As filed with the Securities and Exchange Commission on October 3, 1997
Registration No. 33-
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IOMED, Inc.
(Name of issuer in its charter)
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Utah 2834 87-0441272
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
3385 West 1820 South
Salt Lake City, Utah 84104
(801) 975-1191
(Address and telephone number of registrant's principal executive offices
and principal place of business)
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Ned M. Weinshenker, Ph.D.
Chief Executive Officer
3385 West 1820 South
Salt Lake City, Utah 84104
(801) 975-1191
(Name, Address and telephone number of agent for service)
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Copies to:
J. Gordon Hansen, Esq. Rodd M. Schreiber, Esq.
Robert C. Delahunty, Esq. Skadden, Arps, Slate, Meagher
Scott R. Carpenter, Esq. & Flom (Illinois)
Parsons Behle & Latimer 333 West Wacker Drive
201 South Main Street, Suite 1800 Chicago, Illinois 60606
Salt Lake City, Utah 84111 (312) 407-0700
(801) 532-1234
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes 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 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,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
====================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class Amount to be Offering Price Aggregate Registration
of Securities to be Registered Registered(1) Per Share (2) Offering Price (2) Fee
========================================= ================ =================== ==================== ================
Common Shares, $ par value shares $ $28,750,000 $8,712
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(1) Includes _____ shares that the Underwriters have the option to purchase from
the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
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The Registrant hereby amends this Registration Statement on such a 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.
<PAGE>
[Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.]
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
PROSPECTUS
IOMED, Inc.
Common Shares
All of the _____ Common Shares offered hereby are being sold by IOMED,
Inc. (the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Company's Common Shares. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company will apply to list the Common Shares for quotation
on the Nasdaq National Market under the symbol "IOMD."
Elan Corporation plc and its affiliates have expressed an intent to
acquire, at the initial public offering price, approximately $5.1 million of the
Common Shares offered hereby. See "Business -- Collaborative Relationships and
Licenses" and "Underwriting."
----------------
THE COMMON SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," BEGINNING ON PAGE 9.
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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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Underwriting
Discounts and Proceeds to
Price to Public Commissions (1) Company (2)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Per Share.................. $ $ $
=============================== ============================ ============================ ============================
Total (3).................. $ $ $
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(1) Excludes the issuance of warrants to the Representative of the Underwriters
(the "Representative") to purchase, after the first anniversary of the date
hereof, up to an aggregate of _____ Common Shares at an exercise price equal to
(i) 125% of the initial public offering price set forth above after the first
anniversary of the date hereof or (ii) 150% of the initial public offering price
set forth above after the third anniversary of the date hereof. Holders of such
warrants have been granted certain registration rights under the Securities Act
of 1933, as amended, with respect to the securities issuable upon exercise of
such warrants. The Company has agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $_____.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional _____ Common Shares, on the same terms as set forth above, solely
to cover over-allotments, if any. If all such shares are purchased, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $_____, $_____ and $_____, respectively. See "Underwriting."
----------------
The Common Shares 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 certain other
conditions. It is expected that delivery of such Common Shares will be made by
EVEREN Clearing Corp. through the facilities of the Depository Trust Company,
New York, New York on or about _____, 1997.
----------------
EVEREN Securities, Inc.
October _____, 1997
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[INSIDE FRONT COVER]
[Graphics depicting the Company's products.]
The "Prototype" device shown above has not been approved by the United States
Food and Drug Administration (the "FDA") or any other regulatory authority for
sale in the United States or elsewhere in the world. There can be no assurance
that this Prototype will be successfully developed by the Company or approved by
the FDA or any foreign regulatory authority on a timely basis, if ever. See
"Risk Factors--Uncertainty of Government Regulation."
Iomed, Dermion, Phoresor, Iontocaine, Anestrode, TransQ, Numby Stuff and the
Company's logo are registered trademarks of the Company or are marks in which
the Company claims trademark rights. This Prospectus also includes references to
trademarks of companies other than the company.
The Company intends to distribute to shareholders annual reports
containing audited financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements appearing elsewhere
in this Prospectus, including information under "Risk Factors." Throughout this
Prospectus, except where the context otherwise requires, reference to the
"Company" means the Company and its subsidiaries. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual operating results may differ significantly from the results discussed in
these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company
Introduction
IOMED, Inc. (the "Company") develops, manufactures and commercializes
controllable drug delivery systems using iontophoretic technology.
Iontophoresis is a non-invasive method of enhancing and controlling the
transport of water-soluble ionic drugs through the skin using a low level
electrical current. The Company's proprietary iontophoretic drug delivery
systems allow rapid onset and cessation of therapeutic action, as well as
programmable dose control. The systems enable caregivers and patients to
monitor and control the onset of drug effectiveness and maintain, reduce or
cease drug administration once a desired therapeutic effect is observed. The
programming feature also enables caregivers to customize dosing patterns to
meet each patient's specific needs. The flexibility of the Company's
proprietary systems provides therapeutic control not possible with many
alternative drug delivery methods, including oral tablets and capsules,
injections, inhalants, and passive transdermal patches. The Company's systems
may also increase bioavailability, safety and patient comfort.
Business Strategy
The Company's primary business goal is to establish its proprietary
iontophoretic drug delivery systems as a cost-effective preferred means of
delivering a wide range of drugs. The Company's strategy for achieving this
goal includes (i) pursuing product development of drug delivery systems for
off-patent drugs with known safety and efficacy; (ii) entering into
collaborative relationships with pharmaceutical companies for the delivery of
new chemical entities and proprietary drugs; (iii) broadening the market
penetration and potential applications of the Company's existing delivery
systems; (iv) enhancing the Company's technology platform through internal
research and development; (v) pursuing new technology through in-licensing and
acquisitions; and (vi) retaining control of the manufacturing revenue stream.
Company Products
The Company currently markets two products, an iontophoretic system
used to deliver dexamethasone sodium phosphate ("Dexamethasone"), a
corticosteriod used in the treatment of acute local inflammation, and an
iontophoretic system used to deliver Iontocaine, a proprietary drug used for
local dermal anesthesia. The iontophoretic drug delivery systems the Company
currently markets are comprised of a reusable programmable dose controller
which is used to direct the electrical current to control drug dosing and a
pair of proprietary disposable electrodes, one containing the drug and one
serving as a grounding electrode to complete the electrical circuit through the
skin. The drug delivery electrode may be applied to the patient's skin at a
local treatment site (such as for joint or tendon soreness or to induce local
dermal anesthesia), or at any suitable site on the body for systemic drug
delivery. When an electrical current with the same positive or negative
electric charge as the drug is applied to the drug electrode, the drug is
repelled from the electrode and into the skin.
<PAGE>
Dexamethasone. The Company's local acute inflammation product is a
system used principally by physical therapists and professional athletic
trainers for the delivery of Dexamethasone. The Company's product has been used
in over 10 million patient applications for the treatment of acute inflammatory
conditions such as tendinitis (e.g. tennis elbow, golfers elbow and achilles
tendinitis), bursitis and carpal tunnel syndrome. The product is currently
marketed to the physical therapy market as a device, under a 510(k) pre-market
notification by the United States Food and Drug Administration ("FDA"), for use
in connection with delivering ions of soluble salts or other drugs. Recently,
the FDA determined that all future iontophoretic drug delivery systems will be
required to go through the New Drug Application process with the specific drug
that is to be delivered. In order to address the new regulatory framework and
to broaden the clinical basis for the treatment of acute local inflammation
using the Company's iontophoretic delivery system for Dexamethasone, the
Company has filed an Investigational New Drug application with the FDA and has
initiated clinical studies to establish formally the safety and efficacy of its
drug delivery system for Dexamethasone. If the clinical trials are successful
and the Company receives regulatory approval, the Company believes it will be
able to actively promote the iontophoretic delivery of Dexamethasone to general
and family practice physicians, orthopedists, neurologists and sports and
industrial medicine clinics. The Company believes the ability to promote
iontophoresis with Dexamethasone will enhance its ability to establish its
delivery system for Dexamethasone as a primary treatment option for acute local
inflammatory conditions.
Iontocaine. The Company's iontophoretic delivery system has been
approved by the FDA for use in inducing local dermal anesthesia. Iontocaine is
the first drug with labeling specifically for iontophoretic delivery. In
addition, Iontocaine is approved for use only with the Company's drug delivery
systems. The Iontocaine product provides needle-free, long lasting local dermal
anesthesia up to six times more rapidly and up to three times deeper than can
be achieved using topical anesthetic creams. The Company is initially marketing
its Iontocaine delivery system under the name Numby Stuff to pediatric
hospitals in the United States for use in connection with inducing local dermal
anesthesia prior to pediatric intravenous starts, blood draws, lumbar punctures
and other similar invasive procedures. Numby Stuff was recently awarded the
Seal of Acceptance by the Alliance of Children's Hospitals in recognition of
the significant therapeutic benefits it offers in the practice of pediatric
medicine. The Company plans to extend its marketing efforts for Iontocaine to
include pediatric clinics, non-pediatric hospitals, and office based physician
practices for use in connection with numerous therapeutic applications,
including blood draws and minor dermatological procedures. The Company is also
evaluating the use of Iontocaine in connection with gynecological procedures
requiring dermal or mucosal anesthesia. The use of Iontocaine for mucosal
applications will require additional FDA approval.
Many pharmaceutical compounds, including peptides and
oligonucleotides, have physical and chemical properties consistent with their
delivery by iontophoresis. Therefore, the Company believes its technology may
be applicable to a number of other compounds and therapeutic applications. The
Company is also independently developing a number of iontophoretic drug
delivery systems for other indications, including conscious sedation, tocolysis
(the remission of pre-term labor), and postoperative and chronic pain control.
Collaborative Relationships
Novartis. In July 1995, the Company entered into a research and
development agreement with Ciba Pharmaceuticals Corporation, a predecessor to
Novartis Pharmaceuticals Corporation ("Novartis"), the international
pharmaceutical company formed as a result of the merger of Ciba-Geigy
Corporation and Sandoz Corporation in 1997. The collaboration was formed to
evaluate the development of iontophoretic drug delivery systems for a number of
Novartis compounds for use in several therapeutic applications. The joint
effort is currently directed toward the development of a delivery system for a
compound to treat osteoporosis. The Company believes this system could enter
Phase I clinical trials during 1998.
In connection with the collaboration, Novartis purchased a 20% equity
interest in Dermion, Inc. ("Dermion"), a subsidiary of the Company that
conducts most of its research and development activities. Pursuant to the
agreement, Novartis is required to pay for research costs under the program and
to make milestone payments if Dermion successfully completes certain
objectives. In addition, the Company granted Novartis a royalty-bearing
non-exclusive license to certain of the Company's iontophoretic technology
covering the delivery of these compounds for osteoporosis, as well as other
Novartis drugs for application in other therapeutic fields. The Company is
currently negotiating with Novartis for the amendment of their collaborative
agreements. Under the proposed amendments, Novartis would exchange its equity
interest in Dermion for Common Shares of the Company and a warrant to acquire
additional Common Shares.
Elan. In March 1997, the Company entered into an agreement with Elan
Corporation, plc ("Elan"), an international developer and manufacturer of
advanced drug delivery technologies, providing the Company with an exclusive,
worldwide license to certain of Elan's iontophoretic drug delivery technology,
including over 250 issued and 47 pending United States and foreign patents, as
well as a significant body of know-how and clinical study results. The Company
believes the Elan technology significantly expands its technology platform,
enhances its competitive position and better positions the Company to shorten
the development horizon of its iontophoretic drug delivery systems, including
the miniaturized, integrated, wearable systems currently under development by
the Company. The Company acquired the Elan technology by issuing two promissory
notes, a $10.0 million note and a $5.0 million note. Under the agreement with
Elan, concurrent with the Offering, the Company will exchange the $10.0 million
note, including interest thereon, for approximately _____ Common Shares. In
addition, Elan has expressed its intent to purchase approximately $5.1 million
of Common Shares in the Offering. Part of the proceeds from the Offering will be
used to repay the $5.0 million note, including interest thereon.
The Company was incorporated in Utah in 1974 as Motion Control, Inc.
In 1987, the company merged with JMW Acquisition Corporation, and the name of
the merged entity was changed to IOMED, Inc. All references to the Company
include the Company's predecessor entities, as well as its subsidiary. The
Company's principal executive offices are located at 3385 West 1820 South, Salt
Lake City, Utah 84104, and its telephone number is (801) 975-1191.
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<CAPTION>
The Offering
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Common Shares offered.................................... shares
Common Shares to be outstanding after the Offering....... shares(1)
Use of Proceeds...........................Use of proceeds For research and development; preclinical and
clinical studies; expansion of sales and marketing
capabilities, consolidation and equipping of
Company facilities; and working capital and other
general corporate purposes, including the repayment
of indebtedness. See "Use of Proceeds."
Proposed Nasdaq National Market symbol................... IOMD
-------------------
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(1) Based on Common Shares outstanding as of September 1, 1997. Includes the
exchange of a $10.0 million note issued to Elan, including interest
thereon, for approximately _____ Common Shares concurrently with the
closing of the Offering. Excludes (i) _____ Common Shares issuable upon
exercise of options granted pursuant to the Company's stock option plan, at
a weighted average exercise price of $_____ per share; (ii) _____ Common
Shares reserved for future grants of options or awards under the Company's
stock option plan; (iii)_____ Common Shares issuable upon exercise of
warrants to be issued to the Representative at an initial exercise price
of $_____ per share (the "Representative's Warrants"); and (iv) _____
Common Shares issuable upon exercise of other outstanding warrants, at a
weighted average exercise price of $_____ per share. See
"Management--Employee Benefit Plans--Stock Option Plan," "Certain
Transactions," "Description of Capital Shares," and "Underwriting."
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Summary Consolidated Financial Data
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Fiscal Year Ended June 30,
1995 1996 1997
---------- ------ -----
Statement of Operations Data:
Total revenues ............................ $6,964,000 $9,238,000 $9,283,000
Operating costs and expenses:
Cost of products sold ................ 3,369,000 3,138,000 3,338,000
Research and development ............. 1,467,000 1,099,000 1,488,000
Selling, general and administrative .. 3,338,000 3,283,000 3,501,000
Non-recurring charges ................ --- 430,000(1) 15,059,000(2)
---------- ------------ ------------
Total costs and expenses ......... 8,174,000 7,950,000 23,386,000
Income (loss) from operations ............. (1,210,000) 1,288,000 (14,103,000)
Interest expense .......................... 32,000 9,000 242,000
Interest income and other, net ............ 120,000 167,000 291,000
Minority interest ......................... --- (17,000) 23,000
Income tax expense (benefit) .............. (173,000) (79,000) 5,000
------------ ------------ ------------
Income (loss) from continuing operations... (949,000) 1,542,000 (14,082,000)
Income from discontinued operations, net
of income taxes ...................... 290,000 201,000 44,000
------------ ----------- ------------
Net income (loss) ......................... $(659,000) $1,743,000 $(14,038,000)
============ =========== ============
Per Common Share Data(3):
Income (loss) from continuing operations .. $(0.10) $0.10 $(.94)
Income from discontinued operations ....... 0.03 0.01 ---
------------ ----------- ------------
Net income (loss) ......................... $(0.07) $0.11 $(.94)
============ =========== ============
Shares used in computing per share amounts 9,780,842 15,216,786 14,925,234
============ =========== ============
June 30, 1997
Pro forma
Balance Sheet Data: Actual as adjusted(4)
Cash and cash equivalents ............................................$ 6,346,000 $
Total assets ......................................................... 8,664,000
Long-term obligations, including current portion ..................... 16,142,000(5)
Accumulated deficit .................................................. (21,538,000)
Shareholders' equity (deficit) ........................................ (9,491,000)
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(1) Costs incurred in connection with the settlement of certain litigation.
(2) Reflects the write-off of certain in-process research and development
(including related transaction costs) purchased from Elan. See Note 3 of the
Notes to Consolidated Financial Statements.
(3) See Note 1 of the Notes to Consolidated Financial Statements for information
concerning the computation of per share amounts.
(4) Adjusted to reflect the following: (i) the sale of _____ Common Shares
offered hereby, at an assumed initial public offering price of $_____ per share
and the receipt and application of the net proceeds therefrom; and (ii) the
exchange of the $10.0 million note issued to Elan, including interest thereon,
for approximately _____ Common Shares, concurrently with the closing of the
Offering. See "Transactions Related to the Offering" and "Use of Proceeds."
(5) Reflects (i) $15,240,000 in notes, including accrued interest, issued to
Elan; (ii) redeemable, convertible preferred shares; and (iii) other.
Unless otherwise indicated, all information (excluding historical financial
information) in this Prospectus (i) assumes no exercise of the Underwriters
over-allotment option; (ii) reflects the proposed one-for _____ reverse split of
the Company's Common Shares and the Series C Preferred Shares; and (iii)
reflects the mandatory redemption of _____ shares of Series C Preferred Shares
in July 1997 for $180,000 and the conversion of the remaining outstanding Series
C Preferred Shares into _____ Common Shares concurrently with the closing of the
Offering.
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following factors before
purchasing the Common Shares offered hereby. Prospective investors are cautioned
that the statements in this Section that are not descriptions of historical
facts may be forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified in this
Section, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus.
Continuing Operating Losses; Uncertainty of Future Profitability. The
Company earned modest profits in each of the fiscal years 1988 through 1990, and
experienced losses from operations in fiscal years 1991 through 1995, due
primarily to increased investment in product development, clinical studies, and
increased sales and marketing activity. The Company again earned a profit from
operations in fiscal year 1996, but experienced a substantial loss from
operations in fiscal year 1997 primarily due to the write-off of purchased
in-process research and development. The Company had an accumulated deficit of
$21.5 million as of June 30, 1997. The Company intends to substantially expand
its research and development and marketing efforts in the near future and,
therefore, does not anticipate being profitable in the near term. The Company's
ability to achieve and sustain profitability will depend on its ability to
achieve market acceptance, and successfully expand sales, of its existing
products, as well as successfully complete the development of, receive
regulatory approvals for, and successfully manufacture and market, its products
under development, as to which there can be no assurance. In addition, the
Company may be required to give away or substantially discount its current or
future products in order to stimulate demand, either of which events could have
a material adverse effect on the Company's business, financial condition and
results of operations. The success of the Company's products and products under
development may also depend on the timing of new product introductions by the
Company relative to its competitors and other factors. As a result of the
foregoing, no assurance can be given that the Company will become profitable on
a sustained basis, if at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Uncertainty of Market Acceptance and Limited Market Penetration. The
Company has generated only limited revenues, primarily from sales to physical
therapists of its drug delivery system for dexamethasone sodium phosphate
("Dexamethasone") for the treatment of acute local inflammation. The Company
began marketing Iontocaine, its proprietary local dermal anesthetic product, in
January 1997 and has generated only limited revenues from that product to date.
For the Company to be successful, its products will need to achieve broad market
acceptance by the medical profession. The Company's products use a method of
active transdermal drug delivery which, to date, has not gained significant
market penetration, and no assurance can be given that the Company's current or
future products will ever achieve broad market acceptance. Medical professionals
will not use or prescribe the Company's products unless they determine they are
a preferable alternative to products currently available on the market. The
Company believes recommendations and endorsements by influential medical
professionals may be essential for market acceptance of its products, but there
can be no assurance the Company will be able to obtain any such recommendations
or endorsements. In addition, the adoption of new pharmaceutical products is
greatly influenced by health care administrators, inclusion in hospital
formularies and reimbursement by third party payors. No assurance can be given
that health care administrators, hospitals or third party payors will accept the
Company's products on a large scale or on a timely basis, if at all, or that the
Company will be able to obtain labeling for its products which facilitate their
market acceptance or use. In addition, unanticipated side effects or unfavorable
publicity concerning any of the Company's products, or any other product
incorporating technology similar to that used in the Company's products, could
have an adverse effect on the Company's ability to commercialize its products or
achieve market acceptance. The occurrence of any such event could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Products and Products Under Development"
and "Business -- Sales and Distribution."
Uncertainties Related to Product Development; Clinical Trials. Two of
the primary components of the Company's business strategy are to develop and
commercialize iontophoretic drug delivery systems for new and existing drugs and
to develop additional applications for its existing products. The Company will
be required to undertake time-consuming and costly development activities and
seek regulatory approval for these new products and applications. Product
revenues may not be realized from the sale of any such products for several
years, if at all. The Company can give no assurance that its product development
efforts, either alone or in collaboration with other parties, will ever be
successfully completed, that it can obtain required regulatory approvals of its
products, that products under development can be manufactured at acceptable cost
or with appropriate quality, or that its products can be marketed successfully.
Before seeking regulatory approval for the commercial sale of its
products, the Company must demonstrate through preclinical studies and clinical
trials that those products are safe and effective for use in the target
indications. The rate of completion of the Company's clinical trials is
dependent upon, among other things, the rate of patient enrollment. Patient
enrollment is a function of many factors, including the size of the patient
population, the nature of the protocol, the proximity of patients to clinical
sites and the eligibility criteria for the study. There can be no assurance the
Company will be able to obtain the patient enrollment it needs to complete its
clinical trials in a timely manner, if at all. The results the Company obtains
from preclinical studies and early clinical trials may not be indicative of
results it will obtain in large-scale testing, and there can be no assurance the
Company's clinical trials will demonstrate sufficient safety and efficacy for it
to obtain the requisite regulatory approvals, or that those clinical trials will
result in additional marketable products. Clinical trials are also often
conducted with patients having advanced stages of disease. During the course of
treatment, these patients can die, suffer undesired side effects or suffer other
adverse medical effects for reasons that may not be related to the
pharmaceutical agent or drug delivery system being tested, any of which can have
an adverse effect on clinical trial results. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials, as a result of such
adverse effects. The use of any product the Company develops may produce
undesirable side effects that could result in the interruption, delay or
suspension of clinical trials, or the failure to obtain United States Food and
Drug Administration ("FDA") or other regulatory approval for targeted
indications. If the Company's products under development are not shown to be
safe and effective in clinical trials, the resulting delays in developing other
compounds and conducting related preclinical testing and clinical trials, as
well as the need for additional financing to complete such testing and trials,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Products and Products
Under Development," "Business -- Manufacturing" and "Business -- Government
Regulation."
Reliance on Collaborative Partners. The Company's strategy is to enter
into arrangements with corporate partners, licensors, licensees and other
parties for the development, clinical testing, manufacture, marketing or
commercialization of certain of its products or products in development. The
Company currently has a collaborative arrangement with Novartis Pharmaceuticals
Corporation ("Novartis"), an affiliate of Novartis Pharma A.G. The collaboration
was formed to evaluate the potential of the delivery by iontophoresis of several
Novartis compounds covering a range of therapeutic applications.
Collaborative partners in the development of medical drugs and devices
generally have the right to pursue parallel development of other products which
may compete with the products of the other collaborative partner, and to
terminate their agreements without significant penalty under certain conditions.
Any parallel development by a collaborative partner of the Company of alternate
drug delivery systems, development by a partner rather than by the Company of
components of the delivery system, preclusion from entering into competitive
arrangements, failure to obtain timely regulatory approvals, premature
termination of an agreement, or failure by a collaborative partner to devote
sufficient resources to the development and commercialization of the Company's
products could have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company's success may depend upon, among other things, the skills,
experience and efforts of the Company's collaborative partners' employees who
are responsible for the collaborative project, such partners' commitment to the
arrangement, and the financial condition of such partners, all of which are
beyond the control of the Company. If one or more of the Company's collaborative
partners defaulted on their obligations under their collaborative agreements,
the Company could be forced to engage in litigation to enforce those obligations
(which could be time consuming and costly) or seek to enter into agreements with
other parties upon similar terms. There can be no assurance the Company will be
able to enforce the terms of its collaborative arrangements through litigation,
and there can be no assurance that, if forced to terminate its current
collaborative arrangements, the Company would be able to enter into other
contractual arrangements with other parties on terms which would not be
materially different from the terms of its current collaborative arrangements.
A significant portion of the Company's research and development
resources has been devoted to its contractual research and development efforts
with Novartis. In recent years, Novartis has funded a substantial portion of the
total research and development costs of the Company. The amount and timing of
resources to be devoted by Novartis in accomplishing the objectives of its
collaborative development effort with the Company are not within the control of
the Company, and there can be no assurance that Novartis will continue its
collaborative development with the Company beyond the current term of the
agreement, which has been extended through December 31, 1998. There also can be
no assurance that Novartis will perform its obligations as expected or that it
will not pursue other existing or alternative technologies in preference to
products it is developing with the Company. In addition, in connection with its
collaboration with the Company, Novartis received a license to the Company's
technology and know-how for use in developing products in the fields covered by
the agreement. There can be no assurance that Novartis will not terminate its
agreement with the Company and independently develop products using the licensed
technology. If Novartis terminates its agreement with the Company, the Company's
business, financial condition and results of operations could be materially and
adversely affected.
In connection with the establishment of the Novartis collaboration, the
Company formed Dermion, Inc. ("Dermion") to perform the Company's research and
development activities other than in connection with acute local inflammation
and acute local anesthesia (the "Excluded Fields"). Novartis acquired a 20%
interest in Dermion, and the Company and Dermion entered into a series of
agreements which prohibit the Company from conducting certain research and
development activities outside Dermion other than in the Excluded Fields. These
agreements also contain certain restrictions on the Company's ability to sell or
otherwise dispose of the operations or control of Dermion through February 1998,
and provide Novartis with a right of first refusal to acquire the Company's
interest in Dermion in the event of any proposed change of control of Dermion
during the remainder of the term of the Novartis research and development
agreement and for one year thereafter. These restrictions could potentially
limit changes of control of the Company. The Company and Novartis recently
entered into negotiations to restructure their relationship. Under the proposed
restructuring, Novartis would exchange its interest in Dermion for Common Shares
of the Company and a warrant to acquire additional Common Shares. There can be
no assurance that Novartis and the Company will be able to consummate any such
restructuring. See "Business -- Collaborative Relationships and Licenses."
Although the Company anticipates it will enter into additional
collaborative arrangements with other parties in the future, there can be no
assurance the Company will be able to negotiate any such additional
collaborative arrangements on terms which are acceptable to the Company, if at
all. To the extent the Company chooses not, or is not able, to establish such
collaborations, it could experience significantly increased business risk and
capital requirements in the development, clinical testing, manufacturing,
marketing and commercialization of its products. In addition, the Company could
encounter significant delays in introducing products into markets or find that
the development, manufacture or sale of proposed products in such markets is
adversely affected by the absence of those collaborative arrangements.
Intense Competition and Rapid Technological Change. The drug delivery,
pharmaceutical and biotechnology industries are highly competitive and rapidly
evolving, with significant developments expected to continue at a rapid pace.
The first pharmaceutical product to reach the market in a therapeutic area or
using a certain drug delivery technology generally obtains and maintains
significant market share relative to later entrants to the market. The Company's
success will depend on its ability to maintain a competitive position and
develop new products and technologies for efficient and cost-effective drug
delivery. The Company's products will compete with other formulations of drugs
and with other drug delivery systems, including oral dosage forms, infusions,
injections, inhalants, and transmucosal, transnasal and transdermal products.
There can be no assurance any of the Company's products will have advantages
that will be significant enough to cause medical professionals to prefer or even
use them. New drugs or further development of alternative drug delivery methods
may provide greater therapeutic benefits for a specific drug or indication, or
may offer comparable performance at lower cost than those offered by the
Company's iontophoretic drug delivery systems, either of which could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Many competitors, including public and private corporations, academic
institutions, governmental agencies and other public and private research
organizations, are involved in the development of drug delivery systems,
including in the development of competing iontophoretic, similar
electrotransport-related or other drug delivery technologies. Many of these
competitors have substantially greater financial, technical, research and other
resources, are more experienced in research and development, manufacturing,
pre-clinical and clinical testing, and obtaining regulatory approvals, and are
larger, more established and have substantially larger marketing and service
organizations than the Company. In addition, these competitors may offer broader
product lines than the Company, have greater name recognition than the Company,
and offer discounts as a competitive tactic. Accordingly, the Company's
competitors may succeed in developing competing technologies, and obtaining FDA
approval or gaining market share for products, more rapidly than the Company.
Many of these competitors currently have drug delivery products that are
approved or in development. There can be no assurance the Company's competitors
will not succeed in developing or marketing products more effective or
commercially attractive than the Company's current or future products, or that
would render the Company's products obsolete or non-competitive. There can also
be no assurance the Company will have the financial resources, technical or
management expertise or manufacturing or support capability to compete in the
future. See "Business -Competition."
The Company has licensed rights to certain drug delivery technologies
to other parties that may become or are competitors of the Company. These
companies could compete with the Company for contracts with the Company's
collaborative partners and could develop iontophoretic drug delivery systems
that will compete directly with many of those being developed by the Company.
See "Business -- Collaborative Relationships and Licenses."
Reliance on Third Party Distribution; Limited Sales and Marketing
Expertise. The Company presently markets its drug delivery systems for the
treatment of acute local inflammation primarily to physical therapists through a
nationwide system of dealers. The Company intends to market its local dermal
anesthesia products in the United States hospital market through sales personnel
who work directly for the Company, and anticipates that it will also use a third
party or collaborative partner to market its current and future products. See
"Business - Sales and Distribution."
The majority of the dealers the Company uses in the distribution of its
drug delivery systems for acute local inflammation are principally involved in
the distribution of electrotherapy equipment and other rehabilitation related
products to physical therapists and related physician specialists. The Company's
product does not represent a primary source of revenue for many of those
dealers. As a result, there can be no assurance those dealers will invest
adequate resources toward the sale and promotion of the Company's products, sell
other products developed by the Company or even continue to sell the Company's
products.
In cases where the Company intends to market its products using direct
sales personnel, such as with its drug delivery system for the treatment of
local anesthesia, it will need to hire, train and supervise those personnel. The
Company has limited experience in marketing and sales, and only recently began
to recruit a marketing staff and sales force. The Company will need to expend
additional funds and management resources to assemble, train and oversee a
marketing and sales staff. There can be no assurance the Company can
successfully recruit, hire or retain personnel, nor can there can be any
assurance the Company will be able to maintain its relationships with the
marketing, sales and distribution resources it currently employs. There can also
be no assurance that the cost of establishing and maintaining a sales and
marketing staff will be justifiable in light of product revenues. If the
Company's marketing resources fail to perform in accordance with the Company's
expectations, the Company may be required to obtain or develop alternate
marketing, sales and distribution capabilities or seek other methods of
distributing its products. There can be no assurance the Company would be able
to do so or that the Company's sales and marketing efforts will be successful.
See "Business -- Sales and Distribution."
Dependence on Patents and Proprietary Technology. The Company's ability
to commercialize many of the products it has under development will depend, in
part, on its or its licensors' ability, both in the United States and in other
countries, to obtain patents, enforce those patents, preserve trade secrets and
operate without infringing on the proprietary rights of third parties. As of the
date hereof, the Company owns or has rights to 60 issued United States patents,
15 pending United States patents, 245 issued foreign patents and 47 pending
foreign patents.
The patent positions of drug delivery, pharmaceutical and biotechnology
companies are highly uncertain and involve complex legal and factual questions.
There can be no assurance the patents currently owned and licensed by the
Company, or any future patents, will prevent other companies from developing
similar or therapeutically equivalent products, or that other companies will not
be issued patents that may prevent the sale of Company products or require
licensing and the payment of significant fees or royalties by the Company.
Furthermore, there can be no assurance any of the Company's products or methods
will be patentable, will not infringe upon the patents of third parties, or that
the Company's patents or future patents will give the Company an exclusive
position in the subject matter claimed by those patents. The Company may be
unable to avoid infringement of third party patents and may have to obtain a
license, defend an infringement action or challenge the validity of the patents
in court. There can be no assurance a license will be available to the Company,
if at all, on terms and conditions acceptable to the Company, or that the
Company will prevail in any patent litigation. Patent litigation is costly and
time consuming, and there can be no assurance the Company will have or will
devote sufficient resources to pursue such litigation. If the Company does not
obtain a license under such patents, is found liable for infringement or is not
able to have such patents declared invalid, the Company may be liable for
significant monetary damages, may encounter significant delays in bringing
products to market or may be precluded from participating in the manufacture,
use, or sale of products or methods of treatment requiring such licenses. There
can be no assurance the pending patent applications licensed to or owned by the
Company will result in issued patents, patent protection will be secured for any
particular technology, any patents that have been or may be issued to the
Company or its licensors will be valid or enforceable or that the Company's
patents will provide meaningful protection to the Company.
The Company also relies on trade secrets and other unpatented
proprietary information in its product development activities. To the extent the
Company relies on confidential information to maintain its competitive position,
there can be no assurance other parties may not independently develop the same
or similar information. The Company seeks to protect trade secrets and
proprietary knowledge in part through confidentiality agreements with its
employees, consultants, advisors and collaborators. These agreements may not
effectively prevent disclosure of the Company's confidential information and may
not provide the Company with an adequate remedy in the event of unauthorized
disclosure of such information. If the Company's employees, scientific
consultants or collaborators develop inventions or processes independently that
may be applicable to the Company's products under development, disputes may
arise about ownership of proprietary rights to those inventions and processes.
Those inventions and processes will not necessarily become the Company's
property, but may remain the property of those persons or their employers.
Protracted and costly litigation could be necessary to enforce and determine the
scope of the Company's proprietary rights. The Company's failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the Company's business, financial position or results
of operations.
The Company may engage in collaborations, sponsored research
agreements, and other arrangements with academic researchers and institutions
that have received or may receive funding from United States government
agencies. As a result of these arrangements, the United States government or
other parties may have rights in certain inventions developed during the course
of the performance of such collaborations and agreements as required by law or
such agreements. Several legislative bills affecting patent rights have been
introduced in the United States Congress. These bills address various aspects of
patent law, including publication, patent term, re-examination, subject matter
and enforceability. It is not certain whether any of these bills will be enacted
into law or what form such new laws may take. Accordingly, the effect of such
potential legislative changes on the Company's intellectual property is
uncertain. See "Business -- Patents and Proprietary Rights."
In August 1993, the United States Patent and Trademark Office ("PTO")
issued a patent to Alza Corporation ("Alza") covering the iontophoretic delivery
of fentanyl. A similar patent application in Europe has thus far been rejected,
although the Company believes Alza has appealed that rejection. The United
States patent was the subject of a reexamination by the PTO and all of the
substantive claims within the patent were also rejected, but Alza has appealed
that rejection to the United States Board of Patent Appeals and Interferences.
There can be no assurance Alza will not be successful in one or both of its
appeals. Therefore, if the Company develops a drug delivery system for fentanyl
and if Alza is successful in its appeal, the Company would be required to obtain
a license from Alza to market an iontophoretic drug delivery system for fentanyl
in the United States. There can be no assurance such a license would be
available on terms acceptable to the Company, if at all. If the Company cannot
obtain such license, the Company will be required to discontinue its product
development programs using fentanyl. See "Business -- Products and Products
Under Development."
Need to Manage Expanding Operations. If the Company is successful in
achieving market acceptance of its products, it will be required to expand its
operations, particularly in the areas of research and development, sales and
marketing and manufacturing. As the Company expands its operations in these
areas, those expansions will likely result in new and increased responsibilities
for management personnel and place significant strain on the Company's
management, operating and financial systems and other resources. To accommodate
any such growth and compete effectively, the Company will be required to
implement and improve information systems, procedures and controls, and to
expand, train, motivate and manage its work force. The Company's future success
will depend to a significant extent on the ability of its current and future
management personnel to operate effectively both independently and as a group.
There can be no assurance the Company's personnel, systems, procedures and
controls will be adequate to support the Company's future operations.
Future Capital Needs; Uncertainty of Additional Funding. The further
development and commercialization of the Company's products and technology will
require a commitment of substantial funds to conduct research and development
activities, including preclinical and clinical studies, to expand distribution
and hire additional sales and marketing personnel and to expand and develop
manufacturing capabilities. Although the Company believes that the net proceeds
of the Offering, together with existing cash balances and cash generated from
operations, will be sufficient to fund the operations of the Company for
approximately the next two years, the Company may be required or elect to raise
additional capital before that time. The Company's actual capital requirements
will depend on many factors, including but not limited to, the costs and timing
of the Company's research and development activities, the number and type of
clinical tests the Company is required to conduct in seeking approval of its
products from governmental agencies, the success of the Company's development
efforts, the costs and timing of the expansion of the Company's sales and
marketing activities, the extent to which the Company's existing and new
products gain market acceptance, the Company's ability to maintain existing
collaborative relationships and enter into new collaborative relationships,
competing technological and market developments, the progress of the Company's
commercialization efforts and the commercialization efforts of the Company's
distributors, the costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory and third party reimbursement issues, and
other factors.
To satisfy its capital requirements, the Company may seek to raise
funds through public or private financings, collaborative relationships or other
arrangements. Any additional equity financing may be dilutive to shareholders,
and debt financing, if available, may involve significant restrictive covenants.
Collaborative arrangements, if necessary to raise additional funds, may require
the Company to relinquish its rights to certain of its technologies, products or
marketing territories. Failure to raise capital when needed could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such financing, if
required, will be available on terms satisfactory to the Company, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Uncertainty of Government Regulation. The research, development,
manufacture and marketing of the Company's products are extensively regulated by
the FDA, which requires its approval of drugs and medical devices before they
can be marketed in the United States. Similar approvals are also required from
other regulatory bodies in virtually every developed foreign country before the
Company's products may be marketed in such countries. The regulatory processes
established by these government agencies are lengthy, expensive and uncertain.
In addition, once approval is obtained, that approval may be withdrawn for a
manufacturer's failure to comply with regulatory standards, because of
unforeseen problems related to product safety or as a result of the retroactive
application of changes in the law.
The Company has received approval from the FDA on its New Drug
Application ("NDA") for Iontocaine, and the FDA has allowed the Company to
market its electrical dose controllers and electrode products under the FDA's
510(k) regulations governing medical devices. However, the FDA has publicly
stated that it intends to require manufacturers of iontophoretic devices to
obtain pre-market approval ("PMA") approval of marketed devices currently used
with drugs not specifically labeled for iontophoretic delivery, which would
include the Company's Phoresor for use with ions of soluble salts or other
drugs, such as Dexamethasone. The FDA's 1994 strategy document states that the
enactment of the modified regulatory procedure was a "high priority" and that
the agency intended to publish a proposed regulation requiring such PMAs in
1996. The agency to date has not published such a regulation.
If the FDA calls for PMAs, the Company would be required to have a PMA
accepted for filing by the FDA within 90 days after the date of the final
regulation. There can be no assurance that the Company would be able to complete
necessary clinical studies and otherwise prepare and file a PMA within that
period or that any data and information submitted in a PMA would be adequate to
support FDA approval. The Company's failure to submit a PMA and have it accepted
for filing by the FDA within the required timeframe could result in the Company
being required to cease commercial distribution of the Phoresor for use with
ions of soluble salts or other drugs, including Dexamethasone. Upon timely
filing of a PMA, the Company believes (based on the FDA's announced position as
to certain other devices) that the FDA would permit continued commercial
distribution of the Phoresor for use with Dexamethasone during the time
necessary to review the PMA. There can be no assurance, however, that FDA would
do so, nor can any assurance be given that the FDA would approve a PMA filed by
the Company. The FDA also could condition PMA approval upon approval of an NDA
permitting Dexamethasone to be labeled for use with the Company's dose
controller. If the Company were required to cease commercial distribution of its
iontophoretic drug delivery products for use with Dexamethasone, the Company's
business, financial conditions and results of operations would be adversely
affected. See "Business -- Government Regulation." The Company will be required
to obtain further FDA approvals before it may promote or otherwise market or
label any of its present or future drug delivery products for use with other
named drugs. There can be no assurance that such approvals will be granted and
the process of obtaining them would be extensive, time-consuming and costly. The
time required to obtain FDA approval after filing an NDA is uncertain and
frequently takes several years. Further, the Company has not yet filed NDAs on
any drug other than Iontocaine. Medical practitioners routinely use the
Company's iontophoretic devices for the delivery of Dexamethasone even though
the Company has not filed an NDA for that therapeutic indication and even though
the Company is not permitted to label or promote its device for use with
Dexamethasone. The FDA may require that the Company conduct clinical trials and
obtain NDA approval for the iontophoretic delivery of Dexamethasone using the
Company's dose controllers and electrodes for the treatment of acute local
inflammation in order for the Company to continue to market its products for
that therapeutic indication. There can be no assurance that such clinical
trials, if conducted, would be successful in establishing safety and efficacy or
that NDA approval could be obtained.
There can be no assurance any future products developed by the Company
will prove to be safe and effective or meet all of the applicable regulatory
requirements necessary to be marketed. Data obtained from testing activities can
be susceptible to varying interpretations which could delay, limit or prevent
required regulatory approvals. In addition, the Company may encounter delays or
denials of approval based on a number of factors, including future legislation,
administrative action or changes in FDA policy made during the period of product
development and FDA regulatory review. The Company may encounter similar delays
in foreign countries. Furthermore, approval may entail ongoing requirements for,
among other things, post-marketing studies. Even if a product developer obtains
regulatory approval, a marketed product, its manufacturer and its manufacturing
facilities and pertinent operations are subject to extensive regulation and
periodic inspections. Discovery of previously unknown problems with a product,
manufacturer or facility could result in FDA sanctions, restrictions on a
product or manufacturer, or an order to withdraw and/or recall a specific
product from the market. There can also be no assurance that changes in the
legal or regulatory framework or other subsequent developments will not result
in the limitation, suspension or revocation of regulatory approvals granted to
the Company. Such events, were they to occur, could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is also required to comply with FDA regulations for
manufacturing practices, which mandate procedures for extensive control and
documentation of product design, control and validation of the manufacturing
process and overall product quality. Foreign regulatory agencies have similar
manufacturing standards. Ongoing compliance with these standards and with
labeling, adverse event reporting and other applicable regulatory requirements
is monitored through periodic inspections and market surveillance by federal,
state and local government agencies and by comparable agencies in other
countries. Any third parties manufacturing the Company's products or supplying
materials or components for such products may also be subject to the foregoing
requirements. If the Company, its management or its third party manufacturers
fail to comply with applicable regulations regarding these manufacturing
practices, it could be subject to a number of sanctions, including fines,
injunctions, civil penalties, delays, suspensions or withdrawals of market
approval, seizures or recalls of products, operating restrictions and, in some
cases, criminal prosecutions. See "Business -- Government Regulation."
Under the FDA's regulations, when a manufacturer changes or modifies a
device for which it has received a 510(k) clearance, it is required to obtain an
additional 510(k) clearance for the modified device if the modification affects
the safety or efficacy of the device, or if the modification results in a major
change in intended use or manufacture. In such cases, the manufacturer is
expected to make the initial determination as to whether the modification is of
a kind that would require a new 510(k) clearance. The FDA's regulations provide
only limited guidance in making this determination. The FDA has cleared the
Company's electrical dose controller and electrode kits for marketing under a
510(k) clearance. Since obtaining its 510(k) clearances, the Company has made
modifications to its products. Based on the checklist developed by the FDA to
assist manufacturers in determining whether they are required to obtain a 510(k)
submission for a modified device, the Company has determined that a new 510(k)
submission was not required in connection with the commercial introduction of
such products. However, there can be no assurance that the FDA will not require
the Company to obtain additional 510(k) clearances with respect to those
products. If the FDA requires the Company to submit a new 510(k) notice for any
device modification, the Company may be prohibited from marketing the modified
device until the 510(k) notice is cleared by the FDA.
Dependence on Single Sources of Supply. A key material used in many of
the Company's current electrode products is available only from a single
supplier. In addition, the Company obtains Iontocaine from Abbott Laboratories
under a contract expiring in December 1998. The Company believes that, if
necessary, alternative sources can be developed or alternate materials can be
substituted for each of these single-sourced materials. Although the Company has
not experienced difficulty acquiring these materials on commercially reasonable
terms and in sufficient quantities to maintain required production levels, no
assurance can be given that price increases or interruptions in the supply of
these materials will not occur in the future or that the Company will not have
to seek alternate suppliers or obtain substitute materials, which may require
additional product validations and regulatory submissions. Any significant price
increase, interruption of supply, inability to secure an alternate source or
qualify a substitute material could have a material adverse effect on the
Company's ability to manufacture its products or to obtain or maintain
regulatory approval of its products, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's current dose controllers are manufactured under contract
with a third party electronics manufacturer. The Company has not experienced any
difficulty in obtaining adequate supplies of this product from the manufacturer,
but there can be no assurance that an interruption in supply will not occur in
the future or, if there is an interruption in supply, that the Company would be
able to identify, qualify and validate an alternate source of supply within a
reasonable period of time or that such an interruption would not have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Manufacturing."
Limited Manufacturing Experience. The Company manufactures its
iontophoretic drug delivery electrodes in quantities sufficient to satisfy its
current level of product sales. To meet anticipated increases in sales, the
Company may need to increase its production significantly beyond its present
manufacturing capacity. Accordingly, the Company may be required to increase its
manufacturing capacities or to contract with another party to manufacture its
products. There can be no assurance the Company can successfully increase its
capacity on a profitable basis, or contract with another party on terms
acceptable to the Company, if at all.
