herein provided.
(f) LIEN ON TENANT'S PROPERTY. To the extent permitted by law,
Tenant hereby grants to Landlord a lien and security interest to secure payment
of all Rent and all other amounts due to Landlord hereunder from Tenant and to
secure payment of any damages or loss which Landlord may suffer by reason of the
breach by Tenant of this Lease. Such security interest shall encumber all goods,
wares, equipment, fixtures, furniture, improvements and other personal property
of Tenant presently or which may hereafter be situated on the Premises, and all
proceeds therefrom (together, the "Collateral"), and such property shall not be
removed without the consent of Landlord until all arrearages in Rent as well as
any and all other sums of money then due to Landlord shall have been paid in
full and all of Tenant's obligations under this Lease shall have been fully
performed by Tenant. Upon the occurrence of an Event of Default, then, in
addition to all other rights and remedies available to Landlord, Landlord may
peaceably enter upon the Premises and take possession of the Collateral, without
liability for trespass or conversion or damage to or loss of the Collateral, and
sell same at public or private sale, with or without having such property at
sale, after giving Tenant reasonable notice of the time and place of any public
or private sale. At any such sale, Landlord or its assigns may purchase unless
otherwise prohibited by law. Unless otherwise provided by law, and without
intending to exclude any other manner of giving notice, Landlord shall give
notice of any such sale to Tenant in the manner prescribed in this Lease at
least five (5) days before the time of sale. The proceeds from any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the Collateral (including legal fees), first shall be
paid from the proceeds realized on such sale and the balance applied to amounts
due to Landlord hereunder. Any surplus shall be paid to Tenant or as otherwise
required by law and Tenant shall remain responsible for any deficiencies.
Upon request by Landlord, Tenant agrees to execute and deliver to
Landlord a financing statement, and continuation statements as needed, in form
sufficient to perfect the security interest of Landlord in the Collateral under
the provisions of the Uniform Commercial Code in force in the State where the
Premises are located. Tenant hereby irrevocably appoints Landlord as its agent
and attorney-in-fact with full power and authority to execute and deliver any
such financing statement or continuation statement on behalf of Tenant.
(g) CUMULATIVE REMEDIES. All rights, options and remedies of
Landlord contained in this Lease shall be construed and held to be cumulative,
and no one of them shall be exclusive of the other, and Landlord shall have the
right to pursue any one or all of such remedies or any other remedy or relief
which may be provided by law or equity, whether or not stated in this Lease.
Landlord shall be entitled to injunctive relief in case of the violation or
attempted or threatened violation of any covenant or provision of this Lease or
to a decree compelling performance of any covenant or provision of this Lease.
(h) NO WAIVER. No waiver of any default of Tenant hereunder shall
be implied from any acceptance by Landlord of any Rent or other payments due
hereunder or any omission by Landlord to take any action on account of such
default or if such default persists or is repeated unless such waiver is in
writing and signed by Landlord, and no written waiver shall affect defaults
other than as specified in said waiver. The consent or approval of Landlord to
or of any act by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render unnecessary Landlord's consent or approval to or of
any subsequent similar acts by Tenant. Tenant shall be responsible for all legal
fees and other costs and expenses incurred by Landlord in enforcing its rights
hereunder.
(i) CONFESSION OF JUDGMENT. IF RENT OR ANY OTHER AMOUNT DUE TO
LANDLORD HEREUNDER SHALL BE UNPAID AFTER THE DATE ON WHICH SAME WAS DUE, TENANT
HEREBY EMPOWERS ANY PROTHONOTARY, CLERK OF COURT, OR ATTORNEY OF ANY COURT OF
RECORD (AN "AUTHORIZED PARTY"), TO APPEAR FOR TENANT IN ANY AND ALL ACTIONS
WHICH MAY BE BROUGHT FOR RENT AND ANY SUCH OTHER AMOUNTS DUE TO LANDLORD
HEREUNDER, AND/OR TO SIGN FOR
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TENANT AN AGREEMENT FOR ENTERING IN ANY COURT OF COMPETENT JURISDICTION AN
AMICABLE ACTION OR ACTIONS FOR RECOVERY OF RENT AND ANY SUCH OTHER AMOUNTS DUE
TO LANDLORD HEREUNDER, AND IN SAID SUITS OR AMICABLE ACTIONS TO CONFESS JUDGMENT
AGAINST TENANT FOR ALL OR ANY PART OF RENT OR OTHER AMOUNTS DUE TO LANDLORD
HEREUNDER WHICH SHALL THEN BE UNPAID, INCLUDING WITHOUT LIMITATION AMOUNTS
PERMITTED BY SECTION 14.02(a) HEREOF, TOGETHER WITH INTEREST AT THE INTEREST
RATE HEREIN SPECIFIED, AND COSTS INCLUDING LEGAL FEES AND AN ATTORNEY COMMISSION
OF FIVE PERCENT (5%), FOR WHICH AUTHORIZATION TO CONFESS JUDGMENT THIS LEASE, OR
A TRUE AND CORRECT COPY THEREOF, SHALL BE SUFFICIENT WARRANT. SUCH AUTHORITY
SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS
AFORESAID FROM TIME TO TIME AS OFTEN AS ANY RENT OR OTHER AMOUNTS DUE TO
LANDLORD HEREUNDER SHALL FALL DUE OR BE IN ARREARS, AND SUCH POWERS MAY BE
EXERCISED AFTER THE EXPIRATION OF THE TERM OF THIS LEASE AND ANY RENEWAL
THEREOF.
IF THIS LEASE SHALL BE TERMINATED, WHETHER FOLLOWING AN EVENT OF DEFAULT
BY TENANT OR OTHERWISE, TENANT HEREBY EMPOWERS ANY AUTHORIZED PARTY TO APPEAR
FOR TENANT IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT FOR RECOVERY OF
POSSESSION OF THE PREMISES BY LANDLORD, AND/OR TO SIGN FOR TENANT AN AGREEMENT
FOR ENTERING IN ANY COURT OF COMPETENT JURISDICTION AN AMICABLE ACTION FOR
RECOVERY OF POSSESSION OF THE PREMISES BY LANDLORD, AND IN SAID SUITS OR
AMICABLE ACTIONS TO CONFESS JUDGMENT AGAINST TENANT IN EJECTMENT FOR POSSESSION
OF THE PREMISES, AND LANDLORD MAY COMMENCE AN ACTION FOR THE ENTRY OF AN ORDER
IN EJECTMENT FOR POSSESSION OF THE PREMISES, AND A WRIT OF POSSESSION MAY ISSUE
FORTHWITH, FOR WHICH AUTHORIZATION TO CONFESS JUDGMENT AND FOR THE ISSUANCE OF
WRITS OF POSSESSION PURSUANT THERETO THIS LEASE, OR A TRUE AND CORRECT COPY
THEREOF, SHALL BE SUFFICIENT WARRANT. IF FOR ANY REASON AFTER SAID ACTION SHALL
HAVE COMMENCED THE ACTION SHALL BE TERMINATED AND POSSESSION OF THE PREMISES
SHALL REMAIN IN OR BE RESTORED TO TENANT, LANDLORD SHALL HAVE THE RIGHT
FOLLOWING ANY SUBSEQUENT EVENT OF DEFAULT, OR UPON THE TERMINATION OF THIS
LEASE, TO COMMENCE SUCCESSIVE ACTIONS FOR POSSESSION OF REAL PROPERTY AND TO
CAUSE THE ENTRY OF SUCCESSIVE JUDGMENTS BY CONFESSION IN EJECTMENT FOR
POSSESSION OF THE PREMISES.
TENANT EXPRESSLY AGREES THAT ANY JUDGMENT, ORDER OR DECREE ENTERED
AGAINST TENANT BY OR IN ANY COURT OR MAGISTRATE BY VIRTUE OF THE FOREGOING
POWERS OR OTHERWISE SHALL BE FINAL, AND TENANT WILL NOT TAKE AN APPEAL,
CERTIORARI, WRIT OF ERROR, EXCEPTION OR OBJECTION TO SAME, OR FILE A MOTION OR
RULE TO STRIKE OR OPEN OR TO STAY EXECUTION OF SAME. TENANT RELEASES LANDLORD,
AND ANY AND ALL ATTORNEYS WHO MAY APPEAR FOR LANDLORD, FROM ALL ERRORS IN SAID
PROCEEDINGS AND ALL LIABILITIES THEREFOR.
TENANT UNDERSTANDS AND CONFIRMS THAT IN AGREEING TO THE PROVISIONS OF
THIS SECTION 14.02(i) TENANT IS KNOWINGLY WAIVING IMPORTANT DUE PROCESS RIGHTS
TO PREJUDGMENT NOTICE AND HEARING.
ARTICLE XV: ASSIGNMENT AND SUBLETTING
15.01 PROHIBITION. Tenant shall not assign, mortgage, pledge or
otherwise transfer or encumber this Lease, in whole or in part, nor sublet,
assign or permit occupancy of all or any part of the Premises by any party other
than Tenant, without the prior written consent of Landlord in each instance.
Tenant shall, at the time Tenant requests the consent of Landlord, deliver to
Landlord such information in writing as Landlord may reasonably require
respecting the proposed assignee or subtenant including, without limitation, the
name, address, nature of business, ownership, financial responsibility and
standing of such proposed assignee or subtenant; and Landlord shall have not
less than twenty (20) business days after receipt of all required information to
elect one of the following: (a) consent to such proposed assignment, encumbrance
or sublease; (b) refuse such consent, which refusal shall be in Landlord's sole
discretion; or (c) elect to terminate this Lease or, in the case of a partial
sublease, terminate this Lease as to the portion of the Premises proposed to be
sublet. As a condition for Landlord's consent to any assignment, encumbrance or
release, Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis all monies due to Tenant by said assignee or
subtenant. In addition, a condition to Landlord's consent to any assignment,
sublease
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or encumbrance of this Lease shall be the delivery to Landlord of a true copy of
the fully executed instrument of assignment, transfer or encumbrance and an
agreement executed by the assignee, subtenant or other transferee, in form and
substance satisfactory to Landlord and expressly enforceable by Landlord,
whereby the assignee, subtenant or transferee assumes and agrees to be bound by
the terms and provisions of this Lease and perform all the obligations of Tenant
hereunder, including, without limitation, the environmental warranties and
covenants set forth in Article XI. If Landlord does not elect to terminate this
Lease with respect to a proposed assignment or subletting, then Landlord shall
not unreasonably withhold its consent to a proposed assignment or subletting
provided that, in addition to all other requirements of this Article XV being
satisfied:
(i) The proposed subtenant or assignee is not already a
tenant in the Project;
(ii) The proposed subtenant or assignee is not a
governmental or quasigovernrnental entity or agency;
(iii) The stated or advertised rent that Tenant proposes
to charge the proposed subtenant or assignee is not less than Tenant's Base Rent
(but Tenant shall be permitted to effectively reduce such rent by the use of
concessions);
(iv) The subtenant or assignee is not a party with whom
Landlord has had discussions within nine (9) months prior to the date of the
proposed sublease or assignment concerning the possibility of such party leasing
space in the Project;
(v) The proposed subtenant or assignee is a reputable
party whose financial net worth, credit and financial responsibility is,
considering the responsibilities involved, reasonably satisfactory to Landlord;
(vi) The nature and character of the proposed subtenant
or assignee, its business or activities and intended use of the Premises is, in
Landlord's reasonable judgment, in keeping with the standards of the Project;
and
(vii) All costs incurred with respect to providing
reasonably appropriate means of ingress and egress from the sublet space or to
separate the sublet space from the remainder of the Premises shall be borne by
Tenant.
No assignment or subletting by Tenant (even if such assignment or
subletting is consented to by Landlord) shall relieve Tenant of any obligation
under this Lease. Any purported assignment or subletting contrary to the
provisions hereof without Landlord's consent shall be void. The consent by
Landlord to any assignment or subletting shall not constitute a waiver of the
necessity for such consent to any subsequent assignment or subletting. Tenant
shall reimburse Landlord for legal and other expenses and administrative costs
incurred by Landlord in connection with any request by Tenant for consent to
assignment or subletting upon demand with interest thereon at the Interest Rate
from the date of demand until paid in full.
15.02 EXCESS RENTAL. If, in connection with any assignment or sublease,
Tenant receives rent or other consideration, either initially or over the term
of the assignment or sublease, in excess of the Rent called for hereunder, or in
case of the sublease of a portion of the Premises, in excess of such Rent fairly
allocable to such portion, Tenant shall pay to Landlord, as Additional Rent
hereunder, one hundred percent (100%) of the excess of each such payment of rent
or other consideration received by Tenant promptly after its receipt.
15.03 SCOPE. The prohibition against assigning or subletting contained
in this Article XV shall be construed to include a prohibition against any
assignment or subletting by operation of law. If this Lease be assigned, or if
the underlying beneficial interest of Tenant is transferred, or if the Premises
or any part thereof be sublet or occupied by anybody other than Tenant, Landlord
shall have the right to immediately terminate this Lease or Landlord may elect
to collect Rent from the assignee, subtenant or occupant and apply the net
amount collected to the Rent herein reserved and retain any excess Rent so
collected in accordance with the terms of
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Section 15.02, but no such assignment, subletting, occupancy or collection shall
be deemed a waiver of this covenant, or the acceptance of the assignee,
subtenant or occupant as Tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained. No
assignment or subletting, regardless of whether consented to by Landlord, shall
affect in any way the continuing primary liability of Tenant (which, following
any assignment or subletting, shall be joint and several with the assignee or
subtenant), and Tenant shall not be released from performing any of the terms,
covenants and conditions of this Lease.
15.04 EFFECT OF ASSIGNMENT. Unless otherwise agreed to in writing by
Landlord, any renewal option or expansion option or similar right granted to
Tenant in this Lease shall be personal to the original Tenant named in Section
l.01(c) hereof and void upon any assignment or subletting or, with respect to a
partial subletting, void as to the portion of the Premises sublet.
15.05 WAIVER. Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or subtenant or failure of Landlord to take action against any assignee or
subtenant, Tenant hereby waives notice of any default of any assignee or
subtenant and agrees that Landlord may, at its option, proceed against Tenant
without having taken action against or joined such assignee or subtenant, except
that Tenant shall have the benefit of any indulgences, waivers and extensions of
time granted to any such assignee or subtenant.
15.06 CHANGE IN CONTROL. If Tenant is a non-reporting or closely held
company, a change in the control of such company shall be deemed for the
purposes hereof to be an assignment of this Lease. If Tenant is a partnership, a
withdrawal or change, in one or more transfers, of partners owning more than a
fifty percent (50%) interest in the partnership, shall constitute an assignment.
Any such assignments shall be subject to the provisions of this Article XV.
Notwithstanding the foregoing, Tenant shall not be required to obtain the
consent of Landlord as described in Section 15.01 hereof (but all other
provisions of Section 15.01 not specifically relating to the obtaining of
Landlord's consent shall apply) to an assignment or subletting to a "Related
Party." A "Related Party" shall be a legal entity which controls Tenant, which
Tenant controls, or which is controlled by the same entity which controls
Tenant. "Control" shall mean the ownership of at least a fifty-one percent (51%)
equity interest. Tenant shall, however, notify Landlord in writing of an
assignment or subletting to a "Related Party" at least thirty (30) days prior to
the effective date of such assignment or subletting.
ARTICLE XVI: OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION
16.01 OFFSET STATEMENT. Within ten (l0) days after request therefor by
Landlord, or if, in connection with any sale, assignment or hypothecation by
Landlord of Landlord's interest in the Premises, the Building and/or the
Project, or any part thereof, an offset statement or estoppel certificate shall
be required from Tenant, Tenant shall complete, execute and deliver a
certificate in the form attached hereto as Exhibit G or in such other form as
requested by Landlord to any proposed mortgagee or purchaser, and to Landlord,
certifying (if such be the case) (i) that this Lease is in full force and effect
without modification; (ii) the date of Tenant's most recent payment of Rent,
(iii) the amount of the Security Deposit; (iv) that Tenant has no defenses or
offsets outstanding, or stating those claimed by Tenant; and (v) any other
information contained in such Exhibit G or reasonably requested by Landlord or
such proposed mortgagee or purchaser. Tenant's failure to deliver said statement
within said period shall, at Landlord's option, be an Event of Default hereunder
and shall in any event be conclusive upon Tenant that: (i) this Lease is in full
force and effect, without modification except as may be represented by Landlord;
(ii) there are no uncured defaults in Landlord's performance and Tenant has no
right to offset, counterclaim or deduction against Rent hereunder; (iii) no more
than one month's Base Rent has been paid in advance; and (iv) the Security
Deposit is as stated in the Lease.
16.02 ATTORNMENT. Tenant shall, in the event any proceedings are brought
for the foreclosure of, or in the event of exercise of the power of sale under,
any mortgage or deed of trust encumbering the Premises, the Building or the
Project, or any part thereof, made by Landlord, its successors or assigns, or in
the event of termination of a ground lease, if any, and if so requested, attorn
to the purchaser upon such foreclosure or sale or upon any grant of a deed in
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lieu of foreclosure or to the lessor of such terminated ground lease and
recognize such purchaser or ground lease lessor as landlord under this Lease.
16.03 SUBORDINATION. The rights of Tenant hereunder are and shall be, at
the election of Landlord or any mortgagee or the beneficiary of a deed of trust
encumbering the Premises, the Building or the Project, subject and subordinate
to the lien of such mortgage or deed of trust, or the lien resulting from any
other method of financing or refinancing, now or hereafter in force against the
Premises, the Building or the Project, and to all advances made or hereafter to
be made upon the security thereof. At the election of Landlord or any such
mortgagee or beneficiary, this clause shall be self-operative and no further
instrument shall be required. Notwithstanding such subordination, so long as
Tenant is not in default under any of the terms, covenants and conditions of
this Lease, if requested by Tenant, Landlord shall make a reasonable attempt to
obtain from any mortgagee or beneficiary of a deed of trust a nondisturbance
agreement in favor of the Tenant (using such mortgagee's or beneficiary's
then-standard form of such agreement) for so long as the Tenant is not in
default under this Lease, and provided Tenant agrees in said nondisturbance
agreement to attorn to the said mortgagee or beneficiary in the event it comes
into possession of the Premises. Landlord need not incur any expense or
undertake any additional liability in attempting to obtain such a nondisturbance
agreement. If requested, Tenant agrees to execute whatever documentation may be
required to further effect the provisions of this Article XVI.
16.04 MORTGAGEE'S RIGHTS. If Landlord shall notify Tenant that the
Premises, the Building or the Project are encumbered by a mortgage or deed of
trust, and in such notice set forth the name and address of the mortgagee or
beneficiary/trustee under such deed of trust, then, notwithstanding anything in
this Lease to the contrary, no notice intended for Landlord shall be deemed
properly given unless a copy thereof is simultaneously sent to such designee in
the manner provided in Section 18.01 hereof. If any mortgagee or
trustee/beneficiary shall perform any obligation that Landlord is required to
perform hereunder, such performance, insofar as Tenant is concerned, shall be
deemed performance on behalf of Landlord and shall be accepted by Tenant as if
performed by Landlord. Tenant further agrees that it shall not exercise any
right against Landlord without affording such mortgagee or trustee/beneficiary a
reasonable opportunity to cure any default of Landlord but that such mortgagee
or trustee/beneficiary shall not be obligated to undertake any action on
Landlord's behalf.
16.05 RECORDING. Tenant covenants and agrees with Landlord that Tenant
shall not record this Lease. Notwithstanding the provisions of Section 16.03, in
the event that Landlord or its lender requires this Lease to be recorded in
priority to any mortgage, deed of trust or other encumbrance which may now or at
any time hereafter affect in whole or in part the Premises, the Building, or the
Project, and whether or not any such mortgage, deed of trust or other
encumbrance shall affect only the Premises, Building, or the Project, or shall
be a blanket mortgage, deed of trust or encumbrance affecting other premises as
well, Tenant covenants and agrees with Landlord that Tenant shall execute
promptly upon request from Landlord any certificate, priority agreement or other
instrument which may from time to time be requested to give effect thereto; and
Tenant hereby irrevocably appoints Landlord as its agent and attorney-in-fact
with full power and authority to execute and deliver such instruments for and in
the name of Tenant.
16.06 RELEASE OF LANDLORD. Whenever Landlord conveys its interest in the
Premises, the Building or the Project to a purchaser thereof or successor in
title, the party so conveying its interest shall be automatically released from
the further performance of covenants on the part of Landlord herein contained,
and from any and all further liability, obligations, costs and expenses,
demands, causes of action, claims or judgments arising out of this Lease from
and after the effective date of said conveyance, it being the intent of the
parties hereto that the term "Landlord" as used in this Lease shall mean only
the then-current owner of the Premises. This Section 16.06 shall be applicable
to each owner from time to time, and shall not be limited to the first owner of
the Premises, the Building or the Project. If requested, Tenant shall execute a
form of release and such other documentation as may be required to further
effect the provisions of this Section. Failure to comply with such request
shall, at Landlord's option, constitute an Event of Default hereunder.
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ARTICLE XVII: INDEMNIFICATION AND LIABILITY
17.01 INDEMNIFICATION.
(a) INDEMNIFIED CLAIMS. In addition to Tenant's promises of
indemnification provided elsewhere in this Lease, Tenant hereby indemnifies and
agrees to defend and hold harmless Landlord, its officers, employees and agents,
and any mortgagee or beneficiary/trustee under a deed of trust, from and against
any and all claims, suits, proceedings, actions, causes of action,
responsibility, liabilities, payments, demands and expenses (including legal
fees, expert fees, and other professional fees) in connection with or arising
from: (i) Tenant's possession, use, occupation, management, repair, maintenance
or control of the Premises, the Building or the Project, or any portion thereof;
(ii) any act, omission, negligence or willful misconduct of Tenant and/or
Tenant's Agents; (iii) any default, breach, violation or nonperformance of this
Lease or any provision therein by Tenant; and (iv) injury or damages person(s)
or property or loss of life sustained in the Premises. Tenant shall defend any
actions, suits and proceedings which may be brought against Landlord, its
officers, employees or agents, or any mortgagee or beneficiary/trustee under a
deed of trust, with respect to the foregoing or in which they may be impleaded,
using legal counsel acceptable to Landlord, and shall pay, satisfy and discharge
any judgments, orders and decrees which may be recovered against same. However,
this indemnification shall not apply to any liability caused by or resulting
from the negligence or willful misconduct of Landlord, its officers, agents or
employees.
(b) NOTICE OF CLAIMS. Landlord shall promptly notify Tenant of
any claims for which Landlord seeks indemnification pursuant to this Section
17.01.
(c) PARTIES COVERED. Any indemnification of Landlord under this
Lease shall be deemed to extend to the entity named as Landlord in Section
1.01(a) hereof, and, in case Landlord shall be a joint venture, partnership,
tenancy-in-common, association, or other form of joint ownership, to the members
of any such joint venture, partnership, tenancy-in-common, association or other
form of joint ownership, and to all officers, directors, employees and agents,
and to all who succeed to Landlord's interest.
17.02 WAIVER AND RELEASE.
(a) CLAIMS AGAINST LANDLORD. Tenant hereby waives and releases
all claims against Landlord with respect to all matters for which Landlord has
disclaimed liability pursuant to the provisions of this Lease.
(b) LANDLORD'S CONSENT OR APPROVAL. Tenant will not be entitled
to make any claim, nor will Tenant make any claim, and Tenant waives any claim,
for money damages (nor will Tenant claim any money damages by way of setoff,
counterclaim or defense) based upon any claim or assertion by Tenant that
Landlord has unreasonably withheld or unreasonably delayed its consent or
approval with respect to any provision of this Lease providing for such consent
or approval. Tenant's sole remedy will be an action or proceeding to enforce any
such provision, or for specific performance, injunction or declaratory judgment.
However, unless otherwise expressly provided in this Lease, Landlord's consent
may be given or withheld in Landlord's sole discretion.
17.03 LIABILITY OF LANDLORD.
(a) NO PERSONAL LIABILITY. It is expressly understood and agreed
by and between the parties hereto, anything herein to the contrary
notwithstanding, that each and all of the representations, warranties,
covenants, undertakings and agreements herein made on the part of any Landlord
while in form purporting to be the representations, warranties, covenants,
undertakings and agreements of such Landlord are nevertheless each and every one
of them made and intended, not as personal representations, warranties,
covenants, undertakings and agreements by such Landlord, or for the purpose or
with the intention of binding such Landlord personally, but are made and
intended for the purpose only of subjecting such Landlord's interest in the
Premises and the Building to the terms of this Lease and for no other purpose
whatsoever,
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and in case of default hereunder by such Landlord (or default through, under or
by any of the agents, servants, employees or representatives of such Landlord),
Tenant shall look solely to the interests of such Landlord in the Premises and
the Building; that no Landlord shall have any personal liability to pay any
indebtedness accruing hereunder or to perform any covenant, either express or
implied, herein contained; that no personal liability or personal responsibility
of any sort is assumed by, nor shall at any time be asserted or enforceable
against, any Landlord on account of this Lease or on account of any
representation, warranty, covenant, undertaking or agreement of Landlord in this
Lease contained, either express or implied, all such personal liability, if any,
being expressly waived and released by Tenant and by all persons claiming by,
through or under Tenant; and that as to any partnership which is a Landlord a
deficit capital account of any partner of such partnership shall not be deemed
to be an asset or property of such partnership; but provided, however, that if
Landlord owes Tenant a judgment or other monetary obligation and a casualty or
condemnation related to the Premises, the Building or the Project occurs,
Tenant's judgment or monetary obligation may attach to the condemnation award or
insurance proceeds received on account of Landlord's interest in the Premises,
the Building or the Project. Such exculpation of liability shall be absolute and
without any exception whatsoever.
(b) TENANT'S PROPERTY. All property (whether real, personal or
mixed) at any time located in or upon the Premises shall be at the risk of
Tenant only, and Landlord shall not become liable for any damage to said
property or to Tenant, or to any other person or property therefor, or which may
be caused by water leakage, steam, sewerage, gas or odors or for any damage
whatsoever done or occasioned by or from any boiler, plumbing, gas, water, steam
or other pipes, or any fixtures or equipment or appurtenances whatsoever, or for
any damage arising from any act or neglect or arising by reason of the use of,
or any defect in the Premises or any of the fixtures, equipment or appurtenances
therein contained, or by the act or neglect of any other person or caused in any
other manner whatsoever, or occasioned by theft, Act of God, riot, strike or
other labor difficulty.
(c) DELAYS. Except as otherwise expressly provided herein, this
Lease and the obligations of Tenant hereunder shall be in no way affected,
impaired or excused because Landlord is unable to fulfill, or is delayed in
fulfilling, any of its obligations under this Lease.
ARTICLE XVIII: MISCELLANEOUS
18.01 NOTICES. All notices required to be given hereunder shall be in
writing and delivered to the other party by (i) certified registered mail,
return receipt requested and postage prepaid, (ii) personal delivery against
signed receipt therefor by such carrier, or (iii) by overnight delivery by
recognized carrier, postage prepaid, against signed receipt therefor by such
carrier, to the appropriate address indicated in Section 1.01 hereof or at such
other place or places as either Landlord or Tenant may, from time to time,
respectively, designate in a written notice given to the other in accordance
with this Section. Notices shall be deemed sufficiently served upon the earlier
of actual receipt or the expiration of three (3) days after the date of mailing
thereof and one (1) business day after posting with a recognized overnight
carrier.
18.02 SUCCESSORS BOUND. This Lease and each of its covenants and
conditions shall be binding upon and shall inure to the benefit of the parties
hereto and their respective assignees, subject to the provisions hereof. Any
successor or assignee of the Tenant who accepts an assignment or the benefit of
this Lease and enters into possession or enjoyment hereunder shall thereby
assume and agree to perform and be bound by the covenants and conditions
thereof. Nothing herein contained shall be deemed in any manner to give a right
of assignment to Tenant without the prior written consent of Landlord and other
than in compliance with Article XV hereof.
18.03 GUARANTOR OF TENANT. Any restriction on or requirement imposed
upon Tenant hereunder shall be deemed to extend to any guarantor of Tenant, and
to Tenant's subtenants, concessionaires and licensees, and it shall be Tenant's
obligation to cause the foregoing persons to comply with such restriction or
requirement.
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18.04 WAIVER. No waiver of any default or breach of any covenant by
either party hereunder shall be implied from any omission by either party to
take action on account of such default if such default persists or is repeated,
and no express waiver shall affect any default other than the default specified
in the waiver, and said waiver shall be operative only for the time and to the
extent therein stated. Waivers of any covenant, term or condition contained
herein by either party shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
either party to or of any act by either party requiring further consent or
approval shall not be deemed to waive or render unnecessary their consent or
approval to or of any subsequent similar acts.
18.05 SURRENDER OF PREMISES AND HOLDING OVER. Upon expiration or other
termination of this Lease, Tenant shall immediately surrender possession of the
Premises to Landlord in substantially the same condition existing as on the
Commencement Date, reasonable wear and tear, damage by fire or other insured
casualty excepted (provided that all insurance proceeds are assigned to
Landlord), shall surrender to Landlord all keys for the Premises and shall
inform Landlord of all combinations on locks, safes and vaults, if any, in the
Premises. Should Tenant, or any of its successors in interest, hold over the
Premises or any part thereof after the expiration or earlier termination of this
Lease without Landlord's prior written consent, such holding over shall
constitute and be construed as tenancy at sufferance only, at a monthly rent
equal to two (2) times the Base Rent owed during the final, full calendar month
of the Term of this Lease and otherwise upon the terms and conditions in this
Lease, so far as applicable. Should Tenant, or any of its successors in
interest, hold over the Premises or any part thereof after the expiration or
earlier termination of this Lease with Landlord's prior written consent, such
holding over shall constitute and be construed as a tenancy from month to month
only, at a monthly rent equal to two (2) times the Base Rent owed during the
final month of the Term of this Lease and otherwise upon the terms and
conditions of this Lease, so far as applicable. The acceptance by Landlord of
Rent after such expiration or early termination shall not result in a renewal or
extension of this Lease or be deemed Landlord's consent to any holding over. The
foregoing provisions of this Section are in addition to and do not affect
Landlord's right of re-entry or any other rights of Landlord hereunder or as
otherwise provided by law. If Tenant fails to surrender the Premises on the
expiration of this Lease, Tenant shall indemnify, defend and hold harmless
Landlord from and against all loss and liability, including without limitation,
any damages suffered by Landlord due to Landlord's inability to make the
Premises available for occupancy by another party or any claim made by any
succeeding tenant, resulting from such failure to surrender by Tenant and any
legal fees and costs incurred by Landlord with respect to any such claim.
18.06 LANDLORD'S RIGHT TO PERFORM. Upon Tenant's failure to perform any
obligation of Tenant hereunder, including without limitation payment of Tenant's
insurance premiums, or charges to contractors who have supplied materials or
labor to the Premises, Landlord shall have the right to perform such obligation
of Tenant on behalf of Tenant and/or to make payment on behalf of Tenant to such
parties but shall have no obligation to do so. Tenant shall reimburse Landlord,
as Additional Rent, the cost of Landlord's performing any such obligation on
Tenant's behalf, including reimbursement of any amounts that may by expended by
Landlord for legal fees and consulting fees, together with interest at the
Interest Rate from the date reimbursement is demanded until payment is received
in full.
18.07 SUBDIVISION AND EASEMENTS. Landlord reserves the right to (i)
subdivide the Project or the land on which it is located, (ii) alter the
boundaries of the Project or the land on which it is located, and (iii) grant
easements on the Project or the land on which it is located, and dedicate for
public use portions thereof; provided, however, that no such grant or dedication
shall materially interfere with Tenant's use of the Premises or materially
reduce the type or quality of services provided by Landlord under this Lease.
Tenant hereby consents to such subdivision, boundary revision, and/or grant or
dedication of easements and agrees from time to time, at Landlord's request, to
execute, acknowledge and deliver to Landlord, in accordance with Landlord's
instructions, any and all documents, instruments, maps or plats necessary to
effectuate Tenant's consent thereto.
18.08 LANDLORD'S RESERVED RIGHTS. Landlord reserves the following
rights, exercisable without notice to Tenant except as otherwise expressly
provided herein, and without liability to
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Tenant for damage or injury to property, person or business (all such claims
being hereby released, except to the extent that they are caused by Landlord's
negligence), and without effecting an eviction or disturbance of Tenant's use or
possession or giving rise to any claim for offsets or abatements of Rent or
affecting any of Tenant's obligations under this Lease. Specification of the
rights reserved to Landlord herein shall not exclude any right accruing to
Landlord by operation of law or reserved specifically or by interference from
any provision contained in this Lease:
(a) NAME: To change the Project's or the Building's name or
street address.
(b) SIGNS: To install, affix and maintain any and all signs on
the exterior and interior of the Building and the Project, except that
installing signage on the walls of the interior of the Premises shall require
Tenant's consent. Except as otherwise provided in this Lease, Tenant shall not
install any signage that is visible from the exterior of the Building or from
within its lobbies or common corridors without Landlord's approval of the sign
and the location thereof, which may be withheld in Landlord's reasonable
discretion. Landlord reserves the right to remove at Tenant's expense any such
sign not so approved by Landlord.
(c) WINDOWS: To designate and approve, prior to installation, all
types of window shades, blinds, drapes, awnings, window ventilators and other
similar equipment and to control all the internal lighting that may be visible
from the exterior of any building in the Project.
(d) SERVICE CONTRACTS: To designate all sources furnishing sign
painting and lettering, ice and drinking water, towels, toilet supplies,
beverages, food service, shoe shining or other services in the Building, the
Project or on the Premises (as the case may be), provided that the rates for
such services as are designated by Landlord (if Landlord provides or allows such
services) are reasonably comparable with rates charges therefor in other
comparable office buildings in the vicinity of the Project. The listing of such
services in this paragraph (d) shall not be deemed an agreement or
representation by Landlord to provide or allow the provision of any such
services in the Project or on the Premises.
(e) KEYS: To retain at all times and to use passkeys to the
Premises and keys to all locks within and into the Premises. No locks or bolts
shall be altered, changed or added without the prior written consent of
Landlord.
(f) ACCESS FOR REPAIRS, ETC.: To have access to the Premises to
perform its duties and obligations under this Lease and to inspect the Premises,
make repairs, alterations, additions or improvements, whether structural or
otherwise, in and about the Premises, the Project, the Building or any part
thereof as set forth in various Sections of this Lease. Except for the case of
an emergency, Landlord shall give Tenant reasonable advance notice of its entry
into the Premises for such purposes.
(g) OCCUPANCY: To decorate, remodel, repair, alter or otherwise
prepare the Premises for reoccupancy at any time after an Event of Default has
occurred and Landlord has taken possession of the Premises through operation of
law. Such acts of Landlord shall not relieve Tenant from its obligations under
this Lease.
(h) RIGHTS TO CONDUCT BUSINESSES: To grant to anyone the
exclusive right to conduct any business or render any service in the Building or
the Project provided such exclusive right shall not operate to exclude Tenant
from or materially interfere with the use permitted by this Lease.
(i) HEAVY EQUIPMENT: To approved the weight, size or location of
safes and other heavy equipment and articles in and about the Premises, the
Project and the Building and to require all such items and furniture to be moved
into and out of the Building or anywhere else in the Project and the Premises
only at such times and in such manner as Landlord shall reasonably direct in
writing. Any furniture, equipment, curtains and similar articles desired to be
removed from the Premises or the Building shall be listed in a written notice
from Tenant to Landlord and a removal permit therefor shall be obtained from
Landlord prior to removal thereof.