The Company's manufacturing process is labor intensive and, therefore,
significant increases in production volume would likely require changes in both
product and process design in order to facilitate increased automation in the
Company's production processes. There can be no assurance such changes in
products or processes or efforts to automate all or portions of the Company's
manufacturing process will be successful or that manufacturing or quality
control problems will not arise as the Company increases production volumes of
its existing products or begins production of new products, any of which events
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company believes its facilities operate in accordance with the
Quality System Regulations currently prescribed by the FDA and in substantial
compliance with ISO 9001 and CE Mark standards. The Company has Good
Manufacturing Practices ("GMP") audits conducted by a qualified, independent,
organization on a regular basis and recently obtained its official ISO 9001, and
CE Mark certification. There can be no assurance the Company will be able to
maintain such compliance if the scale of the Company's manufacturing operations
increases. See "Use of Proceeds," "Business -- Manufacturing" and "Business --
Government Regulation."
Potential Health Care Reform. Political, economic and regulatory
influences are subjecting the health care industry in the United States to
fundamental changes. The Company anticipates the United States Congress, state
legislatures and the private sector will continue to review and assess
alternative health care delivery and payment systems. Potential approaches that
have been considered include mandated basic health care benefits, controls on
health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, the creation of large
insurance purchasing groups, price controls and other fundamental changes to the
health care delivery system. The Company believes the legislative debate will
continue in the future, and that market forces will demand reduced costs. The
Company cannot predict what impact the adoption of any federal or state
potential health care reform measures, private sector reform or other market
forces may have on its business, either currently or in the future. Even the
existence of pending health care reform could have a material adverse impact on
the Company by making it difficult to raise capital or establish collaborative
relationships. See "Business -- Government Regulation."
Uncertainty of Health Care Reimbursement. The Company's ability to
commercialize its products successfully will depend in part on the extent to
which reimbursement for the costs of those products and related treatments will
be available from government health administration authorities, private health
insurers and other organizations in the United States and in foreign markets
where the Company's products will be sold. Third party payors can affect the
pricing or relative attractiveness of the Company's products by regulating the
reimbursement they provide on the Company's or competing products or therapies.
There can be no assurance such reimbursement will continue at present levels, if
at all. Furthermore, significant uncertainty exists as to the reimbursement
status of new health care products. There can be no assurance third party
coverage will be available for the Company's future products at levels necessary
for commercial success. Domestic and foreign government and third party payors
are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products. If
adequate coverage and reimbursement levels are not provided by such government
and third party payors for uses of the Company's products, the market acceptance
of those products could be adversely affected. Given the recent efforts to
control and reduce health care costs in the United States and in foreign
markets, there can be no assurance the currently available levels of
reimbursement will continue to be available in the future for the Company's
existing products or products under development.
Effective October 1, 1991, the Health Care Financing Administration
adopted new regulations providing for the treatment of capital related costs for
medical products. Under the regulations, providers are reimbursed for those
capital costs on a per diagnosis basis at fixed rates unrelated to actual costs.
Equipment costs generally are not reimbursed separately, but are included in a
single, fixed rate, per patient reimbursement. These regulations are being
phased in over a 10 year period and, although the full implications of the
regulations cannot yet be known, the Company believes the new regulations may
place more pressure on hospital operating margins, causing them to limit capital
expenditures. The Company is unable to predict what adverse impact on the
Company, if any, additional government regulations, legislation or initiatives
or changes by other payors affecting reimbursement or other matters that may
influence decisions to obtain medical devices may have.
Retention and Attraction of Key Employees. The Company is highly
dependent on its ability to continue to attract and retain qualified scientific,
managerial and manufacturing personnel. There is intense competition for
qualified personnel in the Company's area of activity, and there can be no
assurance the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. Loss of the
services of or the failure to recruit qualified scientific, managerial or
manufacturing personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
carry key-man insurance with respect to any of its executives or employees. See
"Business -- Employees" and "Management."
Risk of Product Liability and Availability of Insurance. The testing,
marketing and sale of drug delivery and related pharmaceutical products for use
in humans involves unavoidable risks. The use of the Company's products in
clinical trials and the sale of its products upon approval may expose the
Company to potential product liability resulting from the use of such products.
In addition, the existence of a product liability claim could have an adverse
effect on the Company's sales of that product, could result in a recall of that
product or require a change in the indications for which it may be used. Product
liability insurance in the Company's industry is expensive and difficult to
obtain.
Although the Company currently has product liability insurance with an
annual limit of $1,000,000 per occurrence and $1,000,000 in the aggregate, there
can be no assurance the existing coverage is adequate. The Company will seek to
maintain and appropriately increase its insurance coverage as its product sales
increase and the clinical development of its new product applications progress.
There can be no assurance, however, that the Company will be able to maintain
its current levels of insurance on acceptable terms, will be able to secure
increased coverage as the commercialization of its products proceeds or that any
particular level of insurance will provide adequate protection against potential
liabilities. The obligation to pay any product liability claim brought against
the Company which is in excess of the Company's insurance coverage could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Absence of Prior Trading Market; Potential Volatility of Share Price.
Prior to the Offering, there has been no market for the Common Shares, and there
can be no assurance an active trading market will develop or, if one does
develop, that it will be maintained. The public offering price of the Common
Shares offered hereby will be determined by negotiations between the Company and
the representative of the Underwriters. For a description of the factors to be
considered in determining the public offering price, see "Underwriting." The
market price of the Common Shares, like that of the common shares of many other
drug delivery, pharmaceutical, biotechnology, medical device and other high
technology companies, is likely to be highly volatile. Factors such as
fluctuations or volatility in the Company's operating results, announcements of
technological innovations, results of clinical trials or new commercial products
by the Company or competitors, regulatory developments in the United States or
foreign countries, changes in the current structure of health care financing and
payment systems, developments in or disputes regarding patent or other
proprietary rights, general market conditions, economic and other external
factors may have a significant effect on the market price of the Common Shares.
Shares Eligible for Future Sale; Possible Adverse Effect on Future
Market Price. Sales of substantial amounts of Common Shares (including shares
issuable upon exercise of outstanding options and warrants) in the public market
after the Offering could adversely affect the market price of the Common Shares.
Such sales could also make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company deems appropriate. Upon completion of the Offering, the Company will
have outstanding an aggregate of _____ Common Shares. In addition, the Company
has reserved for issuance shares issuable upon exercise of outstanding options
and warrants. The _____ Common Shares offered hereby will be freely transferable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except for shares which may be acquired by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining Common Shares held by existing shareholders are
"restricted securities" as that term is defined in Rule 144. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for exemption from registration under Rules 144 or 701 under the
Securities Act. Pursuant to certain "lock-up" agreements, the Company's
directors, officers and certain of its shareholders who collectively hold an
aggregate of _____ Common Shares, together with the Company, have agreed, for a
period of 180 days following the date of this Prospectus, not to offer, pledge,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any Common Shares without the prior written consent
of EVEREN Securities, Inc. Following the 180-day period, approximately _____
Common Shares will be eligible for sale in the public market without restriction
under Rule 144(k) and an additional Common Shares will be eligible for sale
subject to certain volume, manner of sale and other restrictions of Rule 144. Of
the approximately _____ restricted shares held by existing shareholders of the
Company not subject to lock-up agreements, _____ Common Shares will be eligible
for immediate sale in the public market without restriction under Rule 144(k).
The remaining _____ Common Shares not subject to the lock-up agreements will
become eligible for sale, subject to certain volume, manner of sale and other
limitations under Rule 144 commencing 90 days following the date of this
Prospectus. In addition, holders of stock options or warrants exercisable for an
aggregate of ____ Common Shares have entered into agreements prohibiting the
sales of the underlying Common Shares for 180 days following the date of this
Prospectus. See "Principal Shareholders," "Shares Eligible for Future Sale" and
"Underwriting."
Potential Dilution; Absence of Dividends. The initial public offering
price will be substantially higher than the tangible book value per Common
Share. Investors purchasing Common Shares in the Offering will therefore incur
an immediate and substantial dilution in tangible book value. In addition,
investors purchasing Common Shares in the Offering will incur additional
dilution to the extent outstanding stock options and warrants are exercised. The
Company has not paid any cash dividends since inception and does not anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy" and
"Dilution."
Management Discretion Over Proceeds of the Offering. The Company's
management will retain broad discretion as to the allocation of a significant
portion of the net proceeds of the Offering. As a result of that discretion, the
Company's management could allocate the proceeds of the Offering to uses which
the shareholders may not deem desirable. In addition, there can be no assurance
the proceeds can or will be invested to yield an appropriate return. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Control by Existing Shareholders. Following the Offering, the Company's
directors, executives and principal shareholders will beneficially own
approximately ____% of the outstanding Common Shares. Accordingly, if such
persons act in concert, they will have the power to elect the Company's
directors and, subject to certain limitations, effect or preclude fundamental
corporate transactions involving the Company. This concentration of ownership
may have the effect of delaying or preventing a change of control of the
Company. See "Principal Shareholders" and "Description of Capital Shares."
Anti-Takeover Provisions of the Company's Articles of Incorporation;
Utah Law. Certain provisions of the Company's Articles of Incorporation, as
amended, and the provisions of the Utah Revised Business Corporations Act may
have the effect of deterring hostile takeovers or delaying or preventing changes
in control or management of the Company, including transactions in which
shareholders might otherwise receive a premium for their shares over
then-current market prices. These provisions may also limit the ability of
shareholders to approve transactions they may deem to be in their best
interests. Prior to the closing of the Offering, the Corporation intends to
amend its Articles of Incorporation to provide, among other things, for a
classified Board of Directors, and to provide that members of the Board of
Directors may be removed only for cause upon the affirmative vote of the holders
of at least two-thirds of the Common Shares. The Company's Board of Directors is
also authorized to issue Preferred Shares and, in connection with any such
issuance, determine the price, rights, preferences and privileges of those
shares without further vote or action by the Company's shareholders. The rights
of the holders of the Common Shares will be subject to, and may be adversely
affected by, the rights of the holders of any such Preferred Shares that may be
issued in the future. Any such Preferred Shares may have other rights, including
economic rights, which are senior to the Common Shares and, as a result, the
issuance of such Preferred Shares could have a material adverse effect on the
market value of the Common Shares. See "Description of Capital Shares."
Environmental Matters. The Company's research and development
activities involve the controlled use of hazardous materials, chemicals and
various radioactive compounds. These materials, and their use, disposal and
handling, are extensively regulated by federal, state and local government
authorities. Although the Company believes its safety procedures for handling
and disposing of such materials comply in all material respects with the
standards prescribed by state and federal regulations, the risk of accidental
environmental contamination or personal injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages and any such liability could exceed the resources of
the Company. There can be no assurance the Company will not be required to incur
significant costs to comply with such environmental and health and safety laws
and regulations in the future, particularly if the Company develops additional
manufacturing or research facilities and capacity. See "Business -- Government
Regulation."
Forward-Looking Statements. Certain statements under the headings
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," and elsewhere in this Prospectus constitute "forward-looking
statements" within the meaning of the rules and regulations promulgated by the
Securities and Exchange Commission. Such forward-looking statements may be
identified by the use of terminology such as "may," "will," "expect,"
"anticipate," "intend," "designed," "estimate," "should," or "continue" or the
negatives thereof or other variations thereon or comparable terminology. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These risks, uncertainties and other factors
include, among other things, the following: the Company's sporadic history of
profitability and the continuing uncertainty of its profitability; the Company's
ability to develop and introduce new products; the uncertainty of market
acceptance of the Company's new and existing products and their market
penetration to date; the uncertainties related to the Company's product
development programs; the Company's reliance on collaborative partners and
licenses; the Company's limited sales, marketing and distribution experience and
current dependence on distributors; the risks associated with obtaining
governmental approval of the Company's products; the highly competitive industry
in which the Company operates and the rapid pace of technological change within
that industry; the uncertainty of patented and proprietary technology protection
and the Company's reliance on such patented and proprietary technology
(including reliance on technology licensed from third parties); changes in or
failure to comply with governmental regulation, the uncertainty of third party
reimbursement for the Company's products; the Company's dependence on key
employees; general economic and business conditions and other factors referenced
in this Prospectus.
TRANSACTIONS RELATED TO THE OFFERING
In March 1997, the Company entered into a series of agreements with
Elan Corporation, plc ("Elan") pursuant to which the Company acquired certain
in-process research and development programs, including exclusive world-wide
rights to certain iontophoretic patents, know-how and clinical data (the "Elan
Agreements"). The Company acquired the Elan technology by issuing Elan two
promissory notes, a $10.0 million note and a $5.0 million note, issued Elan a
warrant to purchase _____ Common Shares at an exercise price of $_____ per share
and agreed to pay Elan royalties on any net revenues derived by the Company from
its products.
Concurrently with the closing of the Offering, the amounts due under
the $10.0 million note issued to Elan, including interest thereon, will be
exchanged by the Company for approximately ____ Common Shares. In addition,
under the terms of the Elan Agreements, Elan is obligated to purchase in a
private placement that number of Common Shares which have an aggregate purchase
price (based on the initial public offering price to the public of the Common
Shares hereunder) equal to the total amount, including interest thereon,
outstanding under the $5.0 million note as of the closing date of the Offering.
Elan has stated its intent to fulfill that purchase obligation by buying Common
Shares in the Offering (estimated to have an aggregate value of $5.1 million at
the closing of the Offering). The Company has agreed to waive Elan's purchase
obligation contingent on its purchase of the equivalent number of Common Shares
in the Offering. A portion of the net proceeds from the Offering will be used to
pay the outstanding principal and interest under the $5.0 million note. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Collaborative Relationships and Licenses," "Certain
Transactions," and "Underwriting."
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be approximately
$_____ million ($_____ million if the Underwriters' exercise the over-allotment
option in full) at an assumed initial public offering price of $_____ per Common
Share. The Company intends to use approximately $_____ million of the net
proceeds from the Offering to conduct research and development activities. The
Company is also required to use approximately $5.1 million of the net proceeds
to repay the $5.0 million note, including interest thereon, issued to Elan in
connection with the Elan Agreements. This note bears interest at the rate of
prime plus 1% (adjusted semi-annually), compounded semi-annually beginning
October 15, 1997, and is due in five installments of $1.0 million each, together
with accrued interest, on the fifth through ninth annual anniversaries of the
note, or earlier upon the Company's completion of an initial registered public
offering of its Common Shares ("IPO"). The balance of the net proceeds
(approximately $_____ million) will be used to expand the Company's sales and
marketing capabilities and to consolidate and equip its facilities, as well as
for working capital or other general corporate purposes. The Company may also
use a portion of the net proceeds from the Offering for the in-licensing or
acquisition of technologies, businesses or products that are complementary to
those of the Company, although no specific acquisitions are being negotiated as
of the date hereof, and no portion of the net proceeds has been allocated for
any such acquisition. Pending such uses, the Company intends to invest the
proceeds of the Offering in short term, investment grade, interest-bearing
securities. See "Transactions Related to the Offering" and "Certain
Transactions."
The actual amount expended and the timing of the use of the net
proceeds of the Offering for each purpose set forth in the preceding paragraph
may vary significantly depending upon a number of factors, including the costs
and timing of the Company's research and development activities, the number and
type of clinical tests the Company is required to conduct in seeking approval of
its products from governmental agencies, the success of the Company's
developmental efforts, the costs and timing of the expansion of the Company's
sales and marketing activities, the extent to which the Company's existing and
new products gain market acceptance, the Company's ability to maintain existing
collaborative relationships and enter into new collaborative relationships,
competing technological, market and patent developments, the progress of the
Company's commercialization efforts and the commercialization efforts of the
Company's distributors and co-marketers , the costs involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims and other
intellectual property rights, developments related to regulatory and third party
reimbursement issues, and other factors. The Company's management will retain
broad discretion as to the allocation of a significant portion of the net
proceeds of the Offering. See "Risk Factors -- Management Discretion Over
Proceeds of the Offering."
CAPITALIZATION
The following table sets forth (a) the actual capitalization of the
Company as of June 30, 1997 (giving effect to the proposed one-for- _____
reverse split) and (b) the pro forma capitalization of the Company as adjusted
to reflect (i) the redemption of _____ outstanding Series C Preferred Shares for
an aggregate redemption payment of $180,000 in July 1997 and the conversion of
the remaining outstanding Series C Preferred Shares into _____ Common Shares
concurrently with the closing of the Offering; (ii) the exchange of the $10.0
million note isssued to Elan including interest thereon, for approximately ____
Common Shares, concurrently with the closing of the Offering; and (iii) the sale
of _____ Common Shares offered hereby at an assumed initial public offering
price of $_____ per share, and the receipt and application of the net proceeds
therefrom.
<TABLE>
<S> <C> <C>
June 30, 1997(1)
---------------------------
Pro forma as
Actual adjusted
Long-term Debt(2) $15,242,000
Redeemable, Convertible Series C Preferred 900,000
Shares, $ par value, shares
issued
and outstanding, actual; no shares issued and
outstanding, pro forma as adjusted
Shareholders' equity:
Common Shares, par value $ per share; 15,000
shares issued and outstanding, actual;
shares issued and outstanding,
pro forma as adjusted
Additional paid-in capital 12,032,000
Accumulated deficit (21,538,000)
-----------
Total shareholders' equity (deficit) (9,491,000)
-----------
Total capitalization $6,651,000
===========
</TABLE>
(1) Excludes (i) Common Shares issuable upon exercise of options granted
pursuant to the Company's stock option plan, at a weighted average exercise
price of $ per share; (ii) Common Shares reserved for future grants of options
or awards under the Company's stock option plan; (iii) Common Shares issuable
upon exercise of the Representative's Warrants; and (iv) Common Shares issuable
upon exercise of other outstanding warrants, at a weighted average exercise
price of $ per share. See "Management - Stock Option Plan," "Certain
Transactions," "Description of Capital Shares" and "Underwriting."
(2) Reflects (i) $15,240,000 in notes, including accrued interest, issued to
Elan and (ii) other.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends and does not
intend to pay any cash dividends on its Common Shares for the foreseeable
future.
DILUTION
The net tangible book value of the Company as of June 30, 1997 (giving
effect to the proposed one-for- _____ reverse split), was $_____ , or $_____ per
share. Net tangible book value per share is equal to total tangible assets of
the Company, less total liabilities, divided by the number of Common Shares
outstanding. Without taking into account any other changes in net tangible book
value after June 30, 1997, other than to give effect to (i) the mandatory
redemption of _____ outstanding Series C Preferred Shares for an aggregate
redemption payment of $180,000 in July 1997 and the conversion of the remaining
outstanding Series C Preferred Shares concurrently with the closing of the
Offering; (ii) the exchange of the $10.0 million note issued to Elan, including
interest thereon, for approximately ____ Common Shares, concurrently with the
closing of the Offering; and (iii) the sale of _____ Common Shares offered
hereby at an assumed initial public offering price of $_____ per share, and the
receipt and application of the net proceeds therefrom, the pro forma net
tangible book value of the Company as of June 30, 1997 would have been
approximately $_____, or $_____ per share. This represents an immediate increase
in pro forma net tangible book value of $_____ per share to existing
shareholders and an immediate dilution in pro forma net tangible book value of
$_____ per share to investors in the Common Shares offered hereby. The following
table illustrates the per share dilution in net tangible book value to investors
in the Offering assuming the foregoing:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $
Pro forma net tangible book value per share
as of June 30, 1997.......................................... $
Increase per share attributable to new investors..................
Pro forma net tangible book value per share after Offering.............
Dilution per share to new investors.................................... $
</TABLE>
The following table sets forth, on a pro forma basis as of June 30,
1997, the differences between the existing shareholders and the new investors
with respect to the number of Common Shares (including all Series C Preferred
Shares on an as converted basis) purchased from the Company, the total
consideration paid and the average price paid per share (before deducting
estimated underwriting discounts and commissions and estimated expenses of the
Offering):
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
Existing shareholders....... % $ % $
New Investors............... % %
---------- ------- --------- -----
Total.............. 100% $ 100%
========== ======= ========= =====
</TABLE>
The foregoing tables assume no exercise of any options or warrants
subsequent to June 30, 1997. As of June 30, 1997, there were (i) _____ Common
Shares issuable upon exercise of options granted pursuant to the Company's stock
option plan, at a weighted average exercise price of $ _____ per share; (ii)
_____ Common Shares reserved for future grants of options or awards under the
Company's stock option plan; (iii) _____ Common Shares issuable upon exercise of
the Representative's Warrants at an initial exercise price of _____ per share;
and (iv) _____ Common Shares issuable upon exercise of other outstanding
warrants, at a weighted average exercise price of $_____ per share. See
"Management - Stock Option Plan," "Certain Transactions," "Description of
Capital Shares" and "Underwriting."
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The financial information set forth below with respect to the Company's
consolidated statements of operations for each of the years in the three year
period ended June 30, 1997, and with respect to the Company's consolidated
balance sheets at June 30, 1996 and 1997, are derived from the consolidated
financial statements of the Company included elsewhere herein that have been
audited by Ernst & Young LLP, independent certified public accountants, and is
qualified by reference to such consolidated financial statements and notes
related thereto. The following selected consolidated financial data should be
read in conjunction with the Company's consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included elsewhere in this Prospectus.
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Year ended June 30,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Statement of Operations Data:
Revenues:
Product Sales ........................ $6,980,000 $6,991,000 $6,964,000 $6,829,000 $7,483,000
Contract research revenues, royalties
and license fees ..................... -- -- -- 2,409,000 1,800,000
------------ ------------ ----------- --------- ----------
Total revenues ..................... 6,980,000 6,991,000 6,964,000 9,238,000 9,283,000
Operating costs and expenses:
Cost of products sold ................ 4,124,000 3,499,000 3,369,000 3,138,000 3,338,000
Research and development ............. 1,984,000 1,665,000 1,467,000 1,099,000 1,488,000
Selling, general and administrative .. 4,338,000 3,307,000 3,338,000 3,283,000 3,501,000
Non-recurring charges ................ 459,000(1) -- -- 430,000(2) 15,059,000(3)
------------ ----------- ----------- --------- ----------
Total costs and expenses ........... 10,905,000 8,471,000 8,174,000 7,950,000 23,386,000
Income (loss) from operations ........... (3,925,000) (1,480,000) (1,210,000) 1,288,000 (14,103,000)
Interest expense ........................ 152,000 39,000 32,000 9,000 242,000
Interest income and other, net .......... 45,000 102,000 120,000 167,000 291,000
------------ ----------- ---------- --------- ----------
Income (loss) from continuing operations
before income taxes and minority (4,032,000) (1,417,000) (1,122,000) 1,446,000 (14,054,000)
interest ................................
Minority interest ....................... --- --- --- (17,000) 23,000
Income tax expense (benefit) ............ (143,000) (264,000) (173,000) (79,000) 5.000
------------ ----------- ---------- --------- ----------
Income (loss) from continuing operations (3,889,000) (1,153,000) (949,000) 1,542,000 (14,082,000)
Income from discontinued operations(4) .. 241,000 444,000 290,000 201,000 44,000
----------- ---------- ---------- --------- ----------
Net income (loss) ....................... $(3,648,000) $(709,000) $(659,000) $1,743,000 $(14,038,000)
============ =========== ========== ========= ==========
Per Common Share Amounts:
Income (loss) from continuing operations $(.60) $(.13) $(.10) $.10 $(.94)
Income from discontinued operations ..... .04 .05 .03 .01 --
--
Net income (loss) ....................... $(.56) $(.08) $(.07) $.11 $(.94)
============ =========== ========== ========= ==========
Shares used in computing per share 6,489,764 8,749,738 9,780,842 15,216,786 14,925,234
============ =========== ========== ========= ==========
amounts(5) ..............................
Balance Sheet Data:
Cash and cash equivalents ............... $1,350,000 $2,541,000 $1,861,000 $4,507,000 $6,346,000
Total assets ............................ 4,593,000 5,501,000 4,770,000 7,251,000 8,664,000
Long-term obligations, including current 332,000 3,263,000 3,099,000 44,000 15,242,000(6)
portion .................................
Redeemable, convertible preferred shares 2,380,00 2,308,000 2,235,000 1,270,000 900,000
Accumulated deficit ..................... (7,875,000) (8,584,000) (9,243,000) (7,500,000) (21,538,000)
Shareholders' equity (deficit) .......... (250,000) (945,000) (1,592,000) 3,992,000 (9,491,000)
</TABLE>
- -------------------------
(1) Costs incurred in connection with the issuance of debt and equity
securities in private financing transactions.
(2) Costs incurred in connection with the settlement of certain litigation. See
Note 3 of the Notes to Consolidated Financial Statements included elsewhere
in this Prospectus.
(3) Reflects the write-off of certain in-process research and development
(including related transaction costs) purchased from Elan. See Note 3 of
the Notes to Consolidated Financial Statements included elsewhere in this
Prospectus.
(4) Discontinued operations include the operating results (exclusive of any
corporate allocations and net of applicable income taxes) of the Company's
prosthetics sales and services division, which was sold in December 1996.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(5) See Note 1 of the Notes to Consolidated Financial Statements for
information concerning the computation of per share amounts.
(6) Reflects $15,240,000 in notes, including accrued interest, issued to Elan
and other.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Consolidated
Financial Data" and the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. This Management's Discussion and
Analysis of Financial Condition and Results of Operations and other parts of
this Prospectus contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
Overview
The Company develops, manufactures and commercializes controllable drug
delivery systems using iontophoretic technology. The majority of the Company's
revenues has been generated through the sale of its iontophoretic drug delivery
products in the physical therapy market for use in the delivery of Dexamethasone
and contract research revenues from the Company's collaboration with Novartis.
The Company recently introduced its local dermal anesthesia products into the
market place and, to date, has not realized significant revenue from the sales
of such products. Since its inception, the Company has generally incurred
operating losses and it expects to incur additional operating losses over the
next several years as a result of anticipated costs associated with a
significant increase in internally funded research, development and clinical
trial activities relating to new applications for its iontophoretic drug
delivery technologies, development of a dedicated sales force and the
consolidation and equipping of its facilities. As of June 30, 1997, the
Company's accumulated deficit was approximately $21.5 million. The Company's
ability to achieve and sustain profitability will depend on its ability to
achieve market acceptance and successfully expand sales of its existing
products, as well as successfully complete the development of, receive
regulatory approvals for, and successfully manufacture and market, its products
under development, as to which there can be no assurance.
Results of Operations
Fiscal Years Ended June 30, 1996 and 1997
Revenues. Product sales increased 10% from $6.8 million in fiscal 1996
to $7.5 million in fiscal 1997. This increase can be attributed to increased
sales of the Company's iontophoretic drug delivery products for the delivery of
Dexamethasone resulting from the first full year of sales of the Company's newly
introduced electrode kits for the treatment of local inflammation.
Contract research revenues, royalties and license fees decreased 25%
from $2.4 million in fiscal 1996 to $1.8 million in fiscal 1997. During fiscal
1996, the Company entered into a research and development agreement with
Novartis to develop proprietary iontophoretic drug delivery systems for Novartis
drugs. Pursuant to the agreement, the Company received contract research
revenues and other payments of $1.4 million and $1.8 million, respectively, in
fiscal 1996 and 1997. In addition, in fiscal 1996, the Company received a
one-time license fee of $1.0 million. Contract research revenues received during
fiscal 1997 and 1996 pursuant to the Novartis agreement covered a substantial
portion of the Company's research and development expenses.
Costs of Products Sold. Costs of products sold increased 6% from $3.1
million in fiscal 1996 to $3.3 million in fiscal 1997, reflecting increased
costs attributable to higher material and labor costs resulting from higher unit
sales volume. Costs of products sold decreased slightly as a percent of product
sales due to productivity gains which were offset, in part, by increased costs
associated with new product introductions.
Research and Development Expense. Research and development expenditures
increased 36%, from $1.1 million in fiscal 1996 to $1.5 million in fiscal 1997.
The increase reflects increased costs of personnel and other expenditures
associated with the development programs conducted under the Novartis agreement,
as well as research and development expenditures on the Company's internally
financed product development projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 6%, from $3.3 million in fiscal 1996 to $3.5
million in fiscal 1997. The increase in fiscal 1997 can be attributed to the
recruiting, personnel and other sales and marketing costs associated with the
Company's market introduction of Numby Stuff. The increase was offset, in part,
by decreases in general and administrative expenses.
Non-Recurring Charges. In March 1997, the Company entered into the Elan
Agreements, pursuant to which the Company acquired certain rights to Elan's
in-process research and development relating to iontophoretic drug delivery,
including issued and pending United States and foreign patents, know-how and
clinical data. As a result of this transaction, the Company recorded a
non-recurring charge of approximately $15.1 million.
During fiscal 1996, the Company recorded a non-recurring charge of
$430,000 for costs incurred in connection with the settlement of certain
litigation (the "Litigation").
Other Costs and Expenses. Interest expense increased from $9,000 in
fiscal 1996 to $242,000 in fiscal 1997. This increase can be attributed to the
recognition of non-cash interest expense on $15.0 million in notes issued to
Elan in connection with the Elan Agreements. Interest income and other
miscellaneous income was $167,000 in fiscal 1996, compared to $291,000 in fiscal
1997, reflecting interest earnings on higher average cash balances during fiscal
1997.
The Company has substantial net operating loss carryforwards. Income
taxes in both periods reflect estimated alternative minimum tax liabilities,
offset by the recognition of future tax benefits resulting from the allocation
of income tax expense, at statutory rates, to the pre-tax income of the
Company's discontinued operations.
Income (loss) from Continuing Operations. Income from continuing
operations of $1.5 million in fiscal 1996 compares to a loss from continuing
operations of $14.1 million in fiscal 1997. Excluding the non-recurring charges
in both fiscal years, income from continuing operations decreased from $2.0
million in fiscal 1996 to $1.0 million in fiscal 1997. The decrease in fiscal
1997 can be attributed primarily to the one time $1.0 million license fee the
Company received from Novartis in fiscal 1996.
Fiscal Years Ended June 30, 1995 and 1996
Revenues. Product sales decreased 3%, from $7.0 million in fiscal 1995
to $6.8 million in fiscal 1996. Sales increases during fiscal 1996 were offset
by the full year effect of the loss of sales resulting from the acquisition,
during fiscal 1995, of several of the Company's key product distributors by a
major competitor in the physical therapy market. Sales in fiscal 1996 were also
negatively impacted by the Litigation, which delayed the launch of the newly
developed series of electrode kits for the treatment of acute local
inflammation. During fiscal 1996, the Company realized $1.4 million in revenues
from contract research and development services and a one-time $1.0 million
license fee in connection with its research and development agreement with
Novartis, offsetting the decrease in product sales in fiscal 1996.
Cost of Products Sold. Costs of products sold decreased 9% from $3.4
million in fiscal 1995 to $3.1 million in fiscal 1996. This improvement was
attributed to increased manufacturing efficiencies and lower materials costs
resulting from the use of new materials and sources of supply and reductions in
manufacturing overhead.
Research and Development Expense. Research and development expense
decreased 27% from $1.5 million in fiscal 1995 to $1.1 million in fiscal 1996.
Research and development expense during fiscal 1996 consisted primarily of
expenditures relating to the Company's research programs with Novartis, which,
in the aggregate, were lower than the research and development expenditures in
fiscal 1995. The Company's research and development expenditures in fiscal 1995
included costs relating to the Company's NDA filing for the approval of
Iontocaine, as well as expenditures relating to the Company's collaborative
development projects with Laboratoires Fournier S.C.A. ("Laboratoires
Fournier").
Non-Recurring Charges. The Company recorded a non-recurring charge of
$430,000 during fiscal 1996 for costs incurred in connection with the
Litigation.
Other Costs and Expenses. Interest expense decreased from $32,000 in
fiscal 1995 to $9,000 in fiscal 1996 due to the lower average principal balance
due under the Company's term loan. Interest income and other miscellaneous
income was $120,000 in fiscal 1995, compared to $167,000 in fiscal 1996,
primarily due to interest earnings on higher average cash balances from
operating cash flows, and the Company's sale to Novartis of a 20% interest in
Dermion in fiscal 1996.
The Company has substantial net operating loss carryforwards. The
credit provision for income taxes in fiscal 1996 reflects the recognition of
future tax benefits resulting from the allocation of income tax expense, at
statutory rates, to the pre-tax income of the Company's discontinued operations,
offset, in part, by estimated alternative minimum tax liabilities. The credit
provision for income taxes in fiscal 1995 reflects the recognition of future tax
benefits resulting from the allocation of income tax expense, at statutory
rates, to the pre-tax income of the Company's discontinued operations.
Income (loss) from Continuing Operations. The loss from continuing
operations of $949,000 in fiscal 1995 compares to income from continuing
operations of $1.5 million in fiscal 1996. Excluding the non-recurring charge in
fiscal 1996, the difference is attributable primarily to the Company's receipt,
in fiscal 1996, of contract research and development revenues and a $1.0 million
one-time license fee in connection with the Company's research and development
agreement with Novartis.
Liquidity and Capital Resources
Prior to fiscal 1996, the Company funded its operating losses primarily
through private equity financing, convertible debt arrangements, capital lease
financing, and collateralized bank loans. Beginning in fiscal 1996, the
Company's operating and research activities have been internally funded,
primarily as a result of the research and development revenues and license fees
the Company has received from Novartis.
As of June 30, 1997, the Company had cash and cash equivalents totaling
approximately $6.3 million. Cash in excess of immediate requirements is invested
in a manner which is intended to maximize liquidity and return while minimizing
investment risk, and, whenever possible, the Company seeks to minimize the
potential effects of concentration of credit risk.
The Company generated approximately $1.0 million of cash from operating
activities during fiscal 1997, compared to $2.2 million in fiscal 1996. The
decrease can be attributed primarily to the one-time license fee received from
Novartis in fiscal 1996 and an increased net investment in working capital in
fiscal 1997. In fiscal 1996, the Company generated cash of $2.2 million from
operating activities, compared to a use of cash of $298,000 in fiscal 1995. The
transition to generating cash in fiscal 1996 can be attributed to the research
and development funding and the one-time license fee the Company received from
Novartis in fiscal 1996. During fiscal 1995, the Company's investment in
finished goods inventory increased in preparation for the launch of a new
electrode kit for local inflammation and accrued liabilities increased due to
the reserve established for the estimated costs of the Company's planned
facilities consolidation.
Historically, the Company's operations have not been capital intensive
and, therefore, its investment in property, plant and equipment during the
periods presented has not been significant. The Company anticipates however,
that its investment in facilities and equipment will increase in the future, due
to the Company's desire to consolidate its manufacturing, administrative and
research and development facilities and the need to increase the automation of
its electrode manufacturing processes to meet higher expected sales volumes. The
Company's expenditures for equipment and furniture were $156,000, $316,000 and
$231,000 in each of the fiscal years ended June 30, 1995, 1996 and 1997,
respectively.
During fiscal 1997, the Company generated $255,000 in cash from the
private placement of its Common Shares. During fiscal 1996, the Company
generated $1.0 million ($892,000, net of related expenses) in cash from the sale
of a 20% equity interest in Dermion to Novartis.
The Company expects to continue to incur substantial costs associated
with the expansion of its research and development activities, including
clinical trials, development of a dedicated sales force and consolidating and
equipping its facilities. The Company anticipates that the net proceeds of the
Offering, together with existing cash balances and cash generated from
operations (including funding from Novartis) will be sufficient to fund the
operations of the Company for approximately the next two years. However, the
Company may be required or elect to raise additional capital before that time.
The Company's actual capital requirements will depend on many factors, some of
which are outside the Company's control. See "Risk Factors -- Future Capital
Needs; Uncertainty of Additional Funding."
Concurrently with the closing of the Offering, the amounts due under
the $10.0 million note issued to Elan, including interest thereon, will be
exchanged for approximately ____ Common Shares. In addition, under the terms of
the Elan Agreements, Elan is obligated to purchase in a private placement that
number of Common Shares which have an aggregate purchase price (based on the
initial public offering price to the public of the Common Shares hereunder)
equal to the total amount, including interest thereon, outstanding under the
$5.0 million note as of the closing date of the Offering. Elan has stated its
intent to fulfill that purchase obligation by buying Common Shares in the
Offering (estimated to have an aggregate value of approximately $5.1 million at
the closing of the Offering). The Company has agreed to waive Elan's purchase
obligation contingent on its purchase of the equivalent number of Common Shares
in the Offering. A portion of the net proceeds from the Offering will be used to
pay the outstanding principal and interest under the $5.0 million note. See "Use
of Proceeds," "Transactions Related to the Offering," "Certain Transactions" and
Note 7 of the Notes to Consolidated Financial Statements.
Discontinued Operations
Prior to January 1997, the Company provided state-of-the-art
prosthetics products to amputees throughout the United States, Canada and
Western Europe through its Motion Control division. Motion Control's principal
products were the Utah Artificial Arm and the ProControl II, advanced myolectric
prostheses for above and below the elbow amputees.
In December 1996, the Company sold the assets of the Motion Control
division for $1.0 million and granted the purchaser an exclusive, worldwide
license and sublicense to the patents, trademarks, know-how and other
intellectual property of the Company relating to the Motion Control products.
Under the terms of that sublicense agreement, the Company will receive license
fees and royalties on future sales of the Motion Control products. There was no
significant gain or loss recognized on the sale. The results of operations of
the Motion Control division, exclusive of any corporate allocations, are
reported as discontinued operations in the consolidated financial statements for
all periods presented. See Note 4 of Notes to the Consolidated Financial
Statements.
BUSINESS
Introduction
The Company develops, manufactures and commercializes controllable drug
delivery systems using iontophoretic technology. Iontophoresis is a non-invasive
method of enhancing and controlling the transport of water-soluble ionic drugs
through the skin using a low level electrical current. The Company's proprietary
iontophoretic drug delivery systems allow rapid onset and cessation of
therapeutic action, as well as programmable dose control. The systems enable
caregivers and patients to monitor and control the onset of drug effectiveness
and maintain, reduce or cease drug administration once a desired therapeutic
effect is observed. The programming feature also enables caregivers to customize
dosing patterns to meet each patient's specific needs. The flexibility of the
Company's proprietary systems provides therapeutic control not possible with
many alternative drug delivery methods, including oral tablets and capsules,
injections, inhalants and passive transdermal patches. The Company's systems may
also increase bioavailability, safety and patient comfort.
The Company markets two products, an iontophoretic system used to
deliver Dexamethasone and an iontophoretic system used to deliver Iontocaine.
The Company's system for the delivery of Dexamethasone has been used primarily
by physical therapists and athletic trainers in over 10 million patient
applications for the treatment of acute local inflammatory conditions such as
tendonitis, tennis elbow and carpal tunnel syndrome. The Company's system to
deliver Iontocaine provides needle-free, long-lasting local dermal anesthesia up
to six times more rapidly and up to three times deeper than can be achieved
using topical anesthetic creams. The Company is initially marketing its
Iontocaine product under the brand name Numby Stuff in pediatric hospitals in
the United States. The Company is also developing a number of iontophoretic drug
delivery systems for other indications, including conscious sedation, tocolysis,
post operative and chronic pain control, and osteoporosis.
Background on Drug Delivery Systems
A wide variety of drug delivery methods is currently available in the
market, although not all drugs can be delivered by all routes of administration.
For certain applications, there are clinical benefits in providing rapid onset
of therapeutic action and the minimum drug dosage necessary to achieve the
desired effect. In all applications, drug delivery should be convenient,
cost-effective and as non-invasive as possible.
Conventional Oral Methods. Conventional oral drug dosage forms, such as
pills and capsules, are the most common types of drug delivery. These methods
offer ease of administration and low cost-per-use, but their application is
often limited by inconvenient dosage intervals and less than optimal
bioavailability (due to degradation of the drug in the gastro intestinal tract
("GI tract") and the liver) and efficacy. In addition, conventional oral dosage
forms often produce higher initial drug levels than are required to achieve the
desired therapeutic effects, thereby increasing risk of side effects, and lower
than therapeutically optimal levels of the drug as it is metabolized and cleared
from the body. More frequent administration of lower doses can sometimes
mitigate this problem, but can also increase cost, inconvenience and patient
noncompliance.
Injection Methods. Injectable drug dosage forms generally provide rapid
onset of action and offer many of the same advantages as conventional oral drug
dosage methods, but, like conventional oral dosage forms, they often produce
higher initial drug levels than are required to achieve the desired therapeutic
effect, thereby increasing risk of side effects. Injectable drug delivery
methods require caregiver administration and have the added disadvantage of
using needles as a delivery path into the body, raising the possibility of
needle stick injuries, as well as risk of infection to the caregiver and the
patient. The use of needles also increases patient anxiety due to the pain of
injection.
Controlled Release Methods. Controlled release drug delivery systems
attempt to overcome many of the limitations inherent in conventional drug
delivery methods by maintaining a more consistent and appropriate drug level in
the bloodstream. Sustained release oral dosage forms are designed to release the
active ingredients of the drug into the body at either a predetermined point in
time or at a predetermined rate over an extended period of time, but they
generally do not provide rapid onset of action and may not achieve optimal
bioavailability. Passive transdermal patches allow absorption of drugs through
the skin and generally provide a convenient method of administering drugs at a
steady rate over an extended period of time, but onset of action may take hours
after application and absorption of the drug may continue for hours after the
patch is removed, which can increase side effects. Additionally, because human
skin is an effective barrier, most drug formulations will not passively permeate
the skin in therapeutic quantities. Continuous infusion pumps introduce drugs
directly into the body, thereby providing rapid onset of action, and may offer
variable controlled dosing. Infusion therapy requires insertion of a needle,
however, and, therefore, can be painful and threatening to the patient. The use
of infusion pumps also increases the risk of infection and generally requires
medical professionals for safe administration, which may significantly increase
costs.
Pulmonary and Nasal Methods. Both pulmonary (inhalation) delivery and
nasal sprays are designed to provide rapid onset of action or to deliver drugs
that are not orally bioavailable. Pulmonary delivery has the disadvantage of
variable drug amounts reaching the alveoli of the lungs, therefore making it
difficult to control the bioavailability of the dose. Nasal sprays can cause
irritation in some patients and can be difficult to administer in variable
intranasal conditions. In addition, the dose of the product cannot be controlled
by the patient over a period of time, and patients and caregivers may have
difficulty maintaining the desired therapeutic effect.
Other. Many existing and emerging pharmaceutical compounds, such as
biotechnology-derived oligonucleotides, peptides and other macromolecular drugs,
cannot be effectively administered by traditional non-invasive methods and are,
therefore, administered only by injection or infusion. Oral delivery of such
molecules is generally inefficient due to the rapid breakdown of these molecules
during digestion and the natural impermeability of the GI tract to larger
molecules. The skin is even less permeable to macromolecules than the GI tract,
which the Company believes is the primary reason passive transdermal delivery of
those molecules using patch technology has not been successful to date.
Iontophoretic Drug Delivery and its Advantages
Iontophoretic drug delivery systems are designed to overcome many of
the limitations associated with other drug delivery methods. Iontophoresis is an
active method of transdermal drug delivery in which water-soluble, ionized
(electrically charged) drugs are transported through the skin for local or
systemic therapeutic applications by applying a low level, external electrical
current. The amount of drug delivered through the skin is proportional to the
total electrical charge applied (which is a function of time and current).
Therefore, it is possible to program the system's electrical current levels to
control more precisely the desired drug dose, delivery rate (including base line
and bolus dosing) and the pattern of delivery.
Iontophoretic drug delivery systems are generally comprised of a power
supply which is used to control drug dose (the "dose controller") and a pair of
electrodes, one containing the drug and one serving as a grounding electrode to
complete the electrical circuit through the skin. The drug electrode consists of
a matrix which contains the drug solution, a conductive element which
distributes the electric current through the drug matrix, an electrical
connector that links the electrode to the dose controller, and an adhesive layer
that attaches the electrode to the body. The grounding electrode consists of
similar components, but without the drug solution. The drug delivery electrode
is applied to the patient's skin at a local treatment site (such as for joint or
tendon soreness or to induce local dermal anesthesia), or at any suitable site
on the body for systemic drug delivery. The grounding electrode is applied to
the skin a short distance away from the drug electrode. As is shown in the
illustration below, when an electric current with the same positive or negative
electric charge as the drug is applied to the drug electrode, the drug is
repelled from the electrode and into the skin in the same way as like poles of
two magnets repel each other. Although currently marketed products consist of
discrete components, advanced systems integrating all components in a single
miniaturize patch are under development.
[GRAPHIC DEPICTING AN IONTOPHORETIC DRUG DELIVERY DEVICE IN USE.]
The Company believes that, for certain applications, iontophoretic drug
delivery systems may offer several advantages over other drug delivery methods,
including:
Broad Applicability. A substantial number of the drugs on the market
and in development today are, the Company believes, ionic and water-soluble and,
therefore, may be amenable to delivery by iontophoresis. In addition,
iontophoretic drug delivery systems may be applicable to a significantly broader
range of pharmaceutical compounds, including larger drug molecules such as
peptides and oligonucleotides, than passive transdermal drug delivery methods.
Increased Convenience and Compliance. Iontophoretic drug delivery
systems are easy to use and offer simple, needle-free administration that
eliminates the inconvenience of frequent dosing, and may permit patient
self-administration.