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(j) SHOW PREMISES: To show the Premises to prospective
purchasers, tenants or brokers at all reasonable times, provided reasonable
prior notice is given to Tenant in each case.
(k) CLOSE BUILDING: To close or restrict access to the Building
or the Project during such hours as Landlord shall from time to time reasonably
determine, and on holidays subject, however, to Tenant's right to admittance at
all times under such regulations as Landlord may prescribe from time to time
which may include, by way of example but not of limitation, that persons
entering or leaving the Building or the Project identify themselves to a
security guard by registration or otherwise and that said persons establish
their right to enter or leave the Building or the Project.
(m) REPAIRS AND ALTERATIONS: At any time Landlord may decorate,
make alterations, additions or improvements, structural or otherwise, in or to
the Building, the Project, or any part thereof, including the Premises, and
perform any acts required or permitted hereunder or related to the safety,
protection, preservation or improvement of the Building or the Project or the
Premises, and during such operations Landlord shall have the right to take into
and through the Premises or any part of the Building all material and equipment
required and to close and temporarily suspend operation of entrances, doors,
corridors, elevators and other facilities, and to have access to and open all
ceilings, without liability to Tenant by reason of interference, inconvenience,
annoyance or loss of business. Landlord may do or permit any work to be done
upon or along, and any use of, any adjacent or nearby building, land, street,
alley or way.
(n) COMMON AREA MODIFICATIONS: To (i) make changes to the Common
Areas and/or the parking facilities located thereon, including, without
limitation, change in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) close
temporarily all or any portion of the Common Areas and/or the Building or the
Project in order to perform any of the items described in this Section 18.08 or
any of Landlord's obligations under this Lease, so long as reasonable access to
the Premises remains available during normal Business Hours; and (c) alter,
relocate or expand and/or to add additional structure and improvements to, or
remove same from, all or any portion of the Common Areas.
(o) OTHER RIGHTS: All other rights reserved by Landlord
pursuant to the provisions of this Lease.
18.09 RULES AND REGULATIONS. At all times during the Term, Tenant shall
comply with Rules and Regulations for the Building and the Project, as set forth
in Exhibit H attached hereto, together with such amendments and supplements
thereto as Landlord may from time to time reasonably adopt and enforce in a
non-discriminatory fashion. If any Rules and Regulations are contrary to the
terms of the Lease, the terms of this Lease shall prevail. The material
violation of any material Rules and Regulations shall be an Event of Default
under this Lease allowing Landlord all remedies for an Event of Default provided
in this Lease.
18.10 PARKING. Except as otherwise designated by Landlord, parking
spaces shall be available for the common use of the tenants, subtenants and
invitees of the Project on a nonexclusive basis, subject to any reasonable
restrictions from time to time imposed by Landlord. Tenant shall not use or
permit its officers, employees or invitees to use any spaces which have been
specifically reserved by Landlord to other tenants or for such other uses as
have been designated by appropriate governmental entities as being restricted to
certain uses. Tenant shall at all times comply and cause its officers, employees
and invitees to comply with any parking Rules and Regulations as Landlord may
from time to time reasonably adopt.
18.11 NO NUISANCE. Tenant shall conduct its business and control its
agents, employees, invitees and visitors in such a manner as not to create any
nuisance, or interfere with, annoy or disturb any other tenant or Landlord in
its operation of the Building or Project.
18.12 RELOCATION. At any time and from time to time after Tenant's
execution of this Lease, Landlord shall have the right, upon providing Tenant
thirty (30) days notice in writing, to
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provide Tenant with reasonably similar space elsewhere in the Building or the
Project of approximately the same size as the Premises and to move Tenant to
said space. In the event that Landlord shall exercise such right subsequent to
the actual occupancy of the Premises by Tenant, Landlord shall arrange for
moving Tenant and shall pay the costs of moving Tenant to such new space and all
other reasonable expenses related to such relocation. Following any such
relocation, this Lease, and each and all of the terms and covenants and
conditions hereof, shall remain in full force and effect and thereupon be deemed
applicable to such new space except that a revised floor plan shall become part
of this Lease and shall reflect the location of the new space. Tenant's Share
and Base Rent shall be adjusted to reflect the size of the new premises, but
such adjustment shall not increase the Base Rent by more than five percent
(5.0%), regardless of the size of the substituted premises. Should Tenant refuse
to move to such new space at the end of said thirty (30) day period, Landlord
shall have the right, in addition to exercising any other remedies provided in
this Lease, to terminate this Lease by notice given to Tenant in writing within
ten (10) days following the end of said thirty (30) day period, which
termination shall be effective sixty (60) days after the date of the original
notice of relocation by Landlord. Tenant shall continue to pay Rent and perform
all of its obligations hereunder until termination of this Lease.
18.13 FINANCIAL STATEMENTS. Tenant agrees, at the request of Landlord,
to furnish its current annual financial statements certified by its certified
public accountants, and, if applicable, such annual or quarterly reports as
Tenant may file with the Securities and Exchange Commission or any other
government agency.
18.14 CORPORATE AUTHORITY. Tenant represents that the undersigned
officer(s) or partner(s) have been duly authorized to enter into this Lease and
that the execution and consummation of this Lease by Tenant does not and shall
not violate any provision of any bylaws, certificate of incorporation,
partnership or agreement, or other agreement, order, judgment, governmental
regulation or any other obligations to which Tenant is a party or is subject.
18.15 QUIET ENJOYMENT. Subject to the provisions of this Lease and
conditioned upon the performance of all of the provisions to be performed by
Tenant hereunder, Landlord shall not during the Term hereof disturb the quiet
and peaceful possession of the Premises and all rights and privileges
appertaining thereto by Tenant hereunder.
18.16 WAIVER OF JURY TRIAL. Landlord and Tenant each agree to and they
hereby waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties hereto against the other on any matter whatsoever arising
out of or in any way connected with the Lease, the relationship of Landlord and
Tenant, or Tenant's use or occupancy of the Premises, and any claim or injury or
damage and/or any statutory remedy.
18.17 BROKER. Tenant warrants that it has had no discussions,
negotiations and/or other dealings with any real estate broker or agent other
than the broker(s) listed in Section 1.01(e) hereof ("Broker") in connection
with the negotiation of this Lease, and that it knows of no other real estate
broker or agent who is or may be entitled to any commission or finder's fee in
connection with this Lease. Tenant agrees to indemnify, defend and hold harmless
Landlord from and against any and all claims, demands, losses, liabilities,
lawsuits, judgments, costs and expenses (including without limitation,
attorneys' fees and costs) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of Tenant's discussion, negotiations
and/or dealings with any real estate broker or agent other than Broker. This
Section 18.17 is not intended to benefit any third parties and shall not be
deemed to give any rights to brokers or finders. Landlord shall pay any
commission(s) owing to Broker with respect to this Lease pursuant to a separate
agreement or agreements.
18.18 ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than the Rent herein stipulated shall be deemed to
be other than on account of the Rent, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as Rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Rent or pursue any
other remedy provided in this Lease.
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18.19 CAPTIONS AND ARTICLE NUMBERS. The captions, article and section
numbers and table of contents appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent or such sections or articles of this Lease nor in any way affect
this Lease.
18.20 SEVERABILITY. If any term, covenant, condition or provision of
this Lease, or the application thereof to any person or circumstance, shall to
any extent be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, covenants, conditions or provisions
of this Lease, or the application thereof to any person or circumstance, shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
18.21 APPLICABLE LAW. This Lease, and the rights and obligations of
the parties hereto, shall be construed and enforced in accordance with the laws
of the state in which the Premises are located.
18.22 SUBMISSION OF LEASE. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of or option for leasing the Premises. This document shall become
effective and binding only upon execution and delivery hereof by Landlord and
Tenant. No act or omission of any officer, employee or agent of Landlord or
Tenant shall alter, change, or modify any of the provisions hereof.
18.23 TIME. Time is of the essence of every provision hereto.
Notwithstanding the foregoing, this Lease and the obligation of Tenant to pay
Rent hereunder and perform all of Tenant's covenants and agreements hereunder
shall not be impaired nor shall Landlord be in default hereunder because
Landlord is unable to fulfill any of Landlord's obligations under this Lease, if
Landlord is prevented or delayed from so doing by any of the following (which
shall be referred to herein as a "Force Majeure"): any accident, breakage,
repairs, alterations, improvements, strike or labor troubles, or any other cause
whatsoever beyond the reasonable control of Landlord, including, but not limited
to, energy shortages or governmental preemption in connection with a national
emergency, or by reason of government laws or any rule, order or regulation of
any department or subdivision thereof of any governmental agency, or by reason
of the conditions of supply and demand which have been or are affected by war or
other emergency. This provision shall be mutually applicable to Landlord and
Tenant's performance of the Lease Documents.
18.24 ENTIRE AGREEMENT. This Lease sets forth all covenants, promises,
agreements, conditions and understandings between Landlord and Tenant concerning
the Premises, the Building and the Project, and there are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between Landlord and Tenant other than as are herein set forth. No subsequent
alteration, amendment, change or addition to the Lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by Landlord and Tenant.
18.25 LANDLORD'S MANAGEMENT PROVISIONS. Any services which Landlord is
required to furnish pursuant to the provisions of this Lease may, at Landlord's
option, be furnished from time to time, in whole or in part, by employees of
Landlord or by Landlord's designated property management firm for the Project or
by one or more third parties, and Landlord further reserves the right to require
Tenant to enter into reasonable agreements with any such parties in form and
content approved by Landlord for the furnishing of such services.
18.26 SPRINKLERS. If the sprinkler system (if any) installed at the
Building or the Project or any of its appliances shall be damaged or injured or
not in proper working order by reason of any act or omission of Tenant, Tenant's
agents, servants, employees, licensees or invitees (to the extent repair thereof
would not be covered by casualty insurance customarily carried on buildings
comparable to the Building), Tenant shall forthwith restore the same to good
working condition at its own expense. If the Board of Fire Underwriters or Fire
Insurance Exchange or any bureau, department or official of the state or city
government, requires or recommends that any changes, modifications, alterations
or additional sprinkler heads or other equipment be made or supplied by reason
of Tenant's business or acts or the location of partitions, trade fixtures, or
other
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contents of the Premises, Tenant shall, at Tenant's expense, promptly make
and supply such changes, modifications, alterations, additional sprinkler heads
or other equipment.
18.27 DATE PAYMENTS ARE DUE. All amounts owed to Landlord hereunder, for
which the date of payment is not expressly fixed herein, shall be paid within
thirty (30) days from the date Landlord renders statements of account therefor.
18.28 MEANING OF "RE-ENTRY". The words "re-enter" and "re-entry" as used
in this Lease are not restricted to their technical legal meaning.
18.29 LEASE MODIFICATION. Should any subsequent Mortgagee require a
modification of this Lease, which modification will not bring about any
increased cost or expense to Tenant or in any other way change the rights and
obligations of Tenant hereunder (including the modification of the Premises),
Tenant agrees that this Lease may be so modified.
18.30 LITIGATION, MEDIATION AND ARBITRATION COSTS. In the event of any
litigation, mediation or arbitration between the parties hereto with respect to
the enforcement or interpretation of this Lease, the nonprevailing party shall
pay the reasonable attorney's fees, court costs and other costs of the
prevailing party, provided that Tenant shall notify Landlord of any alleged
breach of Landlord's obligations under this Lease and shall take no action with
respect to such breach as long as Landlord promptly commences to cure and
diligently proceeds to complete the cure of said breach within a reasonable time
period, which shall in no event extend beyond ninety (90) days after Landlord
receives written notice of such default. Each party hereto shall pay the
reasonable attorney's fees, court costs (if any) and other costs incurred by the
other party in any litigation, negotiation or transaction in which such party
causes the other party, without the other party's fault, to become involved or
concerned (including, without limitation, any request for Landlord's consent to
a sublet or assignment).
18.31 REMEDIES AND RIGHTS MAY BE EXERCISED BY PARTY IN ITS OWN NAME;
AUTHORITY TO EXECUTE LEASE. All rights and remedies of either party under this
Lease, or that may be provided by law, may be exercised by such party in its own
name individually, or in its name by any agent thereof, and all legal
proceedings for the enforcement of any such rights or remedies may be commenced
and prosecuted to final judgment and executed by such party in its own name
individually or in its name by any agent thereof.
18.32 PAYMENTS TO AFFILIATES. Nothing in this Lease shall be construed
to prevent Landlord from paying for services rendered or materials delivered
with respect to the Building, the Project or the Premises (including, without
limitation, management services and contracting out capital improvements or
other capital repairs or construction items) by affiliates of Landlord provided
that the fees or costs of such services and materials are at market rates in the
vicinity of the Project. All such fees or costs paid by Landlord to such
affiliates shall be deemed to constitute Operating Expenses on the same terms
and conditions as if such fees and costs were paid to non-affiliates of
Landlord.
18.33 LANDLORD'S TITLE. Landlord's title is and always shall be
paramount to the interest of Tenant, and nothing herein contained shall empower
Tenant to do any act which can, shall or may encumber Landlord's title.
18.34 LIGHT AND AIR RIGHTS. This Lease does not grant any rights to
light or air over or about the Building or the Project, except as otherwise
provided herein. Landlord specifically excepts and reserves to itself the use of
any roofs, antennae, the exterior portions of the Premises, all rights to and
the land and improvements below the improved floor level of the Premises, the
improvements and air rights above the Premises and the improvements and rights
located outside the demising walls of the Premises, and such areas within the
Premises as are required for installation of utility lines and other
installations required to serve any occupants of the Building and the right to
maintain and repair the same, and no rights with respect thereto are conferred
upon Tenant unless otherwise specifically provided herein.
18.35 RENT NOT BASED ON INCOME. It is agreed by Landlord and Tenant that
no rental or other payment for the use, occupancy or utilization of the Premises
demised hereunder shall be,
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or is, based in whole or in part on the net income or profits derived by any
person from the Building, the Project or the Premises so leased, used, occupied,
or utilized, and Tenant further agrees that it will not enter into any sublease,
license, concession or other agreements for any use, occupancy or utilization of
the Premises which provides for a rental or other payment for such use,
occupancy or utilization based in whole or in part on the net income or profits
derived by any person from the Premises so leased, used, occupied or utilized.
18.36 NON-EXCLUSIVITY. Tenant is not granted by this Lease and shall not
be entitled to have any exclusive rights in the Building or the Project other
than the rights of its occupancy. If, however, Landlord hereafter creates a
reserved parking program for all of the tenants of the Building or the Project,
Tenant shall be allocated a portion of any such reserved parking spaces in
accordance with Tenant's Share.
18.37 EXHIBITS. The following Exhibits are attached to this Lease after
the signatures and by reference hereto are incorporated herein:
Exhibit A - Description of Project
Exhibit B - Depiction of Premises
Exhibit C - Work Letter Agreement
Exhibit D - Notice of Commencement
Exhibit E - Project Holidays
Exhibit F - Project Janitorial Specifications
Exhibit G - Offset Statement and Estoppel Certificate
Exhibit H - Rules and Regulations
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above-written.
WITNESSED BY: "LANDLORD"
1777 SENTRY PARKWAY OFFICE ASSOCIATES, L.P.,
a New Mexico limited partnership
BY: BGK EQUITIES, INC., a New Mexico corporation
BY:
- ------------------------ -----------------------------------------
Cheryl Willoughby, Senior Vice President
"TENANT"
BIONX IMPLANTS, INC.
- ------------------------- BY: /s/ David W. Anderson
------------------------------------------
ITS: President
-----------------------------------------
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ADDENDUM TO LEASE
DATED MARCH 31, 1997,
BETWEEN BIONX IMPLANTS, INC., AS TENANT,
AND 1777 SENTRY PARKWAY OFFICE ASSOCIATES, L.P., AS LANDLORD
-------------------------------------
References to "Premises" shall mean the premises leased by Tenant;
references to "Building" shall mean the building of which the Premises form a
part; references to "Real Property" shall mean the entire tax lot and all the
improvements thereon of which the Building and Premises form a part; references
to "Lease" shall mean the lease to which this addendum is attached; references
to "Lease Documents" shall mean the Lease, this addendum, any Rules and
Regulations issued by Landlord and any other applicable documents, exhibits, or
schedules which may be part of the Lease; reference to "Lease Term" shall mean
the duration of the initial term and all renewal or extension periods provided
for in the Lease; and reference to "Business Day" shall mean all days other than
Saturdays, Sundays, and legal holidays.
Any term or provision contained in the Lease to the contrary notwithstanding:
1. In the event of any inconsistency among the Lease Documents, the terms and
conditions of this addendum shall prevail over the Lease, including any
exhibits or schedules, and the terms and conditions of the Lease,
including any exhibits or schedules, shall prevail over the Rules and
Regulations.
2. The use of the Premises by Tenant shall be for general office and
warehouse use, or any other purposes permitted by law and not specifically
prohibited in the Lease Documents. It is expressly acknowledged that the
Tenant may store in the Premises, on a limited basis, small boxes of its
resorbable implant products and instruments used for inserting the
product.
3. Landlord represents that Tenant's proposed use of the Premises (a) will
not be in violation of any certificate of occupancy and (b) does not
violate any applicable statues, ordinances, rule or regulation or other
restriction.
4. Landlord represents that it will maintain and operate the Building as a
first class office building during the Lease Term.
5. The target occupancy date is May 17, 1997. If the Premises are not ready
for occupancy by August 1, 1997, subject to extensions for delays caused
by Tenant, Tenant shall have the right to terminate the Lease by written
notice to Landlord, whereupon the Lease shall be null and void and all
moneys paid by Tenant shall be refunded by Landlord. Substantial
completion means that a temporary certificate of occupancy has been
obtained and the Premises are ready for occupancy with the exception of
punch list items. Landlord shall perform its work in a first class,
workmanlike manner. If there are any latent defects or "punch list" items,
Landlord agrees to correct them within thirty (30) days following notice
from Tenant after Tenant occupies the Premises.