Programmable Control of Drug Delivery. The rate, timing and pattern of
drug delivery using an iontophoretic drug delivery system can be controlled by
varying the electrical current applied to the system's electrodes. The benefits
of this ability to control the drug's delivery include the following:
o Rapid Onset of Action -- The speed with which a drug delivery system
can provide efficacious blood levels of the target drug determines
the onset of therapeutic action. Iontophoretic drug delivery systems
allow many drugs to pass directly through the skin into underlying
tissue and the bloodstream at a rate that is significantly more rapid
than oral or passive transdermal delivery methods. Research has shown
that certain drugs can be delivered by iontophoresis more than 10 to
1,000 times faster than drug delivery by passive transdermal patches.
o Rapid Cessation of Administration -- In certain applications, it is
desirable that drug delivery cease once the desired effect has been
obtained. Iontophoretic drug delivery systems allow rapid cessation
of drug delivery since absorption of water-soluble drugs from the
skin into bloodstream ceases rapidly after the current is turned off
or the drug electrode is removed from the skin.
o Variable Dose Control -- Iontophoretic drug delivery systems can
offer precision controlled dosing that can be customized for desired
therapeutic profiles or for individual patient needs, including
baseline and/or bolus dosing.
o Patient Controlled Dosing -- Iontophoretic drug delivery systems can
be designed to offer active patient control or intervention in the
dosing regimen, while at the same time incorporating programmed
lock-outs for added safety and dose monitoring capability.
o Dose-to-Effect -- Iontophoretic drug delivery systems allow
caregivers or patients to monitor the onset of drug effectiveness and
maintain, progressively reduce or cease drug administration once a
desired therapeutic effect is observed.
The Company's Iontophoretic Systems
While the fundamentals of iontophoresis have been understood for
decades, the technology has become commercially practicable as a method for
delivering drugs only recently as a result of advances in electronics, materials
science and electrochemistry. These advances have led to the development of more
efficient and adaptable drug containment electrodes and more reliable, compact
and programmable dose controllers. The Company has developed iontophoretic drug
delivery systems which incorporate dose controllers and electrodes which have
enhanced performance characteristics, which the Company believes are adaptable
to a number of clinical settings and therapeutic applications, and which the
Company believes are cost-effective in a number of therapeutic applications.
In March 1997, the Company entered into an agreement with Elan to
obtain an exclusive, worldwide license to the commercial exploitation of certain
technology developed by Elan in the field of iontophoretic drug delivery and
certain other electro-transport fields. The acquisition of the Elan technology
is intended to speed the development and commercialization of products using the
combined technologies, including the miniaturized integrated, wearable systems
currently under development by the Company. The Company also believes its
competitive position in relation to other companies engaged in the development
of iontophoretic drug delivery systems has been significantly enhanced by Elan's
broad base of United States and foreign patents, in-depth body of in vitro drug
transport data and in vivo animal and human clinical data, in addition to other
proprietary know-how.
Dose Controllers. The Company's dose controllers generate the low-level
electrical current needed for iontophoretic drug delivery. The Company presently
markets a compact, fully portable dose controller, the Phoresor, that offers
durable microprocessor control, enhanced user interface, versatile programmable
dosing capability, auto-calculating treatment time (based on electrical current
settings and selected dose) and constant current output (by automatically
adjusting voltage to compensate for variations in the electrical resistance of
the skin). The Phoresor incorporates a microprocessor, other electronic
circuitry, on-board software that monitors and controls the rate of current
flow, and an easy-to-use control panel. The Company has also developed, and
anticipates marketing in the near future, a new dose controller for specific use
with its pediatric local dermal anesthetic product. See "Business -- Products
and Products Under Development -- Local Dermal Anesthesia." The Company's next
generation of dose controllers, both stand-alone and wearable miniaturized
versions, are being designed to include many of the same features as the
Company's current dose controllers. Depending on the therapeutic application,
the new generation dose controllers may be designed to allow bolus dosing
capability and programming (using a physician's or pharmacist's key) to adjust
dosing to match desired delivery profiles or patterns.
In a clinical setting for short treatment durations, the battery and
dose controller are housed in a discrete, reusable, table-top unit connected to
a pair of disposable, single-use electrodes to which drug solution is added
immediately prior to application to the patient. This technology is used in the
Company's current products. For longer term or chronic applications or
patient-administered therapy outside the clinical setting, the Company is
developing iontophoretic drug delivery systems in which the battery, dose
controller and electrodes will be combined in a small patch applied to the skin
as a single, integrated unit. The electronic components may be reusable, with
replaceable or rechargeable batteries and single-use, disposable drug and
grounding electrodes, or the entire unit may be disposable after a single use.
The drug may be added to the electrode drug pad during manufacturing, or may be
stored separately in the system and introduced into the drug containment pad
immediately before use by means of proprietary, integrated hydration devices
developed by the Company.
Electrodes. Electrode design is critical to successful delivery of a
drug by iontophoresis. The Company's electrodes incorporate patented and
proprietary design innovations which the Company believes offer significant
advantages to both patients and health care providers. The Company's proprietary
electrode technology includes patented polymer hydrogels which absorb drug
solutions in seconds, becoming soft and pliable so as to conform better to the
body and to be comfortable to the patient. The Company's electrode technology
also employs special silver and silver chloride inks to distribute electric
current evenly from the dose controller to the electrodes and control possible
changes in acidity and alkalinity (pH changes) which can occur during
iontophoresis, thereby preventing possible drug instability or unacceptable skin
irritation.
Business Strategy
The Company's primary business goal is to establish its proprietary
iontophoretic drug delivery systems as a preferred, cost effective means of
delivering a wide range of drugs. To achieve this goal, the Company uses its
multi-disciplinary expertise in pharmacology and drug formulation, regulatory
and product testing, microelectronics, electrochemistry, polymer chemistry and
adhesives. The Company's strategy for achieving this goal includes the following
principal elements:
Develop Systems for Off-Patent Drugs. The Company intends to continue
the independent development of proprietary iontophoretic drug delivery systems
for off-patent drugs with known safety and efficacy and for which the Company
believes its drug delivery technology may be cost competitive with and offer
advantages over other drug delivery methods. The Company believes that, by
developing proprietary products based on currently approved off-patent drugs,
rather than new chemical entities ("NCE's"), it can reduce regulatory and
development risks and shorten the product development cycle.
Enter into Collaborative Relationships. In order to gain access to NCEs
and other proprietary drugs, and to reduce the costs and risks associated with
the development of iontophoretic drug delivery systems for such compounds, the
Company intends to enter into collaborative relationships with pharmaceutical
and other biotechnology companies whose drugs could benefit from the Company's
iontophoretic drug delivery technology. The Company has entered into a
collaborative development agreement with Novartis for the purpose of evaluating
the potential for the development of iontophoretic drug delivery systems for a
number of Novartis compounds for several therapeutic applications. In
collaboration with Novartis, the Company is currently developing an
iontophoretic drug delivery system to deliver a drug for the treatment of
osteoporosis.
Increase Market Penetration of Existing Products. In order to leverage
the capabilities of its direct and dealer sales forces, the Company intends to
enter into collaborative sales and marketing relationships with other parties
that have specific expertise in markets targeted by the Company. In general, the
Company intends to use collaborative sales and marketing relationships in the
sale and distribution of its products to the general physician, international
and specialty markets, including the podiatric, orthopedic and chiropractic
markets.
In addition, the Company is actively seeking to expand the commercial
potential of its local anesthesia and acute inflammation products by pursuing
new applications. The Company will continue to conduct (i) marketing studies
aimed at expanding the use of its delivery system for Iontocaine to a broader
range of procedures and (ii) clinical trials to further establish the safety and
efficacy of iontophoresis for the treatment of local inflammation using
Dexamathasone or for use in other specific procedures.
Broaden Technology Platform. The Company intends to enhance its
proprietary iontophoretic technology base through internal research and
development. The Company will also pursue additional iontophoretic and other
complementary products and technologies owned or developed by third parties, on
a case-by-case basis, through in-licensing or acquisition.
Control Product Manufacturing Processes. The Company intends to
maintain control over the manufacture of its electrode kits in order to retain
control over the quality of its products and capture a larger portion of the
product revenue stream when third parties are involved in the marketing of the
product.
Products and Products Under Development
The Company currently has product development programs at various
stages of development for acute local inflammation, local dermal anesthesia,
remission of pre-term labor, conscious sedation, pain control and osteoporosis.
Acute Local Inflammation
Acute local inflammatory conditions resulting from exercise, sports
injuries, trauma or repetitive motion disorders are among the leading types of
injuries occurring in the workplace and among physically active adults. The most
common of these injuries include tendonitis, bursitis, carpal tunnel syndrome
and epicondylitis (tennis elbow). Generally, patients suffering from these
conditions are initially treated with oral nonsteroidal anti-inflammatory drugs
("NSAIDS") for a period of up to fourteen days. Although steroid injections are
generally more effective than NSAIDS, medical professionals usually avoid
steroid injections in all but severe cases because of the negative side effects
that can accompany bolus needle injections of corticosteroids into an inflamed
joint or tendon, including risk of infection, tissue distortion, tendon
weakening and tendon rupture. If patients do not respond to treatment with
NSAIDS, the physician generally has two options - refer the patient to a
physical therapist, or proceed with injection of anti-inflammatory steroids such
as Dexamethasone. The Company estimates that the total potential retail market
in the United States for the sale of iontophoretic drug delivery systems to
clinicians to treat acute local inflammatory conditions is in excess of $400
million. In addition, the Company estimates that current total sales into this
market by the Company and its competitors are under $30 million at retail,
representing less than eight percent penetration of the potential market.
The Company believes iontophoretic delivery of Dexamethasone provides
significant advantages over other current treatment regimes for acute local
inflammation. The Company believes iontophoresis eliminates the risks and
inconvenience associated with bolus steroid injections, avoids the systemic side
effects of oral steroids and eliminates the significant incidence of GI tract
side effects of orally administered NSAIDS. Iontophoresis also increases
therapeutic efficacy by bypassing metabolism by the liver, by reducing the
possibility of overdosing, and by providing localized delivery at the target
site without trauma. As a result, the Company believes that it may be
advantageous to introduce the iontophoretic delivery of Dexamethasone into the
initial treatment regimen for acute local inflammation. The Company believes
that earlier treatment with Dexamethasone has the potential to significantly
increase the rate of patient recovery and, in doing so, reduce the overall cost
of patient treatment.
Commercial Products. The Company pioneered the commercial introduction
of an iontophoretic drug delivery system for the treatment of local acute
inflammation. The Company's delivery system for the delivery of Dexamethasone
was first introduced into the market in substantially its present form in 1990.
These products, as well as the Company's earlier versions of these products, are
used principally by physical therapists (under a doctor's prescription) and have
been administered in over 10 million patient treatments for the iontophoretic
delivery of Dexamethasone. The Company's Phoresor for the delivery of
Dexamethasone is also used by athletic trainers and physical therapists serving
a number of professional athletes, including professional golfers and tennis
players, men's and women's olympic ski teams and professional football,
basketball and hockey teams. The Company believes that iontophoretic drug
delivery systems are accepted in the rehabilitation marketplace due to their
ease of use, non-invasiveness, recognized efficacy and lack of side effects.
Products Under Development. The Company currently markets four
different electrode kits in three different configurations and continues to
develop additional electrode kits and configurations for application in
different segments of the acute local inflammation market. The Company's
existing electrode kits, as well as those it has under development, are designed
to be user friendly and to offer clinicians a broad range of electrode sizes,
formats, configurations and price ranges.
Currently, due to limited labeling of Dexamethasone, neither the
Company nor its competitors have the requisite regulatory approval to
specifically promote the use of their iontophoretic drug delivery systems for
the delivery of Dexamethasone. The Company believes that its inability to do so
limits its ability to market its system, particularly to the physician market.
The Company further believes that to market iontophoretic drug delivery systems
for a specific drug and therapeutic indication, the FDA must approve each new
drug/device combination. Therefore, in order to expand the Company's sales of
its delivery systems into the physician market as a first line treatment for
acute local inflammation, the Company has filed an investigational new drug
("IND") application with the FDA under which it intends to establish the safety
and efficacy of its current drug delivery system for Dexamethasone. Upon
completion of the protocol design, the Company intends to select appropriate
clinical sites and initiate clinical studies in support of filing an NDA (or an
appropriate drug/device combination marketing application seeking FDA approval)
to label a formulation of Dexamethasone for use with the Company's Phoresor for
treatment of acute local inflammatory conditions. The Company believes that,
because of the known safety and efficacy profile of Dexamethasone and the acute
nature of the conditions to be treated in these studies, the duration of the
studies and the required follow-up periods may not be as extensive as would be
required for a NCE.
The Company believes the resulting outcomes data and specific drug
labeling contained in the NDA will allow the Company to actively promote the
iontophoretic delivery of Dexamethasone to general and family practice
physicians, orthopedists, neurologists and sports and industrial medicine
clinics. The Company believes this could significantly enhance the Company's
ability to establish its delivery system for Dexamethasone as a primary
treatment option for acute local inflammatory conditions. The Company also
believes that, with an approved NDA to complement its device, many physicians
who refer their patients for physical therapy will do so with a specific
prescription for iontophoresis using the Company's proprietary drug formulation
and delivery system.
Local Dermal Anesthesia
Medical care providers have long recognized the importance of the
management of pain, including pain associated with certain minimally invasive
medical procedures such as needle injections; venous access (including
phlebotomies and intravenous catherizations); lumbar punctures; and local
dermatological, gynecological and urological procedures such as wart and mole
removal, LOOP/LETZ procedures, biopsies (including fine needle, punch,
excisional, shave and cervical biopsies), Mohs procedures and vasectomies. To
address this concern, local dermal anesthetics are widely used in medical
practice.
The primary means of administering local dermal anesthetics is by
needle injection, which has the benefit of being fast, effective and long
lasting. However, the fear and pain associated with the needle stick, especially
on the extremities or on other sensitive areas such as the face, vulva and
cervix is compounded by the sting associated with virtually all injectable local
anesthetics. These factors increase patient discomfort and anxiety. In addition,
the local tissue distortion which typically accompanies injections may cause
procedural difficulty for the physician. New topical analgesic formulations have
recently been introduced into the market and are gaining widespread acceptance,
especially in pediatric hospitals and clinics and in pediatric dermatology.
These topical formulations avoid many of the pitfalls of anesthetic injections,
but they generally require significant advance preparation since they require
one to two hours to obtain anesthesia. Even when topical formulations are given
adequate time to achieve anesthesia, they anesthetize only to a maximum depth of
3 to 5 mm. The time required to achieve therapeutic anesthesia and the depth of
anesthesia make these formulations less suitable or impractical for many
potential applications. The Company believes that the growing interest in these
products, in spite of their clinical limitations, is a positive indication of
the market's desire for an effective, needle-free local dermal anesthetic.
The Company's Iontocaine brand of lidocaine HCl 2% and epinephrine
1:100,000 is FDA approved under an NDA and is specifically labeled for use with
the Company's Phoresor and its proprietary, single use, disposable electrode
kits. The Iontocaine delivery system was shown to be safe and effective in
double blinded, placebo controlled, randomized studies in over 400 adult and
pediatric patients. Based on these studies, the Company filed an NDA with the
FDA and received labeling to use the system for all procedures requiring local
dermal anesthesia.
Using the Company's product, clinicians can administer needle-free,
long lasting (up to two hours) local dermal anesthesia up to a depth of 10 mm in
approximately ten minutes. The Company believes the ability to provide painless
local dermal anesthesia up to three times deeper than topical formulations, in
85% less time, could make the Company's products a preferred drug delivery
method for many existing applications where topical anesthetic creams are
currently employed, and that the product will provide a means of painlessly
inducing local dermal anesthesia for a broader range of medical procedures where
the use of such creams is not practical.
Commercial Products. A leading concern among patients, parents and
health care professionals is the control of pain in the practice of children's
medicine, including the pain associated with needle insertions. With the growing
acceptance of topical anesthetic creams in the pediatric hospital setting, the
Company believes there is a large potential market for an iontophoretic drug
delivery system targeted toward pediatrics. Accordingly, the Company has focused
its initial local dermal anesthesia product launch into the pediatric market
under the brand name Numby Stuff. Numby Stuff, which the Company launched in
January of 1997, currently consists of the Phoresor, the Company's line of
proprietary, single use, disposable electrode kits and Iontocaine, all in a
brightly colored, child friendly product package. Numby Stuff is currently being
used to induce local dermal anesthesia prior to pediatric intravenous starts,
blood draws and other invasive procedures, and the Company believes it provides
a cost effective alternative to the leading topical product. The Company
estimates that pediatric intravenous starts, blood draws and other invasive
procedures are performed more than 20 million times in the United States each
year.
Numby Stuff was recently reviewed by the new product review committee
of the Alliance of Children's Hospitals ("ACH"), a subsidiary of the Child
Health Corporation of America ("CHCA"), a consortium of 35 of the leading free
standing children's hospitals in the United States. The committee awarded Numby
Stuff ACH's "Seal of Acceptance," a recognition that is reserved only for
products which ACH believes offer significant potential therapeutic benefits in
the practice of pediatric medicine. Numby Stuff is one of only 24 products used
in pediatric hospitals that bear the ACH seal. Under ACH policy, the Company is
required to pay ACH a royalty in order to use the seal. The Company issued ACH a
warrant to acquire _____ Common Shares at $_____ per share in lieu of that
royalty. In connection with that transaction, the Company also sold CHCA _____
Common Shares for $250,000. The Company also entered into an agreement with CHCA
pursuant to which CHCA will provide continued support and endorsement for Numby
Stuff and will assist the Company in introducing the product to pharmacy
directors and other clinical specialties within its member hospitals.
Products Under Development. The Company has developed a working
prototype of a preprogrammed, fixed dose, dose controller with push-button
operation for use as part of the Numby Stuff product. The Company is currently
working with its third party supplier to develop manufacturing specifications
for the new dose controller, and expects to initiate manufacturing and marketing
of the dose controller in fiscal 1998. The Company believes that the new dose
controller's anticipated pricing and simplified operation will further enhance
the marketability and use of Numby Stuff.
In order to achieve greater market acceptance of its Iontocaine product
in pediatric markets, the Company supports evaluations conducted by doctors and
other medical personnel for the use of its anesthetic product prior to a wide
variety of painful medical procedures. The Company is currently conducting or
planning two studies evaluating the use of Numby Stuff prior to lumbar punctures
and circumcisions in pediatric patients. Depending on the results of these
studies, the Company may develop new electrode kits which specifically address
these opportunities. The Company also believes, in addition to the pediatric
market, the adult hospital market represents additional opportunities for
growth. The Company believes that it could service the adult hospital market by
making minor modifications in its product image and by using its existing sales
force. There are over 250 million venous catheters inserted each year, of which
a substantial portion are inserted in adult patients.
The Company also believes that Iontocaine, together with the Phoresor
and adaptations of its existing electrode designs, can be successfully used to
induce effective local dermal or mucosal anesthesia prior to certain
gynecological procedures. The Company believes the effective, rapid, painless,
needle-free anesthesia provided by the Company's drug delivery technology would
increase patient comfort. In general, promotion of the Company's systems for use
in connection with gynecological procedures involving mucosal membranes would
require additional FDA approval, most likely in the form of a supplement to the
Company's existing Iontocaine NDA. Gynecological procedures involving the vulva
would not require additional FDA approvals. The Company has performed
preliminary studies which indicate that its anesthetic system may significantly
reduce or eliminate the pain of vulvar biopsies. The Company has already tested
prototype electrodes which are specifically designed for this application. There
are approximately 50 million pap smears performed each year in the United
States, of which approximately 2.5 million require follow-up procedures that
could benefit from non-invasive local dermal anesthesia. The majority of these
procedures are performed by a relatively low number of gynecologists who are
mainly in high density population areas that are also the major centers for the
Company's pediatric marketing efforts.
Remission of Pre-Term Labor
Pre-term birth is a leading cause of neonatal morbidity and mortality.
Each year in the United States alone, 10% of all births are premature resulting
in more than 400,000 babies being born before completing 37 weeks of gestation.
The cost of neonatal intensive care required for pre-term babies exceeds $5.0
billion a year in the United States. The Company believes that prolonging
pregnancies threatened by pre-term delivery by even a few days may result in
improved clinical outcomes, which could represent an important opportunity for
significant medical, economic and social benefits.
The Company estimates that each year a significant number of patients
in the United States who are at risk or experience pre-term labor and pre-term
birth are placed on one or more forms of tocolytic drug therapy. Tocolysis is
the clinical term for the remission of labor. Although many of these therapies
are not specifically FDA approved, the medical literature indicates that they
have been successful in a large number of patients. The Company believes the
number of patients placed on various tocolytic drug therapies will rise with the
increased use of ambulatory external tocodynamometers and the advance of other
new diagnostic techniques and products used to identify patients at risk. These
advances in diagnostics should aid in identifying asymptomatic pregnant women.
A typical therapeutic program for a pregnant woman who is experiencing
acute episodes of pre-term labor consists of intra-venous ("IV") infusions of
magnesium sulfate in the hospital. After a period of 12 to 24 hours of
successful tocolysis, the patient is then switched to oral terbutaline sulfate
tablets and released. Usually, after two to three weeks, the therapeutic effects
of oral terbutaline are lost and the patient must be readmitted to the hospital
to begin the treatment cycle again. If symptoms persist, the patient is often
placed on an injectable form of terbutaline sulfate by means of an subcutaneous
infusion pump. Although not approved by the FDA for this indication,
subcutaneous infusion terbutaline therapy has been found to be effective in
controlling pre-term labor and avoiding the loss of therapeutic efficacy
experienced with oral dosing. Subcutaneous infusion terbutaline therapy can last
for over a month, with a mean treatment period of approxiamtely three weeks, and
costs approximately $1,500 to $2,000 per week. These costs include pump rental,
drugs, disposable infusion kits and central monitoring and home visits by a
skilled medical professional.
Products Under Development. The Company is evaluating a system for
delivering terbutaline using iontophoresis. Based on in vitro feasibility
testing it has conducted, the Company believes terbutaline may be delivered by
iontophoresis in therapeutic quantities. The Company intends to seek FDA
approval for the delivery of terbutaline using its iontophoretic drug delivery
system, has prepared a protocol for a Phase I blood level study, has received
Institutional Review Board Approval and expects to initiate that study by the
end of 1997. The Company believes that an iontophoretic drug delivery system for
terbutaline could offer an alternative treatment regimen to oral terbutaline
therapies with all of the benefits of home infusion therapy. The Company also
believes an iontophoretic system may have substantial advantages over
subcutaneous infusion therapy, including being less expensive to produce and
service than standard infusion therapy devices, potentially providing greater
patient comfort (since the electrodes could be placed at various sites on the
body) and being non-invasive, thereby eliminating the risk of infection and
reducing the need for frequent intervention by a skilled medical professional.
Since the general pharmacology and toxicology of terbutaline are well
known, and because the Company believes this is an area of significant interest
within both the FDA and the medical community, the Company believes that, if its
Phase I blood level studies are successful, it may be able to progress more
rapidly into Phase III studies in at-risk, pregnant women than would be possible
for an NCE. Due to the nature of the condition being treated, the Company
believes the clinical trials should be of relatively short duration and will
have a clearly defined endpoint.
Conscious Sedation
Many patients, especially children, experience extreme anxiety before
the start of invasive or painful medical procedures, during stressful diagnostic
tests such as endoscopies, magnetic resonance imaging, and CT scans, and before
and during certain dental and emergency room procedures. Invasive methods of
premedication and sedation, such as intra-muscular ("IM") injections or IV
administration of analgesics or sedatives, can cause anxiety. Clinicians have
long sought alternative, non-invasive methods of premedication. Despite the
absence of approved labeling for safety and efficacy for oral administration,
clinicians widely use injectable drugs and drug combinations mixed with flavored
syrups for off-label oral administration in children. Since 1994, clinicians
have also been able to use fentanyl for conscious sedation using an oral
transmucosal delivery system. Oral administration may require up to five times
the amount of drug recommended for injection because of decreased
bioavailability, but is used because the alternative of IV or IM injections are
counterproductive to the goal of relieving anxiety. The Company estimates that
each year worldwide sales of the top two products used for conscious sedation
are approximately 950 million.
Products Under Development. The safety and efficacy of fentanyl as a
drug to induce conscious sedation are well known. Data from two human blood
level studies with fentanyl conducted by the Company and a former collaborative
partner show that it may be possible for therapeutic quantities of fentanyl to
be delivered by iontophoresis. Therefore, the Company believes it could
represent a viable drug for inducing conscious sedation using the Company's
iontophoretic drug delivery systems. As a result of an existing contractual
obligation with its former collaborative partner, the Company has agreed not to
pursue development of a fentanyl conscious sedation product until the second
quarter of 1998. Further, the Company's ability to market a product in the
United States using fentanyl may also be limited by certain litigation now
before the PTO. See "Risk Factors -Dependence on Patents and Proprietary
Technology" and "Business -- Collaborative Relationships and Licenses."
Pain Management
The Company estimates that of the 24 million surgeries performed each
year in the United States, 75%, or 18 million result in moderate to severe
postoperative pain. There are currently 9.1 million cancer patients in the
United States. Each year roughly 6.6 million patients with cancer are treated
for pain and of these 65% to 80% experience moderate to very severe pain. In
recent years, there has been a growing awareness that many patients, especially
the terminally ill, do not receive adequate analgesic therapy for their pain.
Sales of prescription narcotics in the United States to treat pain were
approximately $1.0 billion in 1996 and the market is estimated to grow at a rate
of approximately 10.5% per year. Factors contributing to this growth rate
include more relaxed policies for narcotic administration and the introduction
of drug delivery systems that make administration safer, more controllable and
convenient.
Morphine is the most commonly prescribed drug for the management of
severe pain in critically ill patients in the United States. To provide
effective pain relief, a morphine injection is generally administered every four
hours. Repeated injection or continuous infusion of morphine is expensive
because the methods of administration consume substantial hospital staff time or
require daily visits by a health care provider to a patient receiving home
infusion therapy. Morphine and hydromorphone are the most widely used parenteral
pain medications for home use because they are relatively safe, effective and
have relatively short half lives. Hydromorphone is a more potent, highly soluble
analog of morphine, which is the standard against which other analgesics are
generally measured.
The Company believes that iontophoretic delivery systems for narcotic
analgesics for the treatment of post operative and chronic pain control could
offer significant benefits over existing methods of delivery, including infusion
pumps, transdermal patches and transmucosal products. An iontophoretic system
has the potential to offer all of the benefits of an infusion pump, including
the ability to closely match the delivery profile with rapid onset and cessation
of action characteristics and to provide control of baseline delivery with bolus
dose capability for acute episodes of pain, but without the need to use needles.
The Company believes an iontophoretic delivery system for pain management may
also be more convenient and less expensive, since the rental of costly infusion
pumps and intervention by a skilled medical professional may not be required.
Passive transdermal patches offer convenience and reduced costs, but they take
four to eight hours before effective analgesia is achieved and take hours or
even days for the drug depot to clear from the skin after the patch is removed.
In addition, passive transdermal patches do not offer precise baseline dosing
from patient to patient and do not address the need for bolus dosing required to
address acute episodes of pain.
Products Under Development. The Company believes an iontophoretic
delivery system for hydromorphone may be a favorable alternative to the
administration of morphine by infusion for acute post operative pain and for
chronic pain in the hospice or home care setting. Hydromorphone is approximately
ten times more potent than morphine and has added therapeutic advantages,
including lower incidence of nausea and vomiting, which frequently accompanies
the administration of morphine, and more effective analgesia with no stupefying
and minimal hypnotic effects. Through the Elan Agreements, the Company obtained
rights to prototype wearable iontophoretic drug delivery systems for the
delivery of hydromorphone and to the preclinical, Phase I and limited Phase II
clinical data generated by Elan in testing the device. The Company believes the
additional clinical trials necessary to market this product may be of relatively
short duration in comparison to a newly developed drug, since hydromorphone's
safety and efficacy profile is well known and the clinical endpoints are both
well established and easy to measure.
In addition to a system for the delivery of hydromorphone, the Company
believes a market exists for an iontophoretic drug delivery system for fentanyl,
a narcotic analgesic more potent than hydromorphone, which has been used
primarily during surgery. The Company conducted a preliminary blood level study
using fentanyl and, using data from that study, designed advanced electrodes
which a former collaborative partner used in a subsequent fentanyl human blood
level test. These studies demonstrated that fentanyl can be delivered by
iontophoresis to achieve the delivery rates and blood levels necessary for pain
control.
Due to its short half-life in the body, injectable fentanyl is not
generally used for the treatment of moderate to severe post-operative or chronic
pain. However, the increased use of home infusion therapy and the development of
a passive transdermal patch allow for continuous administration of fentanyl at
therapeutic levels, making the drug suitable for new indications not previously
possible with injections. The Duragesic transdermal fentanyl patch, which was
developed by Alza and is marketed by Janssen Pharmaceuticals, was introduced in
1992 and had annual worldwide sales of $205 million in 1996.
As a result of an existing contractual obligation, the Company has
agreed not to pursue development of a fentanyl pain product until the second
quarter of 1998.
The Company's ability to market a product using fentanyl in the United
States may also be limited by certain litigation before the PTO. See "Business
- -- Collaborative Relationships and Licenses" and "Risk Factors -- Dependence on
Patents and Proprietary Technology."
Osteoporosis
Osteoporosis is a progressive disease that affects more than 25 million
people in the United States, most commonly post-menopausal women. The financial
costs associated with osteoporosis exceed $10 billion each year. Novartis and
the Company believe the overall therapeutic profile of the osteoporosis drug
currently under development may be optimized or enhanced through the use of an
iontophoretic drug delivery system. As a result, they have entered into an
agreement for the development by the Company of an iontophoretic drug delivery
system using the drug for the treatment of osteoporosis. The drug is currently
scheduled to enter Phase I clinical trials in 1998. See "Business --
Collaborative Relationships and Licenses."
Other Potential Product Applications
The Company has an active program of identifying and developing
iontophoretic drug delivery products for various therapeutic indications where
the Company believes there is a potential market need, where a suitable
water-soluble ionic drug is available and where that drug can be delivered
through iontophoresis in therapeutic quantities on a cost competitive basis. The
Company has identified certain drugs and therapeutic indications as potential
product opportunities, and has undertaken preliminary steps toward verifying the
market need and the technical feasibility of iontophoretic delivery of those
drugs. In addition, through the Elan Agreements, the Company acquired certain
in-process research and development, including exclusive world-wide rights for
the commercial exploitation of certain iontophoretic patents, know-how and
clinical data. The Elan technology includes in vitro feasibility studies
conducted on 64 drugs (including several peptide drugs), in vivo blood level
animal studies on 18 of these drugs and human blood level studies on nine of
these drugs. See "Business -Products and Products Under Development --
Osteoporosis."
As part of its continuing product development program, the Company will
evaluate the feasibility of iontophoretic delivery of biotechnology derived
peptides, small proteins and oligonucleotides for applications where existing
drug delivery systems are limited. The Company also intends to examine the use
of its iontophoretic system to deliver anti-emetics to treat postsurgical nausea
and vomiting induced by or secondary to chemotherapy, surgery, migraine headache
or AIDS. The Company believes that an iontophoretic system could provide rapid
onset of action, as well as baseline and bolus dosing capability similar to
infusion or injection, but would avoid the pain associated with the needle
insertion.
Collaborative Relationships and Licenses
A principal component of the Company's commercial strategy is to
develop products, where appropriate, in collaboration with established
pharmaceutical companies or other strategic partners. These collaborative
partners may provide proprietary drugs, technology, financial resources,
research and pharmaceutical manufacturing capabilities or marketing
infrastructure to aid in the commercialization of the Company's products and
potential future products. Depending on the availability of financial, marketing
and scientific resources and other factors, the Company may also license or
cross license its technology or products to others and retain profit sharing,
royalty, manufacturing, co-marketing, co-promotion or similar rights. Any such
arrangements could limit the Company's flexibility in pursuing alternatives for
the development or commercialization of its products.
The Company has entered into the following collaborative relationships
and license arrangements:
Novartis Agreement. In July 1995, the Company entered into an interim
research and development agreement with the pharmaceutical division of
Ciba-Geigy Corporation ("Ciba") to evaluate the feasibility of delivering a
number of Ciba compounds for several therapeutic applications utilizing the
Company's iontophoretic drug delivery technologies, including certain of its
existing iontophoretic devices. During the early development period, the parties
established the feasibility of a number of potential products, and in March
1996, the Company entered into a new research and development agreement with
Ciba (the "R&D Agreement"). In connection with the R&D Agreement, the Company
formed Dermion to conduct all of the Company's collaborative iontophoretic drug
delivery research and development activities other than those relating to the
Excluded Fields, and Ciba then acquired 20% of Dermion. In 1997, Ciba was merged
with Sandoz Corporation to form Novartis. Novartis will provide Dermion with
research funding through December 31, 1998 for the continued development of
proprietary iontophoretic drug delivery systems to deliver Novartis compounds
and has the option to renew the research and funding for successive one year
periods. During the term of the R&D Agreement, the Company granted Dermion a
non-exclusive license to a significant portion of the Company's technologies,
and Dermion has granted an exclusive world-wide license to Novartis for products
and systems for certain specific therapeutic indications using Novartis
proprietary drugs or specified generic compounds. Presently, Dermion is devoting
the majority of its research and development efforts to the development of these
systems and products for Novartis compounds. One of the compounds covered by the
R&D Agreement is scheduled to enter Phase I clinical trials during 1998. The R&D
Agreement may be terminated by Novartis at any time on at least six months'
notice. In the event of any such termination, Novartis would receive a
non-exclusive, royalty bearing license to any technology licensed by Dermion to
the Company pursuant to the R&D Agreement.
The R&D Agreement requires Novartis to pay the Company milestone
payments in connection with products developed for Novartis by Dermion, based on
the achievement of various development objectives. Additionally, Novartis is
required to pay Dermion royalties on sales by Novartis of products and systems
developed by Dermion.
No such sales have yet occurred and no royalties have been received by Dermion.
Under the R&D Agreement, if IOMED determines to pursue research or
development activities other than for the development of products in the
Excluded Fields, it would be required to contract with Dermion for that research
and development. The Company's agreements with Novartis contain contractual
restrictions on IOMED's ability to effect a change of control of Dermion (either
through the sale of IOMED's stock in Dermion or through the sale of Dermion's
assets or business). Through February 1998, IOMED is precluded from effecting
any such change of control and, during the remaining term of the R&D Agreement
and for one year thereafter, Novartis has a right of first offer to purchase
Iomed's interest in Dermion in connection with any proposed change of control.
In mid-1997, Novartis and the Company entered into negotiations for the
amendment of the March, 1996 agreements originally executed by Ciba, including
the R&D Agreement. Under the terms of the proposed amendment, Novartis would
exchange its 20% interest in Dermion for Common Shares of the Company. The
proposed amendment would also provide for the issuance to Novartis of a warrant
to acquire additional Common Shares. There can be no assurance that the Company
will be successful in its negotiations with Novartis regarding an amendment of
the companies' existing agreements. See "Risk Factors -- Reliance on
Collaborative Partners."
Elan Agreements. Effective March 1997, the Company entered into the
Elan Agreements. Under the Elan Agreements, the Company acquired exclusive,
worldwide licenses to certain of Elan's iontophoretic drug delivery
technologies, including know-how and over 250 issued and 47 pending United
States and foreign patents. In exchange for those rights, the Company paid Elan
$15.0 million (through the issuance to Elan of a $5.0 million note and a $10.0
million note), issued Elan warrants to purchase _____ Common Shares of the
Company at a price of $_____ per share, and agreed to pay Elan a royalty on net
revenues derived by the Company from the licensing or sale of its products. See
"Transactions Related to the Offering" and "Certain Transactions."
Alza Agreement. Alza has developed competitive iontophoretic drug
delivery technology and is, by its published reports, undertaking to develop
products that may be competitive with the Company's products. As a result of the
uncertainty of the Company's and Alza's respective patent rights for certain
iontophoretic delivery technologies, in 1993, the Company entered into a
cross-license agreement with Alza. Under the agreement, the companies, among
other things, exchanged non-exclusive, royalty free rights to certain patented
technologies which each party believed to be of significant strategic importance
to the potential technological success of many iontophoretic drug delivery
applications. One patent sublicensed by Alza to the Company under the agreement
bears a nominal royalty rate if used. Restrictions imposed on the sublicense,
sale, assignment and transfer of rights under this agreement may limit the
Company's ability to capitalize on the commercial and other economic potential
of these technologies. However, the Company does not believe these restrictions
inhibit its existing business development strategy.
University of Utah Agreement. In 1974, the Company entered into a
licensing agreement with the University of Utah Research Foundation (the
"University"). Under the agreement, which was amended in 1993, the Company
obtained an exclusive license to certain iontophoretic drug delivery and
prosthetic technologies developed at the University. Under the terms of the
amended license, the Company is obligated to pay the University a royalty on all
sales of its iontophoretic drug delivery products through the year 2007. In
December 1996, the Company sublicensed its rights in the prosthetic technologies
covered by the license to Fillauer, Inc.
Laboratoires Fournier Agreement. In July 1993, the Company entered into
an agreement with Laboratoires Fournier, a private French pharmaceutical
company, for the joint research and development of mini-integrated iontophoretic
systems, with primary effort devoted to the development of systems for the
treatment of acute post operative pain and patient controlled analgesia. The
companies subsequently concluded that certain United States patents issued after
the agreement posed a potential barrier to the commercial viability of the
proposed system in the United States, and the Company elected to suspend
development efforts in the area. As a consequence, in February 1996, the parties
terminated their collaborative research and development activities and amended
their initial agreement. Under the amended agreement, both companies have rights
to all jointly developed iontophoretic technologies and know-how, and
Laboratoires Fournier has a limited non-exclusive license to the Company's
previously existing proprietary iontophoretic technologies. The Company also
agreed not to pursue development of delivery systems for systemic pain control,
including conscious sedation and pain management, for a two year period ending
February 1998.
Manufacturing
The Company manufactures, tests, inspects, packages and ships its
products from an approximately 18,000 square foot leased manufacturing facility
located in Salt Lake City, Utah. The Company's manufacturing activities
primarily relate to its manufacture of electrode kits. The Company does not
manufacture or repackage any drugs or compounds used in its delivery systems and
outsources the manufacture and assembly of its Phoresor dose controllers.
The Company and certain of its suppliers are required to comply with
FDA regulations governing manufacturing practices, including the Quality System
Regulation, which mandate controls for product design, control and quality. The
Company believes it is in compliance with the Quality System Regulation. The
Company recently received its ISO 9001 and CE Mark certifications, which are
standards imposed by certain European countries on drug and medical devices
manufacturers. The Company has good manufacturing procedures audits conducted on
a regular basis.
Manufacture of Electrodes. The Company's iontophoretic drug delivery
electrode kits are manufactured and assembled using several proprietary
materials, processes and production technologies developed by the Company in
conjunction with its equipment and material suppliers. The Company assembles its
electrodes from internally manufactured components and outsourced components
that are manufactured by third parties to the Company's specifications. Each of
the Company's existing electrode kits is assembled on a separate production
line. The key components of the Company's electrodes are the rehydratable drug
containment pads (which use either the Company's multi-laminate hydrogel or its
Gel Sponge technologies), and silver and silver/silver chloride conductive
elements, each of which are covered by one or more patents owned or licensed by
the Company.
The Company manufactures the rehydratable drug containment pads used in
its electrodes. These pads are manufactured, using the Company's proprietary
processes, from multiple layers of a polymer material or from a sponge material
impregnated with a hydrogel. The silver and silver/silver chloride conductive
elements used in the Company's electrodes are manufactured for the Company to
its specifications by a third party. The Company has manufactured internally all
of the electrodes it has sold, and believes its electrode manufacturing capacity
can be expanded to meet anticipated needs for the foreseeable future.
The Company has adopted a "team" approach on its electrode assembly
lines and, by changing the production flow process and automating certain
production steps, was able to reduce manufacturing personnel from 70 in 1992 to
26 persons in 1997, thereby reducing per unit production costs while increasing
product lines and production levels. The Company intends to use a portion of the
proceeds of the Offering for capital equipment to further automate the assembly
and packaging of the Company's electrodes, to increase capacity and to reduce
costs. See "Use of Proceeds."
Manufacture of Dose Controllers. The Company's patented Phoresor
iontophoretic dose controllers employ a variety of sub-assemblies and components
that are designed or specified by the Company, including certain
microprocessors, circuit boards, on-board software, electrical lead wires and
control panels. These components and subassemblies are typically manufactured
for the Company by third parties, which then ship them to a contract
manufacturer for final assembly, testing and inspection in accordance with the
Company's specifications. The Company's manufacturing activities for the
Phoresor dose controllers are limited to design, labeling, inspection and
packaging.
The Company's second and third generation dose controllers are in
various stages of design, research, and development and may require additional
510(k) clearance from the FDA prior to marketing. The Company, alone or in
conjunction with its development partners, will design the products and, in
combination with its suppliers, will manufacture and assemble prototypes and
clinical quantities. Upon completion of the design, specifications and testing,
the Company intends to subcontract the manufacture and assembly of all
commercial quantities of its dose controllers to electronics companies that
specialize in such work.
The Company purchases certain components and materials used in its
products from single source suppliers pursuant to existing purchase orders and
agreements. See "Risk Factors -- Dependence on Single Sources of Supply."
Sales and Distribution
The Company's marketing strategy is to position its proprietary
iontophoretic drug delivery products in the marketplace as the preferred means
of drug delivery for a wide range of drugs. The strategy employs the use of
multiple sales and distribution channels, including (i) a network of medical
supply dealers; (ii) a direct sales force; and (iii) collaborative marketing
partners. The Company intends to use these distribution channels, both singly
and, for certain products, in combination, to maximize the Company's marketing
resources.
Local Inflammation Products. The Company has historically targeted its
sales efforts for its drug delivery system for acute local inflammatory
conditions to the rehabilitative medicine, physical therapy and related
specialty markets. The Company employs a nationwide distribution network
consisting of approximately 50 durable medical equipment and physician supply
dealers to sell and distribute its products in those markets. This dealer
network is supported by the Company's six regional sales managers and four
internal customer service representatives. In addition to the Company's sales
and distribution efforts for its local inflammation products in the United
States, it maintains marketing and sales activities in international markets,
including Europe, Scandinavia, Australia, South Korea, Singapore and Hong Kong.
These sales are made primarily through independent distributors operating in
those countries.
The Company intends to expand its marketing efforts by expanding and
improving its existing product lines and expanding its sales and distribution
capabilities into new segments of the inflammation market (including the
podiatry, chiropractic and primary care physician markets) through the use of
additional specialty dealers. In order to enhance its marketing efforts, the
Company is pursuing an NDA for its acute local inflammation drug delivery system
for Dexamethasone. The Company believes an approved NDA will allow it to
actively promote this product and will enhance the Company's ability to
establish the Dexamethasone product as a primary treatment option for acute
local inflammation conditions.
Local Dermal Anesthetic Products. In 1997, the Company launched an
iontophoretic drug delivery system for Iontocaine. The Company has initially
targeted its sales efforts for the product in the pediatric hospital market
under the name Numby Stuff. In order to access this market, the Company intends
to hire a direct sales staff of approximately 40 persons over the next four
years to market Numby Stuff. To date, the Company has hired and trained seven
sales agents, and anticipates that it will be able to hire and train the
remaining 33 sales representatives by the end of 1999. There can be no assurance
the Company will be able to recruit, hire or retain such personnel successfully.
The Company also intends to expand its marketing efforts for its Iontocaine
products for other applications and to the general physician office and
international markets through the use of collaborative marketing partners.
Products Under Development. The Company is developing a number of
iontophoretic drug delivery systems for other therapeutic indications, including
remission of pre-term labor, conscious sedation, post operative and chronic pain
control and osteoporosis. If any of these products is successfully developed and
approved by the FDA, the Company would market those products in the hospital
market through its direct sales force and to the physician office, international
and other specialty markets through one or more collaborative marketing
partnerships.
Patents and Proprietary Rights
The Company's iontophoretic drug delivery technologies include patents,
trademarks, trade secrets and other proprietary know-how. These technologies are
used in various combinations in the testing, evaluation and formulation of
optimal ionic drug solutions and in the research, development, design and
manufacture of microprocessor controlled power supplies and iontophoretic
electrodes which are specifically designed and constructed for particular
therapeutic applications.
The Company has implemented a policy of actively patenting and
maintaining as trade secrets and proprietary information all inventions and
technologies which it believes are important to its business operations. The
Company generally seeks patent protection for its key proprietary technologies
and technological products in the United States, Canada, Europe and Japan. The
Company also relies on a number of trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. The Company's patent committee meets regularly to
review and make recommendations to the Company's management regarding patent and
invention issues.
The Company currently holds or has rights to utilize 60 United States
patents and 245 foreign patents relating to its iontophoretic drug delivery
technology, and has (or has the rights to utilize) 15 pending patent
applications in the United States and 47 pending patent applications in foreign
countries for that technology. The Company also owns or has licensed rights to
three issued and one pending United States patent governing the design and
manufacture of certain myoelectric prosthetic devices, including the Utah
Artificial Arm, which it has sublicensed to a third party in connection with the
sale of the Company's Motion Control division in December 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The medical products industry has recently seen extensive litigation
regarding patents and other intellectual property rights. Intellectual property
litigation is expensive and time consuming and, if decided adversely to a party,
can result in substantial loss or diversion of revenues for, and could have a
material adverse effect on the business operations of, the losing litigant.
There can be no assurance the pending patent applications filed by the Company
will be approved by appropriate governmental agencies, or that the Company's
issued or pending patents will not be challenged or circumvented by its
competitors. There can also be no assurance the Company will not become a party
to intellectual property right litigation and its concomitant adverse effects.
Further, there can be no assurance infringement claims will not be asserted by
other parties in the future against the Company, or that, in such event, the
Company would prevail or be able to obtain licenses on reasonable terms if it
did not prevail in those infringement claims. Adverse determinations in any
litigation could subject the Company to significant liabilities and/or require
the Company to obtain licenses from third parties. If the Company is unable to
obtain necessary licenses or is unable to develop or implement alternative
technology, it could be unable to manufacture and sell the affected products.
Any of these outcomes could have a material adverse effect on the Company's
business financial condition and results of operations.
In August of 1993, the PTO issued a patent to Alza relating to the
iontophoretic delivery of fentanyl. Alza's subsequent patent request in Europe
has been denied, and its United States patent was reexamined by the PTO. In the
reexamination, all of the substantive claims that Alza made in the original
patent relating to fentanyl and its analogs were denied. Alza has appealed the
PTO's decision and, as a result, there can be no assurance Alza will not regain
its patent position. If Alza is successful in its appeal of the PTO's decision,
and if the Company proceeds in the development of an iontophoretic fentanyl
product, the Company may be required to obtain a license from Alza Corporation
to market an iontophoretic drug delivery system for fentanyl in the United
States. There can be no assurance the Company would be able to obtain a license
on terms which are acceptable to the Company, if at all. See "Risk Factors --
Dependence on Patents and Proprietary Technology."
In addition to its patented technology, the Company relies on trade
secrets, technical know-how and continuing invention to maintain its competitive
position and products. The Company works actively to foster continuing
technological innovation by its employees and consultants in order to maintain
its competitive position, and has taken security measures to protect its trade
secrets and periodically explores ways to further enhance its trade secret
security. The Company requires each of its employees and consultants to execute
an intellectual property and invention agreement. The agreement generally
provides that all inventions, designs, formulas, works of authorship,
compositions of matter and discoveries made, conceived of or developed by the
individual and all confidential information disclosed or made know to the
individual during the term of his or her relationship with the Company will be
assigned to and remain the exclusive property of the Company and that it will be
maintained as confidential and not disclosed to third parties at any time except
under specified circumstances. The agreements also prohibit the employee or
consultant from directly or indirectly competing with the Company during the
term of their relationship with the Company and from recruiting the Company's
employees on behalf of competitors after the termination of that relationship.
There can be no assurance these measures will provide adequate protection for
the Company's trade secrets or other proprietary information. There can also be
no assurance the Company's competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets.
The Company engages in a number of collaborative relationships with
third parties. Under the terms of these relationships, the Company has agreed to
act as the licensor or licensee of certain technology and to engage in a number
of research and development activities relating to that technology or to the
development of iontophoretic drug delivery systems. Under these arrangements,
Alza and Laboratoires Fournier have obtained licenses to certain of the
Company's proprietary iontophoretic technologies. These companies will compete
with the Company for contracts with collaborative partners and are independently
developing iontophoretic drug delivery systems that will compete directly with
many of the products currently being developed by the Company. See "Risk Factors
- -- Reliance on Collaborative Partners," "Business -- Collaborative Relationships
and Licenses" and "Business -- Competition."
Government Regulation
The research, development, manufacture, and marketing of both drugs and
medical devices, including the Company's iontophoretic drug delivery systems,
are subject to extensive regulation by the FDA in the United States and by
comparable authorities in other foreign countries. These national agencies and
other federal, state and local entities regulate, among other things, research
and development activities and the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising, promotion and
reporting requirements related to product injury of the Company's products. The
regulations applicable to the Company's products may change as the presently
limited number of approved iontophoretic drug delivery products increases and
regulators acquire additional experience in this area. The FDA has broad
authority to enforce the medical devices and drug regulations and laws, and
noncompliance can result in a variety of regulatory responses ranging from
warning letters and mandatory product recalls to civil or criminal actions and
penalties. See "Risk Factors -- Uncertainty of Government Regulations."
The Company's iontophoretic drug delivery products involve a medical
device component, thereby subjecting such products to compliance with the FDA's
regulations governing medical devices. Where such medical devices are labeled
for use with a specific pharmaceutical product for a specific therapeutic
indication, they are subject to the FDA's regulations governing both medical
devices and pharmaceutical products. The Company believes that most, if not all,
of its future iontophoretic drug delivery systems will involve a pharmaceutical
component or specific labeling for use with a pharmaceutical product.
Products regulated as medical devices may not be commercially
distributed in the United States unless they have been cleared or approved by
the FDA, or unless they are otherwise exempted from the FDA's regulations.
Currently, there are two methods for obtaining FDA clearance or approval of
medical devices. Devices deemed to pose less risk are placed in class I (general
controls) or class II (general and special controls) and qualify for 510(k)
notification, a procedure under ss. 510(k) of the Federal Food, Drug, and
Cosmetic Act (the "Drug Act"). In order for a device to qualify under the ss.
510(k) notification procedure, the manufacturer must, among other things,
establish that the product to be marketed is substantially equivalent in
intended use and safety and effectiveness to another legally marketed class I or
class II device or to a "preamendment" class III device for which FDA has not
called for PMAs. In such cases, marketing of the product may commence when the
FDA issues a letter finding there is a substantial equivalence to the legally
marketed device. The FDA may require, in connection with a 510(k) notification,
the manufacturer to provide the FDA with test results from animal and/or human
clinical trials. The Company believes that it typically takes between four and
12 months to obtain a 510(k) clearance, but it can take longer.
A 510(k) clearance is also required when the manufacturer makes changes
or modifications to a cleared device that could significantly affect safety or
effectiveness, or where there is a major change or modification in the intended
use of a cleared device. In such cases, the manufacturer is the party which
initially determines if the change or modification is of a kind or nature that
would necessitate a new 510(k) notification. The FDA's regulations provide only
limited guidance in making such determinations. The FDA has cleared the
Company's electrical dose controller and electrode kits for marketing under a
510(k) clearance. Since obtaining its 510(k) clearances, the Company has made
modifications changes to its products. Based on the checklist developed by the
FDA to assist manufacturers in determining whether they are required to obtain a
510(k) clearance for a modified device, the Company has determined that a new
510(k) submission was not required in connection with the commercial
introduction of such products. However, there can be no assurance that the FDA
will not require the Company to obtain additional 510(k) clearances with respect
to those products. If the FDA requires the Company to submit a new 510(k) notice
for any device modification, the Comapny may be prohibited from marketing the
modified device until the 510(k) notice is cleared by the FDA.
A medical device that does not qualify for the 510(k) clearance is
placed in class III, which is reserved for devices deemed by the FDA to pose the
greatest risk (e.g., life-sustaining, life supporting or implantable devices, or
devices that are not substantially equivalent to a legally marketed class I or
II device). The manufacturer of such a device must file a PMA application under
ss. 515 of the Drug Act. A PMA application generally requires a much more
complex submission than a 510(k) notification and typically requires a showing
that the device is safe and effective based on extensive and costly preclinical
and clinical testing, as well as information about the device and its components
regarding, among other things, manufacturing, labeling and promotion. Upon
submission, the FDA determines if the PMA application is sufficiently complete
to permit substantive review and, if so, the application is accepted for filing.
The FDA then commences an in-depth review of the PMA application, which the
Company believes can last from one to three years, or even longer. Even after
approval of a PMA, a new PMA or PMA supplement is required in the event of a
modification to the device, its labeling or its manufacturing process.
A preamendment class III device is one that was on the market before
May 28, 1976. A device that is substantially equivalent to a preamendment class
III device can be brought to market through the 510(k) process until the FDA
either calls for the submission of PMA applications or downclassifies the device
to class I or II. Manufacturers of preamendment class III devices that the FDA
retains in class III must submit PMA applications 90 days after the publication
of a final regulation calling for PMAs. In such event, a PMA must be submitted
even if the device has already received 510(k) premarket clearance. On the other
hand, if the FDA downclassifies a preamendment class III device to class I or
II, a PMA application is not required and such devices may continue to be
marketed through the 510(k) process.
An even more lengthy and complex regulatory framework applies to the
labeling and marketing of specific drugs for use with an iontophoresis device.
The activities required before a pharmaceutical product may be marketed in the
United States primarily begin with preclinical testing. Preclinical tests
include extensive laboratory evaluation of product chemistry and other end
points and animal studies to assess the potential safety and efficacy of the
product as formulated. Almost all preclinical studies pertinent to drug approval
are regulated by the FDA under a series of regulations called the Good
Laboratory Practice (GLP) regulations. Violations of these regulations can, in
some cases, lead to invalidation of the studies, requiring such studies to be
replicated.
If the drug is an NCE or has not previously been approved for
iontophoretic delivery to treat a specific indication, the FDA approval process
entails (i) conducting preclinical laboratory and animal testing to enable FDA
approval of an IND application, (ii) initial IND clinical studies to define
safety and dose parameters, (iii) well-controlled IND clinical trials to
demonstrate product safety and efficacy, and (iv) submission to the FDA of an
NDA. Preclinical studies involve laboratory evaluation of product
characteristics and animal studies to assess the efficacy and safety of the
drug. Human clinical trials are typically conducted in three sequential phases.
Phase I trials normally consist of testing the product in a small number of
healthy volunteers for safety and pharmacokinetic parameters using single and
multiple dosing regimens. In Phase II trials, the manufacturer evaluates safety,
initial efficacy, and dose ranging of the product for specific indications in a
somewhat larger patient population. Phase III trials typically involve expanded
testing for safety and clinical efficacy in a broad patient population at
multiple clinical testing centers. The manufacturer must also submit a clinical
plan, or "protocol," accompanied by the approval of the institution
participating in the trials, to the FDA prior to commencing each clinical trial.
The FDA may order the temporary or permanent discontinuation of clinical trials
at any time. All the results of the preclinical and clinical studies on a
product are then submitted to the FDA in the form of an NDA for review. In
responding to an NDA, the FDA may grant marketing approval, require additional
testing and/or information, or deny the application altogether. The process of
obtaining FDA approval for a new product through the IND/NDA process may take
several years and typically involves the expenditure of substantial resources.
The regulatory status of iontophoresis devices is complex. The FDA has
classified them as class II devices eligible for marketing through 510(k)
premarket clearance when intended for use with a drug whose labeling bears
adequate directions for the device's use with that drug. For a drug to obtain
FDA approval of labeling bearing such directions for use generally requires
approval of an NDA or an NDA supplement. However, if an iontophoresis device is
intended for use with a drug that is not labeled for use with the device, the
FDA considers the iontophoresis device to be a preamendment class III device.
This status means that the device at present can be marketed through a 510(k)
clearance, but it remains subject to a call for PMAs.
In an April 1994 document setting forth the FDA's strategy for
addressing preamendment class III devices, the FDA indicated that preamendment
class III iontophoresis devices were among fifteen "high priority" devices that
presented an unreasonably high risk to public health because significant issues
of safety and/or probability of being resolved. The FDA indicated that these
devices were not considered candidates for downclassification and were very
likely to be required to be subject to PMAs. This process would involve two
steps. First, the FDA would publish a proposed regulation to require PMAs for
iontophoresis devices having preamendment class III status. After a comment
period, FDA would then publish a final regulation imposing the requirement. The
FDA's strategy document stated the agency's intent to publish a proposed
regulation requiring PMAs for preamendment class III iontophoresis devices in
1996. The agency, to date, has not published such a regulation.
The Company's Phoresor received 510(k) clearance in 1990 as a
preamendment class III device labeled for use with ions of soluble salts or
other drugs. In 1995, the FDA approved an NDA for Iontocaine to be used as a
local anesthetic and delivered iontophoretically by the Phoresor, which
effectively moved the Phoresor into class II for this intended use. Unlike
Iontocaine, Dexamethasone does not have an NDA approval allowing it to be
labeled for iontophoretic delivery. Thus, the Company's Phoresor is a
preamendment class III device when used with Dexamethasone (or any drug other
than Iontocaine). No assurance can be given that the Company will ever obtain an
approved NDA for the iontophoretic delivery of Dexamethasone. The Company's
failure to obtain FDA approval of an NDA for Dexamethasone could have a material
adverse effect on the Company's business financial condition and results of
operations.
If the FDA calls for PMAs for preamendment class III iontophoresis
devices, the Company would be required to have a PMA accepted for filing by the
FDA within 90 days after the date of the final regulation calling for PMAs.
There can be no assurance that the Company would be able to complete necessary
clinical studies and otherwise prepare and file a PMA within the prescribed time
period, or that any data and information submitted in a PMA would be adequate to
support approval. The Company's failure to submit a PMA and have it accepted for
filing by the FDA within the required timeframe could result in the Company
being required to cease commercial distribution of the Phoresor for use with
Dexamethasone. Upon timely filing of a PMA, the Company believes (based on FDA's
announced position as to certain other preamendment class III medical devices)
that the FDA would permit continued commercial distribution of the Phoresor for
use with Dexamethasone during the time necessary to review the PMA. There can be
no assurance, however, that the FDA would permit such continued commercial
distribution pending review of a PMA for the device, nor can any assurance be
given that the FDA would approve a PMA filed by the Company. The FDA also could
condition PMA approval upon approval of an NDA permitting Dexamethasone to be
labeled for use with the Phoresor. If the Company were required for any length
of time to cease commercial distribution of the Phoresis System for use with
Dexamethasone, the Company's business, financial condition and results of
operations could be materially and adversely affected.
The FDA also regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate current good manufacturing practice ("GMP") compliance, including
compliance with the Quality System Regulation for devices and the current GMPs
(for drugs). The FDA's GMPs require, among other things, that (i) the
manufacturing process be regulated and controlled by the use of written
procedures, and (ii) the ability to produce products which meet the
manufacturer's specifications be validated by extensive and detailed testing at
various steps of the manufacturing process. These regulations also require
investigation of any deficiencies in the manufacturing process, the products
produced, or record keeping. The FDA monitors compliance with these requirements
by requiring manufacturers to register their manufacturing facilities with the
FDA and by conducting periodic FDA inspections of those facilities. If an FDA
inspector observes conditions that might be in violation of GMP requirements,
the manufacturer is generally required to correct those conditions or explain
them satisfactorily. If a manufacturer fails to adhere to GMP requirements, the
devices manufactured by the manufacturer could be considered to be manufactured
in violation of the Drug Act and the manufacturer could be subject to FDA
enforcement action that could include fines, plant closure, or a recall of the
Company's product.
Agencies similar to the FDA regulate medical devices and pharmaceutical
products in most developed foreign countries, whereas some other countries allow
unregulated marketing of such devices and products. The Company will be required
to meet the regulations of any foreign country where it markets its products.
There can be no assurance any of the Company's future products will receive FDA
clearance or similar clearance in foreign countries. It is also possible that
regulations governing the manufacture and sale of the Company's products could
change in the future. The Company cannot predict the impact of any such changes
on its business. See "Risk Factors -- Government Regulation."
Various aspects of the Company's business and operations are also
regulated by a number of other governmental agencies including the Drug
Enforcement Agency, U.S. Department of Agriculture, the Environmental Protection
Agency, the Occupational Safety and Health Administration as well as by other
federal, state and local authorities. In addition, international sales are
regulated by numerous foreign authorities. Unanticipated changes in existing
regulatory requirements, failure of the Company to comply with such requirements
or adoption of new requirements could have a material adverse effect on the
Company. There can be no assurance 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.
Competition
The drug delivery, pharmaceutical and biotechnology industries are
highly competitive and rapidly evolving, with significant developments expected
to continue at a rapid pace. The Company's success will depend upon maintaining
a competitive position and developing products and technologies for efficient
and cost-effective drug delivery. The Company's products will compete with other
formulations of drugs and with other drug delivery systems, including other
iontophoretic delivery systems. The Company believes its products will compete
on the basis of quality, efficacy, cost, convenience, safety and patient
compliance, but there can be no assurance any of the Company's products will
have advantages significant enough to cause medical professionals to adopt their
use. New drugs or further developments in alternative drug delivery methods may
provide greater therapeutic benefits for a specific drug or indication, or may
offer comparable performance at lower cost than those offered by the Company's
iontophoretic systems.
The Company is aware of many other competitors in the general field of
drug delivery, including competitors developing injectable or implantable drug
delivery systems, oral drug delivery technologies, passive transdermal systems,
oral transmucosal systems and intranasal and inhalation systems. The Company is
also aware of other companies that have developed or are currently developing
iontophoretic and other electrotransport drug delivery systems. There can be no
assurance that developments by these parties or others will not render the
Company's products or technologies uncompetitive or obsolete. Many of the
Company's existing or potential competitors have substantially greater research
and development capabilities, experience, manufacturing, marketing, financial,
and managerial resources than the Company. Accordingly, the Company's
competitors may succeed in developing competing technologies, obtaining FDA
approval or gaining market share for products more rapidly than the Company.
Both Alza and Empi, Inc. ("Empi") are engaged in the development and/or
marketing of iontophoretic devices. Alza is undertaking the development of
iontophoretic drug delivery systems, but does not currently market any
iontophoretic products. Empi is the Company's primary competitor in the
treatment of acute local inflammation in the physical therapy market and, the
Company estimates, controls a majority of the retail iontophoresis market for
that indication.
Currently, no other company markets an iontophoretic system for the
inducement of local anesthesia. The Company's iontophoretic system for
delivering Iontocaine for the inducement of local dermal anesthesia will
therefore primarily compete with traditional methods of delivering local dermal
anesthetics by needle injection or will be used in circumstances where either no
anesthesia is used, due to the pain associated with the needle injection
(including needle injections themselves), or where topical anesthetic creams are
used. The most effective and widely used topical anesthetic cream, EMLA, is
manufactured and sold by Astra Corporation, a large Swedish pharmaceutical
company. There can be no assurance that the Company can effectively compete with
these products or any other drug delivery systems. See "Risk Factors --
Uncertainty of Market Acceptance and Limited Market Penetration" and "Risk
Factors -- Intense Competition and Rapid Technological Change."
Facilities
The Company maintains leased administrative, manufacturing and research
office space at two facilities. The Company's principal executive offices and
manufacturing facility, which consists of approximately 18,000 square feet of
useable space, are located at 3385 West 1820 South in Salt Lake City, Utah. Its
research facility, which consists of approximately 8,000 square feet of useable
space, is located at 1290 West 2320 South in Salt Lake City, Utah. These
facilities are leased to the Company until December 31, 1999 and December 31,
1997, respectively. The Company is currently negotiating an extension of the
lease on its research and development facilities. The Company believes its
existing facilities are adequate and suitable for its present needs and that
additional space will be available as needed.
Employees
The Company has assembled a team of medical-products managers and
scientists with considerable experience in iontophoresis, encompassing all of
the key disciplines which the Company believes are necessary to further the
development and implementation of the Company's business.
As of September 1, 1997, the Company had 73 full-time employees, 6 of
whom hold doctorate degrees. Six others hold advanced business or technical
degrees. Of the Company's 73 full-time employees on September 1, 1997, 14 were
engaged in research and development, 35 in manufacturing and quality control,
and 24 in marketing and general administration. The Company's future success
depends in significant part upon the continued service of its key technical and
senior management personnel and its continuing ability to attract and retain
highly qualified technical and managerial personnel. None of the Company's
employees is represented by a labor union. The Company has not experienced any
work stoppages and considers its relations with its employees to be good.
See "Risk Factors -- Retention and Attraction of Key Employees."
Legal Proceedings
The Company is not involved in, nor is it aware of, any litigation or
impending litigation.
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
Executive Officers, Directors and Key Employees
The current executive officers, directors, and key employees of the
Company are:
<S> <C> <C>
Name Age Position
------------------------------- ---- --------------------------------------------------
Ned M. Weinshenker, Ph.D....... 54 President, Chief Executive Officer and Director;
President and Chief Executive Officer, Dermion
W. Tim Miller.................. 46 Executive Vice President, Sales and Marketing
and General Manager, Clinical Systems
Thomas M. Parkinson, Ph.D...... 60 Vice President, Research and Development;
General Manager, Dermion
Robert J. Lollini.............. 43 Vice President, Finance, Chief Financial Officer
and Secretary; Vice President, Secretary and
Treasurer, Dermion
James R. Weersing.............. 58 Chairman of the Board of Directors
John W. Fara, Ph.D............. 54 Director
Michael T. Sember.............. 47 Director
Steven P. Sidwell.............. 57 Director
Peter J. Wardle................ 62 Director
Warren Wood.................... 66 Director
Timothy B. Lucas............... 34 Director of National Sales
Craig S. Lewis................. 37 Director of Anesthesia Project
Jamal S. Yanaki................ 37 Director of Engineering and Quality
Mary Crowther.................. 46 Director of Administration and Finance
</TABLE>
Ned M. Weinshenker, Ph.D., has served as a director of the Company since 1990
and served as Chairman of the Board of Directors between November 1990 and
January 1992. Dr. Weinshenker was appointed to serve as the Company's Chief
Executive Officer in 1992. In 1993, he was also appointed to serve as the
Company's President. Dr. Weinshenker also serves as President and Chief
Executive Officer of Dermion. Dr. Weinshenker's previous work experience
encompasses twenty years in the pharmaceutical and biotechnology fields,
including senior positions at three drug delivery companies. Between 1986 and
1990, Dr. Weinshenker was a principal in MBW Management, a venture capital firm.
Dr. Weinshenker was President of Churchill Oaks Consulting, a consultant to
pharmaceutical and biotechnology companies, from 1983 to 1986. He served as Vice
President of Research & Development at Sequus, Inc., a drug delivery company,
between 1982 and 1983. He served as Vice President of Research at Dynapol, Inc.,
a chemical technology company, from 1972 to 1982. He was Director of Physical
Sciences at Alza, a large drug delivery company, between 1970 and 1972. Dr.
Weinshenker currently serves as a director of CyDex, Inc., a drug delivery
company. Dr. Weinshenker received a Bachelor of Science in Chemistry from the
Polytechnic Institute of Brooklyn and a Ph.D. in Organic Chemistry from the
Massachusetts Institute of Technology. Dr. Weinshenker also spent a year at
Harvard University as a National Institutes of Health Postdoctoral Fellow.
W. Tim Miller joined the Company in 1994 and serves as Executive Vice President,
Sales and Marketing and General Manager, Clinical Systems. Between 1991 and
1994, Mr. Miller was the President and Chief Executive Officer of Sharpe
Endosurgical Corporation, a company that designs, manufactures, and markets
specialty endosurgical instruments. From 1990 to 1991, Mr. Miller was a partner
with Kansas Creative Devices, a medical device design firm. Between 1986 and
1990, Mr. Miller was a Vice President and General Manager of the Diagnostics
Division of Marion Laboratories, where he led the sales efforts for a variety of
diagnostic products including the 10 Minute Strep Throat ID System. Prior to
1986, Mr. Miller held senior sales positions with American Home Products
Corporation and American Hospital Supply Corporation. Mr. Miller previously
served as a director of the American Social Health Association and the
Biomedical Marketing Association. Mr. Miller received a Bachelor of Science
degree in Life Science from Southern Indiana University.
Thomas M. Parkinson, Ph.D. is the Company's Vice President, Research and
Development and General Manager, Dermion. Prior to joining the Company in 1991,
he was Vice President of Research and Development for Sequus, Inc., where he was
responsible for biopharmaceutics, clinical testing, and developing regulatory
strategy for new liposome drug delivery systems. Prior to that, Dr. Parkinson
was Director of Medical Affairs for Collagen Corporation, a chemical technology
company, and Vice President, Dynapol, Inc., a chemical technology company. From
1968 to 1974 he also was head of the Atherosclerosis Research Section of Upjohn
Company, a pharmaceutical manufacturer company, where he developed Colestid,
Upjohn's first cholesterol-lowering drug. Dr. Parkinson received a Bachelor of
Science degree in Chemistry from Providence College and a Ph.D. in Biochemistry
and Medical Sciences from the University of Florida College of Medicine.
Robert J. Lollini joined the Company in 1993 and serves as Vice President,
Finance, Chief Financial Officer and Secretary. Mr. Lollini also serves as Vice
President, Secretary and Treasurer, Dermion. Between 1989 and 1992, Mr. Lollini
worked for R.P. Scherer Corporation, an international drug delivery company, as
Vice President, Finance, Chief Financial Officer and Secretary, and between 1981
and 1989, as its Corporate Controller and Chief Accounting Officer. Between 1978
and 1981, Mr. Lollini was with the accounting firm of Arthur Andersen & Co. Mr.
Lollini is a Certified Public Accountant and received a Bachelor of Arts degree
in Accounting from Michigan State University and an MBA in Finance/Economics
from the University of Detroit.
James R. Weersing has served as Chairman of the Company's Board of Directors
since 1992, and has been a director of the Company since 1987. Mr. Weersing has
been Managing General Partner of MBW Management, Inc., a venture capital firm,
since 1983. Mr. Weersing also serves as a director of Ventana Medical Systems,
Inc., a medical diagnostics company. Mr. Weersing received a Bachelor of Science
degree in Mechanical Engineering and an MBA degree from Stanford University.
John W. Fara, Ph.D. has served as a director of the Company since 1992. Dr. Fara
is the President and Chief Executive Officer of DepoMed, Inc., a pharmaceutical
company. Dr. Fara also serves as a director of three other medical device
companies, PediaPharm, Inc., Cooks Pharma, and The Asthma Company. From 1990 to
1996, Dr. Fara was President and Chief Executive Officer of Anergen, Inc., a
biotechnology company. Dr. Fara received a Bachelor of Science degree from the
University of Wisconsin and a Ph.D in Physiology from the University of
California, Los Angeles.
Michael T. Sember has served as a director of the Company since May of 1997. Mr.
Sember is Vice President of Planning, Investments and Development for Elan.
Prior to joining Elan, Mr. Sember was with Marion Merrell Dow, Inc. from 1973 to
1991 and, prior to that, Marion Laboratories. Mr. Sember also serves as a
director of both Acorda Therapeutics, Inc., a pharmaceutical company, and the
Georgia Biomedical Partnership, an industry trade organization, and as Chairman
and Chief Executive Officer of Targon Corporation, a joint venture company of
Elan and CYTOGEN Corp. Mr. Sember received a Bachelor of Science from the
University of Pittsburgh and an MBA from Rockhurst College.
Steven P. Sidwell has served as a director of the Company since 1993. Mr.
Sidwell is the Executive Vice President of SensorMedics, Inc., a cardiopulmonary
diagnostic device manufacturer and a subsidiary of ThermoElectron, Inc. Mr.
Sidwell was the Vice President of Manufacturing for SensorMedics between 1991
and 1995. Mr. Sidwell received a Bachelor of Science degree in Chemical
Engineering from Purdue University and an MBA from the Wharton School at the
University of Pennsylvania.
Peter J. Wardle has served as a director of the Company since 1987. Mr. Wardle
has been a General Partner of Newtek Ventures, a venture capital company, since
1983. Mr. Wardle also serves as a director of Laser Diagnostic Technologies, a
biotechnology company, Microbar, Inc., a software company, IES Technologies
Corporation, a software company and Sensys Instruments Corporation, a
semiconductor company. Mr. Wardle received a Bachelor of Arts degree in History
and Economics from Dartmouth College.
Warren Wood has served as a director of the Company since 1996. Mr. Wood
recently retired as Chairman of the Board of Directors, President and Chief
Executive Officer of Cabot Medical Corporation, a medical device company. Mr.
Wood received a Bachelor of Science in Electrical Engineering from the
University of Washington.
Timothy B. Lucas joined the Company in 1992 and presently serves as the Director
of National Sales for the Company's local inflammation products. From 1989 to
1991, Mr. Lucas served in various national and regional sales capacities with
the Nortech Division of Medtronic, Inc., a manufacturer of external
neuromuscular stimulators. Prior to joining Medtronic, Mr. Lucas was a Field
Sales Manager with SePro Healthcare, Inc., a manufacturer of orthopedic
products. Mr. Lucas received a Bachelor of Science degree in Marketing from York
College of Pennsylvania.
Craig S. Lewis joined the Company in 1997 as Director of Anesthesia Project to
direct the market introduction of the Company's local dermal anesthesia product
line. Between 1994 and 1997, Mr. Lewis was Director of Marketing for Seabrook
Medical Systems, Inc., a manufacturer of temperature management therapy
products, and as Global Marketing Director, Patient Care Division for its parent
company, Zimmer, Inc., a manufacturer of orthopedic products. From 1980 to 1994,
Mr. Lewis held various pharmaceutical sales, product management and marketing
positions with Marion Merrell Dow, Inc. Mr. Lewis received a Bachelor of Science
degree in Business and Finance from the University of Cincinnati and an MBA
degree from Xavier University.
Jamal S. Yanaki joined the Company in 1992 and serves as Director of Engineering
and Quality. Between 1990 and 1992, Mr. Yanaki was a Senior Process Development
Engineer for Coherent, Inc., a manufacturer of medical lasers. Prior to 1990,
Mr. Yanaki worked as a process development engineer for the Lifescan Division of
Johnson and Johnson Corp., a manufacturer of blood glucose monitoring systems.
Mr. Yanaki received a Bachelor of Science degree in Chemistry from Loyola
University of Chicago and a Masters degree in Chemical Engineering from the
Colorado School of Mines.
Mary A. Crowther joined the Company in 1979 and presently serves as, Director of
Finance and Administration. During her 18 years with the Company, Ms. Crowther
has served in various management capacities in the areas of administration,
accounting, information systems, risk management, treasury and human resources.
Ms. Crowther received a Bachelor of Science degree in Business Administration
from Westminster College.
Board of Directors and Other Information
In accordance with the Company's Bylaws, each member of the Company's
Board of Directors is elected to a term of one year. Voting for directors is
based on cumulative voting, under which shareholders have the right to cast, in
any election of directors, all of the votes to which the shareholder's shares
are entitled for as many persons as there are directors to be elected. At each
annual meeting of the shareholders, successors are elected to serve from the
time of election and until their successors have been duly elected and will have
qualified. The officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors. Each of the Company's officers and
directors, other than non-employee directors, devote substantially full time to
the affairs of the Company.
The Company's Articles of Incorporation will be amended in connection
with the Offering to eliminate cumulative voting for directors and to provide
for a classified Board of Directors consisting of three classes, as nearly equal
in number as possible. The directors in each class will serve staggered three
year terms. The class one directors (consisting of _____, _____ and _____) will
initially serve until 1998, the class two directors (consisting of _____ and
_____) will initially serve until 1999, and the class three directors
(consisting of _____ and _____) will initially serve until 2000. At each annual
meeting of the shareholders of the Company, the successors to the class of
directors whose term expires at such meeting will be elected to hold office for
a term expiring at the annual meeting of shareholders held in the third year
following the year of their election. In connection with the Offering, the
Company will also amend and restate its Articles of Incorporation to provide
that directors may be removed only for cause and only by the affirmative vote of
the holders of two-thirds of the Common Shares entitled to vote.
Board of Directors' Committees
The Board of Directors has established four committees, the Executive
Committee, Audit Committee, Compensation Committee and Special Committee. Each
of these committees is responsible to the full Board of Directors, and its
activities are subject to approval of the Board of Directors. The Executive
Committee is charged with overseeing the operations of the Company, and
generally has all of the authority of the full Board of Directors, between
regularly scheduled meetings of the full Board of Directors. The Executive
Committee is comprised of Mr. Weersing, Dr. Weinshenker and Mr. Wardle. The
Audit Committee reviews the scope and results of the annual audit of the
Company's consolidated financial statements conducted by the Company's
independent accountants, the scope of other services provided by the Company's
independent accountants, proposed changes in the Company's financial and
accounting standards and principles, and the Company's policies and procedures
with respect to its internal accounting, auditing and financial controls. The
Audit Committee also examines and considers other matters relating to the
financial affairs and accounting methods of the Company, including the selection
and retention of the Company's independent accountants. The Audit Committee is
comprised of Mr. Weersing, Dr. Fara and Mr. Sidwell. The Compensation Committee
administers the Company's compensation programs, reviews and recommends to the
Board of Directors compensation arrangements for senior Company management and
directors, and performs such other duties as may from time to time be determined
by the Board of Directors. In addition, the Compensation Committee is
responsible for administering the Company's stock option plan. The Compensation
Committee is comprised of Mr. Weersing, Dr. Fara and Mr. Wardle. There are no
interlocking relationships, as described by the Securities and Exchange
Commission, between the Compensation Committee members. The Special Committee is
charged with overseeing the actions to be taken by the Company with respect to
the Offering, and generally has all of the authority of the full Board of
Directors on issues relating to the Offering. The Special Committee is comprised
of Dr. Weinshenker, Mr. Weersing and Mr. Wood. See "Employee Benefit Plans."
Director Compensation
Directors are not paid any cash compensation for attendance at
directors' meetings or for attending or participating on any committee.
Directors are reimbursed, however, for any reasonable out-of-pocket expenses
they incur in connection with attendance at meetings. In addition, all
non-employee directors are eligible to participate in the Company's stock option
plan. Upon the approval of the Board of Directors, certain non-employee
directors have been granted non-qualified options to purchase _____ Common
Shares. Dr. Fara and Messrs. Sidwell and Wood have each received options to
purchase _____ Common Shares. The option grants vest over a four-year period. In
addition, Dr. Fara and Mr. Sidwell have received options to acquire an
additional _____ Common Shares each for serving on the board after their initial
term. All such options are exercisable at an exercise price equal to the fair
market value of the Common Shares on the date of grant (as adjusted for stock
splits and similar transactions), and are subject to certain vesting schedules.
The number of shares subject to any such grants, and the exercise price(s) of
the stock underlying those grants, are determined by the Compensation Committee
and approved by the Board of Directors.
<PAGE>
Executive Compensation
The following table summarizes the compensation paid to or earned by
the Company's Chief Executive Officer and the four other most highly compensated
executive officers whose total salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers") during the fiscal year ended June 30, 1997:
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C>
Annual Compensation
----------------------------- Other annual
Name and Principal Position Salary Bonus Compensation(1)
- ----------------------------------- ------------- ---------- ----------------
Ned M. Weinshenker, Ph.D.
President, Chief Executive
Officer and Director;
President and Chief Executive
Officer, Dermion............... $189,000 $25,000 $5,000
W. Tim Miller
Executive Vice President,
Sales and Marketing; General
Manager, Clinical Systems...... 152,000 $25,000 $11,000(2)
Thomas M. Parkinson, Ph.D.
Vice President, Research and
Development; General Manager,
Dermion........................ $115,000 $25,000 $5,000
Robert J. Lollini
Vice President, Finance, Chief
Financial Officer and
Secretary; Vice President,
Secretary and Treasurer,
Dermion........................ $145,000 $25,000 $5,000
Timothy B. Lucas
Director of National Sales..... $119,000 $16,000 $12,000(3)
</TABLE>
- ------------------
(1) Represents premiums on group term life insurance and medical and dental
insurance.
(2) Includes principal and interest payment of $6,000 due on a $25,000 bridge
loan made by the Company to Mr. Miller in connection with his relocation,
and which was forgiven by the Company.
(3) Includes automobile reimbursement of $7,000.
Stock Option Grants
There were no options granted to the Named Executive Officers during
the fiscal year ended June 30, 1997.
<PAGE>
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
The following table provides information regarding the number and value
of options held by the Named Executive Officers on June 30, 1997:
<S> <C> <C> <C> <C>
Number of Securities
Underlying Unexercised ----------------------------------
Options at Fiscal Year-End(#) Value of Unexercised In-The-Money
Options at Fiscal Year-End ($) (1)
---------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- ------------- ------------- ---------------
Ned M. Weinshenker, $ $
Ph.D..................
- -----------------------
W. Tim Miller......... $ $
- -----------------------
Thomas M. Parkinson, $ $
Ph.D..................
- -----------------------
Robert J. Lollini..... $ $
- -----------------------
Timothy B. Lucas...... $ $
- -----------------------
</TABLE>
(1) For purposes of determining the values of the options held by the Named
Executive Officers, the Company has assumed that the Common Shares
underlying the options had a value of $_____ per share on _____, which is
the estimated fair market value the Board of Directors attributed to the
Common Shares on _____, in connection with certain grants of options under
the Company's stock option plan. The option value is based on the
difference between the fair market value of the shares on _____, and the
option exercise price per share, multiplied by the number of Common Shares
subject to the option.
Limitations of Liability and Indemnification
The Company's Articles of Incorporation limit the personal liability of
directors and officers for monetary damages to the maximum extent permitted by
Utah law. Under Utah law, such limitations include monetary damages for any
action taken or failed to be taken as an officer or director except for (i)
amounts representing a financial benefit to which the person is not entitled,
(ii) liability for intentional infliction of harm on the corporation, or its
shareholders, (iii) unlawful distributions, or (iv) an intentional violation of
criminal law. The Articles of Incorporation also provide that the Company will
indemnify its directors and officers against any damages arising from their
actions as agents of the Company, and that the Company may similarly indemnify
its other employees and agents. The Company is also empowered under its Articles
of Incorporation to enter into indemnification agreements with its directors and
officers. These provisions will not be modified in the proposed amendment of the
Company's Articles of Incorporation in connection with the Offering.
The Company's Bylaws provide that, to the full extent permitted by the
Company's Articles of Incorporation and the Utah Revised Business Corporation
Act, the Company will indemnify (and advance expenses to) the Company's
officers, directors and employees in connection with any action, suit or
proceeding (civil or criminal) to which those persons are made party by reason
of their being a director, officer or employee. Any such indemnification shall
be in addition to the advancement of expenses.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification by the
Company would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which would result in a claim for such
indemnification.
Employee Benefit Plans
Stock Option Plan. The Company's 1988 Stock Option Plan (the "Stock
Option Plan") was approved and adopted by the Company's Board of Directors in
April 1988 and was approved by its shareholders in November 1988. The Stock
Option Plan provides for grants to employees, officers, directors and
consultants of both non-qualified stock options and "incentive stock options"
(within the meaning of Section 422 of the Internal Revenue Code). The Stock
Option Plan will be amended to conform to certain recent changes in the federal
securities laws in connection with the Offering. The purpose of the Stock Option
Plan is to attract and retain the best available personnel to the Company and to
encourage stock ownership by the Company's employees, officers, directors and
consultants in order to give them a greater personal stake in the success of the
Company.
A total of _____ Common Shares were reserved for issuance under the
Stock Option Plan. As of September 1, 1997, options to purchase a total of _____
Common Shares had been exercised, options to purchase a total of _____ Common
Shares at a weighted average exercise price of $_____ per share were
outstanding, and Common Shares remained available for future option grants or
awards.
The Stock Option Plan is administered by the Compensation Committee,
which determines and designates the recipients of the options, the dates the
options are granted, the number of Common Shares subject to the options, option
prices, vesting terms, fair market value of the Common Shares, duration of the
options and whether the options granted to employees are to be incentive stock
options or non-qualified options. The exercise price of all options granted
under the Stock Option Plan must be at least 100% of the fair market value of
the Common Shares on the grant date. The term of an option may not exceed ten
years from the date of grant. With respect to any participant who owns shares
possessing more than 10% of the voting power of all classes of shares of the
Company, the exercise price of any option granted must be at least 110% of the
fair market value of the Common Shares on the grant date and the term of such
option may not exceed five years. No incentive options may be granted to a
participant which, when aggregated with all other incentive options granted to
that participant, would have an aggregate fair market value in excess of
$100,000 becoming exerciseable in any calendar year.
No option may be transferred by the optionee other than by will or the
laws of descent and distribution. During the lifetime of an optionee, only the
optionee may exercise an option. An option is exercisable on or after each
vesting date in accordance with the terms set forth in the option agreement.
Incentive options are exercisable only during the optionee's employment by the
Company, and for a period of up to 90 days after the termination of the
optionee's employment.
401(k) Plan. In 1990, the Company adopted a deferred compensation plan
under ss. 401(k) of the Internal Revenue Code of 1986, as amended (the "401(k)
Plan"). Each full-time employee who has completed at least one year of service
with the Company and has reached age 21 is eligible to make pre-tax elective
deferral contributions of up to 20% of their total compensation per plan year,
subject to a specified maximum contribution as determined by the Internal
Revenue Service. The Company matches the employee's contribution on a formula of
$0.25 to the dollar, not to exceed three percent of the employee's gross annual
compensation. The vesting schedule of the employer match is 33 1/3% per year,
over three years. Any potential forfeitures of the Company's portion of the
contribution that do not become vested are reallocated to the remaining
employees in the 401(k) Plan based on their account balance as a percentage of
the whole.
CERTAIN TRANSACTIONS
In July 1995, the Company entered into a research and development
agreement with the predecessor to Novartis. The collaboration was formed to
evaluate the potential for development of iontophoretic drug delivery systems
for over a dozen Novartis compounds for several therapeutic applications. In
connection with the collaboration, Novartis purchased a 20% equity interest in
Dermion. Pursuant to the agreement, Novartis is required to pay research costs
under the program and to make milestone payments if Dermion successfully
completes certain objectives. In addition, the Company granted Novartis a
royalty-bearing, non-exclusive license to certain of the Company's iontophoretic
technology covering the delivery of these compounds for osteoporosis, as well as
other Novartis drugs for application in other therapeutic fields covered by the
agreement. The agreement may be terminated by either party for any reason upon
six months notice. See "Business -- Collaborative Relationships and Licenses."
The Company and Novartis have entered into negotiations for the
amendment of their agreement. Under the proposed terms of that amendment,
Novartis would exchange its 20% interest in Dermion for Common Shares and a
warrant to acquire an additional Common Shares. The Company anticipates that the
amendment to the Novartis agreements will be completed prior to the Offering,
but there can be no assurance that it will be completed before that date, or at
all. See "Business -- Collaborative Relationships and Licenses."
In March 1997, the Company entered into the Elan Agreements, an
exclusive, worldwide license to certain of Elan's iontophoretic drug delivery
technology, including over 250 issued and 47 pending United States and foreign
patents, as well as a significant body of know-how and preclinical and clinical
study results. The Company acquired the Elan technology by issuing Elan two
promissory notes, a $10.0 million note and a $5.0 million note. The Company also
issued a warrant to Elan to acquire _____ Common Shares at $_____ per share and
agreed to pay Elan a royalty on the net revenues dervied from drug sales of the
Company's product. The promissory notes each bear interest at the rate of prime
plus 1% (9 1/2% as of June 30, 1997), and the $5.0 million note is secured by
the technology rights the Company acquired in the transaction. Concurrently with
the closing of the Offering, the amounts due under the $10.0 million note issued
to Elan, including interest thereon, will be exchanged by the Company for
approximately ____ Common Shares. In addition, under the terms of the Elan
Agreements, Elan is obligated to purchase in a private placement that number of
Common Shares which have an aggregate purchase price (based on the initial
public offering price to the public of the Common Shares hereunder) equal to the
total amount, including interest, outstanding under the $5.0 million note as of
the closing date of the Offering. Elan has stated its intent to fulfill that
purchase obligation by buying _____ Common Shares in the Offering (estimated to
have an aggregate value of approximately $5.1 million at the closing of the
Offering). The Company has agreed to waive Elan's purchase obligation contingent
on its purchase of the equivalent number of Common Shares in the Offering. A
portion of the net proceeds from the Offering will be used to pay the
outstanding principal and interest under the $5.0 million note. See "Use of
Proceeds."
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding Common Shares as of September
1, 1997, and as adjusted to reflect the sale of the Common Shares offered hereby
and the exchange of the $10.0 million note issued to Elan (including interest
thereon) for an aggregate of _____ Common Shares concurrently with the closing
of the Offering, by (i) all those persons or entities known by the Company to be
beneficial owners of 5% or more of its outstanding Common Shares ("5%
Shareholders"), (ii) each director and each of the Named Executive Officers and
(iii) all directors and Named Executive Officers as a group. The data presented
are based on information provided to the Company by the Named Executive
Officers, the Company's directors and its 5% Shareholders.
<TABLE>
<S> <C> <C> <C>
Percentage Beneficially
Number of Owned
----------------------------------------
Name and Address of Beneficial Owner Shares(1) Prior to Offering After Offering
- ------------------------------------ ---------- ----------------- --------------
5% Shareholders
Newtek Ventures % %
500 Washington Street, Suite 720
San Francisco, CA 94111
MBW Venture Partners, LP (2) % %
350 Second Street, Suite 8
Los Altos, CA 94022
Laboratoires Fournier, S.C.A. % %
42, rue de Longvic
21300 Chenove France
Utah Ventures % %
423 Wakara Way, Suite 206
Salt Lake City, UT 84108
CIT Group/Venture Capital, Inc. % %
650 CIT Drive
Livingston, NJ 07039-5795
Vadex-Panama, S.A. % %
PO Box 60040
Palo Alto, CA 94306-0040
Elan International Services, Ltd. (3) % %
102 St. James Court
Flatts Smiths FL04 Bermuda
Stephen C. Jacobsen % %
274 South 1200 East
Salt Lake City, Utah 84102
Directors
James R. Weersing(4) * *
Ned M. Weinshenker, Ph.D. (5) % %
John W. Fara, Ph.D. (6) * *
Steven P. Sidwell (7) * *
Peter J. Wardle (8) * *
Warren Wood (9) * *
Michael T. Sember (10) * *
Named Executive Officers
W. Tim Miller (11) * *
Thomas M. Parkinson, Ph.D (12) * *
Robert J. Lollini (13) * *
Tim Lucas(14)
Executive Officers and directors % %
as a group (11 persons) (15)
* Less than 1%.