6. Tenant should be permitted to perform and will not be deemed in occupancy
by virtue of its performance of tenant fit-up and other preparations for
occupancy.
7. No approvals of consents required to be obtained by Tenant from Landlord
as provided in the Lease Documents shall be unreasonably withheld by
Landlord.
8. Any transfer of the Lease by Tenant resulting from a change in management,
merger, consolidation or a purchase of substantially all of Tenant's
assets shall not be deemed a sublease or assignment of the Lease or an
event giving Landlord the right to terminate the Lease or recapture the
Premises, but in the event of any such transfer, Tenant shall notify
Landlord in writing.
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9. Landlord shall be responsible for all structural repairs to the Building,
including repairs of the roof, exterior walls and windows, plumbing,
heating, electrical, air conditioning and other systems contained therein.
10. Any right of entry into the Premises granted to Landlord for repairs,
alterations or other purposes shall be exercised with reasonable verbal or
written prior notice to Tenant (except in cases of emergency) and in a
reasonable manner.
11. Any right of Landlord to make alterations of improvements to the Premises
or the Real Property shall be exercisable only if the making of such
alterations or improvements will not materially adversely affect Tenant's
use and occupancy of the Premises.
12. Landlord shall permit Tenant to keep and use in the Premises, without any
further consent of Landlord, normal office computers in a local area
network and other telephone and office equipment required by Tenant.
Tenant may locate such equipment where it desires in tine' Premises and
Landlord shall provide sufficient electricity for their operation at no
additional cost to Tenant. Tenant shall have the right to install its
telephonic, communication, and network writing and other installations
during and in coordination with Landlord's work, provided that Tenant
warrants this installation and will not impede Landlord's ability to
complete Landlord's work.
13. Landlord agrees to maintain temperatures in the Premises during building
operating hours in conformity with standards of first class office
buildings in the Philadelphia metropolitan area.
14. If due to Landlord's gross negligence, Landlord shall fail to provide any
essential service required in the Lease Documents to be provided by
Landlord, including without limitation heat, air conditioning,
ventilation, electricity, water and elevator service, which failure
results in Tenant's use of the Premises being materially impaired for five
(5) consecutive business days, Tenant shall have the right to take any one
or more of the following actions: to make the essential repairs itself and
bill Landlord therefor; or to seek an equitable abatement of rent.
15. Landlord represents and warrants that the "Operating Expenses" and the
"Real Property Taxes" (as such terms or similar terms are used in the
Lease) incurred by Landlord during the Base Year were based upon the
Building being at least 95 % occupied and the Real Property being fully
assessed and taxed without special arrangements, preferences, abatements
or similar treatment. Upon Tenant's request, Landlord agrees promptly to
provide such reasonable substantiation of any payments beyond the fixed
monthly rent claimed to be due from Tenant resulting from claimed
increases in operating expenses, real estate taxes or otherwise. In no
event shall Tenant be responsible for payments beyond the fixed monthly
rent resulting from an assessment for improvements on the Real Property
which are not of general benefit to the tenants in the Building. (For
example, if Landlord installs improvements for the exclusive use of one or
more tenants, Tenant shall not be obligated to share in any resulting
increases in Real Property Taxes or Operating Expenses.)
16. "Operating Expenses" as referred to in the Lease shall not include the
following: (a) the cost of construction of any improvements on the Real
Property, including any addition, alteration or refurbishing of space
leased to other tenants, except that capital expenses for improvements
which result in savings of labor or other costs in connection with the
operation of the Real Property shall be included at the cost of such
improvements amortized over the useful life thereof; (b) expenses for
repairs or other work occasioned by fire, windstorm or other insurance
policy to the extent such expenses are actually reduced by Landlord's
insurance proceeds; (c) expenses incurred in leasing or procuring new
tenants for the Real Property (e.g. commissions, advertising, renovation
and legal); (d) legal expenses in dealing with particular tenants or in
enforcing the terms of any lease; (e) interest or principal amortization
payments on any mortgage or other loan; (f) any real estate taxes, as
referenced to in the Lease, corporate franchise or net worth taxes, net or
gross income taxes (state and federal), personal property taxes, excess
profit taxes, license,
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inspection and permit fees; (g) any expenses incurred for which Landlord
has a right of reimbursement from a tenant in the Real Property or other
person or entity; (h) claims paid by Landlord in satisfaction or
settlement of liability in tort; (i) any payments to a superior lessor;
(j) depreciation of the Real Property or other improvements located on the
Real Property; (k) any expense relating to Me a pre-existing environmental
condition of the Real Property; and (l) wages or salaries of persons above
the grade of building manager. All expenses of employees who are not
working full time with respect to the Project shall be equitably
apportioned. All expenses paid by Landlord to persons or business entities
which are affiliated in any way with Landlord must be reasonable and
comparable to similar expenses paid by Landlords generally in arms-length
transactions in order to be includable in Operating Expenses.
17. Landlord represents and warrants that all tenants pay for their own
electricity used within their premises based upon sub-meters.
18. All fixed and additional rent payments shall be due on or before the 1st
day of each month. There shall be a five (5) day grace period before late
charges are assessed. The term "default" or "event of default" as used in
the Lease Documents shall refer either (a) to Tenant's wrongful failure to
pay rent when due or (b) any material failure of Tenant to perform its
obligations or cure a condition deemed to be an event of default under the
Lease Documents. Landlord shall have the right to exercise the remedies
provided in the Lease only if (i) any default by Tenant in the payment of
rent shall not be cured within 5 days of written notice thereof by
Landlord to Tenant, or (ii) a default by Tenant in the performance of any
other obligation under the Lease, or the existence of a condition
considered to be an event of default by Tenant under the Lease, which
shall not be cured within IS days of written notice thereof by Landlord to
Tenant, provided, however, that for defaults or conditions which
reasonably require more than 15 days to cure, Tenant shall be required to
commence and reasonably proceed with curing same and Landlord may not
exercise such remedies if Tenant commences and proceeds to cure such
defaults or conditions. No late charge or interest shall be charged unless
payments are not made within the aforesaid grace periods. The late charge
shall be 5 % of any base rent payment not made when due (not 10% as stated
in the Lease).
19. Notwithstanding anything contained herein to the contrary, in the event of
Lessee's default, Lessor shall mitigate its damages. Lessor's obligation
to mitigate damages shall be satisfied in full if Lessor complies with the
following criteria: (a) Lessor must first obtain undisputed possession of
the Leased Premises, (b) Lessor is not obligated to offer the Leased
Premises to a prospective tenant when other suitable premises in the
building are available, (c) Lessor is not obligated to lease the Premises
for less than the then current fair market rental, or for less than other
space in the building is being offered by Lessor, (d) Lessor is not
obligated to lease to any tenant who would disrupt the tenant mix, violate
any restrictions or covenants, or adversely affect the reputation of the
building and (e) Lessor is not obligated to rent to a tenant who is not
financially responsible or who does not have the necessary operating
experience.
20. Any right of Landlord to incur any expense or obligation for which it may
charge Tenant (or to exercise any right to or sell Tenant's personal
property) may be exercised only upon 30 days' advance written notice to
Tenant, such notice giving Tenant the opportunity to undertake the work or
otherwise take such actions as will eliminate the necessity for Landlord
to incur such expense or obligation or exercise such right.
21. Upon termination of the Lease, Tenant shall be entitled to remove all of
its personal property and trade fixtures, provided that it restores the
Premises to its condition at the commencement date, reasonable wear and
tear and subsequent alterations approved by Landlord excepted. In no event
shall Tenant be required to repair or restore cosmetic damage to wall and
floor finishes.
22. Any payment required by the Lease to be made by Tenant to Landlord for
legal expenses, attorney's fees or similar purposes shall only be required
if Landlord brings an action or
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proceeding against Tenant to enforce Landlord's rights under the Lease and
then only as follows:
If either party should bring suit or similar proceeding against the other
because of the breach of any provision of the Lease or for any other
relief against the other, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall
be paid by the other party.
23. Landlord covenants and agrees that Tenant may peaceably and quietly enjoy
the Premises during the Lease Term provided that Tenant is not in default
under the Lease.
24. In the event of a taking by public authority or otherwise which
permanently and substantially reduces the area of the Premises so that it
is rendered unfit, in Tenant's reasonable opinion, for Tenant's purposes,
Tenant shall have the right to terminate the Lease.
25. In the event of the destruction of or any damage to the Premises, if
within 125 days from the date of such damage or destruction, Landlord
fails to restore the Premises so that Tenant's use thereof is not
materially impaired. Tenant shall have the right to terminate the Lease.
26. Tenant shall not be liable to Landlord with respect to any damages
suffered by Landlord which are covered by insurance customarily carried by
Landlords. The parties agree that each hereby waives any claim it might
have against the other for loss, damage or destruction with respect to its
property, by fire or other casualty that is generally insured against
under the terms of standard fire and extended coverage insurance policies.
The parties agree to obtain waiver of subrogation clauses in their
respective insurance policies, such clauses extending to the other party
and its employees and agents.
27. HOLD HARMLESS. (A) Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, partners, employees, attorneys and
agents (collectively, the "Tenant Indemnitees") from and against any and
all liability, claims, demands, causes of action, judgments, costs,
expenses, and all losses and damages arising from any activity in the
Premises even if resulting from the negligent act or omission of any of
the Tenant Indemnities, and from all costs, attorney fees and
disbursements, and liabilities incurred in the defense of any such claim.
Upon notice from Landlord, Tenant shall defend any such claim, demand,
cause of action or suit at Tenant's expense by counsel satisfactory to
Landlord in its reasonable discretion. The provisions of this subsection
(A) shall survive the expiration or earlier termination of this Lease.
(B) Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, partners, employees, attorneys and agent
(collectively, the "Landlord Indemnities") for, and against any and all
liability, claims, demands, causes of action, judgments, costs, expenses,
and all losses and damages for bodily injury, death and properly damage
arising from any activity in or about the Building (other than the
Premises) even if resulting from the negligent act or omission of any of
Landlord Indemnities, and from all costs, attorney fees and disbursements,
and liabilities incurred in the defense of any such claim. Upon notice
from Tenant, Landlord shall defend any such claim, demand, cause of action
or suit at Landlord's expense by counsel satisfactory to Tenant in its
reasonable discretion. The provisions of this subsection (B) shall survive
the expiration or earlier termination of this Lease.
28. Any subordination provision contained in the Lease, relating either to
ground leases or mortgages, is subject to the express condition that so
long as Tenant is not in material default under the Lease Documents (a)
Tenant will not be made a party in any action or proceeding brought by any
person having rights superior to Tenant to recover possession of the
Premises or to foreclose any mortgage or for any other relief sought, and
(b) Tenant's possession hereunder shall not be disturbed. Upon its
request, Landlord will use its best reasonable mortgagees and ground
lessors, recognizing Tenant's right hereunder. Landlord agrees to
indemnify and save harmless Tenant from any and all damages which Tenant
may
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sustain as a result of (i) any action to foreclose any mortgages of the
Real Property or Building and (ii) any terminations of the ground lease
resulting from Landlord's default thereunder.
29. Tenant shall be entitled (a) to place a sign on the door to the Premises
indicating Tenant's name, and (b) to have its name included in any
directory or registry to tenants which may be located inside or outside
the Building.
30. Tenant's use of a coffee making machine, microwave oven and kitchenette in
the Premises is expressly permitted.
31. Tenant shall comply with all Rules and Regulations of uniform
applicability and application.
32. Any notices to Tenant shall be mailed, postage prepaid, by certified mail,
return receipt requested, addressed to Tenant as follows: Bionx
Corporation, 279B, Great Valley Parkway, Malvern, PA 19355 (ATTN: Michael
J. O'Brien, C.F.O.), with a copy to Tenant at the Premises or to such
other addresses as Tenant informs Landlord in writing.
33. Tenant shall be permitted to utilize "hazardous materials" in de minimus
amounts as commonly utilized in office space provided that Tenant complies
with all laws in connection therewith. (For example, cleaning fluids,
printing toner, and other materials commonly used in normal office
applications.)
34. The following provisions are deleted from the Lease: 14.02 (f) and (i);
18.12; and 18.13.
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EXHIBIT A
DESCRIPTION OF PROJECT
ALL THAT CERTAIN parcel or tract of land with the buildings and improvements
constructed thereon, situate in Whitpain Township, Montgomery County,
Pennsylvania, bounded and described in accordance with a plan of Sentry Parkway
West prepared by Metz Engineers, Lansdale, PA., for BGK Equities, dated August
6, 1996, last revised August 20, 1996, as follows, to wit:
BEGINNING at a point of curvature on the Westerly right of way line of Walton
Road 80.00 feet wide, that is to say 40.00 feet to the Northwest and 40.00 feet
to the Southeast of the center line of the original 50.00 foot road; thence from
the point of beginning by a curved line bearing to the right in a Southwest to
Northwest direction with a radius of 165.00 feet, the arc distance of 228.80
feet, to a point of tangency on the Northeasterly right of way line of Township
Line Road, 56.50 feet wide, that is to say 16.50 feet to the Southwest and 40.00
feet to the Northeast of the center line of the original 33.00 foot road, being
the township line separating Plymouth Township and Whitpain Township; thence by
the same, North 46 degrees 21 minutes West, passing over a storm culvert that
discharges to Plymouth Township, 660.67 feet to a point, a corner of land, now
or formerly of Andrew Walker; thence by the same, North 43 degrees 39 minutes
East 195.00 feet to a point a corner in line of land, now or formerly, of Blue
Bell Office Campus, Section No. 3, of which this was formerly a part; thence by
the same the two following courses and distances, to wit: (1) South 46 degrees
21 minutes East, passing over a storm sewer, 44.62 feet to a point a corner at
or near the edge of a macadam driveway, (2) crossing various utilities from
Section No. 3 to the existing utilities in this parcel, North 43 degrees 39
minutes East 1,003.98 feet to a point in line of land, now or formerly of
Constance Wolf; thence by the same, South 47 degrees 55 minutes East 293.67 feet
to a concrete monument, a corner; thence still partly by land of Constance Wolf
and by land, now or formerly of Blue Bell Office Campus, Section No. 2, Lot B.
passing over several utility lines that service Section No. 2, and passing
partially through a detention pond, South 42 degrees 05 minutes West 603.89 feet
to a point, a corner; thence still by Section No. 2, Lot B. the three following
courses and distances, to wit: (1) passing over several storm drain lines
connecting detention ponds in Section No. 2 into the detention pond in this
parcel, South 47 degrees 55 minutes East 328.38 feet to a point, a corner, (2)
still crossing over storm drain lines and partially through the corner of a
detention pond, North 54 degrees 12 minutes East 112.82 feet to a point, a
corner, (3) crossing over utility lines serving Section No. 2, through this
parcel South 35 degrees 48 minutes East 225.00 feet to a corner in line of
aforementioned Northwesterly right of way line of Walton Road, 80.00 feet wide;
thence by the same, South 54 degrees 12 minutes West 556.66 feet to a point and
place of beginning.
CONTAINING in area 16.0347 acres of land, be the same more or less.
BEING Lot A, as shown on the Subdivision Plan of Blue Bell Office Campus One,
prepared by Herbert H. Metz, Inc. Recorded in Plan Book A-48 page 405 on July
21, 1987.
TOGETHER WITH all rights and privileges appurtenant to the above described land
contained in that Declaration of Covenants, Easements and Restrictions as in
Deed Book 4848, page 66, as amended by a First Amendment to Declaration of
Covenants, Easements and Restrictions dated November 13, 1987, recorded in Deed
Book 4858, page 1245.
AND ALSO TOGETHER WITH all rights and privileges appurtenant to the above
described land contained in that certain Declaration of Easement as in Deed Book
4848, page 50.
BEING ASSESSMENT PARCEL NUMBER 66-00-08158-00-2.
-1-
<PAGE>
EXHIBIT B
DEPICTION OF PREMISES
-B-1-
<PAGE>
EXHIBIT C
WORK LETTER AGREEMENT
THIS WORK LETTER AGREEMENT (this "Agreement") is entered into as of this 18th
day of March, 1997, by and between 1777 SENTRY PARKWAY OFFICE ASSOCIATES, L.P.
("Landlord"), and Bionx Implants, Inc. ("Tenant").
RECITALS:
A. Concurrently with the execution of this Agreement, Landlord and
Tenant have entered into a lease (the "Lease") covering certain premises (the
"Premises") more particularly described in Exhibit B attached to the Lease.
B. In order to induce Tenant to enter into the Lease, Landlord has
agreed to make certain improvements to the Premises in accordance with the terms
and upon the conditions set forth in this Agreement. The Lease is hereby
incorporated into this Agreement by reference to the extent applicable and
capitalized terms not otherwise defined herein shall have the same meaning given
to them in the Lease.
NOW, THEREFORE, in consideration of the Lease and the mutual covenants
hereinafter contained, Landlord and Tenant hereby agree as follows:
1. TENANT IMPROVEMENTS. Reference herein to "Tenant Improvements" shall
-------------------
include all work to be done in the Premises pursuant to the Tenant Improvement
Plans (defined in Paragraph 2 below), including (to the extent set forth in the
Tenant Improvement Plans) but not limited to: partitioning, doors, ceilings,
floor coverings, wall finished (including paint and wall covering), electrical
(including lighting, switching, telephones, outlets, etc.), plumbing, heating,
ventilating and air conditioning, fire protection, cabinets and other millwork.
2. TENANT IMPROVEMENT PLANS. Landlord's architect and/or space planner
------------------------
Polek Schwartz Architects, has prepared preliminary design drawings for the
Premises dated March 14, 1997, which have been reviewed by and approved by
Tenant (the "Space Plan"). Landlord's architect shall prepare working drawings
and specifications for the Tenant Improvements based upon the Space Plans. Such
working drawings and specifications are referred to herein as the "Tenant
Improvement Plans" attached hereto as Schedule I and Schedule II. The Tenant
Improvement Plans shall be consistent with Landlord's standard specifications
(the "Standards") for tenant improvements for the Building attached hereto as
Schedule III. The Tenant Improvement Plans shall be submitted to Tenant for
approval, which shall not be unreasonably withheld or delayed, and upon approval
by both Landlord and Tenant shall serve as the plans for completing the Tenant
Improvements. If the Tenant Improvement Plans are not approved by Tenant within
two (2) business days after delivery to Tenant for review, then Landlord shall
have the option to terminate the Lease and all of its obligations thereunder.
3. NON-STANDARD TENANT IMPROVEMENTS. Prior to final approval of the
--------------------------------
Tenant Improvement Plans, Landlord shall permit Tenant to deviate from the
Standards for the Tenant Improvements and shall authorize the inclusion of such
deviations in the Tenant Improvement Plans provided that (a) the deviations
shall not be of a lesser quality than the Standards; (b) the average electric
load for lighting and power in the Premises shall not exceed 5 watts per
rentable square foot; (c) the deviations conform to applicable governmental
regulations and necessary governmental permits and approvals, if any, required
for such deviations have been secured by Tenant, at Tenant's sole expense; (d)
the deviations do not require building service beyond the level normally
provided to other tenants in the Building and do not overload the floors; (e)
Landlord has determined in its sole discretion that the deviations are of a
nature and quality that are consistent with the overall objectives of Landlord
for the Building; and (f) the deviations shall not, in Landlord's determination,
cause a delay in the construction of the Tenant Improvements. Landlord may
condition its approval of any such non-standard improvements upon Tenant's
agreement, at Tenant's sole expense, to remove all or any portion of such
improvements and to restore the Premises to a condition compatible with the
remainder of
-C-1-
<PAGE>
the Premises, as determined by Landlord in its reasonable judgment, upon the
expiration or earlier termination of the Lease.
4. CONSTRUCTION OF TENANT IMPROVEMENTS. The Tenant Improvement Plans
-----------------------------------
agreed upon by Landlord and Tenant shall be submitted by Landlord to the
appropriate governmental body for plan checking and the issuance of a building
permit. Landlord, with Tenant'scooperation, shall cause to be made to the Tenant
Improvement Plans any changes necessary to obtain the building permit. After
final approval of the Tenant Improvement Plans by applicable governmental
authorities, no further changes may be made thereto without the prior written
approval of both Landlord and Tenant, and then only after agreement by Tenant to
pay any excess costs resulting from the design and/or construction of such
changes. After a building permit for the Tenant Improvements has been issued,
Landlord shall cause its contractor to begin installation of the Tenant
Improvements in accordance with the Tenant Improvement Plans. Landlord shall
supervise the completion of such work and shall diligently pursue substantial
completion of the work. Landlord shall have the right to substitute comparable
materials or finishes in the event such items are unavailable, but, to the
extent practicable, shall obtain Tenant's prior consent thereto, which consent
shall not be unreasonably withheld or delayed. Landlord shall in no event be
liable for any direct or indirect damages as a result of delays in construction
due to Force Majeure, or due to delays or other acts or omissions by Tenant (or
its architect or anyone performing services on behalf of Tenant).
5. PAYMENT FOR THE TENANT IMPROVEMENTS. The cost for construction of the
-----------------------------------
Tenant Improvements shall be included in the Base Rent.
6. AMERICANS WITH DISABILITIES ACT. In installing the Tenant
-------------------------------
Improvements, Landlord shall comply with the Americans with Disabilities Act of
1990 (the "ADA"), to the extent such compliance is required as of the date of
completion of the Tenant Improvements. Notwithstanding the foregoing, however,
with respect to any alterations or improvements that Tenant makes to the
interior of the Premises (or which are made on Tenant's behalf) other than the
Tenant Improvements, regardless of whether Tenant has obtained Landlord's
consent to such alterations or improvements, Tenant shall be fully responsible
for complying with and paying any costs associated with any and all requirements
of the ADA. In addition, if any alterations are required to be made to the
Premises due to changes in or regulations under the ADA or judicial
interpretations of the requirements of the ADA coming into existence following
completion of the Tenant Improvements, or due to changes in Tenant's use of the
Premises or in the nature of Tenant's conduct of its business in the Premises
(including but not limited to any changes in use or business conduct arising out
of a sublease or assignment, or resulting in the Premises being deemed a "place
of public accommodation" under the ADA), Tenant shall be fully responsible for
complying with and paying any costs associated with any and all requirements of
the ADA arising in connection therewith.
7. TENANT'S RESPONSIBILITY FOR CHARGES. In the event Landlord terminates
-----------------------------------
the Lease because of Tenant's failure to cooperate or timely respond as set
forth in this Agreement, then, in addition to all rights and remedies available
to Landlord in the Lease, Landlord shall have the right to require Tenant to
reimburse Landlord for all of its expenses incurred in preparation of the Space
Plans and the Tenant Improvement Plans, and in obtaining governmental approval
of same, and in installing any of the Tenant Improvements, which amount shall
accrue interest at the Interest Rate from the date of termination of the Lease
until paid in full, together with all legal fees incurred in enforcement of
Landlord's rights hereunder.
8. COMPLETE AGREEMENT. This Agreement and the applicable provisions of
------------------
the Lease are the complete and entire agreement of Landlord and Tenant with
respect to the Tenant Improvements and construction thereof at the Premises.
This Agreement may not be amended except by written agreement signed by Landlord
and Tenant. Oral modifications to the Agreement shall not be effective.
-C-2-
<PAGE>
SCHEDULE II
-----------
TENANT IMPROVEMENT PLANS
1. DEMOLITION: Demolish existing partitions per plans and
specifications.
2. PARAGONS: Provide materials & labor required by plans
and specifications. Miscellaneous speckling.
3. DOORS: Provide & install the following as required
by plans & specifications:
1) 6' x 8' new building standard c-label
door/frame hardware
4. ACOUSTICAL CEILING: Replace damaged/stained tiles
5. FLOORING: Provide and install the following as
required by plans & specifications:
Carpet: Aladdin
Vinyl Cove Base
VCT
6. ELECTRICAL: Relocate outlet/lights as required by plans
and specifications.
7. PAINTING/WALL COVERING: Paint all wall and trim surfaces per plans
and specifications.
8. MISCELLANEOUS: Construction clean-up.
-C-4-
<PAGE>
SCHEDULE III
------------
SENTRY PARKWAY WEST
BUILDING STANDARD SPECIFICATIONS
1. CEILINGS: 2' x 4' non-fissured acoustical lay-in tile
with suspended, exposed "T" framing system.
2. CARPET: Fourteen dollars ($14.00) per square yard
installed allowance with selection from
owner samples. Installation by direct glue
down method with four-inch (4") vinyl base.
3. PAINT: Paint all partition surfaces with two (2)
coats latex paint; door frames and trim with
two (2) coats oil finish.
4. TENANT ENTRANCE DOORS: Entrance doors shall be 3' x 8' solid core
stain grade furnished with two (2) pair of
butts, exposed closer and Schlage lever
handle lockset (two keys) in brushed
aluminum.
5. TENANT INTERIOR DOORS: Interior doors shall be 3' x 7' solid core
stain grade furnished with two (2) pair of
butts, and wall stop in a quantity not to
exceed one 91) door per 400 square feet of
usable area. Each door to receive Schlage
lever handle passage set.
6. ELECTRICAL: a) LIGHTS: Building standard lighting
-------
fixtures shall be 2' x 4' lay on
four tube fluorescent fixtures with
electronic ballasts, T-8 bulbs, at
an allowance of one fixture per 150
square feet of usable area. Fixtures
will be outfitted with prismatic
lenses.
b) DUPLEX OUTLETS: Outlets mounted at
---------------
building standard height for wall
application shall be provided at an
allowance of one outlet per 100
square feet.
c) Dedicated receptacles and any
special equipment receptacles shall
be provided at tenant's expense.
d) Exit lights and emergency lighting
will be provided as required by
code.
7. TELEPHONE: Each tenant must arrange for and pay for its
own telephone requirements directly. Phone
outlet locations can be indicated on
construction documents at tenant's request.
-C-5-
<PAGE>
EXHIBIT D
NOTICE OF COMMENCEMENT OF LEASE
This Notice of Commencement of Lease is given this, 19_, by 1777 SENTRY
PARKWAY OFFICE ASSOCIATES, L.P. ("Landlord"), to ("Tenant"), both of whom who
agree as follows:
1. Landlord and Tenant have entered into a lease :dated , 19 (the
"Lease"), in which Landlord leased to Tenant and Tenant lease from Landlord the
premises described therein (the "Premises"). All capitalized terms used herein
and not otherwise defined herein shall have the same meaning given to them in
the Lease.
2. Pursuant to the Lease, Landlord and Tenant agreed to, and do
hereby confirm, the following matters as of the commencement of the Term:
(a) ________________________, 19__ , is the Commencement Date
of the Term of the Lease; and
(b) ________________________, 19_, is the Expiration Date of
the Term of the Lease.
3. Tenant confirms that:
(a) It has accepted possession of the Premises;
(b) The Tenant Improvements required to be furnished by Landlord
under the Lease have been completed (subject to any corrective work or
punch-list items of which Tenant has notified Landlord in accordance with the
Lease);
(c) Landlord has fulfilled all of its duties of an inducement
nature;
(d) No modifications have been made to the Lease after it was
signed by Landlord and Tenant; and
(e) There are no setoffs or credits against Rent, and no Rent
(other than the first monthly installment of Base Rent) has been prepaid.
4. This Notice of Commencement of Lease is intended only to confirm
the matters herein set forth and does not otherwise modify or supplement the
Lease.
5. Unless written objection to the provisions hereof is received by
Landlord within five (5) business days from the date hereof, the provisions of
this Notice of Commencement of Lease shall be binding upon Tenant, its
successors and assigns (subject to the restrictions on assignment and subleasing
contained in the Lease), and inure to the benefit of Landlord, and its
successors and assigns.
"LANDLORD"
1777 SENTRY PARKWAY OFFICE ASSOCIATES, L.P.
BY:_________________________________________
ITS:________________________________________
-D-1-
<PAGE>
EXHIBIT E
PROJECT HOLIDAYS
New Year's Day; President's Day; Martin Luther King Day; Memorial Day; July 4th;
Labor Day; Thanksgiving Day; Day After Thanksgiving Day; Christmas Day.
-E-1-
<PAGE>
EXHIBIT F
BUILDING JANITORIAL SPECIFICATIONS
General cleaning shall be performed five (5) nights per week, Monday through
Friday, the exact hours to be determined by Landlord.
A. DAILY CLEANING SPECIFICATIONS
-----------------------------
1. Empty all trash containers and waste baskets.
2. Replace all trash liners where applicable.
3. Dust all open areas of desk and credenza tops, file cabinets,
counters, sills and ledges.
4. Telephones will be damp wiped.
5. Dust mop all hard surfaces flooring and remove debris or dust
build-up from corners. Damp mop any areas where spillage may have
occurred. Special attention given to areas under desks and
furniture.
6. Vacuum clean and/or sweep entrance mats and runners.
7. Vacuum all carpeted areas. Remove gum, tar, etc. adhering to
floor.
8. Vacuum clean or dust all upholstered furniture as necessary.
9. Remove finger marks and smudges from all doors, frames, walls,
partitions, switchplates and glass.
10. Place furniture back in its proper place.
11. Wash and squeegee clean all entrance door glass on both sides.
12. Damp wipe framework and ledges at all entrance ways.
13. Special attention is to be paid to all lobby areas, reception
areas, executive and conference areas to maintain quality of
appearance.
14. Spot clean all common area carpet.
15. Areas provided for storage of maintenance supplies and equipment
are to be kept orderly and clean at all times.
16. Trash and debris is to be removed to areas so designated at the
site.
17. Clean and polish all drinking fountains and water coolers.
18. Cleaning and disinfecting lavatories:
A. Empty all waste containers.
B. Sweep and mop floors.
C. Fill and maintain all toilet tissue, soap and towel
dispensers and sanitary product dispensers.
D. Disinfect all fixtures and disposals.
E. Thoroughly clean all sinks, bowls and urinals.
F. Clean all counter tops and cosmetic shelves.
G. Clean and polish all mirrors and bright work.
H. Partitions and louvres wiped down and spot cleaned.
-F-1-
<PAGE>
19. Thoroughly clean elevator cabs, including all tracks.
20. Sweep all steps and fire stairways in building.
21. Clean coffee stations, vending areas, and cafeteria, including
tables, chairs and counters.
22. The exterior entrance foyer areas will be swept nightly and
debris removed.
B. ONCE PER WEEK:
-------------
1. Damp mop stairwells, landing, treads and foyer.
2. Vacuum all carpet areas. Remove gum, tar, etc. adhering to
floors.
3. Damp mop all vinyl flooring and spray buff as needed at least
weekly.
4. Spot clean carpeting where possible.
C. ONE TIME PER MONTH:
-------------------
1. Damp wipe all baseboards to maintain a clean appearance.
High dust all areas including light diffusers, shelving,
baseboards, Venetian blinds and wall hangings.
2. Machine scrub all bathroom floors with germicidal solution.
3. Vacuum and/or damp wipe all ceiling and wall air supply and
exhaust diffusers or grills.
D. QUARTERLY:
---------
1. Strip and refinish all vinyl tile flooring on a quarterly basis.
2. Clean all interior glass partitions and doors.
3. Polish all door plates and kick plates.
E. SEMI-ANNUALLY:
--------------
F. ANNUAL:
------
1. High dust all horizontal and vertical surfaces not reached daily.
2. Damp wash diffusers, vents, grills, including surrounding wall or
ceiling areas that were not soiled.
-F-2-
<PAGE>
EXHIBIT G
OFFSET STATEMENT AND ESTOPPEL CERTIFICATE
_______________________________
_______________________________
_______________________________
Re: Lease dated ("Lease") by and between 1777 SENTRY PARKWAY OFFICE
ASSOCIATES, L.P. ("Landlord"), and ____________________________________________
("Tenant")
Sir/Madam:
Reference is made to the above-described Lease in which the undersigned
is Tenant. We understand that you are accepting an assignment of Landlord's
rights under the Lease as __________________________________________________,
and we hereby, as a material inducement for you to consummate the transaction,
represent that:
1. A true and correct copy of the Lease is attached hereto as Schedule
"A" and incorporated herein by reference thereto. There are no modifications,
amendments, supplements, arrangements, side letters or understandings, oral or
written, of any sort, modifying, amending, altering, supplementing or changing
the terms of the Lease, except for those attached hereto as part of Schedule
"A".
2. The Lease is for a term of commencing on _________________, 19_ and
ending as of 11:59 P.M. on __________________________, and the Lease covers the
real property (the "Premises") described in Exhibit A attached to the Lease, the
Premises being part of certain real property (the "Property") located in
____________________, County of ____________, State of ___________________, and
more particularly described in Exhibit B attached to the Lease.
3. The Lease is in full force and effect, and the Lease has been duly
executed and delivered by, and is a binding obligation of, Tenant as set forth
therein.
4. The undersigned acknowledges (a) that rent on the Lease has been paid
up to and including ________________ , 19__, (b) that monthly Base Rent (as
defined in the Lease) during the remaining term of the Lease is
$__________________, and (c) that rent has not been paid for any period after
_______________, 19__, and shall not, except for any prepaid rent as specified
in the Lease, be paid for a period in excess of one (1) month in advance.
5. To the best knowledge of the undersigned, the improvements on the
Premises are free from defects in design, materials and workmanship; and the
improvements meet all governmental requirements, including, but not limited to,
zoning and environmental requirements.
6. To the best knowledge of the undersigned, the Lease is not in
default, and Landlord has performed the obligations required to be performed by
Landlord under the terms thereof through the date hereof.
7. The Lease shall be subordinate to a deed of trust or mortgage on the
Premises and an assignment of Landlord's interest in the Lease given by Landlord
to __________________; and in the event of a merger of Landlord and Tenant in
any manner, the interest of Tenant and Landlord shall not merge.
8. Tenant agrees not to modify, amend, terminate or otherwise change the
Lease without ten (10) days prior written notice to you.
-G-1-
<PAGE>
9. In the event of a default by Landlord under any of the terms or
provisions of the Lease, Tenant shall give you adequate notice and reasonable
time to cure such default before Tenant shall exercise any right or remedy
available to it.
Dated __________________________, 19__.
Very truly yours,
"Tenant"
By:_________________________________
Its:________________________________
-G-2-
<PAGE>
EXHIBIT H
RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the parking garage associated therewith (if any), the
Project and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenant or used by Tenant for any purpose other
than ingress and egress to and from the Premises. No rubbish, litter, trash, or
material of any nature shall be placed, emptied or thrown in those areas. At no
time shall Tenant permit Tenant's employees to loiter in Common Areas or
elsewhere in or about the Building or Project.
2. Plumbing fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, garbage or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not in any case be
responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows, doors or other parts of the Building or the Project, except
those of such color, size, style and in such places as shall be first approved
in writing by Landlord. No nails, hooks or screws shall be driven or inserted
into any part of the Premises or any building in the Project except by the
Project maintenance personnel, nor shall any part of the Project be defaced by
Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of
the Building an alphabetical directory board listing all tenants of the
Building, and no other directory shall be permitted unless previously consented
to by Landlord in writing.
5. Tenant shall not place any additional lock or locks on any door in
the Premises or the Building without Landlord's prior written consent. A
reasonable number of keys to the locks on the doors in the Premises shall be
furnished by Landlord to Tenant at the cost of Tenant, and Tenant shall not have
any duplicate keys made. All keys shall be returned to Landlord at the
expiration or earlier termination of this Lease.