</TABLE>
(1) Assumes _____ Common Shares issued and outstanding. The inclusion
herein of any Common Shares as beneficially owned does not constitute
an admission of beneficial ownership of those shares. Unless otherwise
indicated, each person listed has sole investment and voting power with
respect to the shares listed. In accordance with the rules of the
Securities and Exchange Commission, each person is deemed to
beneficially own any shares issuable upon exercise of share options or
warrants held by such person that are currently exercisable or that
become exercisable within 60 days after September 1, 1997, and any
reference in these footnotes to shares subject to share options or
warrants held by the person in question refers only to such shares.
(2) Includes ____ Common Shares held of record by Michigan Investment Fund,
LP, MBW Venture Partners, LP and Michigan Investment Fund, LP which are
managed, and assumed to be controlled, by MBW Management, Inc.
(3) Elan International Services, Ltd. is a division of Elan. Includes _____
Common Shares subject to _____ outstanding warrants. The "Percentage
Beneficially Owned After Offering" assumes the purchase by Elan of
$_____ of the Company's Common Shares (at an assumed offering price of
$_____ per share) in the Offering. See "Transactions Related to the
Offering" "Business -- Collaborative Relationships and Licenses" and
"Certain Transactions."
(4) Includes Common Shares held in the name of a revocable trust for which
Mr. Weersing serves as co-trustee along with his spouse. Mr. Weersing
is a general partner of MBW Management, Inc. Mr. Weersing disclaims
beneficial ownership of the shares beneficially owned by MBW
Management, Inc. and its affiliates.
(5) Includes _____ Common Shares held in the name of a pension plan over
which Dr. Weinshenker holds investment control. Includes _____ Common
Shares subject to options held by Dr. Weinshenker.
(6) Includes _____ Common Shares subject to options held by Dr. Fara.
(7) Includes _____ Common Shares subject to options held by Mr. Sidwell.
(8) Mr. Wardle is a general partner of Newtek Ventures, but disclaims
beneficial ownership of the Common Shares held by Newtek Ventures.
(9) Includes _____ Common Shares subject to options held by Mr. Wood.
(10) Mr. Sember is an executive officer of Elan. Mr. Sember disclaims any
beneficial ownership of shares owned beneficially by Elan.
(11) Includes _____ Common Shares subject to options held by Mr. Miller.
(12) Includes _____ Common Shares subject to options held by Dr. Parkinson.
(13) Includes _____ Common Shares subject to options held by Mr. Lollini.
(14) Includes _____ Common Shares subject to options held by Mr. Lucas.
(15) Includes _____ Common Shares subject to options.
DESCRIPTION OF CAPITAL SHARES
The authorized capital of the Company consists of _____ Common Shares,
par value $_____ per share and _____ Preferred Shares, par value $_____ per
share. As of September 1, 1997, _____ Common Shares and _____ Series C
Redeemable Preferred Shares were outstanding. The Series C Preferred Shares will
be converted into _____ Common Shares in connection with the Offering. An
additional _____ Common Shares may be issued upon the exercise of outstanding
share options, and an additional _____ shares may be issued upon the exercise of
outstanding warrants. As of September 1, 1997, there were approximately 126
holders of record of the Common Shares.
Common Shares
Subject to preferences that may be applicable to any then outstanding
Preferred Shares, holders of Common Shares are entitled to receive, ratably,
such dividends as may be declared by the Board of Directors out of funds legally
available therefore. In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Shares are entitled to share ratably in all
assets remaining after the payment of liabilities and the liquidation preference
of any then outstanding Preferred Shares. Holders of Common Shares have no
preemptive rights and no right to convert their Common Shares into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Shares. All outstanding Common Shares are, and all Common Shares to be
outstanding upon completion of the Offering will be, fully paid and
nonassessable. The holders of Common Shares are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. The
Company has not paid, and does not intend to pay, cash dividends on the Common
Shares for the foreseeable future.
Preferred Shares
Currently, there are _____ Series C Preferred Shares issued and
outstanding. The Series C Preferred Shares are subject to mandatory conversion,
on a share-for-share basis, into Common Shares upon the closing of an IPO and
will be converted in connection with the closing of the Offering.
The Board of Directors will have the authority to issue Preferred
Shares in one or more series and to affix the rights, preferences, privileges
and restrictions thereof, including dividend rights, conversion rights, voting
rights, redemption terms, liquidation preferences and the number of shares
constituting any series, without any further vote or action by the shareholders.
The issuance of Preferred Shares in certain circumstances may have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Shares with voting and conversion rights may adversely affect the
voting power and rights of the holders of Common Shares.
Warrants
The Company has issued three warrants which, in the aggregate, entitle
the holders thereof to acquire _____ Common Shares. Under the Elan Agreements,
Elan was issued a warrant to acquire _____ Common Shares at an exercise price of
$_____ per share. On December 1, 1996, the Company issued ACH a warrant to
acquire _____ Common Shares at an exercise price of $_____ per share. On June
25, 1992, the Company issued a warrant to Silicon Valley Bank to acquire _____
Common Shares at an exercise price of $_____ per share. The warrants expire on
April 19, 2002, December 1, 2003 and June 24, 2002, respectively.
In connection with the closing of the Offering, the Company has agreed
to issue to the Representative, warrants to purchase, after the first
anniversary of the date hereof, an aggregate of _____ Common Shares at a price
per share equal to (i) 125% of the initial public offering price set forth on
the cover page of this Prospectus after the first anniversary of the date hereof
or (ii) 150% of the initial public offering price set forth on the cover page of
this Prospectus after the third anniversary of the date hereof. The
Representative's Warrants expire on the fifth anniversary of the date hereof.
Anti-Takeover Effect of Utah Law and Certain Provisions of the Articles of
Incorporation
The Company's Articles of Incorporation require that any action
required or permitted to be taken by shareholders of the Company must be
effected at a duly called annual or special meeting of shareholders. Utah law
provides that any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if one or
more consents in writing, setting forth the action to be taken, are signed by
the holders of outstanding shares having at least the minimum number of votes
that would be necessary to take the action at a meeting at which all shares
entitle to vote on the matter were present and voted. This provision generally
applies to all Utah corporations formed after 1992 and all Utah corporations
formed before 1992 that have amended their articles of incorporation to provide
for actions by consent. The Company is not entitled to take advantage of that
consent provision because it was formed prior to 1992 and its shareholders have
not amended its Articles of Incorporation to allow consent actions. Special
meetings of the shareholders of the Company may be called only by the Board of
Directors, the Chief Executive Officer of the Company or by any person or
persons holding shares representing at least 10% of the outstanding capital
stock.
See "Management -- Executive Officers, Directors and Key Employees."
Utah has adopted legislation which is designed to delay the ultimate
success of a hostile tender offer for shares of a public company until that
tender offer has been approved by a majority of the shareholders. The
legislation applies to all corporations which have not opted out of its
provisions and which have more than 100 shareholders, maintain their principal
place of business or principal office in the State of Utah and where either 10%
or more of the corporation's shareholders reside in Utah or more than 10% of its
outstanding shares are owned by Utah residents. The Company, by amendment to its
Articles of Incorporation, opted out of this statutory provision in 1989.
The Company intends to amend its Articles of Incorporation in
connection with the Offering to provide for a division of the Board of Directors
into three classes as nearly equal in size as possible with staggered three year
terms. See "Management." In addition, the Articles of Incorporation will be
amended to provide that directors may be removed only for cause and only by an
affirmative vote of the holders of two-thirds of the Common Shares entitled to
vote. Further, any vacancy on the Board of Directors, however occurring,
including by reason of an increase in the number of persons comprising the Board
of Directors, may only be filled by vote of a majority of the directors then in
office. These provisions could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of the Company.
Registration Rights
Pursuant to the Elan Agreements, at any time following the Offering,
Elan has the right, on not more than two occasions and subject to certain
limitations, to require the Company to use its best efforts to register under
the Securities Act the _____ Common Shares it will acquire in exchange for the
$10.0 million note and the _____ Common Shares it may acquire upon exercising
its warrant. The Elan Agreements also provide that, if the Company proposes to
file a registration statement under the Securities Act of 1933, as amended, with
respect to an offering by the Company after having registered pursuant to
Sections 12(b) or 12(g) of the Exchange Act, Elan will be entitled to include
all or part of its shares in that registration, subject to the right of the
managing underwriter to exclude shares from registration to the extent their
inclusion would adversely affect the marketing of the shares to be sold. In
connection with the Offering, Elan has agreed not to sell or otherwise dispose
of its shares for a period of 180 days following the Offering. See "Shares
Eligible for Future Sale."
Under the terms of an agreement between the Company and Child Health
Investment Corporation ("CHIC"), an affiliate of CHCA, if the Company proposes
to register any of its securities under the Securities Act other than on Forms
S-1 or S-8 relating to an employee benefit plan, and other than on Form S-4, any
holder of at least _____ Common Shares issuable upon conversion of the warrant
issued to CHIC and any holder of _____ Common Shares acquired by CHIC pursuant
to the CHIC agreement, will be entitled to include such shares in that
registration, subject to the right of the managing underwriter to exclude any of
such shares from such registration to the extent that their inclusion would
adversely affect the marketing of the shares to be sold. In connection with the
Offering, CHIC has agreed not to sell or otherwise dispose of its shares for a
period of 180 days following the Offering. See "Shares Eligible for Future
Sale."
Under the terms of the stock purchase agreement (the "CIT Agreement")
between the Company and the CIT Group/Venture Capital, Inc., subject to certain
exceptions and limitations, after 180 days following the effective date of the
Offering, the holders of at least _____ Common Shares purchased pursuant to the
CIT Agreement (the "CIT Shares") may require, on not more than one occasion
within a 12-month period, that the Company use its best efforts to file a
registration statement under the Securities Act covering the resale of any such
CIT Shares. If the Company registers any Common Shares under the Securities Act,
either for its own account or for the account of any other shareholders prior to
March 8, 2000, the Company is required to notify the holders of the CIT Shares
and, subject to certain limitations, is required to include in such registration
the CIT Shares requested by such holders to be included therein. In connection
with the Offering, the holders of the CIT Shares have agreed not to sell or
otherwise dispose of their shares for a period of 180 days following the
Offering.
Under a preferred stock purchase agreement (the "Preferred Investors
Agreement"), between the Company and Newtek Ventures, MBW Venture Partners,
Michigan Investment Fund, Utah Ventures, Cordis Corporation, and certain other
investors (collectively, the "Preferred Investors"), subject to certain
exceptions and limitations, after 180 days following the effective date of the
Offering, the holders of at least _____ Common Shares purchased pursuant to the
Preferred Investors Agreement may require, on not more than two occasions, that
the Company use its best efforts to file a registration statement under the
Securities Act covering the resale of any such Preferred Investor's Shares. If
the Company registers any Common Shares under the Securities Act, either for its
own account or for the account of any other shareholders prior to March 8, 2000,
the Company is required to notify the holders of the Preferred Investors Shares,
and subject to certain limitations, is required to include in such registration
the Preferred Investors Shares requested by such holders to be included therein.
In connection with the Offering, certain of the Preferred Investors have agreed
not to sell or otherwise dispose of their shares for a period of 180 days
following the Offering. In addition, pursuant to the Preferred Investors
Agreement, all of the Preferred Investors are prohibited from selling or
otherwise disposing of their shares for a period of 90 days following the
Offering.
Under the terms of the stock purchase agreement (the "Common Investors
Agreement") between the Company and each of Newtek Ventures, MBW Venture
Partners, Michigan Investment Fund, and Vadex-Panama, S.A. (collectively, the
"Common Investors"), subject to certain exceptions and limitations, after 180
days following the effective date of the Offering, the holders of at least _____
Common Shares purchased pursuant to the Common Investors Agreement (the "Common
Investors Shares") may require, on not more than one occasion within a 12-month
period, that the Company use its best efforts to file a registration statement
under the Securities Act covering the resale of any such Common Investor's
Shares. If the Company registers any Common Shares under the Securities Act,
either for its own account or for the account of any other shareholders prior to
February 19, 2001, the Company is required to notify and, subject to certain
limitations, at the request of the holder of Common Investors Shares is required
to include in such registration the Common Investors Shares requested to be
included therein. In connection with the offering, the Common Investors have
agreed not to sell or otherwise dispose of their shares for a period of 180 days
following the Offering. See "Shares Eligible for Future Sale."
The Company has also granted certain demand and piggy-back registration
rights to the Representative with respect to the _____ Common Shares issuable
upon exercise of the Representative's Warrants. See "Underwriting."
Transfer Agent and Registrar
_____ is the transfer agent and registrar for the Common Shares.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of _____ Common Shares. In addition, the Company has reserved for
issuance ____ shares issuable upon exercise of outstanding options and warrants,
including the Representative's Warrants. The _____ Common Shares offered hereby
will be freely transferable without restriction or further registration under
the Securities Act, except for shares which may be acquired by "affiliates" of
the Company as that term is defined in Rule 144 under the Securities Act. The
remaining Common Shares held by existing shareholders are "restricted
securities" as that term is defined in Rule 144. Restricted securities may be
sold in the public market only if they are registered or if they qualify for
exemption from registration under Rules 144 or 701 under the Securities Act.
Pursuant to certain "lock-up" agreements, the Company's directors, officers and
certain of its shareholders who collectively hold an aggregate of _____ Common
Shares, together with the Company, have agreed, for a period of 180 days
following the date of this Prospectus, not to offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any Common Shares without the prior written consent of EVEREN
Securities, Inc. Following the 180 day period, approximately _____ Common Shares
will be eligible for sale in the public market without restriction under Rule
144(k) and an additional _____ Common Shares will be eligible for sale subject
to certain volume, manner of sale and other limitations under Rule 144. Of the
approximately _____ restricted shares held by existing shareholders of the
Company not subject to lock-up agreements, _____ Common Shares will be eligible
for immediate sale in the public market without restriction under Rule 144(k).
The remaining _____ Common Shares not subject to lock-up agreements will become
eligible for sale, subject to certain volume, manner of sale and other
limitations under Rule 144 commencing 90 days following the date of this
Prospectus. In addition, holders of stock options or warrants exercisable for an
aggregate of _____ Common Shares have entered into agreements prohibiting sale
of the underlying Common Shares for 180 days following the date of this
Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, 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) 1% of the then outstanding Common Shares
(_____ shares immediately after the Offering) or (ii) the average weekly trading
volume in the Common Shares during the four calendar weeks preceding such sale,
subject to the filing of a Form 144 with respect to such sale and certain other
limitations and restrictions. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years, would be entitled to sell such shares under Rule 144(k) without
regard to the volume, manner of sale and other limitations described above.
Any employee or consultant to the Company who purchased his or her
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701, which permit non-affiliates to sell their
Rule 701 shares without having to comply with the public information,
holding-period, volume-limitation or notice provisions of Rule 144 and permit
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the date
of this Prospectus.
The holders of _____ Common Shares and warrants to purchase _____
Common Shares have certain registration rights. See "Description of Capital
Shares -- Registration Rights."
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom EVEREN Securities, Inc.
is acting as representative (the "Representative"), have severally agreed to
purchase and the Company has agreed to sell to the Underwriters, the following
respective number of Common Shares.
Underwriters Number of Shares
- ----------------------------------------- ---------------------
EVEREN Securities, Inc.................
Total............................
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 and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all Common Shares offered hereby if any such
shares are purchased.
The Underwriters propose to offer the Common Shares to the public at
the public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of _____ per
share. The Underwriters may allow to selected dealers and such dealers may
reallow a concession not in excess of $_____ per share to certain other dealers.
After the public offering of the Common Shares, the offering price and other
selling terms may be changed by the Representative.
The Company has granted to the Underwriters an option, exerciseable at
any time during the 30-day period after the date of this Prospectus, to purchase
up to an additional _____ Common Shares at the initial public offering price set
forth on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the Offering. To the extent
the option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of Common Shares set forth next to such Underwriter's name
in the preceding table bears to the total number of shares listed in the table.
The Company has agreed to issue to the Representative warrants to
purchase, after the first anniversary of the date hereof, up to an aggregate of
_____ Common Shares, at a price equal to (i) 125% of the initial public offering
price set forth on the cover page of this Prospectus after the first anniversary
of the date hereof or (ii) 150% of the initial public offering price set forth
on the cover page of this Prospectus after the third anniversary of the date
hereof. Holders of the Representative's Warrants have been granted certain
demand and piggy-back registration rights under the Securities Act with respect
to the securities issuable upon exercise of the Representative's Warrants. See
"Description of Shares - Registration Rights" and "Share Eligible For Future
Sale."
The offering of the Common Shares is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the Offering without notice. The Underwriters
reserve the right to reject an order for the purchase of Common Shares in whole
or in part.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase Common Shares in the open market to cover syndicate short positions
or to stabilize the price of the Common Shares. Finally, the underwriting
syndicate may reclaim selling concessions from syndicate members in the
Offering, if the syndicate repurchases previously distributed Common Shares in
syndicate covering transactions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Common
Shares 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 Representative has informed the Company that the Underwriters do
not intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The executive officers, directors and certain employees of the Company
and certain other shareholders have agreed that they will not, without the prior
written consent of EVEREN Securities, Inc., offer, sell or otherwise dispose of
any Common Shares, options or warrants to acquire Common Shares or securities
exchangeable for or convertible into Common Shares for a period of 180 days
after the day of this Prospectus. The Company has agreed that it will not,
without the prior written consent of EVEREN Securities, Inc., offer, sell,
contract, grant any option to purchase or otherwise dispose of any Common
Shares, options or warrants to acquire Common Shares or securities exchangeable
for or convertible into Common Shares for a period of 180 days after the date of
this Prospectus, except for securities issued under its Stock Option Plan, the
Elan Agreements or upon exercise of currently outstanding stock options or
warrants. See "Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common
Shares. Consequently, the initial public offering price for the Common Shares
included in the Offering will be determined by negotiations between the Company
and the Representative. Among the factors considered in determining such price
will be the history of and prospects for the Company's business and the industry
in which it competes, an assessment of the Company's management and the present
state the Company's development, its past and present operations and financial
performance, the prospects for future earnings of the Company, the present state
of the Company's research and development programs, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable industries,
and the current prevailing condition in the securities markets, including
current market valuations of publicly traded companies that are comparable to
the Company.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon
for the Company by Parsons Behle & Latimer, Salt Lake City, Utah. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois, which
will rely on the opinion of Parsons Behle & Latimer with respect to certain
matters regarding Utah law.
EXPERTS
The financial statements at June 30, 1996 and 1997, and for each of the
three years in the period ended June 30, 1997, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance on such report given
upon the authority of such firm as experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors --
Dependence on Patents and Proprietary Technology" and "Business - Patents and
Proprietary Rights" have been reviewed and approved by Workman, Nydegger &
Seeley, patent counsel for the Company, as experts on such matters, and are
included herein in reliance upon that review and approval.
ADDITIONAL INFORMATION
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Securities and Exchange Act of
1934, as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish to its shareholders annual
reports containing financial statements audited by an independent public
accounting firm and will make available copies of quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
The Company has filed with the Commission, Washington, D.C., 20549, a
Registration Statement (which term shall include all amendments, exhibits and
schedules thereto) on Form S-1 under the Securities Act with respect to the
Common Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at N.W.,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. In addition, the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
<PAGE>
IOMED, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Audited Consolidated Financial Statements:
Report of Independent Auditors...............................................F-2
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Operations........................................F-4
Consolidated Statements of Shareholders' Equity (Deficit)....................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
Report of Independent Auditors
The Board of Directors and Shareholders
IOMED, Inc.
We have audited the accompanying consolidated balance sheets of IOMED, Inc. as
of June 30, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity (deficit), and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IOMED, Inc. at
June 30, 1997 and 1996, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Salt Lake City, Utah
August 4, 1997
<PAGE>
<TABLE>
<CAPTION>
IOMED, Inc.
Consolidated Balance Sheets
<S> <C> <C>
June 30,
1996 1997
---------- -----------
Assets
Current assets:
Cash and cash equivalents ....................................................................... $4,507,000 $ 6,346,000
Accounts receivable, less allowance for doubtful
accounts of $76,000 in 1996 and $28,000 in 1997 ............................................... 1,054,000 1,189,000
Inventories ..................................................................................... 1,162,000 714,000
Prepaid expenses ................................................................................ 5,000 12,000
---------- -----------
Total current assets ............................................................................... 6,728,000 8,261,000
Equipment and furniture, net ....................................................................... 477,000 385,000
Other assets ....................................................................................... 46,000 18,000
---------- -----------
Total Assets ....................................................................................... $7,251,000 $ 8,664,000
========== ===========
Liabilities and shareholders' equity (deficit)
Current liabilities:
Trade accounts payable .......................................................................... $ 118,000 $ 171,000
Accrued liabilities ............................................................................. 952,000 944,000
Current portion of long-term obligations ........................................................ 44,000 2,000
---------- -----------
Total current liabilities .......................................................................... 1,114,000 1,117,000
Commitments
Minority interest ................................................................................. 875,000 898,000
Redeemable, convertible preferred shares, $.001 per value; ......................................... 1,270,000 900,000
4,215,618 authorized; issued and outstanding shares of all series
186,240 in 1996 and 172,800 in 1997
Subordinated, convertible debt ..................................................................... - 15,240,000
Shareholders' equity (deficit):
Common shares, $0.001 par value; 40,000,000 shares
authorized; issued and outstanding 14,040,272 shares
in 1996 and 15,045,083 shares in 1997 ......................................................... 14,000 15,000
Additional paid-in capital ...................................................................... 11,478,000 12,032,000
Accumulated deficit ............................................................................. (7,500,000) (21,538,000)
---------- -----------
Total shareholders' equity (deficit) ............................................................... 3,992,000 (9,491,000)
---------- -----------
Total liabilities and shareholders'equity (deficit) ............................................... $7,251,000 $8,664,000
========== ===========
See accompanying notes.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IOMED, Inc.
Consolidated Statements of Operations
<S> <C> <C> <C>
Year ended June 30,
1995 1996 1997
---------- ----------- -----------
Revenues:
Product sales ..................................................................... $6,964,000 $6,829,000 $7,483,000
Contract research revenue, royalties
and license fees ............................................................... - 2,409,000 1,800,000
---------- ----------- ----------
Total revenues .................................................................... 6,964,000 9,238,000 9,283,000
Operating costs and expenses:
Cost of products sold ............................................................. 3,369,000 3,138,000 3,338,000
Research and development .......................................................... 1,467,000 1,099,000 1,488,000
Selling, general and administrative ............................................... 3,338,000 3,283,000 3,501,000
Non-recurring charges ............................................................. - 430,000 15,059,000
---------- ----------- ----------
Total costs and expenses .......................................................... 8,174,000 7,950,000 23,386,000
---------- ----------- ----------
Income (loss) from operations ........................................................ (1,210,000) 1,288,000 (14,103,000)
Interest expense ..................................................................... 32,000 9,000 242,000
Interest income and other, net ....................................................... 120,000 167,000 291,000
---------- ----------- -----------
Income (loss) from continuing operations
before income taxes and minority interest ............................................ (1,122,000) 1,446,000 (14,054,000)
Minority interest .................................................................... - (17,000) 23,000
Income tax expense (benefit) ......................................................... (173,000) (79,000) 5,000
---------- ------------ -----------
Income (loss) from continuing operations ............................................. (949,000) 1,542,000 (14,082,000)
Income from discontinued operations,
net of income taxes .............................................................. 290,000 201,000 44,000
---------- ----------- -----------
Net income (loss) .................................................................... $ (659,000) $1,743,000 $(14,038,000)
========== =========== ===========
Income (loss) per common share amounts:
Income (loss) from continuing operations ............................................. $ (.10) $ .10 $ (.94)
Income from discontinued operations .................................................. .03 .01 --
---------- ----------- -----------
Net income (loss) .................................................................... $ (.07) $ .11 $ (.94)
========== =========== ===========
Shares used in computing per share amounts ........................................... 9,780,842 15,216,786 14,925,234
========== =========== ===========
See accompanying notes.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IOMED, Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
<S> <C> <C> <C> <C> <C>
Additional
Common Stock Paid-in Accumulated
--------------------------------
Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------------
Balance at June 30, 1994 9,757,160 $10,000 $7,629,000 $(8,584,000) $(945,000)
Stock options exercised 71,668 - 9,000 - 9,000
Conversion of redeemable, convertible 6,625 - 3,000 - 3,000
preferred shares
Net loss - - - (659,000) (659,000)
-----------------------------------------------------------------------------------
Balance at June 30, 1995 9,835,453 10,000 7,641,000 (9,243,000) (1,592,000)
Stock options exercised 211,073 - 23,000 - 23,000
Conversion of redeemable, convertible 2,372,124 2,000 893,000 - 895,000
preferred shares
Conversion of subordinated debt 1,621,622 2,000 2,921,000 - 2,923,000
Net income - - - 1,743,000 1,743,000
-----------------------------------------------------------------------------------
Balance at June 30, 1996 14,040,272 14,000 11,478,000 (7,500,000) 3,992,000
Stock options exercised 31,117 - 5,000 - 5,000
Conversion of redeemable, convertible 795,123 1,000 299,000 - 300,000
preferred shares
Sale of common shares for cash 178,571 - 250,000 - 250,000
Net loss - - - (14,038,000) (14,038,000)
-----------------------------------------------------------------------------------
Balance at June 30, 1997 15,045,083 $15,000 $12,032,000 $(21,538,000) $(9,491,000)
===================================================================================
See accompanying notes.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IOMED, Inc.
Consolidated Statements of Cash Flows
<S> <C> <C> <C>
Year ended June 30,
1995 1996 1997
-------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $(659,000) $1,743,000 $(14,038,000)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 570,000 400,000 267,000
Write-off of in-process research and development - - 15,059,000
Non-cash interest expense - - 240,000
Minority interest and other non-cash charges (17,000) (9,000) 34,000
Changes in assets and liabilities:
Accounts receivable (6,000) (122,000) (444,000)
Inventories (317,000) 186,000 (196,000)
Prepaid expenses and other assets (22,000) 9,000 (6,000)
Trade accounts payable (96,000) (41,000) 53,000
Other current liabilities 249,000 83,000 25,000
-------------------------------------------------------------
Net cash provided by (used in) operating activities (298,000) 2,249,000 994,000
-------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of discontinued operations - - 1,000,000
Purchases of equipment and furniture (156,000) (316,000) (231,000)
-------------------------------------------------------------
Net cash provided by (used in) investing activities (156,000) (316,000) 769,000
-------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of common shares 9,000 23,000 255,000
Proceeds from sale of minority interest - 892,000 -
Payments on term loans (165,000) (132,000) (39,000)
Redemptions of redeemable preferred shares (70,000) (70,000) (70,000)
Other - - (70,000)
-------------------------------------------------------------
Net cash provided by (used in) financing activities (226,000) 713,000 76,000
Net increase (decrease) in cash and cash equivalents (680,000) 2,646,000 1,839,000
Cash and cash equivalents at beginning of year 2,541,000 1,861,000 4,507,000
-------------------------------------------------------------
Cash and cash equivalents at end of year $1,861,000 $4,507,000 $6,346,000
=============================================================
Supplemental disclosures of cash flow information
Cash paid for interest $32,000 $9,000 $2,000
Cash paid for income taxes - - $61,000
Supplemental schedule of non-cash investing and
financing activities
Issuance of subordinated, convertible debt for purchase of - - $15,000,000
in-process research and development
Preferred shares converted to common shares $3,000 895,000 300,000
Subordinated debt converted to common shares - 2,923,000 -
See Accompanying Notes.
F-6
</TABLE>
<PAGE>
IOMED, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Description of Business
IOMED, Inc., a Utah corporation (the "Company"), develops, manufactures and
commercializes controllable drug delivery systems using iontophoresis
technology.
Discontinued Operations
On December 31, 1996, the Company sold the assets of its Motion Control
Division, which was engaged in the research, development, manufacture and sale
of advanced myoelectric prosthetic devices. Accordingly, the consolidated
statements of operations for the years ended June 30, 1996 and 1995 have been
restated to present the results of operations of the Motion Control Division as
a discontinued operation (see Note 4).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its 80% owned subsidiary, Dermion, Inc. ("Dermion"). Dermion was formed in April
1996 to conduct advanced research and development of iontophoretic drug delivery
systems on its own behalf and on behalf of third party clients. The remaining
20% interest of Dermion is reflected as minority interest in the accompanying
financial statements. All significant intercompany transactions and accounts
have been eliminated.
Cash Equivalents
The Company considers all highly-liquid investments with maturities of three
months or less, when purchased, to be cash equivalents.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash, cash equivalents and trade accounts receivable.
Cash and cash equivalents are held in federally insured financial institutions
or invested in high grade short-term commercial paper issued by major United
States corporations. The Company sells its products primarily to, and has trade
accounts receivable with, independent durable medical equipment dealers in the
United States and abroad. Less than 10% of product sales are to foreign
customers. As a general policy, collateral is not required for accounts
receivable; however, the Company maintains an allowance for losses based upon
expected collections of accounts receivable. Additionally, customers' financial
condition and credit worthiness are regularly evaluated and historical losses
have not been material. During the periods presented, none of the Company's
customers accounted for more than 10% of net product sales. Accordingly, the
Company considers concentrations of credit risk with respect to trade accounts
receivable to be low.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Inventories consisted of the following and, at
June 30, 1996, included $613,000 in inventory associated with the Company's
discontinued operations:
June 30,
1996 1997
---------------------------------------
Raw materials $862,000 $568,000
Work-in-progress 72,000 31,000
Finished goods 228,000 115,000
---------------------------------------
$1,162,000 $714,000
=======================================
F-7
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Equipment and Furniture
Equipment and furniture are stated at cost. Depreciation and amortization is
computed using the straight-line method over estimated useful lives of three to
five years. Leasehold improvements are amortized over the term of the lease or
the useful life of the improvements, whichever is shorter. Equipment and
furniture consisted of the following and, at June 30, 1996, included $50,000 in
equipment net of accumulated depreciation associated with the Company's
discontinued operations:
<TABLE>
<S> <C> <C>
June 30,
1996 1997
-----------------------------------
Manufacturing equipment $1,961,000 $1,896,000
Office and research and development equipment
1,294,000 1,381,000
Leasehold improvements 632,000 608,000
-----------------------------------
3,887,000 3,885,000
Less accumulated depreciation and amortization (3,410,000) (3,500,000)
-----------------------------------
$477,000 $385,000
===================================
</TABLE>
Revenue Recognition
Revenues on product sales are generally recognized upon shipment. Contract
research revenue and license fees are recognized as earned.
Patent Development Costs
In connection with its research and development efforts, the Company incurs
certain costs in the preparation, application, filing, maintenance and defense
of patents and trademarks. Where such costs primarily relate to patents and
trademarks covering technologies or products which are under development or in
the early stages of commercialization, the Company expenses such costs as
incurred.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options rather than adopting the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation (SFAS 123). Under APB 25, because the
exercise price of the Company's share options equals the market price of the
underlying shares on the date of grant, the Company does not recognize any
compensation expense.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings (Loss) Per Share
The Company's net income (loss) per share is based upon the weighted average
number of common shares outstanding during the periods. Common share equivalents
(stock options, warrants, convertible preferred shares and convertible debt), as
determined using the treasury stock method, have been excluded from the
computations in those periods where their inclusion would have an antidilutive
effect.
F-8
<PAGE>
1. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements
In 1997, the FASB issued three new statements, SFAS No. 128-Earnings per Share,
SFAS No. 130-Reporting Comprehensive Income and SFAS No. 131-Disclosures about
Segments of an Enterprise and Related Information. As of June 30, 1997, these
statements were either not effective or not yet adopted by the Company. The
Company believes the new standards will not have a material impact on the
Company's financial statements.
Estimates
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 at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year financial statements to
conform to the financial statement presentation included herein.
2. Purchase of In-Process Research and Development
In March 1997, the Company entered into agreements with Elan Corporation, plc
("Elan"), an international developer of advanced drug delivery systems, to
obtain an exclusive, worldwide license for the commercial development of certain
of Elan's in-process research and development in the field of iontophoretic drug
delivery, including both issued and pending patents, know-how and clinical data.
Pursuant to the agreements, the Company paid Elan a one time fee of $15,000,000,
issued warrants to purchase up to 500,000 common shares at a price of $4.50 per
share and agreed to pay Elan certain royalties on net revenues derived from
sales of its iontophoretic drug delivery products. Both the number and share
price of the warrants are subject to adjustment for certain corporate
transactions. Payment of the fee was funded by the issuance of two subordinated
convertible notes to Elan in an aggregate principal amount of $15,000,000 (See
Notes 3 and 7).
3. Non-Recurring Charges
The intended clinical applications, as well as alternative future applications,
of the technologies purchased from Elan (see Note 2) are in the early stages of
research, design and clinical development, subject to numerous technological,
regulatory, and commercial risks and, therefore, represent in-process research
and development. Accordingly, during fiscal 1997, the Company recorded a
non-recurring charge of $15,059,000 reflecting the write-off of the in-process
research and development purchased, including the fee and related transaction
costs.
During fiscal 1996, a suit was filed against the Company by a competitor
alleging, among other things, that a recently introduced product of the Company
infringed upon the competitor's trade dress. In February 1996, a federal court
granted the plaintiff's request for a preliminary injunction. Thereupon, the
Company entered into a settlement agreement with the plaintiffs. The total costs
incurred in connection with the suit were approximately $430,000, which amount
includes legal fees, court costs and damages paid to the plaintiff, legal fees
incurred by the Company and inventory rework costs. The settlement agreement
will not have any material impact on the Company's ability to continue to
manufacture and sell its products, including the new product which gave rise to
the litigation.
F-9
<PAGE>
4. Discontinued Operations
In December 1996, the Company sold the assets of its Motion Control Division,
which was engaged in the research, development, manufacture and sale of
myoelectric prosthetic devices. In addition, the Company granted a worldwide,
exclusive license to certain patent rights covering the products manufactured by
the division to the purchaser. Proceeds from the sale were $1,000,000 and the
Company is entitled to receive royalties on future product sales of the
purchaser. There was no significant gain or loss recognized on the sale.
Included in accounts receivable at June 30, 1996 is $351,000 associated with the
Company's discontinued operations. The results of operations of the Motion
Control Division prior to its sale have been classified as discontinued
operations in the accompanying statements of operations. No interest expense has
been allocated to discontinued operations and both federal and state income
taxes have been calculated and allocated based upon statutory rates. A summary
of the results of discontinued operations is as follows:
<TABLE>
<S> <C> <C> <C>
Fiscal years ended
June 30,
---------------------------------------------------
1995 1996 1997
---- ---- ----
Net product sales $2,081,000 $2,186,000 $957,000
Income taxes $173,000 $120,000 $26,000
Income from discontinued operations $290,000 $201,000 $44,000
</TABLE>
5. Investments in Marketable Debt Securities
Debt securities are classified as held-to-maturity when the Company has the
intent and ability to hold the security to maturity. Held-to-maturity securities
are stated at amortized cost, adjusted for amortization of premiums and
accretion of discounts to maturity, which approximates quoted fair market
values. Such amortization as well as interest earned is included in interest
income. As of June 30, 1996 and 1997, all investments were classified as
held-to-maturity and consisted of United States corporate securities totaling
$3,757,000 and $4,635,000, respectively, and are included with cash and cash
equivalents.
6. Accrued Liabilities
Accrued liabilities consisted of the following:
June 30,
1996 1997
-------------------------------------
Payroll and related benefits $431,000 $436,000
Accrued facilities costs 146,000 69,000
Professional fees 70,000 126,000
Warranty 76,000 10,000
Other 229,000 303,000
-------------------------------------
$952,000 $944,000
=====================================
In 1995, the Company's board of directors approved management's plan to
consolidate the Company's operating facilities. Under the plan, certain office
facilities currently under lease through December 1999 have been left idle.
Accordingly, the Company recorded charges and accrued facilities costs in the
amount of $180,000 and $53,000 in 1995 and 1996, respectively, which represents
the total committed lease obligation for the idle space, plus estimated
maintenance and construction costs. At June 30, 1997, approximately $69,000 of
these charges remained in accrued liabilities.
F-10
<PAGE>
7. Subordinated Convertible Debt
In connection with the purchase of in-process research and development from Elan
(see Note 2), the Company issued two promissory notes to Elan, the A Note and
the B Note, in the amount of $10,000,000 and $5,000,000, respectively. Both
notes are subordinated to any existing or future indebtedness incurred to
finance working capital or the purchase of fixed assets in the normal course of
business. The carrying value of these notes approximates fair market value since
interest rates are based upon current market rates.
The A Note accrues interest at prime plus one percent (9.5% at June 30, 1997),
payable at maturity. Upon the completion of an initial registered public
offering of common shares or in any event on April 1, 1999, the note, together
with all accrued interest thereon, will be exchanged for common shares of the
Company. If the triggering event is an initial registered public offering, the
Company will issue 4,000,000 common shares, as adjusted for certain corporate
transactions, in exchange for the note. If an initial public offering is not
previously consummated, then on April 1, 1999, in exchange for the indebtedness
under the A Note, the Company will issue shares at an exchange price of $2.50
per share, which exchange price is subject to adjustment under certain
conditions.
The B Note accrues interest at prime plus one percent (9.5% at June 30, 1997).
The B Note plus any accrued and unpaid interest thereon will become due and
payable immediately upon the completion of an initial registered public offering
of common shares. If not pre-paid pursuant to an initial registered public
offering or otherwise, the B Note, becomes due and payable in five equal
installments of principal of $1,000,000 on each of the fifth, sixth, seventh,
eighth and ninth anniversaries of the note, together, in each case with any
accrued and unpaid interest thereon.
In June 1993, the Company entered into a research and development agreement with
Laboratoires Fournier, a French pharmaceutical company ("Fournier") to
collaborate in the joint development and commercialization of certain drug
delivery systems. In connection with this transaction, in July 1993, the Company
borrowed $3,000,000 ($2,923,000, net of debt issuance costs) from Fournier
pursuant to a subordinated, convertible note. In March 1996, the companies
reached a mutual agreement to terminate their collaborative development efforts.
Among other things, the agreement provided for the conversion of the $3,000,000
subordinated, convertible note, at a conversion rate of $1.85 per share, into
1,621,622 common shares.
8. Commitments
The Company leases space and certain equipment under noncancellable operating
lease agreements that expire at various dates through December 1999. Rental
expense for such leases was $225,000, $227,000 and $218,000 for the years ended
June 30, 1995, 1996 and 1997, respectively. It is generally expected that, in
the normal course of business, operating leases that expire will be renewed or
replaced by other leases with similar terms. Future minimum lease payments under
noncancellable operating leases (with initial or remaining lease terms in excess
of one year) at June 30, 1997 were $86,000.
F-11
<PAGE>
9. Royalty Agreements
The Company is the licensee under a royalty agreement with the University of
Utah Research Foundation. This agreement provides for the payment of royalties
to the licensor based upon net sales of the products under royalty until the
year 2006. Royalty expense in each of the three years in the period ended June
30, 1997 was not material.
10. Redeemable, Convertible Preferred Shares
In connection with a reorganization of the Company in fiscal 1988, the Company
issued 4,215,618 shares of $.001 par value redeemable convertible preferred
shares in three series; Series A, Series B and Series C. The Series A shares
were redeemed in equal installments beginning in July 1992 through July 1996 and
the Series B shares have been converted into common shares on a share for share
basis.
The Series C preferred shares outstanding as of June 30, 1997 are comprised of
172,800 shares with an aggregate redemption value of $900,000. The Series C
preferred shares are redeemable at $5.2083 per share in five equal annual
installments beginning in July 1997. The July 1997 redemption requirement for
Series C preferred shares of $180,000 has been included in the current portion
of long-term obligations in the balance sheet. Unless converted to common
shares, mandatory redemption requirements on the Series C preferred shares are
$180,000 annually from 1998 through 2002. The Company may redeem all or part of
the preferred shares to the extent of its unreserved and unrestricted retained
earnings at any time prior to the required redemption dates.
Prior to redemption, the Series C preferred shares are convertible on a share
for share basis, at the option of the holder, into common shares. The conversion
ratio is subject to adjustment based on the issue price of additional shares,
options, or rights to common shares issued. Each preferred share will
automatically convert to one common share upon the sale of common shares of the
Company pursuant to a registration statement under the Securities Act of 1933,
the public offering price of which is not less than $1.1319 per share and which
results in gross proceeds to the Company of at least $5,000,000.
Each Series C preferred share has a voting right equal to one vote for each
common share into which the preferred share could be converted as outlined
above. The holders of the preferred shares have voting rights and powers equal
to those of the holders of common shares and vote with the holders of common
shares and not as a separate class. Under no circumstances are the holders of
any series of preferred shares entitled to vote separately on any matter.
Dividends are non-cumulative and are to be paid on the preferred shares only as
authorized by the Board of Directors. In the event of liquidation of the
Company, each outstanding preferred share converts into one common share. No
dividend (other than a dividend payable solely in common shares) may be declared
or paid on common shares unless an equal or greater dividend per share has first
been declared and paid on each preferred share. Each preferred share, regardless
of its series, must be paid the same dividend per share. No dividends have been
declared or paid to date.
11. Research & Development
In July 1995, the Company entered into an interim research and development
agreement with Ciba-Geigy Corporation ("Ciba"), an affiliate of a Swiss
pharmaceutical company, to evaluate the feasibility of delivering certain Ciba
compounds using the Company's iontophoretic drug delivery technologies. In March
1996, this interim agreement was superseded by a long-term research and
development agreement with Ciba. In conjunction with the research and
development agreement, the Company formed Dermion, a wholly-owned subsidiary
established to conduct advanced iontophoretic drug delivery systems development.
The Company contributed cash, fixed assets and non-exclusive licenses to certain
technology, valued at a historical costs of approximately $1,300,000 to Dermion,
in exchange for common shares. Concurrently, Ciba acquired a 20% equity interest
in Dermion for $1,000,000 in cash. Pursuant to a separate shareholder's
agreement, Ciba is entitled to a premium of up to $1,250,000 in the event of a
change in control of Dermion.
Ciba-Geigy Corporation and Sandoz Corporation merged and, as a result, formed
Novartis Pharmaceuticals Corporation.
Currently, the term of the agreement extends through December 31, 1998. The
agreement automatically renews for additional one year terms, unless terminated,
by either party, with written notice six months prior to any anniversary date.
During the term of the research and development agreement, Novartis is obligated
to provide Dermion with research funding for the development of proprietary
iontophoretic drug delivery systems designed to deliver Novartis compounds.
Also, during the term of the agreement, Novartis has certain rights to the
Company's technologies for certain specific therapeutic indications using
Novartis proprietary drugs or specified generic compounds. The agreement further
provides that Dermion will be entitled to milestone payments upon the
achievement of certain performance targets and to future royalties on Novartis'
sales of products developed pursuant to the research. Dermion is currently
devoting the majority of its research and development capabilities to the
development of these systems for Novartis. Research funding payments and license
fees paid pursuant to the agreement with Novartis totaled $2,409,000 and
$1,750,000, respectively, in fiscal years ended June 30, 1996 and 1997. As of
June 30, 1997, the Company had a receivable, in the amount of $301,000, due from
Novartis, for research services rendered, which is included in accounts
receivable in the accompanying balance sheet.
12. Employee Benefit Plan
The Company has established a 401(k) savings plan for its full-time employees.
The Company makes a matching contribution based on a percentage of the
contributions of participating employees. The Company contributed approximately
$24,000 during each of the years ended June 30, 1995 and 1996 and approximately
$19,000 during fiscal 1997.
13. Income Taxes
Deferred taxes result from differences in the carrying value of various assets
and liabilities between income tax reporting and financial reporting purposes.
These differences arise from differing depreciation methods, and other reserves
that are deductible in different periods for tax and financial reporting
purposes.
The approximate tax effect of temporary differences, net operating loss
carryforwards and tax credit carryforwards as of June 30, 1997 and 1996 is as
follows:
<TABLE>
<S> <C> <C>
1996 1997
------------------- -----------------
Deferred tax assets:
Net operating loss carryforwards $1,602,000 $1,515,000
Book in excess of tax depreciation 307,000 264,000
Book in excess of tax amortization -- 5,502,000
Tax credit carryforwards 525,000 577,000
Reserves 326,000 265,000
Other -- --
------------------- -----------------
Total deferred tax assets 2,760,000 8,123,000
Valuation allowance (2,760,000) (8,123,000)
------------------- -----------------
Net deferred tax assets $ -- $ --
=================== =================
</TABLE>
There were no significant deferred tax liabilities in 1996 or 1997. The
valuation allowance increased by $5,363,000 during the fiscal year.
Significant components of the provision for income taxes attributable to
continuing operations are as follows. There were no deferred income tax
provisions in any of the years presented.
<TABLE>
<S> <C> <C> <C>
1995 1996 1997
--------------- -------------- ----------------
Current:
Federal $(158,000) $(72,000) $5,000
State (15,000) (7,000) --
=============== ============== ================
Total current provision $(173,000) $(79,000) $5,000
=============== ============== ================
</TABLE>
The reconciliation of income taxes at the statutory United States federal income
tax rate and the Company's effective income tax rate attributable to continuing
operations is as follows:
<TABLE>
<S> <C> <C> <C>
1995 1996 1997
---- ---- ----
United States statutory rate (percentage) (34.0)% 34.0% (34.0)%
State tax, net of federal tax benefit (3.3)% 3.3% (3.3)%
Credits (8.1)% (1.7)% (0.4)%
Effect of NOL carryforward and valuation
allowance 27.3% (42.0)% 37.3%
Other 2.7% 0.9% 0.4%
============ ============== ===============
Effective income tax rate (percentage) (15.4)% (5.5)% --%
============ ============== ===============
</TABLE>
As of June 30, 1997, the Company had approximately $4,147,000 in federal and
state net operating loss carryforwards, and $577,000 in federal tax credit
carryforwards, that expire from 2001 through 2012. Utilization of the Company's
net operating loss and credit carryforwards is limited to the future taxable
income of the Company. Under the "change of ownership" provisions of the
Internal Revenue Code, utilization of these net operating loss and credit
carryforwards may be subject to substantial annual limitation.
14. Stock Options and Warrants
The Company has an Employee Stock Option Plan (the Plan) for which 2,500,000
common shares have been reserved. The Plan allows grants of incentive options
and nonqualified options to purchase common shares at a price that is not less
than the fair market value on the date of grant. The option price and dates the
options become exercisable and expire are determined by the Board of Directors
on an option-by-option basis.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method. The fair value of these options was estimated at the date
of grant using a Minimum Value option pricing model with the following weighted
average assumptions for fiscal years ended June 30, 1996 and 1997: risk-free
interest rate of approximately 6.4% and 6.3%; dividend yield of 0%; and a
weighted-average expected life of the option of 6 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. Because the effect of SFAS No.
123-Accounting for Stock Based Compensation is prospective, the initial impact
on pro forma net income (loss) may not be representative of compensation expense
in future years. The effect on the Company's pro forma results for each of the
fiscal years ended June 30, 1996 and 1997 was not material (less than $0.01 per
share).
A summary of stock option activity, and related information for the years ended
June 30, 1995, 1996, and 1997 follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997
------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Price Price Price
Options Options Options
--------------------------------------------------------------------- -------------
Outstanding at
beginning of year 1,305,752 - 1,409,378 $ 0.71 1,577,329 $ 0.94
Granted 291,500 - 404,500 1.29 74,000 1.40
Exercised (71,668) - (211,573) 0.10 (26,489) 0.21
Canceled (116,206) - (24,976) 0.91 (39,011) 0.87
============== ============== =============
Outstanding at end of
year 1,409,378 - 1,577,329 $ 0.94 1,585,829 $ 0.98
============== ============== =============
Exercisable at end of
year 834,402 - 841,998 $ 0.76 1,059,392 $ 0.86
Weighted-average fair
value of options
granted during the year - $0.41 $0.44
</TABLE>
Exercise prices for options outstanding as of June 30, 1997 ranged from $0.08 to
$1.40. The weighted average remaining contractual life of the options is 6
years. Below are the segregated ranges of exercise prices as of June 30, 1997:
<TABLE>
<S> <C> <C> <C>
Range of exercise prices
--------------------------------------------------
$0.08-0.15 $0.45-0.75 $1.00-1.40
----------------- ----------------------------------
Options outstanding 97,500 239,406 1,248,923
Weighted-average exercise price of options
outstanding $0.12 $0.59 $1.12
Weighted-average remaining contractual life of
options outstanding 2 years 4 years 7 years
Options exercisable 97,500 239,406 722,486
Weighted-average exercise price of options
exercisable $0.12 $0.59 $1.04
</TABLE>
The Company has issued three warrants which entitle the holders thereof
to acquire common shares of the Company. In March 1997, the Company issued a
warrant to Elan to acquire up to 500,000 shares for an exercise price of $4.50
per share. In December 1996, the Company issued a warrant to the Alliance of
Children's Hospitals, Inc. to acquire up to 215,000 shares for an exercise price
of $1.85 per share. In June 1995, the Company issued a warrant to the Silicon
Valley Bank to acquire up to 10,000 shares for an exercise price of $1.00 per
share. The warrants expire in April 2002, December 2003 and June 2002,
respectively.
F-12
<PAGE>
[INSIDE BACK COVER]
[GRAPHICS DEPICTING THE COMPANY'S PRODUCTS]
<PAGE>
[Left Side of Back Cover]
No dealer, sales representative or other 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 Shares
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 information contained herein is correct as of any time subsequent to the
date hereof.
TABLE OF CONTENTS
Prospectus Summary ..................................\
Risk Factors ........................................\
Transactions Related to the Offering.................
Use of Proceeds......................................\
Dividend Policy......................................\
Capitalization.......................................\
Dilution ............................................\
Selected Consolidated Financial Data.................\
Management's Discussion and Analysis of
Financial Condition and Results of Operations...\
Business ............................................\
Management...........................................\
Certain Transactions ................................\
Principal Shareholders ..............................\
Description of Capital Shares........................\
Shares Eligible for Future Sale......................\
Underwriting.........................................\
Legal Matters........................................\
Experts ............................................\
Additional Information...............................\
Financial Statements.................................\
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Shares, 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.
[Right Side of Back Cover]
Common Shares
[LOGO]
-------------------
PROSPECTUS
-------------------
EVEREN Securities, Inc.
October , 1997
<PAGE>
1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Shares being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.
Securities and Exchange Commission
Registration Fee $
NASD Filing Fee
National Market Listing Fee
Printing and Engraving and Expenses
Legal Fees and Expenses
Accounting Fees and Expenses
Blue Sky Qualification Fees and Expenses
Transfer Agent and Registrar Fees and Expenses
Miscellaneous ----------------
Total $
================
Item 14. Indemnification of Directors and Officers
The Company's Articles of Incorporation limit the personal liability of
directors and officers for monetary damages to the maximum extent permitted by
Utah law. Under Utah law, such limitations include monetary damages for any
action taken or failed to be taken as an officer or director except for (i)
amounts representing a financial benefit to which the person is not entitled,
(ii) liability for intentional infliction of harm on the Corporation or its
shareholders, (iii) unlawful distributions, or (iv) an intentional violation of
criminal law. The Articles of Incorporation also provide that the Company will
indemnify its directors and officers against any damages arising from their
actions as agents of the Company, and that the Company may similarly indemnify
its other employees and agents. The Company is also empowered under its Articles
of Incorporation to enter into indemnification agreements with its directors and
officers.
The Company's Bylaws provide that, to the full extent permitted by the
Company's Articles of Incorporation and the Utah Revised Business Corporation
Act, the Company will indemnify (and advance expenses to) the Company's
officers, directors and employees in connection with any action, suit or
proceeding (civil or criminal) to which those persons are made party by reason
of their being a director, officer or employee). Any such indemnification will
be in addition to the advancement of expenses.
The terms of the Company's Stock Option Plan provide that, to the
fullest extent permitted by the Company's Articles of Incorporation and Bylaws
and by Utah law, no member of the committee which administers the plan will be
liable for any action or omission taken with respect to the plan or any options
issued thereunder. The Plan also provides that no member of the Board of
Directors will be liable for any action or determination made in good faith with
respect to the Plan or any option granted thereunder.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought, nor is the Company aware of any pending or threatened litigation
that may result in claims for indemnification by any director, officer, employee
or other agent.
Item 15. Recent Sales of Unregistered Securities
The Company has entered into four transactions in the past three years
involving the issuance of its securities under certain transactional exemptions
of the Securities Act of 1933.
On February 20, 1996, the Company issued to Laboratoires Fournier
S.C.A. ("L.F.") _____ Common Shares in conversion and satisfaction of a
non-interest bearing $3,000,000 promissory note sold to L.F. in 1993. On
November 29, 1996, the Company issued _____ Common Shares to Child Health
Investment Corporation, an affiliate of CHCA, for a total purchase price of
$250,000. In connection with that transaction, on December 1, 1996, the Company
also issued to ACH, as subsidiary of CHCA, a warrant to acquire up to _____
Common Shares at an exercise price of $____ per share. In March 1997, the
Company issued two promissory notes (one for $10.0 million and the other for
$5.0 million) to Elan and delivered to Elan a warrant to purchase _____ Common
Shares in connection with the purchase of certain technology from Elan. The
$10.0 million note (together with accrued interest) will be exchanged for _____
Common Shares concurrently with the closing of the Offering.
In connection with each of these isolated issuances of the Company's
securities, each purchaser of those securities represented and warranted to the
Company that it (i) was aware that the securities had not been registered under
federal securities laws, (ii) acquired the securities for its own account for
investment purposes and not with a view to or for resale in connection with any
distribution for purposes of the federal securities laws, (iii) understood that
the securities would need to be indefinitely held unless registered or an
exemption from registration applied to a proposed disposition, (iv) was aware
that the certificate representing the securities would bear a legend restricting
their transfer, and (v) was aware that there was no public market for the
securities. The Company believes that, in light of the foregoing, and in light
of the sophisticated nature of each of the acquirers, the sale of the Company's
securities to the respective acquirers did not constitute the sale of an
unregistered security in violation of the federal securities laws and
regulations by reason of the exemption provided under ss. 4(2) of the Securities
Act, and the rules and regulations promulgated thereunder.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit Number Description
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company
3.2 Articles of Amendment, filed February 18, 1986
3.3 Articles of Amendment, filed August 4, 1987
3.4 Articles of Merger, filed December 3, 1987
3.5 Articles of Amendment, filed December 18, 1987
3.6 Articles of Amendment, filed November 16, 1989
3.7 Articles of Amendment, filed March 3, 1995
3.8 Bylaws of the Company
4.1 Reference is made to Exhibits 3.1 through 3.7
4.2* Specimen of Common Share Certificate
5.1* Opinion of Parsons Behle & Latimer
10.1 Lease between the Company and Hayter Properties, Inc.,
dated September 1, 1997
10.2* License Agreement between the Company and Elan
International Services, Ltd., dated April 14, 1997
10.3* License Agreement between the Company and Drug Delivery
Systems, Inc., dated April 14, 1997
10.4 Promissory Note issued by the Company to Elan
International Management, Ltd., in the principal amount
of $10,000,000, dated April 14, 1997
10.5 Promissory Note issued by the Company to Elan
International Management, Ltd., in the principal amount
of $5,000,000, dated April 14, 1997
10.6* Note Purchase and Warrant Agreement among the Company,
Elan International Services, Ltd. And Elan International
Management, Ltd. dated April 14, 1997
10.7 Warrant issued to Elan International Services, Ltd.,
dated April 14, 1997
10.8 Registration Rights Agreement between the Company and
Elan International Services, Ltd., dated April 14, 1997
10.9 Asset Acquisition Agreement between the Company and
Fillauer, Inc., dated December 27, 1996
10.10* License Agreement between the Company and Fillauer,
Inc., dated December 26, 1996.
10.11 Warrant issued to Alliance of Children's Hospitals,
Inc., dated December 1, 1996
10.12 Stock Purchase Agreement between the Company and Child
Health Investment Corporation, dated November 29, 1996
10.13* Manufacturing Agreement between the Company and KWM
Electronics Corporation, dated November 1, 1996
10.14* Contribution Agreement between the Company and Dermion,
Inc., dated March 29, 1996
10.15* Patent License Agreement between the Company and
Dermion, Inc., dated March 29, 1996
10.16* Research and Development Agreement among the Company,
Dermion, Inc. and Ciba-Geigy Corporation, dated March
29, 1996
10.17 Stock Purchase Agreement among the Company, Dermion,
Inc. and Ciba-Geigy Corporation, dated March 29, 1996
10.18 Stockholders' Agreement among the Company, Dermion, Inc.
and Ciba-Geigy Corporation, dated March 29, 1996
10.19* Agreement between the Company and Laboratoires Fournier
S.C.A., dated February 20, 1996
10.20* Agreement between the Company and ALZA Corporation,
dated July 28, 1993
10.21* Supply Agreement between the Company and Abbot
Laboratories, Inc., dated April 27, 1993
10.22 Stock Purchase Agreement between the Company and The CIT
Group/Venture Capital, Inc., dated March 8, 1993
10.23 Stock Purchase Agreement between the Company and certain
investors, dated February 19, 1993
10.24* License Agreement between the Company and the University
of Utah Research Foundation, dated October 1, 1992
10.25 Warrant issued to Silicon Valley Bank, dated June 25,
1992
10.26 Company 1988 Stock Option Plan, as amended
10.27 Preferred Stock Purchase Agreement between the Company,
Newtek Ventures, MBW Venture Partners, Michigan
Investment Fund, Utah Ventures, Cordis Corporation, Ian
R.N. Bund, James R. Weersing and Robert J. Harrington,
dated August 4, 1987
11.1 Statement re computation of earnings per share
21.1 Schedule of Subsidiaries
23.1 Consent of Parsons Behle & Latimer
23.2 Consent of Ernst & Young LLP
23.3 Consent of Workman Nydeggar & Seeley
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
* To be filed by amendment
<PAGE>
(b) Financial Statement Schedules
All required financial statement schedules are included as part of
the Consolidated Financial Statements.
Item 17. Undertakings
The undersigned Registrant hereby undertakes that:
(1) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, State
of Utah on the 3rd day of October, 1997.
IOMED, Inc.
By: /s/ Ned M. Weinshenker, Ph.D.
Its: Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ned M. Weinshenker, and Robert J.
Lollini, and each of them, his attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully as to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
President, Chief Executive Officer and Director October 3, 1997
/s/ Ned M. Weinshenker, Ph.D. (Principal Executive Officer)
Vice President and Chief Financial Officer October 3, 1997
/s/ Robert J. Lollini (Principal Financial and Accounting Officer)
/s/ James R. Weersing Chairman of the Board of Directors October 3, 1997
/s/ John W. Fara, Ph.D Director October 3, 1997
.
/s/ Peter J. Wardle Director October 3, 1997
/s/ Steven P. Sidwell Director October 3, 1997
/s/ Warren Wood Director October 3, 1997
Michael T. Sember Director October , 1997
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company
3.2 Articles of Amendment, filed February 18, 1986
3.3 Articles of Amendment, filed August 4, 1987
3.4 Articles of Merger, filed December 3, 1987
3.5 Articles of Amendment, filed December 18, 1987
3.6 Articles of Amendment, filed November 16, 1989
3.7 Articles of Amendment, filed March 3, 1995
3.8 Bylaws of the Company
4.1 Reference is made to Exhibits 3.1 through 3.7
4.2* Specimen of Common Share Certificate
5.1* Opinion of Parsons Behle & Latimer
10.1 Lease between the Company and Hayter Properties, Inc.,
dated September 1, 1997
10.2* License Agreement between the Company and Elan
International Services, Ltd., dated April 14, 1997
10.3* License Agreement between the Company and Drug Delivery
Systems, Inc., dated April 14, 1997
10.4 Promissory Note issued by the Company to Elan
International Management, Ltd., in the principal amount
of $10,000,000, dated April 14, 1997
10.5 Promissory Note issued by the Company to Elan
International Management, Ltd., in the principal amount
of $5,000,000, dated April 14, 1997
10.6* Note Purchase and Warrant Agreement among the Company,
Elan International Services, Ltd. And Elan International
Management, Ltd. dated April 14, 1997
10.7 Warrant issued to Elan International Services, Ltd.,
dated April 14, 1997
10.8 Registration Rights Agreement between the Company and
Elan International Services, Ltd., dated April 14, 1997
10.9 Asset Acquisition Agreement between the Company and
Fillauer, Inc., dated December 27, 1996
10.10* License Agreement between the Company and Fillauer,
Inc., dated December 26, 1996.
10.11 Warrant issued to Alliance of Children's Hospitals,
Inc., dated December 1, 1996
10.12 Stock Purchase Agreement between the Company and Child
Health Investment Corporation, dated November 29, 1996
10.13* Manufacturing Agreement between the Company and KWM
Electronics Corporation, dated November 1, 1996
10.14* Contribution Agreement between the Company and Dermion,
Inc., dated March 29, 1996
10.15* Patent License Agreement between the Company and
Dermion, Inc., dated March 29, 1996
10.16* Research and Development Agreement among the Company,
Dermion, Inc. and Ciba-Geigy Corporation, dated March
29, 1996
10.17 Stock Purchase Agreement among the Company, Dermion,
Inc. and Ciba-Geigy Corporation, dated March 29, 1996
10.18 Stockholders' Agreement among the Company, Dermion, Inc.
and Ciba-Geigy Corporation, dated March 29, 1996
10.19* Agreement between the Company and Laboratoires Fournier
S.C.A., dated February 20, 1996
10.20* Agreement between the Company and ALZA Corporation,
dated July 28, 1993
10.21* Supply Agreement between the Company and Abbot
Laboratories, Inc., dated April 27, 1993
10.22 Stock Purchase Agreement between the Company and The CIT
Group/Venture Capital, Inc., dated March 8, 1993
10.23 Stock Purchase Agreement between the Company and certain
investors, dated February 19, 1993
10.24* License Agreement between the Company and the University
of Utah Research Foundation, dated October 1, 1992
10.25 Warrant issued to Silicon Valley Bank, dated June 25,
1992
10.26 Company 1988 Stock Option Plan, as amended
10.27 Preferred Stock Purchase Agreement between the Company,
Newtek Ventures, MBW Venture Partners, Michigan
Investment Fund, Utah Ventures, Cordis Corporation, Ian
R.N. Bund, James R. Weersing and Robert J. Harrington,
dated August 4, 1987
11.1 Statement re computation of earnings per share
21.1 Schedule of Subsidiaries
23.1 Consent of Parsons Behle & Latimer
23.2 Consent of Ernst & Young LLP
23.3 Consent of Workman Nydeggar & Seeley
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
* To be filed by amendment
ARTICLES OF INCORPORATION
OF
JMW ACQUISITION CO.
We, the undersigned natural persons, over the age of twenty-one (21)
years, acting as incorporators of a corporation under the Utah Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation.
ARTICLE I
The name of the corporation is JMW ACQUISITION CO.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose or purposes for which the Corporation is organized are:
A. To engage in the business of the research, development, manufacture
and sale of medical devices, products or drugs, and to engage in and acquire
other businesses or companies related thereto or to the science of medicine or
the other biological sciences.
B. To lease, buy, and hold, to sell, mortgage, exchange, assign, and
otherwise dispose of, to improve, manage, contain, conserve and operate and
generally to trade and deal in and with as principal or agent, and otherwise
acquire, invest in or hold, improved and unimproved real and personal property
in the United States and any foreign country; and to do all things related
thereto, including, but not limited to, becoming a limited or general partner or
venturer in undertakings of all types;
C. In addition to the foregoing purposes, the Corporation may engage in
any and all other lawful acts that, presently or in the future, may legally be
performed by a corporation organized under the laws of the State of Utah.
ARTICLE IV
The aggregate number of shares which the Corporation shall have
authority to issue shall be 1,000,000 common shares, par value $.01 per share;
400,000 voting preferred shares, par value $.10 per share; and 100,000
non-voting preferred shares, par value $.10 per share, for a total
capitalization of $60,000. Each common share and voting preferred share shall
have equal voting rights. Fully paid shares of the Corporation shall not be
liable for any further call or assessment.
The preferred shares may be issued from time to time in one or more
series and with such serial designations as may be stated or expressed in the
resolution or resolutions providing for the issuance of such shares adopted from
time to time by the Board of Directors; and in such resolution or resolutions
providing for the issuance of shares of each particular series, the Board of
Directors is also expressly vested with authority to fix the number of shares
constituting such series and to fix and determine the relative rights and
preferences of the shares of any series so established to the full extent
permitted by ss. 16-10-15, Utah Code Annotated, or by any successor statute.
All preferred shares shall be identical and of equal rank except as to
voting rights as provided herein and as to terms which may be specified by the
Board of Directors pursuant to the provisions of the preceding paragraph. All
preferred shares of any one series shall be identical and of equal rank except
that shares of any one series issued at different times may differ as to dates
from which dividends thereon shall accrue and be cumulative.
The Board of Directors is also expressly vested with authority to amend
any of the provisions of any resolution or resolutions providing for the issue
of any series of preferred shares, subject to any class voting rights of the
holders of any series of preferred shares contained in the resolution or
resolutions providing for the issue of such series and subject to the
requirements of the laws of the State of Utah.
Subject to the preferences and other rights of the preferred shares as
fixed in these Articles of Incorporation or in the resolution or resolutions of
the Board of Directors providing for the issuance of such preferred shares,
dividends may be paid upon the common shares as and when declared by the Board
of Directors out of any funds legally available therefor. In the event of any
liquidation, dissolution or winding up of the affairs of the Corporation, after
payment to the holders of the preferred shares of the amount to which they are
entitled under these Articles of Incorporation or pursuant to the resolution or
resolutions of the Board of Directors providing for the issue of such preferred
shares, the holders of the common shares shall be entitled to share ratably in
all assets then remaining for distribution to the shareholders.
ARTICLE V
The Corporation will not commence business until consideration of the
value of at least $1,000 has been received from the issuance of shares.
ARTICLE VI
The Corporation shall have a minimum of three and a maximum of seven
directors as shall be set by the Bylaws of the Corporation. Until their
successors are duly elected and qualified, the original directors shall be the
following:
Stephen C. Jacobsen 274 South 1200 East
Salt Lake City, Utah 84102
W. Edward Massey 173 Spring Valley Road
Ridgefield, Connecticut 06877
Thomas A. Wiita 1005 South 300 West
Salt Lake City, Utah 84101
ARTICLE VII
A. The Corporation shall have the right to purchase its own shares to
the extent of its unreserved and unrestricted earned surplus and also to the
extent of its unreserved and unrestricted capital surplus.
B. The Board of Directors of the Corporation may designate such
committee or committees as it determines in accordance with law to exercise such
authority as the Board of Directors shall delegate in the resolution designating
such committee or committees.
C. The shareholders shall not have preemptive rights to acquire
additional securities of the Corporation; or cumulative voting rights at any
election of the directors of the Corporation.
ARTICLE VIII
The initial registered agent of the Corporation shall be Stephen C.
Jacobsen, and the address of the initial registered office of the Corporation
shall be 274 South 1200 East, Salt Lake City, Utah 84102.
ARTICLE IX
The incorporators of the Corporation are the following:
J. Gordon Hansen 50 West Broadway, Suite 600
Salt Lake City, Utah 84101
Stephen C. Jacobsen 274 South 1200 East
Salt Lake City, Utah 84102
Helen L. Neer 50 West Broadway, Suite 600
Salt Lake City, Utah 84101
ARTICLE X
The Corporation shall indemnify its officers, directors, agents, and
other persons against liabilities incurred by them that result from their acts
that are performed in furtherance of the business of the Corporation to the full
extent now or hereafter permitted by the laws of the State of Utah.
IN WITNESS WHEREOF, the above-named incorporators have executed these
Articles of Incorporation this 29th day of July, 1985.
/s/ J. Gordon Hansen
J. Gordon Hansen, as Incorporator
/s/ Stephen C. Jacobsen
Stephen C. Jacobsen, as Incorporator
and Initial Registered Agent
/s/ Helen L. Neer
Helen L. Neer, as Incorporator
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
I, a Notary Public, hereby certify that on the 26th day of August,
1985, personally appeared before me J. Gordon Hansen, Stephen C. Jacobsen, and
Helen N. Neer, who being by me first duly sworn, severally declared that they
are the persons who signed the foregoing Articles of Incorporation as
incorporators and the statements therein contained are true.
/s/ Margie H. Stephens
Residing in Salt Lake County, Utah
My Commission Expires:
June 4, 1989
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
JMW ACQUISITION CO.
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation constituting a revision of its Articles of
Incorporation:
FIRST: The name of the corporation is JMW ACQUISITION CO.
SECOND: The following amendment to the Articles of Incorporation was
approved by the shareholders of the corporation on the 14th day of January, 1986
in the manner required by the Utah Business Corporation Act. The amendment
revises and restates, in their entirety, the Articles of Incorporation of the
corporation, with such revised Articles of Incorporation to read in their
entirety as set forth on Exhibit A which is attached hereto and incorporated
herein by this reference.
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 50,000; and the number of shares entitled to vote thereon
was 50,000.
FOURTH: No outstanding shares of any class were entitled to vote
thereon as a class.
FIFTH: The number of shares voted for such amendment was 50,000; and
the number of shares voted against such amendment was 0.
SIXTH: There was no class of outstanding shares entitled to vote as a
class on such amendment.
SEVENTH: The amendment creates a 10 for 1 forward split of the issued
and outstanding common shares of the corporation so that each common share
outstanding prior to the amendment shall be exchanged for 10 common shares to be
outstanding immediately subsequent to the amendment, with the par value of each
common share being reduced from $.01 to $.001.
EIGHTH: The amendment effects change in the amount of stated capital of
the corporation, by increasing the stated capital of the corporation to $75,500.
Such increase is effected by increasing the number of common shares which the
corporation is authorized to issue to 25,000,000 shares and by reducing the par
value of such common shares to $.001 per share.
NINTH: The foregoing Articles of Amendment to the Articles of
Incorporation of JMW Acquisition Co. supersede the original Articles of
Incorporation of such corporation and all prior amendments thereto.
DATED this 13th day of February, 1986.
JMW ACQUISITION COMPANY
By /s/ Thomas A. Wiita
Thomas A. Wiita, President
By /s/ Stephen C. Jacobsen
Stephen C. Jacobsen, Secretary
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
I, Helen L. Neer, a Notary Public, do hereby certify that on this 13th
day of February, 1986, personally appeared before me Thomas A. Wiita, who, being
by me first duly sworn, declared that he is the President of JMW Acquisition
Co., a Utah corporation, that he signed the foregoing document in his capacity
as President of such corporation, and the statements therein contained are true.
/s/ Helen L. Neer
Notary Public
Residing in Salt Lake County, Utah
My Commission Expires:
March 1, 1988
REVISED
ARTICLES OF INCORPORATION
OF
JMW ACQUISITION COMPANY
Pursuant to the applicable provisions of Utah law, as contained in ss.
16-10-60 of the Utah Business Corporation Act, we, the undersigned natural
persons, revise the following Articles of Incorporation. These revised Articles
of Incorporation shall supersede the original Articles of Incorporation and all
amendments to them to date.
ARTICLE I
The name of the corporation is JMW ACQUISITION CO.
ARTICLE II
The period of its duration is perpetual.
ARTICLE I
The purpose or purposes for which the Corporation is organized are:
1. To engage in the business of the research, development, manufacture
and sale of medical devices, products and/or drugs, and to acquire other
businesses or companies related thereto or to the science of medicine or other
biological sciences.
2. To lease, buy, and hold, to sell, mortgage, exchange, assign, and
otherwise dispose of, to improve, manage, contain, conserve and operate and
generally to trade and deal in and with as principal or agent, and otherwise
acquire, invest in or hold, improved and unimproved real and personal property
in the United States and any foreign country; and to do all things related
thereto, including, but not limited to, becoming a limited or general partner or
venturer in undertakings of all types.
3. In addition to the foregoing purposes, the Corporation may engage in
any and all other lawful acts that, presently or in the future, may legally be
performed by a corporation organized under the laws of the State of Utah,
including, without limitation, becoming a limited or general partner or venturer
in undertakings of all types.
ARTICLE IV
The corporation is authorized to issue two classes of shares, one
designated "Common Stock" and the other designated "Preferred Stock". Both
classes of shares shall have a par value of $0.001 per share. The number of
shares of Common Stock that this corporation is authorized to issue is
15,000,000. The number of shares of Preferred Stock that this corporation is
authorized to issue is 4,215,618, of which 67,200 shall be designated Series A
Preferred Stock, and 172,800 shall be designated Series C Preferred Stock.
The relative rights, preferences, privileges and restrictions granted
to or imposed upon the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock, or the holders thereof, are as follows:
1. Definitions. For purposes of this Article IV the following terms
shall have the following definitions:
(A) Series A Stock shall mean Series A Preferred Stock.
(B) Series B Stock shall mean Series B Preferred Stock.
(C) Series C Stock shall mean Series C Preferred Stock.
(D) Preferred Stock shall mean the Series A Stock, Series B
Stock and Series C Stock, collectively.
(E) Common Stock shall mean this corporation's Common Stock.
(F) Liquidation Preference for Series A Stock shall mean
$5.2083 per share plus any declared but unpaid dividends on such shares; for
Series B Stock shall mean $0.3773 per share plus any declared but unpaid
dividends on such shares; and for Series C Stock shall mean $5.2083 per share
plus any declared but unpaid dividends on such shares; all appropriately
adjusted for any stock combinations, stock splits, stock dividends or stock
distributions (a "Stock Combination or Division") with respect to such shares.
(G) Redemption Price for Series A Stock shall mean $5.2083 per
share plus any declared but unpaid dividends on such shares; for Series B Stock
shall mean $0.3773 per share plus any declared but unpaid dividends on such
shares; and for Series C Stock shall mean $5.2083 per share plus any declared
but unpaid dividends on such shares; all as appropriately adjusted for any Stock
Combinations or Divisions with respect to such shares.
(H) Original Issue Date shall mean August 4, 1987.
2. Dividends. Dividends shall be paid on the Common and Preferred Stock
at such times and in such amounts as the Board of Directors deem advisable.
Notwithstanding the foregoing, no dividend (other than a dividend payable solely
in Common Stock) shall be declared or paid on any share of Common Stock unless
an equal or greater dividend per share has first been declared and paid on each
share of Preferred Stock, as appropriately adjusted for any Stock Combinations
or Divisions. Each share of Preferred Stock, regardless of series, shall be paid
the same dividend per share.
3. Liquidation Rights. In the event of any liquidation, dissolution, or
winding up of this corporation, either voluntary or involuntary, distributions
to the shareholders of this corporation shall be made in the following manner.
Section 3.1 Series A Stock and Series B Stock Liquidation
Rights. The holders of Series A Stock and Series B Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of this corporation to the holders of Series C Stock or Common
Stock by reason of their ownership of such stock, an amount equal to their
Liquidation Preference for each share of Series A Stock and Series B Stock then
held by them. If such assets and funds are insufficient to permit the payment to
the holders of Series A Stock and Series B Stock of the full aforesaid
preferential amount, then the entire assets and funds of this corporation
legally available for distribution shall be distributed pro-rata among the
holders of the Series A Stock and Series B Stock in the proportion that the
amount that a given holder would receive as a liquidation preference on such
holder's shares of Series A Stock and Series B Stock, if such preference was
paid in full, bears to the total liquidation preference that would be received
on all the outstanding Series A Stock and Series B Stock, if such preference was
paid in full.
Section 3.2 Series C Stock Liquidation Rights. After payment
to the holders of Series A Stock and Series B Stock of the amounts set forth in
Section 3.1 above, the holders of the Series C Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of this corporation to the holders of Common Stock by reason of
their ownership of such stock, an amount equal to their Liquidation Preference
for each share of Series C Stock then held by them. If such assets and funds
shall be insufficient to permit the payment to the holders of Series C Stock of
the full aforesaid preferential amount, then the entire assets and funds of this
corporation legally available for distribution and remaining after the payments
required by Section 3.1 have been made shall be distributed pro-rata among the
holders of the Series C Stock based on the number of shares of Series C Stock
held by each of them.
Section 3.3 Remaining Liquidation Rights. After payment to the
holders of Preferred Stock of the amounts set forth in Sections 3.1 and 3.2
above, the entire remaining assets and funds of this corporation legally
available for distribution, if any, shall be distributed among the holders of
Common Stock and Preferred Stock pro-rata, based on the number of shares of
Common Stock held by each such holder (to be calculated for this purpose as if
all outstanding shares of Preferred Stock have been converted into Common Stock
pursuant to the terms hereof).
Section 3.4 Consolidation, Merger, Sale of Assets. A
consolidation or merger of the corporation with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
corporation, shall not be deemed to be a liquidation, dissolution or winding-up
within the meaning of this Section 3.
4. Voting Rights.
Section 4.1 Preferred Stock Rights. Except as otherwise
expressly provided herein or as required by law, the holder of each share of
Preferred Stock shall be entitled to one vote for each share of Common Stock
into which such shares of Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded up or
down to the nearest whole share), shall have voting rights and powers equal to
the voting rights and powers of a holder of Common Stock, shall vote with the
holders of Common Stock and not as a separate class, and shall be entitled to
notice of any shareholders meeting in accordance with the Bylaws of the
corporation. If these Revised Articles of Incorporation or the law provides for
the holders of Preferred Stock to vote separately from the holders of Common
Stock on a matter, then all series of Preferred Stock shall vote together as one
class. Under no circumstances shall any series of Preferred Stock be entitled to
vote separately on a matter.
Section 4.2 Cumulative Voting. Holders of the corporation's
stock entitled to vote at any election of directors of this corporation may
cumulate their votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such holder's shares are normally entitled, or distribute the such holder's
votes on the same principal amongst as many candidates as such holder thinks
fit. No holder, however, may cumulate such holder's vote for one or more
candidates unless such candidate's or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting, prior to voting, of such shareholder's intention to cumulate such
shareholder's votes. If any one holder has given such notice, all holders may
cumulate their votes for candidates in nomination.
5. Redemption.
Section 5.1. Mandatory Redemption of Series A Stock and Series
B Stock. The corporation shall redeem, on July 15, 1992, and on each of the next
four anniversaries of such date, 13,440 shares of Series A Stock and 795,099
shares of Series B Stock (or, as to a given series, all outstanding shares of
such series, if such amount is less than the amount of shares of such series
scheduled to be redeemed) at the then current Redemption Price for such shares,
from any source of funds legally available therefore. The shares of each series
to be redeemed shall be redeemed pro-rata from each holder of stock of such
series, based on the number of shares of stock of such series held by such
holder. If insufficient funds are legally available to redeem all the shares of
Series A Stock and Series B Stock to be redeemed on a given redemption date,
then the corporation shall redeem shares of Series A Stock and Series B Stock
from the holders thereof to the maximum extent permitted by law. In such event
the available funds shall be apportioned between the holders of Series A Stock
and Series B Stock based on the aggregate Redemption Price of the shares of each
such series scheduled to be redeemed. The funds available for redemption of
shares of each series shall be used to redeem shares from each holder of shares
of such series pro-rata, based on the number of shares of such series held by
such holder. Any shares scheduled for redemption that are not redeemed shall be
carried forward and redeemed (together with the other shares of Series A Stock
and Series B Stock that are then due to be redeemed) on the next redemption date
(or after July 15, 1996, as soon as legally possible) to the full extent of the
legally available funds of the corporation at such time. Shares of Series A
Stock and Series B Stock that are scheduled for redemption but are not redeemed,
shall continue to be entitled to all of the rights, preferences, privileges, and
restrictions accorded to such shares until they have been redeemed.
Section 5.2 Mandatory Redemption of Series C Stock. The
corporation shall redeem, on the latter of July 15, 1997, or the first
anniversary of such date after the Series A Stock and Series B Stock have been
fully redeemed pursuant to the provisions of Section 5.1 hereof (the "First
Series C Redemption Date"), and on each of the next four anniversaries of the
First Series C Redemption Date, 34,560 shares of Series C Stock (or all
outstanding shares of such series, if less), at the then current Redemption
Price for such series, from any source of funds legally available therefore. The
shares to be redeemed shall be redeemed pro-rata from each holder of Series C
Stock, based on the number of shares of Series Stock held by such holder. If
insufficient funds are legally available to redeem all of the shares of Series C
Stock to be redeemed on a given redemption date, then the corporation shall
redeem the maximum number of shares of Series C Stock permitted by law, and such
redemption shall be made pro-rata from holders of Series C Stock based on the
number of shares of Series C Stock held by such holder. Any shares scheduled for
redemption that are not redeemed shall be carried forward and redeemed (together
with the other shares of Series C Stock that are then due to be redeemed) on the
next redemption date (or, after July 15, 2001, as soon as legally possible), to
the full extent of the legally available funds of the corporation at such time.
Shares of Series C Stock that are scheduled for redemption but are not redeemed
shall continue to be entitled to all of the rights, preferences, privileges and
restrictions of such shares until they have been redeemed.
Section 5.3 Notice of Redemption. At least forty-five days
(but not more than ninety days) prior to the date fixed for any redemption
pursuant to the provisions of Section 5.1 or Section 5.2 (the "Redemption
Date"), the corporation shall give notice of such redemption (the "Redemption
Notice") to all holders of Series A Stock and Series B Stock (in the case of a
redemption pursuant to Section 5.1), and to all holders of Series C Stock (in
the case of a redemption pursuant to Section 5.2), (1) that the corporation is
required to redeem shares and the number of shares of such holder to be
redeemed; (2) the Redemption Date; (3) the Redemption Price; (4) the place at
which such holders may obtain payment of the Redemption Price upon surrender of
their share certificate; and (5) the date on which any right to convert the
shares to be redeemed to Common Stock terminates. Shares called for redemption
in a Redemption Notice and subsequently converted by the holder thereof prior to
the Redemption Date shall reduce the number of shares required to be redeemed by
the corporation on such Redemption Date pursuant to Section 5.1 or 5.2.
Section 5.4 Deposit of Redemption Funds. On or prior to the
Redemption Date this corporation shall deposit the Redemption Price of all
shares to be redeemed with a bank or trust company having aggregate capital and
surplus in excess of $20,000,000, as a trust fund, with irrevocable instructions
and authority to the bank or trust company to pay, on and after such Redemption
Date, the Redemption Price of the shares to their respective holders upon the
surrender of their share certificates. Any funds deposited by this corporation
pursuant to this section for the redemption of shares thereafter converted into
Common Stock shall be returned to this corporation promptly upon such
conversion. The balance of any funds deposited by this corporation pursuant to
this section remaining unclaimed at the expiration of one year following such
Redemption Date shall be returned to this corporation promptly upon its written
request.
Section 5.5 Surrender of Shares. On or after each Redemption
Date, each holder of shares to be redeemed shall surrender such holder's
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof. Upon redemption of only a
portion of the number of shares covered by a given certificate surrendered for
redemption, the corporation shall issue and deliver a new certificate covering
the unredeemed portion of the original certificate. From and after such
Redemption Date, unless payment of the Redemption Price is not made by the
corporation, all rights of the holders of the shares of stock to be redeemed as
holders of such stock (except the right to receive the Redemption Price without
interest upon surrender of their certificates), shall cease and terminate with
respect to such shares.
Section 5.6 Funds Available for Stock Redemption or
Repurchase. Subject to the other provisions of these Revised Articles of
Incorporation, the corporation shall have the right to redeem or repurchase its
shares to the extent of its unreserved and unrestricted earned surplus, and also
to the extent of its unreserved and unrestricted capital surplus.
Section 5.7 Return to Unissued Status. Shares of any series of
Preferred Stock that have been redeemed or required in any manner by this
corporation, or which, if convertible, have been converted into shares of stock
of another class or classes, shall be retired, shall not be reissued and shall
be canceled in accordance with the procedure required by the Utah Business
Corporation Act.
6. Conversion. The holders of the Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
Section 6.1 Right to Convert/Automatic Conversion.
(A) Each share of Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the Original Issue Date, at the
office of this corporation or any transfer agent for the Preferred Stock, into
such number of fully paid and non-assessable shares of Common Stock as is
determined by dividing $0.3773 (the "Original Issue Price") by the Conversion
Price for shares of Preferred Stock at the time in effect. The initial
Conversion Price for shares of Preferred Stock shall be the Original Issue
Price; provided, however, that the Conversion Price for the Preferred Stock
shall be subject to adjustment as set forth in this Section 6.
(B) In the event of redemption of any shares of Preferred
Stock pursuant to Section 5 hereof, the Conversion Rights shall terminate as to
the shares designated for redemption at the close of business on the day prior
to the Redemption Date, unless payment of the Redemption Price is not made by
the corporation.
(C) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Conversion Price
immediately upon the closing of the corporation's sale of its Common Stock to
the public in a bona fide, underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended, the public
offering price of which is not less than $1.1319 per share (as appropriately
adjusted for any Stock Combinations or Divisions), and resulting in the receipt
by the corporation of at least $5,000,000 in gross proceeds.
Section 6.2 Mechanics of Conversion.
(A) To convert Preferred Stock, the holder thereof shall
surrender the certificate or certificates representing such Preferred Stock,
duly endorsed, with signature guaranteed, at the principal corporate office of
this corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to this corporation at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to the holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid, and a check
payable to the holder in the amount of any cash amounts payable to the holder in
lieu of fractional shares of Common Stock, as provided in Section 6.8. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the certificate representing the
shares of Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, the conversion may, at the option of any holder tendering Preferred Stock
for conversion, be conditioned upon the closing of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(B) Notwithstanding the foregoing, in the event of an
automatic conversion pursuant to Section 6.1(C) the Preferred Stock shall not be
deemed to be converted until immediately prior to the closing of such sale of
securities. Upon the closing of such an offering the outstanding shares of
Preferred Stock shall be converted automatically without further action by the
holders of said shares and whether or not the certificates representing said
shares are surrendered to this corporation or its transfer agent; provided,
however, this corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares of
Preferred Stock unless certificates evidencing such shares of Preferred Stock
are either delivered to this corporation or any transfer agent, or the holder
notifies the corporation that said certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to this corporation to
indemnify this corporation against any loss incurred by it in connection
therewith. Upon the occurrence of the automatic conversion of the Preferred
Stock, the holders of the Preferred Stock shall surrender the certificates
representing said shares at the office of this corporation or of any transfer
agent for the Preferred Stock. Thereupon, there shall be issued and delivered to
such holder, promptly at such office and in such holder's name as shown on such
surrendered certificate or certificates (or such other name as such holder may
designate), a certificate or certificates for the number of shares of Common
Stock into which the shares of Preferred Stock surrendered were convertible on
the date on which the event effecting the automatic conversion occurred.
Section 6.3 Conversion Price Adjustment of Preferred Stock.
The Conversion Price of the Preferred Stock shall be subject to adjustment from
time to time as follows:
(A) (i) If the corporation shall issue any Additional Stock
(as defined in Section 6.3(B) below) for a consideration per share less than the
Conversion Price of the Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, then the applicable Conversion Price for the
Preferred Stock in effect immediately prior to each such issuance shall
forthwith be adjusted to a price determined by multiplying such Conversion Price
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of shares
of Common Stock which the aggregate consideration received by the corporation
for all such Additional Stock so issued would purchase at the Conversion Price
in effect immediately prior to the issuance, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of such Additional Stock; provided that, for
the purpose of this Section 6.3(A)(i), all shares of Common Stock (except as
otherwise provided in this Section 6.3(A)) issuable upon conversion of all
outstanding shares of Preferred Stock shall be deemed to be outstanding, and
immediately after any shares of Additional Stock are deemed to be issued
pursuant to Section 6.3(A)(v) such shares of Additional Stock shall be deemed to
be outstanding.
(ii) No adjustment of the applicable Conversion Price
shall be made in an amount less than one cent ($0.01) per share, provided that
any adjustments which are not required to be made by reason of this sentence
shall be carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
one cent ($0.01) per share or more in the Conversion Price. Except to the
limited extent provided for in Sections 6.3(A)(v)(c) and 6.3(A)(v)(d), no
adjustment of such Conversion Price pursuant to this Section 6.3(A) shall have
the effect of increasing such Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(iii) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefore
before deducting any discounts, commissions or other expenses allowed, paid or
incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(iv) In the case of the issuance of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(v) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities (that are
not expressly excluded from the definition of Additional Stock), the following
provisions shall apply:
(a) The aggregate maximum number of shares
of Common Stock deliverable upon exercise of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued at the time
such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in Sections 6.3(A)(iii) and
6.3(A)(iv)), if any, received by the corporation upon the issuance of such
options or rights plus the minimum purchase price provided in such options or
rights for the Common Stock covered thereby.
(b) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion of or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration, if any, received by the corporation for any such
securities, or for any such options or rights, plus the minimum additional
consideration, if any, to be received by the corporation upon the conversion or
exchange of such securities or the exercise of any options or rights and
conversion or exchange of related securities, for such Common Stock (the
consideration in each case to be determined in the manner provided in Sections
6.3(A)(iii) and 6.3(A)(iv)).
(c) In the event of any change in the number
of shares of Common Stock deliverable or any increase in the consideration
payable to this corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Conversion Price of the Preferred Stock obtained with
respect to the adjustment which was made upon the issuance of such options,
rights or securities, and any subsequent adjustments based thereon, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payments of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
related securities.
(d) Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Preferred Stock obtained with respect to
the adjustment which was made upon the issuance of such options, rights or
securities or options or rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights and conversion or exchange of such related
securities.
(B) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to Section
6.3(A)(v)) by this corporation after the Original Issue Date other than:
(i) Common Stock issued pursuant to a
transaction described in subsection 6.3(C) hereof;
(ii) Shares of Common Stock issuable or
issued to employees, officers, directors, or consultants of this corporation
directly or pursuant to a stock option plan or agreement or restricted stock
plan or agreement approved by the directors of this corporation, at any time
when the total number of shares of Common Stock so issuable or issued does not
exceed 800,000 (appropriately adjusted to reflect subsequent Stock Combinations
or Divisions, and net of any such shares repurchased by the corporation at cost
upon termination of employment or services, and net of any such options which
may expire unexercised);
(iii) Common Stock issued or issuable upon
conversion of the Preferred Stock; or
(iv) Common Stock issued pursuant to
subscription agreements entered into by the corporation prior to the Original
Issue Date.
(C) In the event the corporation should at any time
or from time to time after the Original Issue Date fix a record date for the
effectuation of a split of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional share of Common Stock (hereinafter referred to as "Common
Stock Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock Equivalents (including the additional shares
of Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such split, dividend or distribution if no record
date is fixed), the Conversion Price of the Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Preferred Stock shall be increased in proportion to
such increase of outstanding shares (and/or shares deemed to be outstanding as
determined in accordance with Section 6.3(A)(v)).