6. Tenant will refer to Landlord for Landlord's supervision, approval,
and control all contractors, contractor's representatives, and installation
technicians rendering any service to Tenant, before performance of any
contractual service. Such supervisory action by Landlord shall not render
Landlord responsible for any work performed for Tenant. This provision shall
apply to all work performed in the Building or the Project, including but not
limited to the installation of telephones, computer wiring, cabling, equipment,
electrical devices, attachments and installations of any nature. Tenant shall be
solely responsible for complying with all applicable laws, codes and ordinances
pursuant to which said work shall be performed.
7. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by Tenant of any merchandise or materials which require
the use of elevators, stairways, lobby areas, or loading dock areas, shall be
restricted to hours designated by Landlord. Tenant must seek Landlord's prior
approval by providing in writing a detailed listing of any such activity. If
approved by Landlord, such activity shall be under the supervision of Landlord
and performed in the manner stated by Landlord. Landlord may prohibit any
article, equipment or any other item form being brought in the Building or the
Project. Tenant is to assume all risk for damage to articles moved and injury to
any persons resulting from such activity. If any equipment, property, and/or
personnel of Landlord or any of any other tenant is damaged or injured as a
result of or in connection with such activity, Tenant shall be solely liable for
any and all damage or loss resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items, which in all cases shall not in the
opinion of Landlord exceed
-H-1-
<PAGE>
acceptable floor loading and weight distribution requirements. All damage done
to the Building or the Project by the installation or removal of any property of
Tenant, or done by Tenant's property while in the Building or the Project, shall
be repaired at the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (i) make or permit any improper, objectionable or
unpleasant noises or odors in the Building or the Project, or otherwise
interfere in any way with other tenants or persons having business with them;
(ii) solicit business or distribute, or cause to be distributed, in any portion
of the Building or the Project, any handbills, promotional materials or other
advertising; or (iii) conduct or permit any other activities in the Building or
the Project that might constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept
in, on or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be
used or kept by Tenant in the Premises, the Building or the Project.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or future value
of the Premises, the Project or the Building; without limiting the foregoing,
Tenant shall not use or permit the Premises or any portion thereof to be used
for lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's
labor contracts affecting the Building or the Project or which would cause any
work stoppage, picketing, labor disruption or dispute, or any interference with
the business of Landlord or any other tenant or occupant of the Building or the
Project or with the rights and privileges of any person lawfully in the Building
or the Project. Tenant shall take any actions necessary to resolve any such work
stoppage, picketing, labor disruption, dispute or interference and shall have
pickets removed and, at the request of Landlord, immediately terminate at any
time any construction work being performed in the Premises giving rise to such
labor problems, until such time as Landlord shall have given its written consent
for the resumption of such work. Tenant shall have no claim for damages of any
nature against Landlord or any of Landlord's agents, employees, contractors or
officers connection therewith, nor shall the date of the commencement of the
Term be extended as a result thereof.
15. Tenant shall utilize the termite and pest extermination service
designated by Landlord to control termites and pests in the Premises. Tenant
shall bear the cost and expense of such extermination services, provided that
Tenant shall not be obligated to pay more for its participation in such termite
and pest extermination services than the prevailing competitive rates charged by
reputable independent termite and pest control exterminators for the same
service on a direct and individual basis.
16. Tenant shall not install, operate or maintain in the Premises or in
any other area of the Building, any electrical equipment which does not bear the
U/L (Underwriters Laboratories) seal of approval, or which would overload the
electrical system or any part thereof beyond its capacity for proper, efficient
and safe operation as determined by Landlord, taking into consideration the
overall electrical system and the present and future requirements therefor in
the Building.
17. Tenant shall not operate or permit to be operated on the Premises
any coin or token operated vending machine or similar device (including, without
limitation, telephones, lockers, toilets, scales, amusement devices and machines
for sale of beverages, foods, candy, cigarettes or other goods), except for
those vending machines or similar devices which are for the sole and exclusive
use of Tenant's employees, and then only if such operation does not violate the
lease of any other tenant of the Project.
-H-2-
<PAGE>
18. Bicycles and other vehicles are not permitted inside or on the
walkways outside the Building or in the Project, except in those areas
specifically designated by Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the Project, its occupants, entry and
use, or its contents. Tenant, Tenant's agents, employees, contractors, guests
and invitees shall comply with Landlord's reasonable requirements relative
thereto.
20. Landlord shall have the right to prohibit the use of the name of the
Building, the Project or any other publicity by Tenant that in Landlord's
opinion may tend to impair the reputation of the Building or the Project or the
desirability of the Building or the Project for Landlord or other tenants. Upon
written notice from Landlord, Tenant will refrain from and/or discontinue such
publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times agreed to in
advance by Landlord and in a manner which will not interfere with the rights of
other tenants in the Project.
22. Canvassing, soliciting, and peddling in or about the Building or the
Project is prohibited. Tenant shall cooperate and use its best efforts to
prevent the same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any Common Area of the Building or the
Project, unless such Common Area has been declared a designated smoking area by
Landlord.
24. Tenant shall observe Landlord's rules with respect to maintaining
standard window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance. Tenant shall ensure that to the extent
reasonably practicable, window coverings are closed on all windows in the
Premises while they are exposed to the direct rays of the sun.
25. All deliveries to or from the Premises shall be made only at such
times, in the areas and through the entrances and exits designated for such
purposes by Landlord. Tenant shall not permit the process of receiving
deliveries to or from the Premise outside of said areas or in a manner which may
interfere with the use by any other tenant of its premises or any common areas,
any pedestrian use of such area, or any sue which is inconsistent with good
business practice.
-H-3-
<PAGE>
MASTER LEASE FORM
1777 SENTRY PARKWAY OFFICE ASSOCIATES, L.P.
SENTRY PARK WEST,
BLUE BELL, PENNSYLVANIA
LEASE
BETWEEN
1777 SENTRY PARKWAY OFFICE ASSOCIATES, L.P.,
a New Mexico limited partnership,
LANDLORD
AND
BIONX IMPLANTS, INC.
TENANT
<PAGE>
TABLE OF CONTENTS
ARTICLE I: DEFINITIONS
Section 1.01 Defined Terms
ARTICLE II: DEMISE AND LEASE
Section 2.01 Demise and Lease
Section 2.02 Representations and Warranties; Taking of
Possession
Section 2.03 Common Areas
ARTICLE III: IMPROVEMENTS
Section 3.01 Tenant Improvements
Section 3.02 Completion and Delivery
ARTICLE IV: TERM
Section 4.01 Term
Section 4.02 Notice of Commencement Date
Section 4.03 Renewal Options
Section 4.04 Termination Option
ARTICLE V: RENT
Section 5.01 Base Rent
Section 5.02 Additional Rent
Section 5.03 Manner of Payment
Section 5.04 Late Payment and Interest
Section 5.05 Security Deposit
ARTICLE VI: ADDITIONAL RENT AND CHARGES
Section 6.01 Tenant's Obligation for Taxes
Section 6.02 Tenant's Share of Real Property Taxes, Utility
Costs, and Operating Expenses
ARTICLE VII: SERVICES AND UTILITIES
Section 7.01 Landlord's Services
Section 7.02 Electricity
ARTICLE VIII: INSURANCE
Section 8.01 Landlord's Insurance
Section 8.02 Public Liability
Section 8.03 Tenant's Property and Other Insurance
Section 8.04 Additional Insurance
Section 8.05 Form of Insurance/Certificates
Section 8.06 Tenant's Failure
Section 8.07 Waiver of Subrogation
Section 8.08 Tenant's Property and Fixtures
Section 8.09 Indemnification of Landlord
Section 8.10 Notification from Tenant
ARTICLE IX: REPAIRS AND MAINTENANCE
Section 9.01 Tenant Repairs and Maintenance
Section 9.02 Landlord Repairs and Maintenance
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Section 9.03 Non-Liability of Landlord
Section 9.04 Inspection of Premises
ARTICLE X: FIXTURES, PERSONAL PROPERTY AND ALTERATIONS
Section 10.01 Fixtures and Personal Property
Section 10.02 Alterations
Section 10.03 Liens
ARTICLE XI: USE AND COMPLIANCE WITH LAWS
Section 11.01 Signs
Section 11.02 Use
Section 11.03 Compliance with Laws and Insurance Requirements
Section 11.04 Landlord's Inspection and Testing
Section 11.05 Hazardous Materials
Section 11.06 Environmental Liens
Section 11.07 Indemnification
Section 11.08 Landlord's Right to Cure
Section 11.09 Survival
ARTICLE XII: DAMAGE AND DESTRUCTION
Section 12.01 Reconstruction
Section 12.02 Rent Abatement
Section 12.03 Excessive Damage or Destruction
Section 12.04 Uninsured Casualty
Section 12.05 Waiver
Section 12.06 Mortgagee's Right
Section 12.07 Damage Near End of Term
ARTICLE XIII: EMINENT DOMAIN
Section 13.01 Eminent Domain
Section 13.02 Disposition of Awards
Section 13.03 Mortgagee's Right
ARTICLE XIV: DEFAULT
Section 14.01 Events of Default
Section 14.02 Remedies
ARTICLE XV: ASSIGNMENT AND SUBLETTING
Section 15.01 Prohibition
Section 15.02 Excess Rental
Section 15.03 Scope
Section 15.04 Effect of Assignment
Section 15.05 Waiver
Section 15.06 Change in Control
ARTICLE XVI: OFFSET STATEMENT, ATTORNMENT
AND SUBORDINATION
Section 16.01 Offset Statement
Section 16.02 Attornment
Section 16.03 Subordination
Section 16.04 Mortgagee's Rights
Section 16.05 Recording
Section 16.06 Release of Landlord
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ARTICLE XVII: INDEMNIFICATION AND LIABILITY
Section 17.01 Indemnification
Section 17.02 Waiver and Release
Section 17.03 Liability of Landlord
ARTICLE XVIII: MISCELLANEOUS
Section 18.01 Notices
Section 18.02 Successors Bound
Section 18.03 Guarantor of Tenant
Section 18.04 Waiver
Section 18.05 Surrender of Premises and Holding Over
Section 18.06 Landlord's Right to Perform
Section 18.07 Subdivision and Easements
Section 18.08 Landlord's Reserved Rights
Section 18.09 Rules and Regulations
Section 18.10 Parking
Section 18.11 No Nuisance
Section 18.12 Relocation
Section 18.13 Financial Statements
Section 18.14 Corporate Authority
Section 18.15 Quiet Enjoyment
Section 18.16 Waiver of Jury Trial
Section 18.17 Broker
Section 18.18 Accord and Satisfaction
Section 18.19 Captions and Article Numbers
Section 18.20 Severability
Section 18.21 Applicable Law
Section 18.22 Submission of Lease
Section 18.23 Time
Section 18.24 Entire Agreement
Section 18.25 Landlord's Management Provisions
Section 18.26 Sprinklers
Section 18.27 Date Payments Are Due
Section 18.28 Meaning of "Re-entry"
Section 18.29 Lease Modification
Section 18.30 Litigation, Mediation and Arbitration Costs
Section 18.31 Remedies and Rights May be Exercised by Party in
its Own Name; Authority to Execute Lease
Section 18.32 Payments to Affiliates
Section 18.33 Landlord's Title
Section 18.34 Light and Air Rights
Section 18.35 Rent not Based on Income
Section 18.36 Non-Exclusivity
Section 18.37 Exhibits
Section 18.38 Rooftop Rights
Exhibit A - Description of Project
Exhibit B - Depiction of Premises
Exhibit C - Work Letter Agreement
Exhibit D - Notice of Commencement of Lease
Exhibit E - Project Holidays
Exhibit F - Project Janitorial Specifications
Exhibit G - Offset Statement and Estoppel Certificate
Exhibit H - Rules and Regulations
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Exhibit 10.13
SECURITY AGREEMENT
(Custody Account)
Each of the undersigned agrees that BROWN BROTHERS HARRIMAN & CO. (the
"Bank") shall have a security interest in all securities and other property now
or hereafter held by the Bank in any custody account for the undersigned (the
"Collateral") as security for the payment of all liabilities (whether absolute
or contingent, matured or unmatured, direct or indirect, joint, several or joint
and several, similar or dissimilar, related or unrelated, due or to become due
or heretofore or hereafter contracted or acquired) of the undersigned to the
Bank (the "Liabilities").
Each of the undersigned agrees that the Bank shall have the right to retain
possession of the Collateral so long as any of the Liabilities remains unpaid,
notwithstanding any contrary provision of any other agreement relating to any
custody account in which any of the Collateral is held by the Bank.
Date: April 2, 1997
BIONX IMPLANTS, INC.
By: s/David W. Anderson
Title: President
By: s/Michael J. O'Brien
Title: Vice President - CFO
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SECURED PROMISSORY NOTE
(PLEDGE OF COLLATERAL)
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$2,000,000 DATE: MARCH 27, 1997
NAME OF MAKER: BIONX IMPLANTS, INC. AND BIOSTENT, INC.
ADDRESS OF MAKER: 279 GREAT VALLEY PARKWAY
MALVERN,PA 19355
STATE OF INCORPORATION (IF APPLICABLE): DELAWARE (BIONX); NEW JERSEY (BIOSTENT)
PARTNERSHIP CERTIFICATE FILED WITH (IF APPLICABLE):______________
DUE ON: DEMAND
INTEREST PAYABLE ON: FIRST DAY OF EACH MONTH
SEE ATTACHED RIDER FOR ADDITIONAL TERMS AND CONDITIONS OF THIS NOTE.
FOR VALUE RECEIVED the Maker and, if more than one, each of them
jointly and severally promises to pay on the due date set forth above, to the
order of BROWN BROTHERS HARRIMAN & CO. ("PAYEE") at its office at 1531 Walnut
Street, Philadelphia PA 19102, the face amount hereof. Interest on the balance
from time to time outstanding shall accrue at the rate of 8.25% per annum, and
shall be payable as set forth above.
The indebtedness evidenced hereunder, as well as all other
indebtedness now or hereafter owing by the Make to the Payee, whether absolute
or contingent, matured or unmatured, direct or indirect, sole, joint, several or
joint and several, similar or dissimilar, related or unrelated or heretofore or
hereafter contracted or acquired, ("Obligation(s)") is secured by certain
collateral more fully described in the annexed Schedule "A", together with all
the Maker's personal property now or hereafter existing or acquired, of any type
or description, including but not limited to inventory, documents of title
covering any inventory, equipment, accounts, contract rights, general
intangibles (including tax refunds, instruments, investment securities, chattel
paper, notes, drafts, acceptances and all bank balances of the undersigned)
("Collateral") which the Maker has pledged, deposited and delivered to you and
granted to you a security interest in.
The rate of interest hereunder is based upon the Payee's present base
rate of 8.25% per annum (the "Base Rate"). In the event of an increase or
decrease in the Base Rate, then the rate of interest hereunder shall be
automatically increased or decreased to the same extent and on the same day as
any increase or decrease in the Base Rate. Post-maturity or post-
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demand (as the case may be) interest shall accrue and be payable at 120% of the
rate payable on the due date or demand, computer from said date to the date of
actual payment.
Maker affirms and certifies that the obligation evidenced by this Note
was not and will not be incurred for the purposes of purchasing, carrying or
trading in securities as defined in the Federal Reserve Board's Regulation T,
except in compliance with said Regulation.
In no contingency or event whatsoever shall the interest rate charged
hereunder exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
In the even that such a court determines that the Payee has received interest
hereunder in excess of said highest permissible rate, Payee shall promptly
refund such excess interest to Maker.
So long as the Obligations are not in default, the Maker shall have
the right to vote any shares of stock included in the Collateral on all
corporate questions and the Payee shall, if required, execute due and timely
proxies in favor of the Maker to this end.
The Maker warrants and represents that there are no restrictions upon
the transfer of the Collateral, other than may appear on the face of the
certificates, and that the Maker has the right to pledge the Collateral free of
any encumbrances and without obtaining the consents of the other shareholders.
In the event that, prior to repayment of the Obligations, any stock dividend,
reclassification, readjustment or other change is declared or made in the
capital structure of any issuer of the Collateral, all new, substituted and
additional shares or other securities issued to the Maker by reason of any such
change shall be delivered to Payee in kind to be held by the Payee under the
terms of this agreement in the same manner as all other Collateral. The Payee
may at any time, without notice to the Maker, transfer to and/or register in
Payee's name, or in the name of Payee's nominee, any or all of the Collateral.
In the event that it becomes necessary, in Payee's opinion, to comply
with any Federal or State law or regulation or to make or file any registration
thereunder in order for Payee to exercise any of its rights hereunder, Make
expressly agrees to do or will cause to be done all acts and prepare and execute
all documents necessary to effect such compliance or registration, and to bear
all costs in connection therewith. Maker agrees to indemnify and to hold Payee
harmless from and against any claim or liability caused by any untrue statement
of material fact, or omission to state a material fact, as may be required in
any registration statement or prospectus; or caused by a failure to register or
comply with any such law or regulation. The Maker
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shall pay any and all expenses, including reasonable attorneys' fees incurred by
Payee in registering the Collateral, or in securing an exemption for any such
registration.
The Payee shall have no responsibility of any kind, nature or
description to arrange for the redelivery of the Collateral or any part thereof
to any issuer or transfer agent in order to preserve or maintain any conversion
or dividend rights with respect thereto; the Payee's only obligation being to
exercise reasonable care, to the extent required by the Uniform Commercial Code,
in the custody and preservation of any of the Collateral which is in the Payee's
possession. The Payee shall be deemed to have exercised reasonable care if it
takes such action for that purpose as the Maker requests in writing, but the
Payee's failure to comply with any such request shall not in itself be deemed a
failure to exercise reasonable care; and the Payee's failure to do anything not
so requested shall not be deemed a failure to exercise reasonable care. The
Payee agrees to comply with any request received by it from Maker with respect
to conversion, reclassification, or the like of the Collateral, to the extent
that such instructions are not inconsistent with the intents and purposes
hereof. The Maker shall take all necessary steps to preserve rights against
prior parties to any instrument or chattel paper included in the Collateral.