(D) If the number of shares of Common Stock
outstanding at any time after the Original Issue Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
Section 6.4 Other Distributions. In the event this corporation
shall declare a distribution payable in securities of other persons, evidence of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or securities or rights not referred to in Section 6.3(C), then, in
each such case the holders of the Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the corporation into which their shares
of Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution, or, if there is no such record date, on the date such
distribution is made.
Section 6.5 Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Preferred Stock is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a Stock
Combination or Division provided for elsewhere in this Section 6), in any such
event each holder of the Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by holders of the maximum number of shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 6
with respect to the rights of holders of Preferred Stock after such
recapitalization, reclassification or the like to the end that the provisions of
this Section 6 (including adjustment of the Conversion Price then in effect and
the number of shares receivable upon conversion of the Preferred Stock) shall be
applicable after that event and be as nearly equivalent as possible.
Section 6.6 Reorganizations, Mergers, Sale of Assets. If at
any time or from time to time after the Original Issue Date the corporation
effects a merger, sale or conveyance or similar reorganization (other than a
reclassification, exchange or substitution provided for in Section 6.5), then,
as a part of such merger, sale or conveyance of assets, or other reorganization
provision shall be made so that the holders of Preferred Stock shall thereafter
be entitled to receive upon conversion of the Preferred Stock the number of
shares of stock or other securities or property of the corporation to which a
holder of the number of shares of Common Stock deliverable upon conversion of
such Preferred Stock would have been entitled upon such merger, sale or
conveyance of assets or other reorganization, subject to adjustment in respect
of such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 6
with respect to the rights of the holders of Preferred Stock after the merger,
sale or conveyance of assets or other reorganization to the end that the
provisions of this Section 6 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Preferred
Stock) shall be applicable after that event and be nearly equivalent as
practicable.
Section 6.7 No Impairment. This corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 6 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
Section 6.8 No Fractional Shares. No fractional shares shall
be issued upon conversion of any of the Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded down to the nearest whole
share. In lieu of any fractional shares to which the holder would otherwise be
entitled, the corporation shall pay the holder cash equal to the fraction
multiplied by the fair market value of a share of such stock immediately prior
to the conversion, as determined by the Board of Directors in good faith.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
7. Notices.
Section 7.1 Notices of Record Date. In the event of any taking
by the corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, or right to
purchase or otherwise acquire any securities or property of the corporation, or
any other right (other than the right to vote shares), the corporation shall
mail to each holder of the Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or rights,
and the amount and character of such dividend, distribution or right.
Section 7.2 Manner of Notice. Any notice required or permitted
to be given by the provisions of these Revised Articles of Incorporation to the
holders of shares of Preferred Stock (or any series thereof) shall be given in
writing and shall be deemed to have been duly given if delivered personally or
when mailed by registered or certified mail, postage prepaid, to each such
holder of record of Preferred Stock (or applicable series) at such holder's
address appearing on the books of this corporation.
8. Protective Provisions for Preferred Stock. As long as at least an
aggregate of 500,000 shares of the Preferred Stock (as appropriately adjusted
for Stock Combinations or Divisions) shall be outstanding, this corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by law), of the holders of more than 60% of the total number of shares
of Preferred Stock then outstanding, voting together as one class:
(A) Certain Changes in Authorization of Capital Stock.
Increase or decrease the total number of authorized shares of Common or
Preferred Stock;
(B) Merger, Sales of Assets. Effect any sale, conveyance,
encumbrance or otherwise dispose of all or substantially all of the assets of
this corporation, or merger or consolidation with any other corporation (other a
subsidiary in which the corporation owns at least 80% of the voting stock, and
if the corporation is the surviving corporation of the merger) or any
reclassification or recapitalization involving a change in the rights,
preferences, privileges or restrictions provided for the benefit of the then
outstanding Preferred Stock;
(C) Certain Reclassifications. Reclassify any outstanding
shares into shares having any preference or priority as to dividends, assets or
other rights superior to or on a parity with any such preference or priority of
any series of Preferred Stock;
(D) Certain Preferred Stock Changes. Amend or repeal any
provision of, or add any provision to, the corporation's articles of
incorporation, if such action would alter or change the rights, preferences,
privileges, or restrictions of the Preferred Stock;
(E) Certain Senior or Parity Securities. Issue shares of any
series or class of stock, other than Common Stock, or issue any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of this corporation other
than Common Stock;
(F) Dividends, Distributions, Splits and Combinations. Declare
or pay any dividends or other distribution on account of Common Stock, or effect
any split or combination of the Common Stock or Preferred Stock, except that
nothing herein shall limit the corporation's right to repurchase Common Stock
pursuant to Section 8(G) below; or
(G) Redemption. Purchase or redeem any capital stock of this
corporation except a purchase or redemption of Common Stock from an officer,
employee, director or consultant of this corporation pursuant to the terms of a
stock purchase or stock option plan or agreement or a redemption, pursuant to
these Articles, of Preferred Stock.
ARTICLE V
Directors of the corporation shall not have personal liability to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty except in the following circumstances:
(A) for any breach of the director's duty of loyalty to the
corporation or its shareholders;
(B) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(C) for actions specified under Section 16-10-44 of the Utah
Business Corporation Act; or
(D) for any transaction from which the director derived an
improper personal benefit.
If the Utah Business Corporation Act is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Utah Business Corporation Act, as so amended.
Any repeal or modification of the foregoing provisions of this Article V will be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE VI
1. Indemnification of Officers, Directors and Employees. Each person
who was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
or she or a person of whom he or she is the legal representative, is or was a
director, officer or employee of the corporation (including any constituent
corporation) as a director, officer or employee of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the Utah Business Corporation
Act, against all expenses, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes and penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that the corporation
shall indemnify any such person seeking indemnity in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the corporation.
2. Advance of Expenses. The corporation shall pay all expenses incurred
by such a director, officer or employee in defending any such proceeding as they
are incurred in advance of its final disposition; provided, however, that if the
Utah Business Corporation Act then so requires, the payment of such expenses
incurred by a director, officer or employee in advance of the final disposition
of such proceeding shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director, officer or employee to repay all
amounts so advanced if it should be determined ultimately that such director,
officer or employee is not entitled to be indemnified under this Article VI or
otherwise; and provided further that the corporation shall not be required to
advance any expenses to a person against whom the corporation brings a claim, in
a proceeding, alleging that such person has breached his or her duty of loyalty
to the corporation, committed an act or omission or a knowing violation of law,
or derived an improper personal benefit from a transaction.
3. Non-Exclusivity of Rights. The rights conferred on any person in
this Article VI shall not be exclusive of any other right that such person may
have or hereafter acquire under any statute, provision of the Articles of
Incorporation, Bylaw, agreement, vote or consent of stockholders or
disinterested directors or otherwise. Additionally, nothing in this Article VI
shall limit the ability of the corporation to indemnify persons not covered by
this Article VI, including, without limitation, agents of the corporation, to
the full extent permitted by the Utah Business Corporation Act.
4. Indemnification Contracts. The Board of Directors is authorized to
cause the corporation to enter into a contract with any director, officer or
employee of the corporation, or any person serving at the request of the
corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VI.
5. Insurance. The corporation shall maintain insurance, at its expense,
to the extent it determines such to be reasonably available, to protect itself,
its directors and officers, and any other persons the Board of Directors may
select, against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Utah Business Corporation Act.
6. Effect of Amendment. Any amendment, repeal or modification of any
provision of this Article VI shall be prospective only, and shall not adversely
affect any right or protection conferred on a person pursuant to this Article VI
and existing at the time of such amendment, repeal or modification.
ARTICLE VII
1. Committees. The board of directors of the corporation may designate
one or more committees of the board to exercise such authority as the board of
the directors shall delegate in the resolution establishing such committee(s),
to the extent permitted by law.
2. Preemptive Rights. Stock holders of the corporation shall not have
preemptive rights to acquire additional securities of the corporation.
3. Purchase of Shares. Subject to any limitations contained herein
relating to the repurchase or redemption of shares by this corporation, the
corporation shall have the right to purchase its own shares to the extent of its
unreserved and unrestricted earned surplus, and also to the extent of its
unreserved and unrestricted capital surplus.
ARTICLE VIII
The registered agent of the corporation is Stephen H. Ober, and the
address of the registered office of the corporation is 1290 West, 2320 South,
Suite A, Salt Lake City, Utah 84119.
In witness whereof, the undersigned has executed these Revised Articles
of Incorporation this 3rd day of August, 1987.
President
Secretary
ACKNOWLEDGEMENT
I hereby acknowledge that I am aware that I am named as the Registered
Agent of JMW Acquisition Co., a Utah corporation, and agree to act as such in
accordance with law.
DATED this 3rd day of August, 1987.
/s/ Stephen H. Ober
Stephen H. Ober
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
On this 3rd day of August, 1987, personally appeared before me, Notary
Public in and for the State of Utah, STEPHEN H. OBER, who after first being duly
sworn, duly acknowledged to me that he executed the foregoing instrument.
/s/ Melissa J. Gage
Notary Public
Residing in Salt Lake County, Utah
ARTICLES OF MERGER
OF
MOTION CONTROL, INC.
WITH AND INTO
JMW ACQUISITION
Pursuant to the provisions of Section 16-10-70, Utah Code Anno., JMW
ACQUISITION CO., a Utah corporation (the "Parent Corporation"), hereby adopts
the following Articles of Merger for the purpose of merging MOTION CONTROL,
INC., a Utah corporation (the "Subsidiary Corporation") with and into the Parent
Corporation:
FIRST: On October 23, 1987, the Board of Directors of the Parent
Corporation, at a duly called and convened meeting of said Board of Directors,
unanimously adopted that certain Plan of Merger which is attached hereto as
Exhibit "A" and which, by this reference, is incorporated herein.
SECOND: The number of outstanding shares of each class of the
Subsidiary Corporation, and the number of shares of each such class owned by the
Parent Corporation are:
Number of Shares Owned by the Parent
Class Number of Shares Outstanding Corporation
Common 3,487,875 3,439,845
THIRD: A copy of the Plan of Merger, as attached to these Articles of
Merger as Exhibit "A", was mailed to each shareholder of record of the
Subsidiary Corporation, by United States mail, with postage prepaid and return
receipt requested, on November 2, 1987.
IN WITNESS WHEREOF, JMW ACQUISITION CO. has caused these Articles of
Merger to be executed by its duly authorized officers upon this 3rd day of
December, 1987.
JMW ACQUISITION CO.
/s/ Stephen H. Ober
Stephen H. Ober, President
/s/ Mary A. Crowther
Mary A. Crowther, Assistant Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
I, Melissa J. Gage, a Notary Public, do hereby certify that on this 3rd day
of December, 1987, personally appeared before me Stephen H. Ober, who, being by
me first duly sworn, declared that he is the President of JMW Acquisition Co., a
Utah corporation, that he signed the within and foregoing instrument in his
capacity as the President of JMW Acquisition Co. and that the statements
contained in the within and foregoing instrument are true and correct.
/s/ Melissa J. Gage
Notary Public
Residing in
My Commission Expires:
<PAGE>
Exhibit "A"
PLAN OF MERGER
THIS PLAN OF MERGER is adopted this 3rd day of September, 1987 by the
Board of Directors of JMW Acquisition Co., a Utah corporation ("JMW"), in order
to provide for the merger of Motion Control, Inc., a Utah corporation ("MCI")
with and into JMW in the manner authorized by the Utah Business Corporation Act.
JMW and MCI are hereinafter sometimes collectively referred to as the
"Constituent Corporations".
ARTICLE I
1.1 Ownership of MCI Common Shares. MCI has issued and outstanding a
total of three million four hundred eighty-seven thousand eight hundred
seventy-five (3,487,875 common shares, par value $.01 per share. Such common
shares are the only class of equity securities of MCI which are issued and
outstanding. JMW is the record and beneficial owner of a total of three million
four hundred thirty-nine thousand eight hundred forty-five (3,439,845) of the
issued and outstanding common shares of MCI, or a total of approximately
ninety-eight percent (98%) of all of the issued and outstanding common shares of
MCI.
ARTICLE II
2.1 Merger of MCI into JMW. In accordance with the provisions of
Section 70 of the Utah Business Corporation Act (Section 16-10-70, Utah Code
Ann.), a copy of this Plan of Merger shall be mailed to each shareholder of
record of MCI. Thirty (30) days after the date of the mailing of this Plan of
Merger to the shareholders of MCI, MCI shall be merged with and into JMW upon
the filing of original Articles of Merger with, and the issuance of a
certificate of merger by, the Department of Business Regulation, Division of
Corporations and Commercial Code, of the State of Utah (the "Effective Time").
The separate corporate existence of MCI shall thereupon cease and JMW shall be
the surviving corporation. JMW is herein sometimes referred to as the "Surviving
Corporation".
2.2 Effective the Merger. At and after the Effective Time, the separate
existence of MCI shall cease, and the Surviving Corporation shall have all the
rights, privileges, immunities and powers, and shall be subject to all the
duties and liabilities of both of the Constituent Corporations to the same
degree as each of the respective Constituent Corporations prior to the Effective
Time. Further, the Surviving Corporation shall be subject to and shall possess
the further rights and obligations set forth in Section 71 of the Utah Business
Corporation Act, (Section 16-10-71(2)(d) and (e) Utah Code Ann.) as though fully
set forth herein.
ARTICLE III
3.1 Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of JMW, as in effect immediately prior to the Effective Time,
shall be and remain the Articles of Incorporation of the Surviving Corporation
until further amended in accordance with the provisions of the Utah Business
Corporation Act.
3.2 By-Laws. The By-Laws of JMW, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until duly
amended in accordance with law.
3.3 Officers and Directors. The officers and directors of JMW
immediately prior to the Effective Time shall, after the Effective Time, be and
remain the officers and directors of the Surviving Corporation until their
respective successors are duly appointed or elected and qualified.
ARTICLE IV
4.1 Conversion of Stock. Each common share of MCI which is issued and
outstanding immediately prior to the Effective Time, except for shares held by
JMW or shares held by MCI as treasury shares, shall, by virtue of the merger and
without any action on the part of the holder thereof, be converted into and
become one issued and outstanding common share of the Surviving Corporation. All
MCI common shares held by JMW or by MCI as treasury shares shall be canceled at
the Effective Time.
4.2 Conversion of Warrants. Each outstanding stock purchase warrant
held by shareholders of MCI immediately prior to the Effective Time, shall, by
virtue of the merger and without any action on the part of the holder thereof,
be converted into and become a warrant to purchase an identical number of the
common shares of the Surviving Corporation. Such warrants to purchase common
shares of the Surviving Corporation shall be identical, in every respect, to the
warrants to purchase MCI common shares which are outstanding immediately prior
to the Effective Time.
4.3 Exchange of Securities.
(a) At or immediately following the Effective Time, each
holder of a stock certificate or certificates representing issued and
outstanding common shares of MCI shall surrender the same to the Surviving
Corporation or its designated exchange agent. Each such holder shall be
entitled, upon such surrender, to receive in exchange therefore a certificate or
certificates representing the number of the common shares of the Surviving
Corporation into which the common shares of MCI represented by such certificate
or certificates so surrendered have been converted as stated in this Plan of
Merger. Until they are surrendered to the Surviving Corporation, each
certificate which, prior to the Effective Time, represented issued and
outstanding shares of MCI, shall be deemed for all corporate purposes to
evidence the right to receive the number of common shares of the Surviving
Corporation into which the same shall have been converted.
(b) No dividends or other distributions declared after the
Effective Time with respect to the common shares of the Surviving Corporation
and payable to the holders of record thereof after the Effective Time shall be
paid to the holder of any unsurrendered certificates representing MCI common
shares.
4.4 Exchange of Warrants.
(a) At or immediately following the Effective Time, each
holder of an outstanding stock purchase warrant for MCI common shares shall
surrender the same to the Surviving Corporation or its designated exchange
agent. Each such holder shall be entitled, upon such surrender, to receive in
exchange therefore a stock purchase warrant for common shares of the Surviving
Corporation which shall be identical in all respects to the stock purchase
warrant so surrendered.
(b) After the Effective Time, no stock purchase warrant for
the common shares of MCI shall be exercisable for MCI common shares.
4.5 Fractional Shares. To avoid the issuance of fractional shares, in
lieu of issuing a fraction of a common share of the Surviving Corporation, the
Surviving Corporation shall deliver cash to each person otherwise entitled to
receive a fraction of a common share of the Surviving Corporation, equal to the
fair value thereof.
IN WITNESS WHEREOF, the Board of Directors of JMW Acquisition Co. has
adopted the foregoing Plan of Merger in accordance with Section 70 of the Utah
Business Corporation Act (Section 16-10-70, Utah Code Ann.) as of the date set
forth above.
JMW ACQUISITION CO.
By: /s/ Stephen H. Ober
Its: President
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
JMW ACQUISITION CO.
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned corporation hereby adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is JMW ACQUISITION CO.
SECOND: The following amendment to the Articles of Incorporation of the
corporation was approved by the shareholders of the corporation on the 18th day
of December, 1987, in the manner required by the Utah Business Corporation Act.
The amendment revises Article I of the Articles of Incorporation of the
corporation, to read in its entirety as follows:
"The name of the corporation is IOMED, INC."
THIRD: The total number of shares of the corporation outstanding at the
time of the adoption of the amendment set forth in paragraph "SECOND" hereof was
3,864,225 Common Shares, 67,200 Series A Preferred Shares, 3,975,618 Series B
Preferred Shares, and 172,800 Series C Preferred Shares. Each of the outstanding
Common Shares of the corporation and each of the outstanding Preferred Shares of
the Corporation was entitled to one vote upon the amendment set forth in
paragraph "SECOND" hereof.
FOURTH: None of the outstanding shares of the corporation were entitled
to vote upon the amendment set forth herein as a class.
FIFTH: The total number of shares voted for the amendment set forth
herein was 2,747,200 Common Shares, -0- Series A Preferred Shares, 2,199,842
Series B Preferred Shares, and -0- Series C Preferred Shares. The number of
shares voted against the amendment set forth herein was 10,000.
SIXTH: There was no class of outstanding shares entitled to vote as a
class upon the amendment set forth herein.
SEVENTH: The amendment set forth herein does not provide for any
exchange, reclassification or cancellation of issued shares of the corporation.
EIGHTH: The amendment set forth herein does not affect any change in
the amount of the stated capital of the corporation.
DATED this 18th day of December, 1987.
JMW ACQUISITION CO.
By: /s/ Stephen H. Ober
STEPHEN H. OBER
President
By: /s/ Joel D. Kellman
JOEL D. KELLMAN
Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
I, Mary A. Crowther, a Notary Public, do hereby certify that on this
18th day of December, 1987, personally appeared before me Stephen H. Ober, who
being first duly sworn did state that he is the President of JMW Acquisition
Co., a Utah corporation, that he executed the within and foregoing document in
his capacity as the President of JMW Acquisition Co., and that the statements
set forth in the within and foregoing document are true and correct.
/s/ Mary A. Crowther
Notary Public
Residing in Salt Lake City, Utah
My Commission Expires:
<PAGE>
ASSIGNMENT AND CONSENT
TO USE OF NAME
The undersigned, Robert C. Delahunty, hereby assigns to JMW Acquisition
Co., a Utah corporation, whose address is 1290 West 2320 South, Suite A, Salt
Lake City, Utah, all of the undersigned's right, title and interest in and to
the name IOMED, INC. Further, the undersigned hereby consents to the use of the
name IOMED, INC. by JMW Acquisition Co. and requests the Division of
Corporations and Commercial Code of the State of Utah to accept for filing
Articles of Amendment to the Articles of Incorporation of JMW Acquisition Co.
setting forth therein the name of such corporation as IOMED, Inc.
DATED this 18th day of December, 1987.
/s/ Robert C. Delahunty
Robert C. Delahunty
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
I, a Notary Public, do hereby certify that on this 18th day of
December, 1987, personally appeared before me Robert C. Delahunty, who being
first duly sworn, acknowledged to me that he executed the within and foregoing
Assignment and Consent to Use of Name and that the statements set forth therein
are true and correct.
/s/ Melissa J. Gage
Notary Public
Residing in Salt Lake City, Utah
My Commission Expires:
1/23/91
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
IOMED, INC.
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is IOMED, INC.
SECOND: The following Amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation on the 10th day of November,
1989, in the manner prescribed by the Utah Business Corporation Act. The
amendment revises Article VII of the Articles of Incorporation of the
corporation by adding to such Article VII a new Section 4, which reads in its
entirety as follows:
"4. Control Shares Acquisition Act. The provisions of the Utah
Control Shares Acquisition Act shall not apply to control
shares acquisitions of the common or preferred shares of the
corporation."
THIRD: The total number of shares of the corporation outstanding at the
time of the adoption of the amendment set forth in paragraph "SECOND" hereof was
3,814,805 Common Shares, 67,200 Series A Preferred Shares, 3,975,618 Series B
Preferred Shares, and 172,800 Series C Preferred Shares. Each of the outstanding
Common Shares of the corporation and each of the outstanding Preferred Shares of
the Corporation was entitled to one vote upon the amendment set forth in
paragraph "SECOND" hereof.
FOURTH: None of the outstanding shares of the corporation were entitled
to vote upon the amendment set forth in paragraph "SECOND" hereof as a separate
class.
FIFTH: The total number of shares voted for the amendment set forth
herein was 3,299,325 Common Shares, zero Series A Preferred Shares, 3,958,391
Series B Preferred Shares, and zero Series C Preferred Shares. The number of
shares voted against the amendment set forth herein was zero.
SIXTH: There was no class of outstanding shares entitled to vote as a
class upon the amendment set forth herein.
SEVENTH: The amendment set forth herein does not provide for any
exchange, reclassification or cancellation of issued shares of the corporation.
EIGHTH: The amendment set forth herein does not affect any change in
the amount of the stated capital of the corporation.
DATED this 16th day of November, 1989.
IOMED, INC.
BY: /s/ Stephen H. Ober
STEPHEN H. OBER
President
BY: /s/ Mary A. Crowther
MARY A. CROWTHER
Assistant Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
I, Mary A. Crowther, a Notary Public, do hereby certify that on this
16th day of November, 1989, personally appeared before me Stephen H. Ober, who
being first duly sworn did state that he is the President of Iomed, Inc., a Utah
corporation, that he executed the within and foregoing document in his capacity
as the President of Iomed, Inc., and that the statements set forth in the within
and foregoing document are true and correct.
/s/ Mary A. Crowther
Notary Public
Residing in Salt Lake City, Utah
My Commission Expires: 03/22/91
ARTICLES OF AMENDMENT
TO THE
REVISED ARTICLES OF INCORPORATION
OF
IOMED, INC.
Pursuant to the provisions of the Utah Revised Business Corporation Act
(the "Act"), the undersigned corporation adopts the following Articles of
Amendment to its Revised Articles of Incorporation:
FIRST: The name of the corporation is IOMED, INC.
SECOND: The first full paragraph o9f Article IV of the Revised Articles
of Incorporation of Iomed, Inc. is amended to read in its entirety as follows:
"The corporation is authorized to issue two classes
of shares, one designated `Common Stock' and the
other designated `Preferred Stock'. Both classes of
shares shall have a par value of $0.001 per share.
The number of shares of Common Stock that this
corporation is authorized to issue is 40,000,000.
The number of shares of Preferred Stock that this
corporation is authorized to issue is 4,215,618, of
which 67,200 shall be designated Series A Preferred
Stock, 3,975,618 shall be designated Series B
Preferred Stock, and 172,800 shall be designated
Series C Preferred Stock."
THIRD: The foregoing amendment was adopted by the Shareholders of the
corporation on November 21, 1994, at a duly called and convened meeting of such
Shareholders at which a quorum was present.
FOURTH: A total of 9,760,535 shares of the corporation's Common Stock
and 3,380,177 shares of the corporation's Preferred Stock were outstanding upon
the date of the adoption of the foregoing Amendment. The corporation's Common
Shares were entitled to vote separately on the foregoing Amendment, and each
such share was entitled to one vote upon the Amendment. The corporation's
Preferred Shares were entitled to vote separately on the foregoing Amendment,
and each such share was entitled to one vote upon the Amendment. A total of
6,823,146 shares of the corporation's Common Stock were indisputably represented
at the Shareholders meeting at which the foregoing Amendment was adopted, either
in person or by proxy. A total of 3,178,377 shares of the corporation's
Preferred Stock were indisputably represented at the Shareholders meeting at
which the foregoing Amendment was adopted, either in person or by proxy. At the
Shareholders meeting at which the foregoing Amendment was adopted, a total of
5,286,746 of the corporation's Common Shares were voted for the adoption of the
Amendment, a total of 1,528,900 of the corporation's Common Shares were voted
against the Amendment and a total of 7,500 of the corporation's Common Shares
abstained from voting in regard to the adoption of the Amendment. At the
Shareholders meeting at which the foregoing Amendment was adopted, a total of
3,178,377 of the corporation's Preferred Shares were voted for the adoption of
the Amendment and none of the corporation's Preferred Shares were voted against
or abstained from voting in regarding to the adoption of the Amendment.
DATED this 8th day of February, 1995.
IOMED, INC.
/s/ Robert J. Lollini
Robert J. Lollini
Vice President
BYLAWS
OF
IOMED, INC.
I. OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake, County of Salt Lake. The corporation may have
such other offices, either within or without the State of Utah, as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
II. SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the first Tuesday in the month of April in each year, beginning with
the year 1986, at the hour of 10:00 o'clock a.m., or at such other time on such
other day within such month as shall be fixed by the Board of Directors, for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purposes, unless otherwise prescribed by statute, may be called by the
Chairman of the Board of Directors, the President or by the Board of Directors,
and shall be called by the President at the request of the holders of not less
than one-fifth (1/5) of all outstanding shares of the corporation entitled to
vote at the meeting.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purposes or purpose
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten (10) nor more than fifty (50) days before the
date of the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the officer or other persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period, not less than ten (10) days, but not to exceed, in any case,
fifty (50) days. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
(50) days and, in case of a meeting of shareholders, not less than ten (10) days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of shareholders.
Section 6. Voting Record. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make a complete record
of the shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof.
Section 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote represented in person or by proxy, shall constitute
a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact.
Section 9. Voting of Shares. Each outstanding share entitled to vote
shall have the voting rights specified in the Articles of Incorporation of the
corporation.
Section 10. Informal Action by Shareholders. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.
III. BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors
of the corporation shall be six (6). Each director shall hold office until the
next annual meeting of shareholders and until his successor shall have been
elected and qualified. Directors need not be residents of the State of Utah or
shareholders of the corporation.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Utah, for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board of Directors,
the President or any two directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Utah, as the place for holding any special meeting of the
Board of Directors called by them.
Section 5. Notice. Notice of any special meeting shall be given at
least two (2) days previously thereto by written notice delivered personally or
mailed to each director at his business address or at least one (1) day
previously thereto by actual telephonic notice to each director. Such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid, if by mail, or at the time the call is
completed, if by telephone. Any director may waive notice of any meeting. The
attendance of a director of a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
Section 6. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 9. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of directors by the shareholders.
Section 10. Compensation. By resolution of the Board of Directors, each
director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
IV. OFFICERS
Section 1. Number. The officers of the corporation shall be the
Chairman of the Board of Directors, a President, one or more Vice Presidents, a
Secretary and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed necessary
may be elected or appointed by the Board of Directors. Any two or more offices
may be held by the same person, except the offices of President and Secretary.
Section 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors and,
subject to its direction, shall perform such acts on behalf of the corporation
as he or she determines are appropriate.
Section 6. President. The President shall be the chief executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
the shareholders and shall also preside at meetings of the Board of Directors in
the absence of the Chairman of the Board of Directors or at the request of the
Chairman. He may sign any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or executed; and
in general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
Section 7. Vice President. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents, in the other
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may perform such other
duties as from time to time may be assigned to him or her by the President or by
the Board of Directors.
Section 8. Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporation records and of the seal of the corporation; (d)
keep a register of the address of each shareholder; (e) sign with the President,
or a Vice President, certificates for shares of the corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the corporation; and (g) in
general perform all of the duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her by the President
or by the Board of Directors.
Section 9. Treasurer. The Treasurer shall (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be determined by the
Board of Directors; and (c) in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him or her by the President or by the Board of Directors.
Section 10. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or Treasurer or by the
President or the Board of Directors.
Section 11. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
Section 12. Signature of Checks. Payment for corporate debts made by
check or check vouchers may be signed by any of the officers of the corporation,
or otherwise as the Board of Directors may from time to time by resolution
direct.
V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or Vice President
and by the Secretary or an Assistant Secretary and sealed with the corporate
seal or facsimile thereof if such seal has been adopted by the Board of
Directors.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the corporation shall be deemed by
the corporation to be the owner thereof for all purposes.
VI. DIVIDENDS
The Board of Directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and its Articles of Incorporation.
VII. CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
VIII. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of these Bylaws or under the
provisions of the Utah Business Corporation Act, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
IX. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board of Directors or by the shareholders at any regular or
special meeting.
X. INDEMNIFICATION
To the full extent permitted by its Articles of Incorporation and by
the Utah Business Corporation Act, the Corporation shall indemnify (and advance
expenses to) its directors, officers and employees in connection with any
action, suit, or proceeding, civil or criminal, to which such persons are made
party by reason of being or having been a director, officer or employee of the
Corporation. Additionally, the Corporation shall provide such indemnification
of, and advancement of expenses to, such of its agents as the Board of Directors
of the Corporation shall, from time to time, deem necessary, required or
appropriate.
XI. CONTROL SHARES
The provisions of the Control Shares Acquisitions Act, as set forth in
Section 61-61-1, et seq. of the Utah Code Annotated shall not apply to control
share acquisitions of shares of the Corporation.
Secretary
<PAGE>
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
IOMED, INC.
RESOLVED, that Article III, Section 2 of the By-Laws of the Corporation be, and
it hereby is amended to read in its entirety as follows (the "Amendment"):
"The number of directors of the corporation shall be seven (7). Each
director shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected and
qualified. Directors need not be residents of the State of Utah or
shareholders of the corporation."
RESOLVED FURTHER, that the Amendment shall be effective as of the 30th day of
May, 1997.
RESOLVED, that Mr. Michael Sember be and he hereby is elected and appointed to
fill the vacancy on the Corporation's Board of Directors created by the
Amendment; and
RESOLVED FURTHER, that Mr. Sember shall serve as a director of the Corporation
until the next annual meeting of the shareholders of the Corporation; and
RESOLVED FURTHER, that at the next annual meeting of the shareholders of the
Corporation, Mr. Sember (or such other person selected by Elan Corporation
("Elan") to serve as a member of the Corporation's Board of Directors) shall be
nominated by the Corporation for election as a director and the Corporation
shall recommend to its shareholders that Mr. Sember (or such other person
designated by Elan) be elected to serve as a member of the Corporation's Board
of Directors, all in accordance with the requirements of certain agreements
entered into by the Corporation and Elan, effective as of April 14, 1997.
LEASE AGREEMENT
THIS LEASE AGREEMENT, is executed in duplicate as of this 1st day of
September 1 1997, between HAYTER PROPERTIES, INC., a Utah corporation
("Landlord"), and IOMED, INC., a Utah corporation ("Tenant").
WITNESSETH:
In consideration of the mutual covenants and agreements of the parties
hereinafter set forth, it is agreed as follows:
1. Leased Premises. Landlord has and does hereby lease to Tenant, the
entire premises, including all appurtenances and improvements located at
3385-3395 West 1820 South, Salt Lake City, Utah, comprised of approximately
17,986.94 square feet of office, manufacturing, assembly and warehouse space,
for the term and upon the rental, conditions and covenants as the parties herein
set forth.
2. Term. The initial term of this lease shall be twenty-eight (28)
months, commencing September 1, 1997, and ending at midnight, December 31, 1999.
Tenant shall have the option to extend this lease for two (2) successive
one-year options (option periods) upon giving Landlord six months prior written
notice before each such exercise. All terms and conditions for the option
periods shall be the same as the initial term, as provided herein, except that
the rent for said option periods may be increased as set forth in paragraph 3
below.
3. Rent. Rent hereunder shall be payable as follows:
(a) Rent Over Initial Term: Tenant agrees to pay as rent to
Landlord the sum of Two Hundred Twenty-four Thousand Dollars ($224,000.00)
payable at the rate of Eight Thousand Dollars ($8,000.00) per month for the 28
months of the initial lease term;
(b) Base Rent Over Option Periods: Rent over each of the
option periods granted hereunder shall continue at the rate of Ninety-Six
Thousand Dollars ($96,000.00) per year, to which shall be added an amount equal
to the total sum (if any) by which real property taxes, assessments and yearly
premiums for insurance procured by Landlord under paragraph 16(a) of the Lease,
and payable by Landlord during the twelve months immediately preceding the
option period exceeds the total of such taxes, assessments and insurance paid by
Landlord during calendar year 1997. In no event, however, shall any single
annual increase during the option periods exceed Three Percent (3%) of the total
rent payable over the twelve months immediately preceding the effective option
period.)
(c) All rent shall be paid in legal tender of the United
States, deposited to the account of Hayter Properties, Inc., at First Security
Bank of Utah, account no. 051-017-9856, or at such other place or by such other
method as Landlord may direct in writing. Each payment hereunder is due on the
first day of each calendar month of the term herein. Any payment received after
the 15th day of the month it is due shall bear and include interest at an annual
rate of 18% (as provided in paragraph 30 below), calculated from the 1st day of
said month.
4. Authorized Uses. Tenant shall use the leased premises to conduct
business in medical and consumer product research, development and
manufacturing, and for no other purposes without the written consent of Landlord
first being had and obtained, which consent shall not be unreasonably withheld
or delayed. All such use shall be subject to restrictions of applicable zoning
ordinances and restrictions and all relevant codes, laws and statutes.
5. Prohibited Uses. Tenant will not keep, use or sell, or allow to be
kept, used or sold in or about the leased premises, any article or material
which is prohibited by law or which would render the fire insurance policies in
force with respect to the premises void or voidable. Tenant will further
strictly observe all environmental laws and regulations, together with all other
laws and regulations governing the storage of toxic substances and will not
dispose of such substances on or near the leased premises.
6. Repair and Care of Building.
(a) Tenant will not commit any waste of the demised premises,
nor shall it use or permit the use of the premises in violation of any present
or future law of the United States or of the State of Utah, or in violation of
any municipal ordinance or regulation applicable thereto.
(b) Tenant agrees to keep and maintain the interior and
exterior of the building and all the improvements on the premises and the
grounds, including sprinklers, landscaping and asphalt surfacing, in good
condition and repair, and, at its cost, to effect any necessary repairs to the
electrical wiring, heating, ventilation, air conditioning and plumbing systems,
and to clean and paint the interior and exterior of the leased premises as the
same may or might be necessary in order to maintain said premises in a clean,
attractive and sanitary condition. Tenant shall keep all driveways reasonably
free from ice and snow and shall maintain all lawns and landscaping, except as
hereinafter expressly set forth. Any alterations or improvements to the leased
premises shall become the property of Landlord at the expiration or sooner
termination of the lease, except as herein otherwise provided.
(c) Tenant agrees to repair all damage to the premises,
including any damage to foundation, roof or structure, resulting from acts of
the Tenant or Tenant's representatives. Except for Tenants maintenance
obligations contained in paragraphs 6(b) and 6(c), Landlord agrees to maintain
the structure and foundation of the building in good condition and repair.
Tenant shall promptly notify Landlord of any repairs to structure or foundation
arising from other than acts of Tenant or Tenant's representatives and which
Tenant believes are necessary. Landlord, at its discretion, and from time to
time as it receives notice of needed repairs within the scope of its obligation
as Landlord, may request and authorize Tenant to obtain bids and to contract
directly for any such necessary repairs and to credit the cost of such repairs
against lease payments due hereunder. Absent such specific authorization,
however, or unless otherwise agreed in writing, Tenant shall have no authority
to undertake repairs for or on behalf of Landlord or to otherwise credit lease
payments for the costs of any repairs.
(d) Landlord and Tenant acknowledge that the roof on the
premises is approaching the end of its serviceable period and that Landlord has
contracted to replace the roof prior to or shortly after the commencement of the
initial lease term hereunder. Until such time as the roof is replaced, Landlord
agrees to undertake responsibility for repair and maintenance thereof as
outlined in subparagraph (e) above, and Tenant agrees to keep Landlord
reasonably advised, in writing, of the condition of the roof and to allow
representatives of Landlord reasonable access thereto, for purposes of
inspection and repair, as necessary. Tenant assumes responsibility for all roof
maintenance, consistent with the provisions of subparagraph (c) above, from and
after the date of installation and final acceptance of a new roof.
7. Erection of Partitions, Fixtures and Other Appurtenances;
Alterations and Construction.
(a) Tenant shall have the right to erect at Tenant's sole cost
and expense such temporary partitions, including office partitions, and to alter
existing partitions and to erect shelves, bins, fixtures, machinery, electrical
fixtures, additional lights and wiring and other trade appliances, all as may be
necessary to facilitate the handling of Tenants business. With the exception of
open office modules, movable partitions, tools, machinery, specialized
environmental control systems, deionized water systems, specialty production and
plumbing fixtures and other specialty manufacturing fixtures, any such
partitions or fixtures installed by Tenant shall remain with the leased premises
and become the property of Landlord upon expiration of the lease. Damage caused
by removal of tools and machinery shall be repaired by Tenant so as to return
the premises to the condition and configuration existing before installation of
said fixtures.
(b) Tenant, at its own cost or expense, may make such
additional alterations in the budding as Tenant may reasonably require to
conduct its business, subject to the following conditions: (i) no such
improvements may materially alter the basic character of the building or
existing improvements or weaken any structure of the premises; (ii) all such
construction shall be done in a good and workmanlike manner and in accordance
with plans and specifications having the prior written approval of Landlord,
which consent shall not be unreasonably withheld; (iii) all such construction
shall be done free of any liens for labor or materials; and (iv) Tenant shall
indemnify, save and hold Landlord harmless from, and defend Landlord against,
any loss, liability, damage or lien resulting from such construction.
8. Erection and Removal of Signs. Tenant shall have the nonexclusive
right to place suitable signs on the leased premises in areas designated by
Landlord for the purpose of identifying Tenant or otherwise indicating the
nature of the business carried on by the Tenant in said premises; provided,
however, that such signs and their locations shall be in keeping with other
signs in the district where the leased premises are located, and shall be
subject to the prior approval of Landlord, which shall not be unreasonably
withheld. Damage to the leased premises caused by the removal of such signs
shall be repaired by Tenant.
9. Glass. Tenant agrees to replace all glass broken or damaged during
the term of its lease with glass of the same quality as that broken or damaged.
10. Right of Entry by Landlord. Tenant at any time during the term of
this lease shall permit inspection of the demised premises during normal
business hours by Landlord or Landlord's agents or representatives for the
purpose of ascertaining the condition of the demised premises. One Hundred
Eighty (180) days prior to the expiration of this lease, Landlord may post
suitable notice on the demised premises that the same are "for sale" or are "for
rent or lease" and may show the premises to prospective tenants or purchasers at
reasonable times. Landlord shall not, however, thereby unnecessarily interfere
with the use of the demised premises by Tenant.
11. Payment of Utilities. Tenant shall pay all charges for water, heat,
gas, sewer, electricity, telephone and any and all other utilities used on the
leased premises.
12. Payment of Taxes and Other Assessments. General real property taxes
and assessments on the leased property shall be paid by Landlord, in
consideration of the rent payable by Tenant hereunder. Tenant shall pay all
other taxes, assessments, license fees and charges incidental to the conduct of
Tenants business on the leased premises during the term of this lease, and any
extensions thereof, including any taxes assessed on Tenants personal property
situated on the premises, and shall preserve the leased premises free and clear
of any liens or charges attributable thereto; provided, however, that Tenant may
contest or dispute any such tax, or the amount thereof, upon providing
sufficient surety for the payment thereof.
13. Assignment and Subletting. Neither this lease nor any interest
herein may be assigned by Tenant voluntarily, involuntarily or by operation of
law, without the prior written consent of Landlord, and neither all nor any part
of the leased premises shall be sublet by Tenant without the prior written
consent of Landlord. However, Landlord agrees not to withhold or delay its
consent unreasonably. Landlord further agrees not to withhold or delay its
consent to an assignment if the proposed assignee's financial standing and
responsibility at the time of the proposed assignment is sufficient to give
Landlord reasonable assurance of the payment of all rents and other amounts
required under this lease, and of compliance with all of the terms, covenants,
provisions, and conditions hereof Upon such assignment Tenant shall be released
from all liability arising or accruing hereunder after the effective date of the
assignment, provided that the assignee shall execute, acknowledge and deliver to
Landlord an assumption agreement, in form and substance satisfactory to Landlord
in the good faith exercise of its reasonable judgment whereby such assignee
agrees to observe, perform, and keep all of the terms, provisions, covenants and
conditions required to be observed, performed and kept as tenant hereunder.
14. Damage, Destruction or Condemnation. If the demised premises or any
part thereof shall be damaged or destroyed by fire or other casualty, Landlord,
to the extent of available insurance proceeds, shall promptly repair all such
damage and restore the demised premises without expense to Tenant, subject to
delays due to adjustment of insurance claims, strikes and other causes beyond
Landlord's control. If such damage or destruction shall render the premises
untenantable in whole or in part, the rent shall be abated wholly or
proportionately as the case may be until the damage shall be repaired and the
premises restored, unless such damage or destruction shall have been caused or
actively contributed to by Tenant, its agents, servants, employees, invitees or
licensees, in which case the rent shall not be abated to any extent whatsoever.
If the damage or destruction shall be so extensive as to require the substantial
rebuilding (i.e., expenditure of fifty percent (50%) or more of replacement
cost) of the building or buildings on the demised premises, Landlord may elect
to terminate this lease by written notice to Tenant given within thirty (30)
days after the occurrence of such damage or destruction. If in the judgment of
Landlord such damage or destruction cannot be repaired and restored within
ninety (90) days from date of destruction, Tenant shall have the right to
terminate this lease upon written notice given within thirty (30) days following
such date of destruction, providing that, Tenant shall have no right of
termination if such damage or destruction has been caused or actively
contributed to by Tenant, its agents, servants, employees, invitees or
licensees. In the event of condemnation, by any governmental authority, of the
leased premises or such part thereof as shall substantially impair the ability
of Tenant to conduct its business, this lease and the obligations of the parties
hereto shall terminate as of the date of occupancy by such governmental
authority. All proceeds and awards of condemnation, whether received or judgment
of any court, shall be exclusively paid to and owned by Landlord, who shall have
the sole right to negotiate and conclude a settlement of the condemnation award
or to litigate such award, in its sole discretion, provided, however, that
Tenant shall be entitled to make claim in its own name to the condemning
authority for the value of loss of business (to the extent that it does not
reduce Landlord's award) and for the costs of relocating its business and of any
moveable furniture, items of personal property, and other items belonging to
Tenant that can be removed from the premises without in anyway altering or
damaging the lease premises.
15. Injuries and Property Damage. Tenant agrees to indemnify, hold
harmless and defend Landlord from any and all claims of any kind or nature
arising from Tenant's use of the demised premises during the ten-n hereof,
except for such claims that may arise by virtue of the acts of Landlord, its
agents or contractors, and Tenant hereby waives all claims against Landlord for
damages to goods, wares or merchandise or for injury to persons in and upon the
premises from any cause whatsoever, except such as might result from the
negligence of Landlord to perform its obligations hereunder within a reasonable
time after notice in writing by Tenant requiring such performance by Landlord.
16. Insurance.
(a) Landlord shall procure and keep in force fire and extended
coverage insurance insuring Landlord and Tenant against loss of, or damage to,
the building or other improvements on the demised premises, such insurance shall
be equivalent to the replacement value of the building on the date of this lease
as is agreed. The agreed value of the building for these purposes and as of the
date hereof, is $775,000, exclusive of the land. Said policy shall include an
endorsement or term requiring the amount of such insurance to be increased on a
regular basis to maintain the insurance in an amount equal to the value of the
building.
(b) Tenant shall procure and keep in force insurance against
loss of or damage to Tenant's improvements or betterments, trade fixtures,
furnishings, equipment, machinery, inventory and contents, which is caused by
fire and other casualties, Such insurance shall be underwritten by a responsible
insurance company or companies qualified to do business in the State of Utah and
such insurance shall be in an amount equal to the full replacement value of such
building and other improvements. Such insurance shall cover: (1) loss or damage
by fire; (2) loss or damage arising from the normal extended coverage perils
which presently are windstorm, hail, explosion, riot, riot attending a strike,
civil commotion, aircraft, vehicles and smoke; (3) loss or damage arising from
vandalism and malicious mischief, and (4) if the premises contain a fire
sprinkler system, damage resulting from sprinkler leakage or malfunction.
Landlord (and, at Landlord's option, the lender interested under any mortgage or
similar instrument then affecting the demised premises) shall be named as an
insured on each such policy. The proceeds of insurance in case of loss or damage
to the demised premises shall be paid to Landlord to be applied on account of
the obligations of Landlord to repair and/or rebuild the Premises pursuant to
Section 14 hereunder. Tenant shall pay one-twelfth of the cost of insurance
purchased by Landlord each month with its rental payment.