Upon payment and performance of all Obligations the Payee shall, at the request
of the Maker, redeliver the Collateral to the Maker.
Upon the occurrence of any of the following events of default, to wit:
the non-payment when due of any Obligation; the failure of the Maker forthwith,
upon demand, to furnish satisfactory additional Collateral, or to make payments
on account as may be agreed in any of the Obligations; the death, failure in
business, dissolution or termination of existence of the Maker or any endorser,
guarantor or surety of any Obligation (the Maker and any such other person(s)
being hereinafter referred to collectively as "Obligor(s)"); any petition for
relief under the Bankruptcy Code being filed by or against any Obligor or any
proceedings in bankruptcy, or under any Acts of Congress relating to the relief
of debtors, being commenced for the relief or readjustment of any indebtedness
of any Obligor either through reorganization, composition, extension or
otherwise; the making by any Obligor of an assignment for the benefit of
creditors or for taking advantage by any of the same of any insolvency law; any
seizure, vesting or intervention by or under authority of a government, by which
the management of any Obligor is displaced or its authority in the conduct of
its business is curtailed; the appointment of any receiver of any property of
any Obligor; the attachment or distraint of any of the Collateral or of same
becoming subject at any time to any mandatory court order or other legal
process; the failure of the undersigned to perform any of its duties as
specified in any agreement(s) with respect to the Obligations; the expulsion or
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suspension of any Obligor from membership in any national securities association
or any national securities exchange or other organized exchange, or any clearing
association; the admission in writing by any Obligor of inability to pay its
debts generally as they become due; the issuance of an attachment or garnishment
or the filing of a lien against property of any Obligor; the entry of a judgment
against any Obligor; a determination by the Payee that a material adverse change
has occurred in the financial condition of any Obligor from the condition set
forth in the most recent financial statement of such Obligor heretofore
furnished to the Payee or from the condition of such Obligor as heretofore most
recently disclosed to the Payee in any other manner; the merger or consolidation
of any Obligor; the Pension Benefit Guaranty Corporation shall commence
proceedings (including proceeds under (S)4042 of the Employee Retirement Income
Security Act of 1974) to terminate any employee pension benefit plan of the
Maker; any misstatement or false statement of any Obligor in connection with any
agreement between any Obligor and the Payee has been made; then in such event
the Maker shall immediately be liable without notice and shall pay on demand all
Obligations (whether or not otherwise due), together with all collection costs
and expenses, including reasonable attorneys' fees, in connection with the
collection of such indebtedness.
As security for all Obligations, the Payee shall have a continuing
right of set-off against, a security interest in and a lien upon any and all
deposits, funds, securities, instruments and other property of any Obligor at
any time owing by the Payee or in its hands. The Payee shall be deemed to have
exercised such right of set-off immediately upon the occurrence of any event of
default hereunder even though such set-off is entered on the Payee's books
subsequent thereto.
Payee shall have all rights and remedies of a secured party under the
Uniform Commercial Code. Further, upon the occurrence of any Event of Default,
all Obligations shall automatically become due and payable without notice and
Payee's commitment to make further loans or extensions of credit or other
financial accommodations to the Maker shall thereupon automatically and without
notice be terminated. In addition thereto, the Maker further agrees that (i) in
the event notice is necessary under applicable law, written notice mailed to the
Maker at the address then reflected in Payee's records 5 business days prior to
the date of public sale of any of the Collateral or prior to the date after
which private sale or any other disposition of the Collateral will be made shall
constitute reasonable notice, but notice given in any other reasonable manner or
at any other time shall be sufficient; (ii) in the event of a sale or other
disposition of any Collateral, Payee may apply the net proceeds thereof first to
the satisfaction of Payee's reasonable attorneys' fees, legal expenses, and
other
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costs and expenses incurred in connection with Payee's taking, re-taking,
holding, preparing for sale, and selling of the Collateral; then to repayment of
principal and interest on the Obligations, with the Maker remaining liable for
any deficiency; (iii) without precluding any other methods of sale, the sale of
Collateral shall have been made in a commercially reasonable manner if conducted
in conformity with reasonable commercial practices of banks disposing of similar
property, but in any event Payee may sell on such terms as Payee may choose,
without assuming any credit risk and without any obligation to advertise or give
notice of any kind; and (iv) Payee may require the Maker to assemble Collateral,
taking all necessary or appropriate action to preserve and keep in good
condition; and make such available to Payee at a place and time convenient to
both parties; all at the expense of the Maker. To the extent permitted under
applicable law, full power and authority is hereby given Payee to sell, assign,
and deliver all or any part of the Collateral, at any time at any brokerage
board, or at public or private sale, at Payee's option, and no delay on Payee's
part in exercising any power of sale or any other rights or options hereunder,
and no notice or demand, which may be given to or made upon the Maker by Payee
with respect to any power or sale or other right or option hereunder, shall
constitute a waiver thereof, or limit or impair Payee's right to take any action
or to exercise any power of sale and any other rights hereunder, without notice
or demand, or prejudice Payee's rights as against the Maker in any respect.
Payee may be a purchaser, free from any right of redemption (which the Maker
hereby expressly waives and releases) at any public or private sale of
Collateral. Should such net proceeds be inadequate to pay all the Obligations,
the Maker agrees to pay the Payee on demand any balance that may be due to the
Payee.
The Maker recognizes that the Payee may be unable to effect a public
sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, as now or hereafter in
effect, or applicable Blue Sky or other state securities law, as now or
hereafter in effect, but may be compelled to resort to one or more private sales
to a restricted group of purchasers who will be obliged to agree, among other
things, to acquire the Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. The Maker agrees that
private sales so made may be at prices and other terms less favorable to the
Payee than if such Collateral were sold at public sales, and that the Payee has
no obligation to delay sale of any such Collateral of the period of time
necessary to permit the issuer of the Collateral, even if such issuer would
agree, to register the Collateral for public sale under such applicable
securities laws. The Maker agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
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The Maker at the request of the Payee will sign and deliver to the
Payee a security agreement or a trust receipt or other writing, together with
financing statement(s) or a statement of trust receipt financing or other
writing, covering any Collateral in order to comply with or to enable the Payee
to obtain the benefits of the Uniform Commercial Code or any other similar
statute now or hereafter enacted, of Pennsylvania or of any other jurisdiction
where the collateral may at any time be located. The Maker agrees to supply the
Payee with any information the Payee may reasonably request with respect to any
financing statement(s) or security agreement relating to the Maker or to any
property of the Maker, and the Maker agrees that without written consent of the
Payee the Maker will not enter into any security agreement which creates a
security interest in any category of the Maker's personal property generally (as
distinguished from any specific items thereof) or in any after-acquired property
other than accessions and fixtures. The rights of the Payee specified herein
shall be in addition to those previously or otherwise created or existing. The
Maker agrees to use every effort and to take every action that may be necessary
or appropriate to enable the Payee to enforce, protect and preserve its rights
and interests hereunder, hereby granting unto the Payee, as the Maker's
attorney-in-fact, full power and authority to take any and all such action,
either in the name of the Payee or in the name of the Maker as the Payee may in
its sole discretion determine.
The Maker authorizes the Payee, with or without notice to the Maker,
to cause to be transferred or registered at the expense of the Maker any of the
Collateral into the name of the Payee or its nominee and to receive any income
derived therefrom and to hold such income as security for any of the Obligations
or apply it upon principal or interest due on any such Obligations. The Maker
will execute and deliver to the Payee such consents, endorsements, assignments
and stock powers as may appear to the Payee proper to further the negotiability
of any of the Collateral and will pay the expenses and charges of so furthering
negotiability. The Payee may at any time demand, sue for, collect or make any
compromise or settlement with reference to the Collateral as the Payee in its
sole discretion may determine. Any bonds or other obligations of or guaranteed
by the United States government constituting part of the Collateral may be
pledged by the Payee (either alone or commingled with other securities) to
secure deposits or other obligations of the Payee, whether or not such deposits
or other obligations be in excess of the Obligations.
The Maker agrees that the Payee assumes no responsibility for the
correctness, validity, genuineness or sufficiency of the instruments, documents
and/or chattel paper constituting the Collateral, or for the existence,
character, quantity, quality, condition, weight, packing, value or delivery
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of any goods specified in any such documents. The Payee shall not be required
to take any steps necessary to preserve any rights against prior parties to any
of the Collateral. The Maker hereby waives presentment, notice of dishonor and
protest of all instruments evidencing or included in the Obligations and the
Collateral. The Maker will keep the Collateral adequately covered by insurance
satisfactory to the Payee, and will assign the policies or certificates of
insurance to the Payee, or make the loss or adjustment payable to the Payee, at
the option of the Payee; and the Maker will furnish to the Payee evidence of
acceptance by the insurers of such assignment. Should the Maker fail to effect
and maintain such insurance, the Payee may do so for the account of the Maker.
No failure on the part of Payee to exercise, and no delay in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Payee of any right, power
or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
If any provision hereof is held invalid or unenforceable, the
remainder and the application of such provision to the other parties or
circumstances will not be affected thereby, the provisions being severable in
any such instance.
In any litigation hereunder, all Obligors hereby waive trial by jury
and waive the right to interpose any defense based upon any Statute of
Limitations or any claim of latches. Each Obligor hereby consents to the in
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personam jurisdiction of the Courts of the Commonwealth of Pennsylvania and the
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United States District Court for the Eastern District of Pennsylvania in
connection with any claim arising hereunder. In the event that any action is
commenced hereunder in any such court, service of process may be made on any
Obligor by mail addressed to said party at its address then reflected in Payee's
records.
This Note shall be governed by the laws of the Commonwealth of
Pennsylvania.
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All Obligors hereby forever waive presentment, demand, protest, notice
of protest and notice of dishonor of this Note and consent without notice to any
and all extensions of time or terms of payment including any compromise or
settlement thereof.
BIOSTENT, INC. BIONX IMPLANT, INC.
By: s/David W. Anderson By: s/David W. Anderson
President President
By: s/Michael J. O'Brien By: s/Michael J. O'Brien
Vice President-Finance/CFO Vice President-Finance/CFO
ENDORSEMENT
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In addition to liability as endorsers, which the undersigned hereby
assume, and intending to be legally bound, the undersigned (and, if more than
one, each of them jointly and severally) hereby (1) assent to all of the terms
and conditions of the within Note and hereby forever waive presentment, demand,
protest and notice of dishonor of the within Note and trial by jury, (2) become
surety to the Payee, its successors and assigns for the payment of the within
Note and (3) consent to any and all extensions of time or other terms of payment
and the release or substitution of, or the failure to perfect a security
interest in, any collateral as agreed to or granted by the Payee without notice
to any of the undersigned.
____________________________
____________________________
____________________________
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SCHEDULE "A"
LIST OF COLLATERAL
See Security Agreement of Makers dated today. The Collateral also includes
all investment property of the abovesigned now or hereafter in the Payee's
possession in any capacity whatever (including, without limitation, securities
held by the Payee as custodian or investment advisor) and all proceeds thereof.
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RIDER TO $2,000,000 SECURED PROMISSORY NOTE (GRID)
(PLEDGE OF COLLATERAL) DATED MARCH 27, 1997
FROM BIONX IMPLANTS, INC. ("BIONX") AND BIOSTENT, INC. AS MAKERS
TO BROWN BROTHERS HARRIMAN & CO. AS PAYEE
The Makers further agree:
1. Demand Line of Credit. The Note evidences a demand, discretionary
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line of credit available for each Maker's (a) working capital needs, (b) foreign
exchange exposures and (c) letters of credit.
2. Limitations on Advances. Although Payee has complete discretion
-----------------------
whether to make advances or extend other credit to Makers, advances for working
capital under this Note shall in any event be limited to the sum of (a) 80% of
Eligible Domestic Receivables and (b) 40% of Eligible Domestic Finished Goods
Inventory. "ELIGIBLE DOMESTIC RECEIVABLES" means all of Makers' accounts,
excluding (1) those over 90 days past invoice date and (2) foreign accounts.
"ELIGIBLE DOMESTIC FINISHED GOODS INVENTORY" means all inventory of the Makers
excluding (i) work in process; (ii) slow moving inventory; and (iii) foreign
inventory. The amount available for working capital advances shall be further
reduced by the aggregate outstanding amount of Makers' foreign exchange
exposures and letters of credit.
3. Financial Statements. Makers shall furnish to Payee:
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a. Within thirty days of the end of each month, company-prepared
monthly financial statements on a consolidated and consolidating basis for Bionx
and its subsidiaries. Each such interim financial statement shall set forth
year-to-date performance figures and shall present such other information and
include such detail as the Payee may reasonably request;
b. Within thirty days of the end of each month, an accounts
receivable aging report for Bionx Implants, Inc.
c. Within ninety days after the end of each fiscal year, annual
financial statements prepared on a consolidated and consolidating basis for
Bionx and its subsidiaries. The annual consolidated financial statements of
Bionx shall be audited and certified by an independent certified public
accounting firm reasonably acceptable to Payee; and
d. Upon request of Payee, such other information concerning the
operations, financial condition, and results of Makers and their subsidiaries as
Payee may reasonably request.
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All financial statements Makers furnish to Payee will be prepared in accordance
with generally accepted accounting principles consistently applied from period
to period.
4. Operating Relationship. Bionx will maintain its principal operating
and investment accounts with Payee.
THE NOTE, THIS RIDER, THE SECURITY AGREEMENT OF THE MAKERS AND ALL
OTHER DOCUMENTS RELATING TO PAYEE'S CREDIT FACILITIES FOR THE MAKERS SET FORTH
CERTAIN TERMS, CONDITIONS, AGREEMENTS AND COVENANTS SOLELY TO ASSURE THAT THE
PARTIES UNDERSTAND EACH OTHER'S EXPECTATIONS AND TO ASSIST PAYEE IN EVALUATING
THE STATUS, ON AN ONGOING BASIS, OF THE CREDIT FACILITIES. THE MAKERS
ACKNOWLEDGE THAT THE EXTENSION OF CREDIT BY THE PAYEE IS DISCRETIONARY AND THAT
THE PAYEE MAY DEMAND REPAYMENT, OR APPROPRIATE ASSURANCE OF REPAYMENT, AT ANY
TIME AND FOR ANY REASON.
BIONX IMPLANTS, INC.
By: s/David W. Anderson
President
By: s/Michael J. O'Brien
Vice President-Finance/CFO
BIOSTENT, INC.
By: s/David W. Anderson
President
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SECURITY AGREEMENT, dated as of March 27, 1997, made by the undersigned
to Brown Brothers Harriman & Co. ("SECURED PARTY"). (As used herein, "OBLIGOR"
means each of the undersigned, whether one or more, individually, and, as the
context requires, also means all of the undersigned, whether one or more, as a
group.)
SECTION 1. Grant of Security Interest. Obligor hereby grants to
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Secured Party a security interest in the following property, whether now owned
or hereafter arising or acquired (collectively, the "COLLATERAL"):
(a) all of Obligor's accounts, general intangibles (including,
without limitation, patents, trademarks and copyrights and licenses relating
thereto), chattel paper, and instruments (collectively, the "RECEIVABLES");
(b) all of Obligor's inventory and documents;
(c) all of Obligor's equipment (whether or not constituting
fixtures); and
(d) all proceeds and products of any of the foregoing, including
insurance payable by reason of loss or damage.
Obligor represents and warrants that it is the sole owner of the
Collateral and has the legal right to grant to Secured Party a security interest
therein, and that the Collateral is free and clear of all other liens, security
interests and encumbrances.
SECTION 2. Security for Liabilities. This Agreement secures the
------------------------
payment and performance of all indebtedness, obligations, and liabilities of
every kind and nature (whether primary or secondary, direct or indirect,
absolute or contingent, sole, joint, or several, secured or unsecured, similar
or dissimilar, or related or unrelated), heretofore, now, or hereafter
contracted or acquired, of Obligor to Secured Party (collectively, the
"LIABILITIES").
SECTION 3. Obligor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) Obligor shall remain liable under its contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of Obligor's duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Secured Party of any of the
rights hereunder shall not release Obligor from any of its duties or obligations
under its contracts and agreements included in the Collateral, and (c) Secured
Party shall not have any obligation or liability under the contracts and
agreements included in the Collateral
<PAGE>
by reason of this Agreement, nor shall Secured Party be obligated to perform any
of the obligations or duties of Obligor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 4. Further Assurances. (a) Obligor agrees that from time to
------------------
time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Obligor will: (i) upon request by Secured Party, mark conspicuously each item of
chattel paper included in its Receivables and each of its records pertaining to
any of the Collateral, with a legend, in form and substance satisfactory to
Secured Party, indicating that such chattel paper or Collateral is subject to
the security interest granted hereby; (ii) if any of its Receivables shall be
evidenced by a promissory note or other instrument, deliver and pledge to
Secured Party hereunder such note or instrument duly indorsed and accompanied by
duly executed instruments of transfer or assignment, all in form and substance
satisfactory to Secured Party, and (iii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may request, in
order to perfect and preserve the security interests granted or purported to be
granted hereby.
(b) Obligor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Obligor where permitted by
law. A carbon, photographic, or other reproduction of this Agreement or any
part thereof shall be sufficient as a financing statement where permitted by
law.
(c) Obligor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may request, all in
reasonable detail.
SECTION 5. Insurance. Obligor shall, at its own expense, maintain
---------
liability and casualty insurance with respect to its business and property with
responsible and reputable insurance companies or associations satisfactory to
Secured Party in such amounts and covering such risks as are acceptable to or
specified by Secured Party, taking into
-2-
<PAGE>
account, among other factors, such amounts and risks as are usually carried by
persons engaged in similar businesses and owning similar properties in the same
general areas in which Obligor operates. Each policy for liability insurance
shall provide for payment to or on behalf of Obligor and Secured Party, as their
interests may appear. Each policy of property damage insurance shall provide
for all losses to be paid to Secured Party. Each policy of property damage
insurance shall in addition (a) name Secured Party as an insured party
thereunder (without any representation or warranty by or obligation upon Secured
Party), (b) contain an agreement by the insurer that any loss thereunder shall
be payable to, or on behalf of, as the case may be, Secured Party
notwithstanding any action, inaction, or breach of representation or warranty by
the Obligor, (c) provide that there shall be no recourse against Secured Party
for payment of premiums or other amounts with respect thereto, and (d) provide
that at least 30 days' prior written notice of cancellation or of lapse shall be
given to Secured Party by the insurer. Obligor shall, if so requested by
Secured Party, deliver to Secured Party original or duplicate policies of
insurance maintained pursuant hereto and, as often as Secured Party may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, Obligor shall, at the request of Secured Party, duly
execute and deliver instruments or assignment of such insurance policies to
comply with the requirements of Section 5 and cause the respective insurers to
acknowledge notice of such assignments.
SECTION 6. Certain Covenants as to Inventory and Equipment. Obligor
-----------------------------------------------
shall:
(a) Keep its inventory and equipment in the places specified therefor
on Schedule 1 hereto (other than inventory sold or leased in the ordinary course
of business) or, upon 30 days' prior written notice to Secured Party, at such
other places as shall be identified in such notice and which are in
jurisdictions where all action required by Section 4 shall have been taken with
respect to such inventory and equipment.
(b) Cause its equipment to be maintained and preserved in the same
condition, repair, and working order as when new, ordinary wear and tear
excepted, and, in the case of any material loss or damage to any of its
equipment, as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end.
(c) Pay promptly when due all property and other taxes, assessments,
and governmental charges or levies imposed
-3-
<PAGE>
upon it, and all claims (including claims for labor, materials and supplies)
against its inventory equipment.
(d) After the occurrence and during the existence of an Event of
Default (as hereinafter defined), receive in trust for the benefit of Secured
Party all amounts and proceeds received or collected by such Obligor in respect
of its inventory and equipment, segregate such amounts and proceeds from other
funds of such Obligor, and forthwith pay such amounts and proceeds over to
Secured Party in the same form as so received (with any necessary endorsement)
to be held as cash collateral and applied as provided in Section 14(b).
SECTION 7. Certain Covenants as to Receivables. Obligor shall:
-----------------------------------
(a) Keep its chief place of business and chief executive office and the
offices where it keeps its records, including all computer hardware and
software, concerning its Receivables, and all originals of all chattel paper
which evidence any such Receivables at the places specified in Schedule 1 hereto
or, upon 30 days' prior written notice to Secured Party, at such other locations
as shall be identified in such notice and which are in a jurisdiction where all
action required by Section 4 shall have been taken with respect to its
Receivables. Obligor will hold and preserve such records and chattel paper and
will, upon reasonable notice, permit representatives of Secured Party at any
time during normal business hours to inspect and make abstracts from such
records and chattel paper. Obligor shall immediately endorse and deliver to
Secured Party each instrument included in the Receivables. Obligor shall
immediately notify Secured Party if any of its accounts arise out of contracts
with the United States or any agency or instrumentality thereof, and execute any
instruments and take any steps required by Secured Party in order that all
moneys due and to become due under such contracts shall be assigned to Secured
Party and notice given to the Government under the Federal Assignment of Claims
Act.
(b) From time to time upon request, Obligor shall provide Secured Party
with (i) schedules describing all accounts, (ii) additional schedules describing
other Receivables, and (iii) specific written assignments to Secured Party of
any of its Receivables. Any failure to execute or deliver any schedule or
assignment shall not, however, affect or limit any security interest or other
right of Secured Party in and to any Receivable. Upon Secured Party's request,
Obligor shall also furnish to Secured Party copies of invoices to customers and
shipping and delivery receipts or warehouse receipts relating thereto, as well
as such other documents and
-4-
<PAGE>
instruments as Secured Party may reasonably request in connection with any
Receivable.
(c) Obligor shall promptly notify Secured Party of all returns,
repossessions and recoveries of goods covered by the Receivables and of all
claims asserted with respect thereto. Each such notification shall be
accompanied by a statement describing the relevant goods and the location
thereof. Obligor shall not settle or adjust any dispute or claim, grant any
discount, credit or allowance, or accept any return of merchandise except in the
ordinary course of business. When Obligor receives collateral of any kind by
reason of transactions between itself and its customers or account debtors, it
will hold the same on Secured Party's behalf, subject to Secured Party's
instructions, as property forming part of the Receivables.
(d) Except as otherwise provided in Section 14, Obligor shall continue
to collect, at its own expense, all amounts due or to become due to Obligor
under the Receivables. In connection with such collections, Obligor may take
(and, at Secured Party's direction, shall take) such action as Obligor or
Secured Party may deem necessary or advisable to enforce collection of its
Receivables; provided, however, that Secured Party shall have the right, at any
-------- -------
time and from time to time, whether or not an Event of Default shall have
occurred, to notify the account debtors or obligors under any Receivables of the
assignment of such Receivables to Secured Party and to direct such account
debtors or obligors to make payment of all amounts due or to become due
thereunder directly to Secured Party and, upon such notification and at the
expense of Obligor, to enforce collection of any amount, payment, or other terms
thereof, upon terms which it considers advisable. Any amounts received or
collected by Secured Party pursuant to this subsection shall be held as cash
collateral and applied as provided in Section 14(b). After such notification,
and in any event after the occurrence and during the continuance of an Event of
Default, (i) all amounts or proceeds received or collected by Obligor in respect
of Receivables shall be received in trust for the benefit of Secured Party
hereunder, shall be segregated from other funds of Obligor, and shall be
forthwith paid over to Secured Party in the same form as so received (with any
necessary endorsement) to be held as cash collateral and applied as provided in
Section 14(b), and (ii) Obligor shall not adjust, settle, or compromise the
amount or payment of any Receivable, or release wholly or partly any account
debtor or obligor thereunder, or allow any credit or discount thereon.
(e) Secured Party shall have the right from time to time to communicate
directly with account debtors and obligors
-5-
<PAGE>
on the Receivables and to do test verifications of the Receivables.
SECTION 8. Transfers and Other Liens. Obligor shall not:
-------------------------
(a) Sell, assign (by operation of law or otherwise), or otherwise
dispose of any of the Collateral except sales of inventory in the ordinary
course of business.
(b) Create or suffer to exist any lien, security interest, or other
charge or encumbrance upon or with respect to any of the Collateral, except for
security interests and other liens securing indebtedness of not more than
$250,000 outstanding at any time incurred to finance the purchase or lease of
fixed or capital assets.
SECTION 9. Secured Party Appointed Attorney-in-Fact. Obligor hereby
----------------------------------------
irrevocably appoints Secured Party as its attorney-in-fact, with full authority
in the place and stead of Obligor and in the name of Obligor, Secured Party, or
otherwise, from time to time in Secured Party's discretion to take any action
and to execute any instrument which Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to sign in the name and on behalf of Obligor any financing
statements or other papers required under Section 4;
(b) to obtain and adjust insurance required to be paid to Secured
Party pursuant to Section 5;
(c) to ask, demand, collect, sue for, recover, compound, receive, and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(d) to receive, indorse, and collect any drafts or other instruments,
documents, and chattel paper in connection with subsection (b) or (c) above; and
(e) to file any claims or take any action or institute any proceedings
which Secured Party may deem necessary or desirable for the collection of any of
the Collateral or otherwise to enforce the rights of Secured Party with respect
to any of the Collateral.
Obligor hereby ratifies and approves all acts of Secured Party as such
attorney-in-fact. Secured Party shall not, in its capacity as such attorney-in-
fact, be liable for any acts or omissions, nor for any error in judgment or
-6-
<PAGE>
mistake of fact or law, but only for gross negligence or willful misconduct.
This power, being coupled with an interest, is irrevocable until all Liabilities
have been fully satisfied and until Secured Party is no longer committed to
allow additional Liabilities to be incurred. Any amounts received or collected
by Secured Party in its capacity as such attorney-in-fact shall be held as cash
collateral and applied as provided in Section 14(b).
SECTION 10. Secured Party May Perform. If Obligor fails to perform
-------------------------
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Obligor under Section 15(b).
SECTION 11. Secured Party's Duties. The powers conferred on Secured
----------------------
Party hereunder are solely to protect its interest in the Collateral and shall
not impose any duty to exercise any such powers. Except for the safe custody of
any Collateral in its possession and the accounting for moneys actually received
by it hereunder, Secured Party shall not have any duty as to any Collateral or
as to the taking of any necessary steps to preserve rights against any parties
or any other rights pertaining to any Collateral.
SECTION 12. Inspection Rights. Secured Party at all times shall have
-----------------
access to inspect, audit, and make extracts from all of Obligor's records,
files, and books of account relating to the Collateral, and Obligor shall
deliver any document or instrument necessary for Secured Party to obtain records
from any service bureau maintaining records for Obligor. Secured Party may also,
at all reasonable times, examine and inspect inventory and other Collateral
owned by Obligor. Obligor shall, at Secured Party's request, take all steps
necessary to facilitate such inspection.
SECTION 13. Default. "EVENT OF DEFAULT" means nonpayment of any of
-------
the Liabilities when due (whether at stated maturity or upon demand,
acceleration of maturity or otherwise), any other default with respect to the
Liabilities, any failure by Obligor to perform any of its obligations under this
Agreement or any other agreement, instrument, or document evidencing or securing
any of the Liabilities, or any breach of any representation or warranty made by
Obligor in connection with the transactions contemplated by this Agreement or
any other agreement, instrument, or document evidencing or securing any of the
Liabilities.
SECTION 14. Remedies. If any Event of Default shall have occurred and
--------
be continuing:
-7-
<PAGE>
(a) Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "CODE") and other applicable laws and agreements
and also may (i) require Obligor to, and Obligor hereby agrees that it will at
its expense and upon request of Secured Party forthwith, assemble the tangible
Collateral as directed by Secured Party and make it available to Secured Party
at a place or places to be designated by Secured Party which are reasonably
convenient to Secured Party and Obligor and (ii) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of Secured Party's offices or elsewhere, for
cash, on credit, or for future delivery, and upon such other terms as Secured
Party may deem commercially reasonable. Obligor agrees that, to the extent
notice of sale shall be required by law, at least five business days' notice to
Obligor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of the Collateral regardless of
notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) All cash proceeds received by Secured Party in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of Secured Party, be held by Secured Party (without
interest) as collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to Secured Party pursuant to Section 15)
in whole or in part by Secured Party against, all or any part of the Liabilities
in such order as Secured Party shall elect. Any surplus of such cash or cash
proceeds held by Secured Party and remaining after payment in full of all the
Liabilities shall be paid over to Obligor or to whosoever may be lawfully
entitled to receive such surplus.
SECTION 15. Indemnity and Expenses. (a) Obligor agrees to indemnify
----------------------
Secured Party from and against any and all claims, losses, and liabilities
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses, or liabilities resulting
from Secured Party's gross negligence or willful misconduct.
(b) Obligor will upon demand pay to Secured Party the amount of any
and all reasonable expenses, including
-8-
<PAGE>
the reasonable fees and disbursements of its counsel and of any experts and
agents, which Secured Party may incur in connection with (i) the preparation,
administration and amendment of this Agreement, (ii) the custody, preservation,
use, or operation of, or the sale of, collection from, or other realization
upon, any of the Collateral, (iii) the exercise or enforcement of any of the
rights of Secured Party, or (iv) the failure by Obligor to perform or observe
any of the provisions hereof.
SECTION 16. Amendments, Indulgences, Etc. No amendment or waiver of
----------------------------
any provision of this Agreement nor consent to any departure by Obligor herefrom
shall in any event be effective unless the same shall be in writing and signed
by Secured Party and Obligor, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
failure or delay on the part of Secured Party in the exercise of any right,
power, or remedy under this Agreement shall constitute a waiver thereof, or
prevent the exercise thereof in that or any other instance.
SECTION 17. Notices. All notices, requests and demands to or upon the
-------
respective parties hereto shall be deemed to have been given or made, (A) if
delivered by hand against receipt, on the date of such delivery, or (B) if
deposited in the mails, postage prepaid, registered or certified mail, return
receipt requested, on the third day following the date of postmark, addressed as
follows or to such other address as may be hereafter designated in writing by
the respective parties hereto:
If to Obligor: Bionx Implants, Inc.
279B Great Valley Parkway
Malvern, PA 19355
If to Secured Party: Brown Brothers Harriman & Co.
1531 Walnut Street
Philadelphia, PA 19102
ATTN: J. Clark O'Donoghue, Manager
SECTION 18. Continuing Security Interest; etc. This Agreement shall
---------------------------------
create a continuing security interest in the Collateral and shall (a) be binding
upon Obligor, its heirs, administrators, successors, and assigns and (b) inure
to the benefit of Secured Party and its successors, transferees, and assigns.
The execution and delivery of this Agreement shall in no manner impair or affect
any other security (by endorsement or otherwise) for the payment or performance
of the Liabilities and no security taken hereafter as security for payment or
performance of the Liabilities shall impair in any manner or affect this
Agreement or the security interest
-9-
<PAGE>
granted hereby, all such present and future additional security to be considered
as one general, continuing security. Any of the Collateral may be released from
this Agreement without altering, varying, or diminishing in any way this
Agreement or the security interest granted hereby as to the Collateral not
expressly released, and this Agreement and such security interest shall continue
in full force and effect as to all of the Collateral not expressly released.
SECTION 19. Representations and Warranties. Obligor represents and
------------------------------
warrants to Secured Party that:
(a) Obligor has all requisite power and authority to execute and
deliver this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Obligor has been
duly authorized by all requisite corporate action, and this Agreement has been
duly executed and delivered by Obligor and constitutes its valid and binding
obligation, enforceable against Obligor in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization and other similar laws relating to or affecting the enforcement
of creditors' rights generally, and except that the availability of specific
performance, injunctive relief or other equitable remedies is subject to the
discretion of the court before which any such proceeding may be brought.
(b) The execution, delivery and performance of this Agreement by
Obligor will not violate any provision of law, any rule or regulation of any
governmental authority, or any judgment, decree or order of any court binding on
Obligor, and will not conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or, except as
expressly provided herein, result in the creation of any lien, security
interest, charge or encumbrance upon any of its properties, assets or
outstanding stock under its Articles of Incorporation or By-Laws or any
indenture, mortgage, lease, agreement or other instrument to which Obligor is a
party or by which it or any of its properties is bound.
SECTION 20. Governing Law; Consent to Jurisdiction; etc. This
-------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania. Obligor consents to the jurisdiction of the
courts of Pennsylvania and of the courts of the United States sitting in
Pennsylvania in any litigation concerning this Agreement, and Obligor waives any
objection based on venue or inconvenient forum. Obligor waives any right to
trial by jury in any litigation involving this Agreement. Unless otherwise
defined herein, terms defined in the Code as in effect in Pennsylvania
-10-
<PAGE>
on the date hereof (including the terms "inventory," "accounts," "general
intangibles," "chattel paper," "instruments," "equipment," "fixtures,"
"proceeds," "products" and "documents") are used herein as therein defined as of
such date. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart.
SECTION 21. Severability. The provisions of this Agreement are
------------
independent of and separable from each other, and no such provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other such provision may be invalid or unenforceable in whole or in
part.
SECTION 22. Joint and Several Liability. The liability of each
---------------------------
Obligor hereunder shall be joint and several.
SECTION 23. Termination. This Agreement shall terminate upon the
-----------
final and indefeasible payment in full of all the Liabilities and the Obligor's
confirmation to Secured Party that Obligor no longer intends to apply to Secured
Party for loans or other credit accommodations.
IN WITNESS WHEREOF, Obligor, intending to be legally bound, has
executed or caused the execution of this Agreement, under seal, as of the date
first above written.
BIONX IMPLANTS, INC.
By: s\David W. Anderson
President
By: s\Michael J. O'Brien
Vice President-Finance/CFO
BIOSTENT, INC.
By: s\David W. Anderson
President
-11-
<PAGE>
SCHEDULE 1
Locations of chief place of business and executive office:
279B Great Valley Parkway
Malvern, PA 19355
Locations of records concerning Receivables, originals of chattel paper:
279B Great Valley Parkway
Malvern, PA 19355
Locations of Inventory and Equipment:
279B Great Valley Parkway
Malvern, PA 19355
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Bionx Implants, Inc.:
The audits referred to in our report dated January 24, 1997, except for the
first paragraph of Note 15 which is as of February 24, 1997, included the
related financial statement schedule as of December 31, 1996 and for each of
the years in the three-year period ended December 31, 1996 included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 10, 1997
<PAGE>
EXHIBIT 23.3
CONSENT
We hereby consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-1 to be filed by Bionx Implants, Inc. with
the Securities and Exchange Commission.
KENYON & KENYON
/s/ Richard Mayer
By: _________________________________
Dated: April 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1593131
<SECURITIES> 0
<RECEIVABLES> 1805757
<ALLOWANCES> 97325
<INVENTORY> 1030809
<CURRENT-ASSETS> 4803069
<PP&E> 845628
<DEPRECIATION> (412676)
<TOTAL-ASSETS> 8179182
<CURRENT-LIABILITIES> 2756609
<BONDS> 0
5000000
0
<COMMON> 10105
<OTHER-SE> (177868)
<TOTAL-LIABILITY-AND-EQUITY> 8179182
<SALES> 5033952
<TOTAL-REVENUES> 5379155
<CGS> 2177511
<TOTAL-COSTS> 2177511
<OTHER-EXPENSES> 4969878
<LOSS-PROVISION> 97325
<INTEREST-EXPENSE> 86906
<INCOME-PRETAX> (1898091)
<INCOME-TAX> 208390
<INCOME-CONTINUING> (2106481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2106481)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