(c) Tenant agrees to secure and keep in force throughout the
lease term, at Tenant's own cost and expense, comprehensive general liability
insurance covering Tenant against death, bodily or personal injury or property
damage in the combined single limit amount of at least Five Hundred Thousand
Dollars ($500,000.00). Such insurance coverage shall include a contractual
liability endorsement covering Tenant's obligations of indemnity for death,
bodily injury to persons and damage to property set forth in Section 15 hereof
and a personal injury endorsement covering such wrongful acts as false arrest,
false imprisonment, malicious prosecution and libel and slander. Tenant shall
require any contractor of Tenant performing work within the demised premises to
maintain workmen's compensation or similar insurance required by law and
comprehensive general liability insurance including contractor's liability
covering with broad form property damage endorsement.
All insurance for Tenant is responsible under this lease shall
be effected under enforceable policies issued by insurers either (i) approved by
Landlord, or (ii) having a key guide general policy holders' rating of "B+" or
above and a financial category rating of "Class XI" or above in the most recent
edition of "Best's Insurance Reports" and a copy of the policy or a certificate
of insurance shall be delivered to Landlord on or before the commencement date
of this lease. Each policy shall provide by its terms that it is noncancellable
except upon twenty (20) days prior written notice to Landlord. At least twenty
(20) days prior to the expiration date of any policy, the original renewal
policy, a binder for such insurance or an effective certificate of insurance,
shall be delivered by Tenant to Landlord evidencing compliance with the
provisions of this Section 16. All policies shall name Landlord, Landlord's
lender(s), and Tenant as insureds. All policies shall be written as primary
policies, not contributing with and not in excess of coverage which Landlord may
carry. All such policies shall contain a provision that Landlord, although named
as an insured, shall nevertheless be entitled to recover under such policies for
any loss occasioned to it, its servants, agents, and employees by reason of the
negligence of Tenant.
(e) Landlord hereby waives, and Tenant hereby waives, any
rights it may have against the other party on account of any loss or damage (i)
to the demised premises and its contents and (ii) arising from any risk
generally covered by fire and extended coverage insurance. Tenant and Landlord
shall obtain a clause or endorsement in the policies of such insurance which
Landlord and Tenant obtains in connection with the demised premises to the
effect that the insurer waives, or shall otherwise be denied, the right of
subrogation against the other party for loss covered by such insurance. It is
understood that such subrogation waivers may be operative only as long as such
waivers are available in the State of Utah and do not invalidate any such
policies. If such subrogation waivers are allegedly not operative in the State
of Utah notice of such fact shall be promptly given by Tenant to Landlord.
(f) Any mortgage lender interested in any part of the demised
premises may, at Landlord's option, be afforded coverage under any policy
required to be secured by Landlord or Tenant hereunder, by use of a named
mortgagee's endorsement to the policy concerned.
17. Surrender of Premises. Tenant agrees to surrender up the leased
premises at the expiration, or sooner termination, of this lease, or any
extension thereof, in the same condition, or as altered pursuant to the
provisions of this lease, ordinary wear, tear and damage by the elements
excepted.
18. Quiet Enjoyment. If and so long as Tenant pays the rent reserved by
this lease and performs and observes all the covenants and provisions hereof,
Tenant shall quietly enjoy the demised premises, subject however, to the terms
of this lease, and Landlord will warrant and defend Tenant in the enjoyment and
peaceful possession of the demised premises throughout the term of this lease.
19. Waiver of Covenants or Conditions. It is agreed that the waiving of
any of the covenants or conditions of this lease agreement by either party shall
be limited to the particular instance and shall not be deemed to waive any other
breaches of such covenant, condition, or any provision herein contained.
20. Default (other than in Payment of Rent).
(a) If Tenant shall fail or otherwise default in the
fulfillment of any of the covenants and conditions hereof except default in
payment of rent Landlord may, at its option, after thirty (30) days' prior
written notice to Tenant, make performance for Tenant and for that purpose
advance such amounts as may be necessary. Any amounts so advanced or any expense
incurred or sum of money paid by Landlord by reason of the failure of Tenant to
comply with any covenant, agreement, obligation or provisions of this lease or
in defending any action to which Landlord may be subject by reason of any such
failure or any reason of this lease or in defending any action to which Landlord
may be subject by reason of any such failure or any reason of this lease, shall
be deemed to be additional rent for the leased premises and shall be due and
payable to Landlord on demand. The receipt by Landlord of any installment of
fixed rent or of any additional rent hereunder shall not be a waiver of any
other rent then due.
(b) If Tenant shall default in fulfillment of any of the
covenants or conditions of this lease (other than the covenants for the payment
of rent or other amounts) and any such default shall continue for a period of
thirty (30) days after notice, then Landlord may, at its option, terminate this
lease by giving Tenant notice of such termination and, thereupon, this lease
shall expire as fully and completely as if that day were the date definitely
fixed for the expiration of the term of this lease and Tenant shall then quit
and surrender the leased premises. If such default cannot be remedied within the
period of thirty (30) days by use of reasonable diligence, then such additional
time shall be granted as may be necessary, provided Tenant takes immediate
action on receipt of the notice and proceeds diligently to remedy the default.
21. Default in Rent, Insolvency of Tenant. If Tenant shall: (i) default
in the payment of the rent reserved hereunder, or any part thereof, or in making
any other payment therein provided for, and any such default shall continue for
a period of fifteen (15) days after the date when payable; (ii) abandon or
vacate the leased premises or any part thereof, (iii) be dispossessed therefrom
by or under any authority other than Landlord; (iv) file a voluntary petition in
bankruptcy; (v) be subjected to any petition to institute any involuntary
proceeding under any insolvency or bankruptcy act or a composition with
creditors or if a receiver or trustee shall be appointed for Tenant through
involuntary bankruptcy proceedings, including an attempted assumption of this
lease by said trustee under Section 365 of Title 11, United States Code, which
condition is not abated or discharged by Tenant within sixty (60) days; or, (vi)
admit in writing its inability to pay its obligations generally as they become
due; or (vii) if the leasehold estate created hereby shall be taken on execution
or by any process of law and not abated, discharged or redeemed by Tenant within
sixty (60) days; or (viii) by word or action, indicate a clear intent not to
continue with performance of this lease; then Landlord may, at its option, take
any or all of the following actions, without further notice or demand of any
kind to Tenant, or to any guarantor of this lease, or to any other person:
(a) Landlord may immediately reenter and remove all persons
and property from the leased premises, storing such property in a
public place, warehouse, or elsewhere for the account of, and at the
risk of Tenant, all without service of notice or resort to legal
process (unless required by law) and without being deemed guilty of, or
liable in, trespass, forcible entry or in damages resulting from such
reentry and removal. No such reentry or taking possession of the leased
premises by Landlord shall be construed as an election on its part to
terminate this lease unless a written notice of such intention is given
by Landlord to Tenant. AR property of Tenant which is stored by
Landlord pursuant hereto may be redeemed by Tenant within thirty (30)
days after Landlord takes possession thereof upon payment to Landlord
in full of all obligations then due from Tenant to Landlord hereunder
and of all costs incurred by Landlord in moving such property and
providing such storage. If Tenant fails to redeem such property within
said thirty (30) day period, Landlord may sell such property in any
reasonable manner and shall apply the proceeds of such sale actually
collected first against the costs of moving, storage and sale and then
against any other obligation due from Tenant under this lease with any
remaining surplus being remitted to Tenant.
(b) Landlord may relet the leased premises or any portion
thereof at any time or from time to time and for such term or terms and
upon such conditions and at such rentals as are reasonably prudent
under the circumstances. Whether or not the leased premises, or any
portion thereof, are relet by Landlord, Tenant shall pay to Landlord
all amounts required to be paid by Tenant hereunder up to the date that
Landlord removes Tenant from the leased premises, and thereafter Tenant
shall pay to Landlord, until the end of the term, the amount of rent
and other amounts required to be paid by Tenant pursuant to this lease.
Such payments by Tenant shall be due at such times as are provided
elsewhere in this lease, and Landlord need not wait until the
termination of this lease, through expiration of the term or otherwise,
to recover such payments by legal action or in any other manner. If
Landlord relets the leased premises, or any portion thereof, such
reletting shall not relieve Tenant of any obligation hereunder, except
that Landlord shall apply the rent or other proceeds actually collected
by it as a result of such reletting (i) against the costs of removing
Tenant and its property, (ii) against the costs of reletting including
the cost of clean-up, repair or modification of the leased premises and
the fee of any realtor, (iii) against any amount due from Tenant
hereunder to the extent that such rent or other proceeds compensate
Landlord for the nonperformance of any obligation of Tenant hereunder
and (iv) any residue shall be held by Landlord and applied in payment
of future rent as such may become due and payable hereunder. Landlord
may execute any lease made pursuant hereto in its own name, and the
tenant thereunder shall be under no obligation to control or monitor
the application by Landlord of any rent or other proceeds paid to
Landlord thereunder nor shall Tenant have any right to collect any
portion of such rent or other proceeds. Landlord shall not by any
reentry or other act be deemed to have accepted any surrender by Tenant
of the leased premises, or any portion thereof or Tenants interest
therein, or be deemed to have otherwise terminated this lease, or to
have relieved Tenant of any obligation hereunder, unless Landlord shall
have given Tenant express written notice of Landlord's election to do
so. Notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect to terminate this lease for any
previous breach by Tenant.
(c) Landlord may collect by suit or otherwise, without
reletting the leased premises, each installment of rent or other sum as
it becomes due hereunder, or enforce, by suit or otherwise, any other
covenant or obligation which is required to be performed by Tenant or
cure any default on behalf of Tenant and thereafter bill Tenant for the
reasonable costs so incurred.
(d) Landlord may terminate this lease by written notice to
Tenant. In the event of such termination, Tenant agrees to immediately
surrender possession of the leased premises. Such termination shall not
relieve Tenant of any obligation hereunder which has accrued prior to
the date of such termination and Landlord may recover from Tenant all
damages it has incurred by reason of Tenants breach, including the cost
of recovering the leased premises, reasonable attorneys' fees, and the
worth (or present value) at the time of such termination of the excess,
if any, of the amount of rent and charges equivalent to rent reserved
under this lease for the remainder of the stated term over the then
rental value of the leased premises for the remainder of the stated
term, all of which amounts shall be immediately due and payable from
Tenant to Landlord. The "worth or present value" shall be determined by
using an interest rate of ten percent (10%) per annum or the legal rate
permitted by law, whichever is lower. In determining the amount of rent
reserved under this lease subsequent to such termination, the rent
which would have been paid for each year of the unexpired term shall be
deemed to equal the average yearly minimum, percentage and additional
rents paid by Tenant hereunder from the commencement date to the time
of default.
22. Failure to Perform Covenant. Any failure on the part of either
party to this lease to perform any obligation hereunder, and any delay in doing
any act required hereby shall be excused if such failure or delay is caused by
any strike, lockout, governmental restriction or any other similar cause beyond
the control of the party so failing to perform, to the extent and for the period
that such cause continues, save and except that provisions of this paragraph
shall not excuse a nonpayment of rent or other sums on due date.
23. Time. Time is of the essence of this lease and every term, covenant
and condition herein contained.
24. Liens. Tenant agrees not to permit any lien for moneys owing by
Tenant to remain against the leased premises for a period of more than thirty
(30) days. Should any such lien be filed and not released or discharged within
that time, unless Tenant shall contest the same and provide sufficient surety
for the payment thereof Landlord may, at Landlord's option (but without any
obligation to do so), pay or discharge such lien and may likewise pay and
discharge any taxes, assessments or other charges against the leased premises
which Tenant is obligated hereunder to pay and which may or might become a hen
on said premises. Tenant agrees to repay any such sums so paid by Landlord upon
demand therefor, together with interest at the rate of eighteen percent (18%)
per annum from the date any such payment is made.
25. Notices. Any notice required or permitted to be given hereunder
shall be deemed sufficient, if given by a communication in writing, by United
States mail, postage prepaid, and addressed as follows:
If to Landlord, at the following address:
Hayter Properties, Inc.
c/o David W. Slaughter, Esq.
Snow, Christensen & Martineau
10 Exchange Place, Eleventh Floor P. 0. Box 45000
Salt Lake City, Utah 84145-5000
If to Tenant, at the following address:
IOMED, Inc.
Attn: Robert Lollini, Vice President
of Finance and CFO
3385 West 1820 South
Salt Lake City, Utah 84104
26. Rights of Successors and Assigns. The covenants and agreements
contained in the within lease shall apply to, inure to the benefit of, and be
binding upon the parties hereto and upon their respective successor in interest
and legal representatives, except as expressly otherwise provided hereinbefore.
27. Surrender of Premises. At the expiration of this lease, Tenant
shall surrender the leased premises in the same condition as existed on the
commencement date of this lease, approved alterations and reasonable wear and
tear excepted. Before surrendering the leased premises, Tenant shall remove all
of its personal property and trade fixtures and such alterations or additions to
the leased premises made by Tenant as may be specified for removal by Landlord,
and shall repair any damage caused by such property or the removal thereof and
shall leave the leased premises in a clean and orderly condition. If Tenant
fails to remove its personal property and fixtures on or prior to the expiration
date of this lease, Landlord may either (i) deem such to be abandoned in which
case it shall become the property of Landlord or (ii) remove and dispose of such
at Tenants expense. On or prior to the expiration date of this lease, Tenant
shall surrender to Landlord all keys to the leased premises.
28. Holding Over. Any holding over after the expiration of the term
hereof shall be construed to be a tenancy from month to month at the rents in
effect on such expiration date (prorated on a monthly basis) and on the other
terms and conditions herein set forth except for those which are inconsistent
with a month to month tenancy. Landlord reserves the right to adjust base rent
amounts payable monthly over the period of any such month-to-month tenancy, on
advance notice of not less than thirty (30) days.
29. Attorneys' Fees. If either party to this lease is required to
initiate or defend litigation in any way connected with this lease, the
prevailing party in such litigation in addition to any other relief which may be
granted, whether legal or equitable, shall be entitled to reasonable attorneys
fees. If either party to this lease is required to initiate or defend litigation
with a third party because of the violation by the other party of any term,
provision or obligation contained in this lease, then the party so litigating
shall be entitled to reasonable attorneys' fees from the other party to this
lease. Attorneys' fees shall include attorneys' fees on any appeal, and in
addition a party entitled to attorneys' fees shall also be entitled to all other
reasonable costs for investigating such action, taking depositions and the
discovery, travel, and all other necessary costs incurred in such litigation.
All fees due hereunder shall be paid whether or not any such litigation is
prosecuted to judgment.
30. Past Due Sums. If Tenant fails to pay, when the same is due and
payable, any rent or other sum required to be paid by it hereunder, such unpaid
amounts shall bear interest from the due date thereof to the date of payment at
the rate of one and one-half percent (1-1/2%) per month, for an annual rate of
eighteen percent (18%).
31. Governing Law; Venue. This lease shall be deemed to have been
executed in Salt Lake City, Utah, and the laws of the State of Utah shall govern
the validity, performance and enforcement of any obligation contained herein.
Should either party institute a legal suit or action for enforcement of any
obligation contained in this lease, it is agreed that the venue of such suit or
action shall be in the County of Salt Lake, State of Utah.
32. Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of an amount less than is due hereunder shall be deemed to be other
than payment towards or on account of the earliest portion of the amount then
due, nor shall any endorsement or statement on any check or payment (or any
letter accompanying any check or payment) be deemed an "accord and satisfaction"
(or payment in full), and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such amount or pursue
any other remedy provided herein.
33. All Prior Agreements Superseded. This lease modifies and replaces,
as of August 1, 1993, all prior leases and agreements executed between the
parties hereto, which leases are void and unenforceable as of the first day of
the lease term hereunder.
IN WITNESS WHEREOF, the parties hereto caused these presents to be
executed the day and year first above written.
LANDLORD: TENANT:
HAYTER PROPERTIES, INC. IOMED, INC.
By: /s/ S. J. Hayter By: /s/ Robert J. Lollini
Its Company Secretary Its Vice President & CFO
PROMISSORY NOTE
$10,000,000 Salt Lake City, Utah
April 14, 1997
FOR VALUE RECEIVED, and good and valuable consideration, the
undersigned, IOMED, Inc., a Utah corporation with offices at 3385 West 1820
South, Salt Lake City, Utah 84104 (the "Company"), unconditionally promises to
pay to Elan International Management, Ltd., a Bermuda corporation, or any other
holder of this Note (the "Holder"), at such place as may be designated by the
Holder to the Company, the principal amount of $10,000,000, together with
interest thereon, from and after the date hereof, at a rate per annum equal to
the lesser of (x) the rate publicly announced by Morgan Guaranty Trust Company
of New York at its principal office as its prime or base rate (such rate being
initially, on the date hereof, 8.50%) plus 1% per year and (y) the maximum rate
of interest permitted by applicable law, compounded on semi-annual basis, such
compounding to commence on October 15, 1997. This Note (including accrued and
unpaid interest on this Note) shall be due and payable on April 14, 1999;
provided, that if the Company shall have completed its initial public offering
of equity securities prior to such date, this Note shall become due and payable
upon completion of such offering, as provided in the Agreement (as defined
below). Interest on and the principal amount of this Note shall be paid solely
as provided below. The interest rate hereunder shall be adjusted on a
semi-annual basis, prospectively, on each July 1 and January 1 from the date
hereof until repayment is complete, to the then-current Prime Rate.
This Note is not prepayable by the Company without the prior
written consent of the Holder, in its sole discretion.
This Note (and interest hereon) shall immediately become due
and payable, without notice or deemed, upon the occurrence of any of the
following events: the filing by or against the Company of any petition under the
United States Bankruptcy Act or any similar state proceeding (which, in the
event of a filing against the Company, is not cured or stayed within 30 days);
application for, or appointment of, a receiver of the Company's property;
appointment of a committee of the Company's creditors; making by the Company of
an assignment for benefit of creditors; or default in payment or performance of
this Note or of any of the obligations of this Note.
The Company hereby waives grace, demand and presentment for
payment, notice of nonpayment, protest and notice of protest, diligence, filing
suit, and all other notice and promises to pay the Holder its costs of
collection of all amounts due hereunder, including reasonable attorneys' fees.
In the event of any default or breach of this Note by the Company, this Note
(and accrued and unpaid interest on this Note) shall, in additional to all other
rights and remedies of
In the event of any default or breach of this Note by the
Company, this Note (and accrued and unpaid interest on this Note) shall, in
addition to all other rights and remedies of the Holder, be and become
immediately due and payable; this Note shall continue to bear interest after
such default or breach at the interest rate otherwise in effect hereunder. This
Note is made in connection with a Note Purchase and Warrant Agreement dated as
of the date hereof (the "Agreement") between the Company and the Holder
originally named herein. This Note (and accrued interest hereon) shall be repaid
solely as provided in the Agreement. This note is the A Note referred to in the
Agreement.
This Note may not be changed or terminated orally and shall be
construed in accordance with the internal laws of the State of New York without
reference to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the Company has executed this Note on the
date first above written.
IOMED, Inc.
By: /s/ Ned M. Weinshenker
Ned M. Weinshenker
President and Chief Executive Officer
ATTEST:
Name:
SECURED PROMISSORY NOTE
$5,000,000 Salt Lake City, Utah
April 14, 1997
FOR VALUE RECEIVED, and good and valuable consideration, the
undersigned, IOMED, Inc., a Utah corporation with offices at 3385 West 1820
South, Salt Lake City, Utah 84104 (the "Company"), unconditionally promises to
pay to Elan International Management, Ltd., a Bermuda corporation, or any other
holder of this Note with the consent of the Company (the "Holder"), at such
place as may be designated by the Holder to the Company, the principal amount of
$5,000,000, together with interest thereon, from and after the date hereof, at a
rate per annum equal to the lesser of (x) the rate publicly announced by Morgan
Guaranty Trust Company of New York at its principal office as its prime or base
rate (such rate being initially, on the date hereof, 8.50 %) plus 1 % per year
and (y) the maximum rate of interest permitted by applicable law, compounded on
a semi-annual basis, such compounding to commence on October 15, 1997. This Note
(including accrued and unpaid interest on this Note) shall be due and payable in
five equal installments of principal of $1,000,000 each on each of the fifth,
sixth, seventh, eighth and ninth anniversaries of the date hereof, together
with, in each case, accrued and unpaid interest on this Note; provided, that if
the Company shall have completed its initial public offering of equity
securities. at any time that all or any portion of this Note remains
outstanding, all or such portion of this Note shall be due and payable on a date
specified by the Company and agreed to by the Holder, which shall be within 10
days of such offering, as provided in the Agreement (as defined below). The
interest rate hereunder shall be adjusted on a semi-annual basis, prospectively,
on each July 1 and January 1 from the date hereof until repayment is complete,
to the then-current Prime Rate.
This Note shall be prepayable by the Company upon at least 30
days' written notice to the Holder.
This Note (and interest due hereon) shall immediately become
due and payable, without notice or demand, upon the occurrence of any of the
following events: a default or breach under the A Note (as defined in the
Agreement (as defined below)); the filing by or against the Company of any
petition under the United States Bankruptcy Act or any similar state proceeding
(which, in the event of a filing against the Company, is not cured or stayed for
30 days); application for, or appointment of, a receiver of the Company's
property; appointment of a committee of the Company's creditors; making by the
Company of an assignment for benefit of creditors, or; default in payment or
performance of this Note or of any of the material obligations of this Note.
The Company hereby waives grace, demand and presentment for
payment, notice of nonpayment, protest and notice of protest, diligence, filing
suit, and all other notice and promises to pay the Holder its costs of
collection of all amounts due hereunder, including reasonable attorneys' fees.
This Note is made in connection with a Note Purchase and
Warrant Agreement dated as of the date hereof (the "Agreement") between the
Company and the Holder originally named herein and is entitled to the security
provided for therein. In the event of any default or breach of the Agreement or
this Note by the Company, this Note (and accrued and unpaid interest on this
Note) shall, in addition to all other rights and remedies of the Holder, be and
become immediately due and payable; this Note shall continue to bear interest
after such default or breach at the interest rate otherwise in effect hereunder.
This Note is the B Note referred to in the Agreement. This Note is secured by a
first security interest in and to all the Elan Iontophoretic Intellectual
Property (as defined in the various agreements) and is entitled to the benefits
and rights of such security interest.
This Note may not be changed or terminated orally and shall be
construed in accordance with the internal laws of the State of New York without
reference to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the Company has executed this Note on the
date first above written.
IOMED, Inc.
By: /s/ Ned M. Weinshenker
Ned M. Weinshenker
President and Chief Executive Officer
ATTEST:
Name:
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF THIS WARRANT OR
OF ANY SHARES OF STOCK ISSUED PURSUANT HERETO MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, OR (iii) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
IOMED, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Elan International
Services, Ltd., a Bermuda corporation, or its affiliates or assigns or any other
holder of this Warrant (each, a "Holder"), is entitled to subscribe for and
purchase up to 500,000 shares (as adjusted pursuant to Section 4 hereof, the
"Shares") of the fully paid and nonassessable common stock, par value $.001 (the
"Common Stock"), of IOMED, Inc., a Utah corporation (the "Company"), at the
price of $4.50 per share (such price, and such other price as shall result, from
time to time, from the adjustments specified in Section 4 below, the "Warrant
Price"), subject to the provisions and upon the terms and conditions hereinafter
set forth.
1. Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time, and from time to time, from and
after the date hereof and until 5:00 p.m. Eastern Daylight Time April 14, 2002.
To the extent not exercised at 5:00 p.m. Eastern Daylight Time on April 14,
2002, this Warrant shall completely and automatically terminate and expire, and
thereafter it shall be of no force or effect whatsoever.
2. Method of Exercise: Payment: Issuance of New Warrant. (a)
The purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time, by the surrender of this
Warrant (with the notice of exercise form attached hereto as Annex A duly
executed) at the principal office of the Company and by the payment to the
Company of an amount, in cash or other immediately available funds, equal to the
then applicable Warrant Price per Share multiplied by the number of Shares then
being purchased.
(b) The person or persons in whose name(s) any certificate(s)
representing shares of Common Stock shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the Shares represented
thereby (and such Shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. Upon any exercise of the rights represented by this Warrant,
certificates for the Shares purchased shall be delivered to the holder hereof as
soon as possible and in any event within 30 days of receipt of such notice and
payment, and unless this Warrant has been fully exercised or expired, a new
Warrant representing the portion of Shares, if any, with respect to which this
Warrant shall not then have been exercised, shall also be issued to the holder
hereof as soon as possible and in any event within such 30-day period.
3. Stock Fully Paid, Reservation of Shares. All Shares that
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be duly authorized, f-411y paid and nonassessable, and will be
free from all taxes, liens and charges with respect to the issue thereof. During
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and reserved- for the purpose of
the issue upon the exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to the adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Reclassification, Merger, Etc. In case of (i) any
reclassification, reorganization, change or conversion of securities of the
class issuable upon exercise of this Warrant (other than a change in par value,
or from par value to no par value), or (ii) any consolidation of the Company
with or into another corporation (other than a merger or consolidation with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or (iii) any
sale of all or substantially all of the assets of the Company, then the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant or a supplement
hereto (in form and substance reasonably satisfactory to the holder of this
Warrant), so that the holder of this Warrant shall have the right to receive, at
a total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Common Stock
theretofore issuable upon the exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, reorganization, change, conversion, merger or consolidation by
a holder of the number of shares of Common Stock then purchasable under this
Warrant. Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The provisions of this Section 4(a) shall similarly attach to successive
reclassifications, reorganizations, changes, mergers, consolidations and
transfers.
(b) Subdivision or Combination of Shares. If the Company at
any time during which this Warrant remains outstanding and unexpired shall
subdivide or combine its Common Stock, (i) in the case of a subdivision, the
Warrant Price shall be proportionately decreased and the number of Shares
purchasable hereunder shall be proportionately increased, and (ii) in the case
of a combination, the Warrant Price shall be proportionately increased and the
number of Shares purchasable hereunder shall be proportionately decreased.
(c) Stock Dividends: Etc. If the Company at any time while
this Warrant is outstanding and unexpired shall (i) pay a dividend with respect
to Common Stock payable in Common Stock (or rights, options or warrants in
respect thereof (collectively, "Options")), or (ii) issue any Options to
officers, directors, employees or consultants to the Company, having an exercise
price (on a per-share basis) below the then-current fair market value of a share
of Common Stock (as determined in good faith by the Company's board of
directors), or (iii) make any other distribution with respect to Common Stock
(except any distribution specifically provided for in Sections 4(a) and (b)
above), the price at which the holder of this Warrant shall be able to purchase
Shares shall be adjusted by multiplying the Warrant Price in effect immediately
prior to such date of determination of the holders of securities entitled to
receive such distribution, by a fraction (A) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (B) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution, as if all of such Options had been exercised, and the Company
received the consideration payable in respect thereof. Upon each adjustment in
the Warrant Price pursuant to this Section 4(c), the number of Shares of Common
Stock purchasable hereunder shall be adjusted, to the nearest whole share, to
the product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
(d) Repurchases or Redemptions of Common Stock or Options. If
the Company at any time while this Warrant is outstanding and unexpired shall
repurchase or redeem any outstanding shares of Common Stock or any Options,
other than its shares of Series C Preferred Stock, at a price which is greater
than the then-current Warrant Price, the Warrant Price shall thereupon be
adjusted by multiplying the Warrant Price in effect at the time of such
repurchase by a fraction (i) the numerator of which shall be Warrant Price in
effect immediately prior to such repurchase or redemption and (ii) the
denominator of which shall be the fair market value of the consideration paid
for the shares of Common Stock and/or Options at the time of purchase. Upon each
adjustment in the Warrant Price pursuant to this Section 4(d), the number of
Shares of Common Stock purchasable hereunder shall be adjusted, to the nearest
whole share, to the product obtained by multiplying the number of Shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter.
(e) No Impairment. The Company will not, by amendment of its
charter or bylaws or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
(f) Notice of Adjustments. Whenever the Warrant Price or the
number of Shares purchasable hereunder shall be adjusted pursuant to this
Section 4, the Company shall prepare a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated. Such certificate shall be signed
by its chief financial officer and shall be delivered to the holder of this
Warrant.
(g) Fractional Shares. No fractional shares of Common Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Common Stock on the date of exercise as reasonably
determined in good faith by the Company's Board of Directors.
5. Compliance with Securities Act; Disposition of Warrant or
Shares of Common Stock. (a) The holder of this Warrant, by acceptance hereof,
agrees that this Warrant and the Shares to be issued upon exercise hereof are
being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant or any Shares to be issued upon exercise
hereof except under circumstances which will not result in a violation of
applicable securities laws. Upon exercise of this Warrant, unless the Shares
being acquired are registered under the Securities Act of 1933, as amended (the
"Act"), or an exemption from the registration requirements of such Act is
available, the holder hereof shall confirm in writing, by executing an
instrument in form reasonably satisfactory to the Company, that the Shares so
purchased are being acquired for investment and not with a view toward
distribution or resale. This Warrant and all Shares issued upon exercise of this
Warrant (unless registered under the Act) shall be stamped or imprinted with a
legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, REASONABLY IN FORM AND CONTENT TO ' THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED, OR (iii) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT
UNDER WHICH THIS SECURITY WAS ISSUED."
(b) With respect to any offer, sale or other disposition of
this Warrant or any Shares acquired pursuant to the exercise of this Warrant
prior to registration of such Shares, the holder hereof and each subsequent
holder of this Warrant agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such holder's counsel, if requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state law then
in effect) of this Warrant or such Shares and indicating whether or not under
the Act certificates for this Warrant or such Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with the Act. Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Shares,
all in accordance with the terms of the notice delivered to the Company.
Notwithstanding the foregoing, this Warrant or such Shares may be offered, sold
or otherwise disposed of in accordance with Rule 144 as promulgated under the
Act ("Rule 144"), provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 have been satisfied. Each certificate
representing this Warrant or the Shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Act, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to insure compliance with the Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
This Warrant is entitled to the benefit of certain
registration rights as set forth in a Registration Rights Agreement dated as of
the date hereof between the Company and the initial Holder named herein.
6. Rights as Shareholders. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of Shares
or any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
7. Representations and Warranties. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable; and
(c) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's charter or bylaws, as
amended, or by-laws, and do not and will not constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound.
8. Miscellaneous. (a) This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by both the Company and the holder of this Warrant.
(b) Any notice, request or other document required-or
permitted to be given or delivered to the holder hereof or the Company shall (i)
be in writing, (ii) be delivered personally or sent by mail or overnight courier
to the intended recipient to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor on the
signature page of this Warrant, unless the recipient has given notice of another
address, and (iii) be effective on receipt if delivered personally, two business
days after dispatch if mailed, and one business day after dispatch if sent by
overnight courier service.
(c) Subject to the satisfaction of all of the provisions of
this Warrant the holder hereof may transfer all or any portion of this Warrant
at any time.
(d) The Company covenants to the holder hereof that upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of a bond or indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company will make and deliver a
new Warrant of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
(e) The descriptive headings of the several sections and
paragraphs of this Warrant arc inserted for convenience only and do not
constitute a part of this Warrant.
(f) This Warrant shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of New York giving effect to the choice of law rules thereof
IN WITNFSS WHEREOF, IOMED, Inc. has executed this Warrant as
of the date set forth below.
IOMED, INC.
By:/s/ Ned M. Weinshenker
Name: Ned M. Weinshenker
Title: President and Chief Executive Officer
Dated effective April 14, 1997
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of April 14,1997, by
and between IOMED, Inc., a Utah corporation (the "Company"), and Elan
International Services, Ltd., a Bermuda corporation ("EIS").
RECITALS:
A. Pursuant to a Note Purchase and Wan-ant Agreement (the "Purchase
Agreement") EIS acquired (x) the right to acquire certain shares of common
stock, par value $.001 per share (the "Common Stock") of the Company, and (y) a
Warrant (the "Warrant") to acquire up to 500,000 shares of Common Stock.
B. The closings under the Purchase Agreement have occurred on the
date hereof, it being a condition to such closings that the parties execute and
deliver this Agreement.
C. The parties desire to set forth herein their agreement related
to the granting of certain registration rights to the Holders (as defined below)
of any Common Stock or Warrants.
AGREEMENT:
The parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Affiliate" of any Person shall mean any other Person
controlling, controlled by or under common control with such particular Person.
In the case of a natural Person, his Affiliates include members of such Person's
immediate family, natural lineal descendants of such Person or a trust for the
exclusive benefit of such Person and his immediate family and natural lineal
descendants.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Holders", "holders" or "Holders of Registrable Securities"
shall mean EIS and any Person who shall have acquired Registrable Securities
from EIS as permitted herein, either individually or jointly as the case may be.
"Person" shall mean an individual, a partnership, a company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental quasi-governmental entity or any department,
agency or political subdivision thereof.
"Registrable Securities" means (i) any Common Stock issued or
issuable upon conversion of or in connection with the holding of the Notes or
the New Stock (as defined in the Purchase Agreement) or the exercise of the
Warrant or otherwise acquired by any Holders, and (ii) any Common Stock issued
or issuable in respect of the securities referred to in clause (i) above upon
any stock split, stock dividend, recapitalization or similar event; excluding in
all cases, however, any Registrable Securities sold by a Person in a transaction
(including a transaction pursuant to a registration statement under this
Agreement and transaction pursuant to Rule 144 promulgated under the Securities
Act) in which registration rights are not transferred pursuant to Section 9
hereof.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than
Selling Expenses, incurred by the Company in complying with Sections 2 or 3
hereof, including without limitation, all registration, qualification and filing
fees, exchange listing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
and the reasonable fees and disbursements, not to exceed $ 1 0,000 in the
aggregate, of one counsel for the Holders, such counsel to be selected by
Holders holding a majority of the Registrable Securities held by the Holders and
included in such registration.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and the costs of any accountants, counsel or other
experts retained by the Holders.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, a as t e same shall be in effect at the time.
2. Demand Registrations. (a) Requests for Registration. Any
Holder which holds Registrable Securities representing at least 1,000,000 shares
of Common Stock (subject to the Anti-dilution Adjustments as (defined in the
Purchase Agreement)) has the right at any time from time to time, but only after
the Company shall have initially registered any of its shares of Common Stock
under Sections 12(b) or 12(g) of the 1934 Act (the "IPO"), to request
registration under the Securities Act of all or part of their Registrable
Securities on Form S-1, S-2 or S-3 (if available) or any similar registration
(each, a "Demand Registration"). Each written request for a Demand Registration
(as defined below) shall specify the approximate number of Registrable
Securities requested to be registered. Within IO days after receipt of any such
request, the Company will give written notice of such requested registration to
all other Holders of Registrable Securities and, if they request to be included
in such registration, the Company shall include such Holders' Registrable
Securities in such offering if they have responded affirmatively within 15 days
after the receipt of the Company's notice. The Holders in aggregate will be
entitled to request two Demand Registrations. A registration will not count as
one of the permitted Demand Registrations until it has become effective (unless
such Demand Registration has not become effective diie solely to the fault of
the Holders requesting such registration, including a request by such Holders
that such registration be withdrawn). The Company will pay all Registration
Expenses in connection with any Demand Registration whether or not it has become
effective.
(b) Priority on Demand Registrations. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering,
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in such offering without adversely affecting the marketability of
the offering, the Company will include in such registration:
(i) first, the Registrable Securities requested to be included
in such registration by the Holders (or, if necessary, such Registrable
Securities pro rata among the Holders thereof based upon the number of
Registrable Securities owned by each such Holder); and
(ii) thereafter, other securities requested to be included in
such registration.
(c) Restrictions on Demand Registrations. The Company may
postpone for up to three months in any 12 month period, the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company determines in good faith that such Demand Registration would reasonably
be expected to have a material adverse effect on any proposal or plan by the
Company to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction; provided, that in such event, the Holders initially requesting such
Demand Registration will be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration will not count as one of the
permitted Demand Registrations hereunder and the Company will pay all
Registration Expenses in connection with such registration.
(d) Selection of Underwriters. The Holders will have the right
to select the investment banker(s) and manager(s) to administer an offering
pursuant to a Demand Registration, subject to the Company's approval, which will
not be unreasonably withheld.
(e) Other Registration Rights. Except as provided in this
Agreement, so long as any Holder owns any Registrable Securities, the Company
will not grant to any Persons the right to request the Company to register any
equity securities of the Company, or any securities convertible or exchangeable
into or exercisable for such securities, which is superior to or in conflict
with the rights granted to the Holders hereunder, without the prior written
consent of the Holders of at least 50% of the Registrable Securities held by the
Holders; it being understood that the Company may grant rights to other Persons
to (i) participate in Piggyback Registrations so long as such rights are
subordinate or pari passu to the rights of the holders of Registrable Securities
with respect to such Piggyback Registrations and (ii) request registrations so
long as the Holders of Registrable Securities are entitled to participate in any
such registrations with such Persons pro rata on the basis of the number of
shares owned by each such Holder.
3. Piggyback Registrations. (a) Right to Piggyback. After the
IPO, and whenever the Company proposes to register any of its securities under
the Securities Act (other than in a registration on Form S-3 relating to sales
of securities to participants in a Company dividend reinvestment plan, S-4 or
S-8 or any successor form or in connection with an exchange offer or an offering
of securities solely to the existing stockholders or employees of the Company)
(each, a "Piggyback Registration"), the Company will give prompt written notice
to all Holders of Registrable Securities of its intention to effect such a
registration and, subject to Section 3(b) and the other terms of this Agreement,
will include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within 15
days after the receipt of the Company's notice.
(b) Priority on Piggyback Registrations. If a Piggyback
Registration is an underwritten registration on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company will include in such registration:
(i) first, the securities the Company proposes to sell;
(ii) second, the Registrable Securities requested to be
included in such registration by
the Holders and any securities requested to be included in such registration by
any other Person, pro rata among the Holders of such Registrable Securities and
such other Persons, on the basis of the number of shares owned by each of such
Holders; and
(iii) thereafter, other securities requested to be
included in such registration.
(c) Right to Terminate Registration. If, at any time after
giving written notice of its intention to register any of its securities as set
forth in Section 3(a) and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such securities, the Company may, at
its election, give written notice of such determination to each Holder of
Registrable Securities and thereupon be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith as
provided herein).
(d) Selection of Underwriters. The Company will have the right
to select the investment banker(s) and manage(s) to administer an offering
pursuant to a Piggyback Registration.
4. Expenses of Registration. Except as otherwise provided
herein, all Registration Expenses incurred in connection with all registrations
pursuant to Sections 2 and 3 shall be borne by the Company. Unless otherwise
stated, all Selling Expenses relating to securities registered on behalf of the
Holders of Registrable Securities shall be borne by such holders.
5. Holdback Agreements. (a) The Company agrees (i) not to
effect any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and during the 90-day period beginning on the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to use reasonable efforts to cause each holder of at least 5% (on a
fully-diluted basis) of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect. any public sale or distribution (including
sales pursuant to Rule 144) of any such securities during such periods (except
as part of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.
(b) Each holder of Registrable Securities whose Registrable
Securities are eligible for inclusion in a Registration Statement filed pursuant
to Section 2 hereof agrees, if requested by the managing underwriter or
underwriters in an underwritten offering of any Registrable Securities, not to
effect any public sale or distribution of Registrable Securities, including a
sale pursuant to Rule 144 (or any similar provision then effect) under the
Securities Act (except as part of such underwritten registration), during the
seven-day period prior to, and during the 90-day period or such shorter period
as may be agreed to by the parties hereto) following the effective date of such
Registration Statement to the extent timely notified in writing by the Company
or the managing underwriter or underwriters.
6. Registration Procedures. Whenever the Holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement on any form for which the Company qualifies with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
will (i) furnish to the counsel selected by the Holders copies of all such
documents proposed to be filed, which documents will be subject to the review of
such counsel, and (ii) notify each holder of Registrable Securities covered by
such registration of any stop order issued or threatened by the Commission);
(b) -prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than nine months and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdiction as any seller reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such seller (provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 6(d), (ii) subject itself
to taxation in any jurisdiction or (iii) consent to general service of process
in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement of amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ National market system security within the
meaning of Rule 11Aa2-1 of the Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or , facilitate
the disposition of such Registrable Securities (including without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by a representative of the
Holders of Registrable Securities included in the registration statement, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter all pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonable requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months beginning with the first day of the
Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
(k) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(1) obtain a so-called "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters; and
(m) undertake such other actions and do all other things which
the Holders shall reasonably request and which shall be customary at the time
for such registrations.
7. Indemnification. (a) The Company agrees to indemnify, to
the fullest extent permitted by applicable law, each Holder of Registrable
Securities, its officers and directors and each Person who controls such Holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities, expenses or any amounts paid in settlement of any litigation,
investigation or proceeding commenced or threatened (collectively, "'Claims") to
which each such indemnified party may become subject under the Securities Act
insofar as such Claim arose out of (i) any untrue or alleged untrue statement of
material fact contained, on the effective date thereof, in any registration
statement, prospectus or preliminary prospectus or -any amendment thereof or
supplement thereto, (ii) any 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 (iii) any violations by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action required of or inaction by the Company in connection with any such
registration, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statements in which a
holder of Registrable Securities is participating, each such Holder will furnish
to the Company in writing such customary information and affidavits as the
Company reasonably requests for use in connection with any such registration
statement or prospectus (the "Seller's Information") and, to the fullest extent
permitted by applicable law will indemnify the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
Securities Act) against any and all Claims to which each such indemnified party
may become subject under the Securities Act insofar as such Claim arose out of
(i) any untrue or alleged untrue statement of material fact contained, on the
effective date thereof, in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, (ii) any 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 (iii) any
violations by such Person of any federal, state or common law rule or regulation
applicable to such Person and relating to action required of or inaction by such
Person in connection with any such registration; provided that with respect to a
Claim arising pursuant to clause (i) or (ii) above, the material misstatement or
omission is contained in such Seller's Information; provided, further, that the
obligation to indemnify will be individual to each Holder and will be limited to
the net amount of proceeds received by such Holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (but the failure to provide such notice shall
not release the indemnifying party of its obligation under paragraphs (a) and
(b), unless and then only to the extent that, the indemnifying party has been
prejudiced by such failure to provide such notice) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) The indemnifying party shall not be liable to indemnify an
indemnified party for any settlement, or consent to judgment of any such action
effected without the indemnifying party's consent (but such consent will not be
unreasonably withheld). Furthermore, the indemnifying party shall not, except
with the approval of each indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to each indemnified party of a
release from all liability in respect to such claim or litigation without any
payment or consideration provided by each such indemnified party.
(e) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under clauses (a) and (b) above in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect not only the relative benefits received by the Company,
the underwriters, the sellers of Registrable Securities and any other sellers
participating in the registration statement from the sale of shares pursuant to
the registered offering of securities to which indemnity is sought but also the
relative fault of the Company, the underwriters the sellers of Registrable
Securities and any other sellers participating in the registration statement in
connection with the statement or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, the underwriters,
the sellers of Registrable Securities and any other sellers participating in the
registration statement shall be deemed to be based on the relative relationship
of the total net proceeds from the offering (before deducting expenses) to the
Company, the total underwriting commissions and fees from the offering (before
deducting expenses) to the underwriters and the total net proceeds from the
offering (before deducting expenses) to the sellers of Registrable Securities
and any other sellers participating in the registration statement. The relative
fault of the Company, the underwriters, the sellers of Registrable Securities
and any other sellers participating in the registration statement shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by
registration statement and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(f) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or ,any officer, director or controlling person
of such indemnified party and will survive the transfer of securities.
8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, (b) as expeditiously as possible notifies the
Company of the occurrence of any event as a result of which such prospectus
contains an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (c) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. Transfer of Registration Rights. The rights granted to any
Person under this Agreement may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Securities by a
Holder; provided, that: (a) such transfer may otherwise be effected in
accordance with applicable securities laws, (b) if not already a party hereto,
the assignee or transferee agrees in writing prior to such transfer to be bound
by the provisions of this Agreement applicable to the transferor, (c) such
transferee shall own Registrable Securities representing at least 250,000 shares
of Common Stock (subject to the Anti-dilution Adjustments), and (d) EIS shall
act as agent and representative for such Holder for the giving and receiving of
notices hereunder.
10. Information by Holder. Each Holder shall furnish the
Company such written information regarding such Holder and any distribution
proposed by such Holder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration qualification
or compliance referred to in this Agreement.
11. Exchange Act Compliance. After the IPO, the Company shall
comply with all of the reporting requirements of the Securities Exchange Act of
1934 applicable to it and shall comply with all other public information
reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Registrable Securities. The Company
shall cooperate with each Purchaser in supplying such information as may be
necessary for such Purchaser to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
12. Limitation on Registration-. The Company shall not be
obligated to effect a registration of any Holder's Registrable Securities
pursuant to Sections 2 or 3 hereof if all of the Registrable Securities have
been sold under Rule 144, Regulation S or similar provision under the Securities
Act so that there is no further restriction on the transfer by the transferee.
13. Miscellaneous. (a) No Inconsistent Agreements. The Company
will not hereafter enter into any agreement with respect to its securities which
is inconsistent with or violates the rights granted to the Holders of
Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and Holders of at least 50% of the
Registrable Securities; provided, that without the prior written consent of all
the Holders, no such amendment or waiver shall reduce the foregoing percentage.
(d) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
Holders of Registrable Securities are also for the benefit of, and enforceable
by, any subsequent holder of Registrable Securities.
(e) Severabiliiy. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto will be governed by the internal law, and not the law of conflicts, of
New York.
(i) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient or by telecopy, one day after being sent to t he
recipient by reputable overnight courier service (charges prepaid) or three days
after being mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications will be sent to the parties hereto at the addresses indicated on
the signature page hereto and to the Company at the address indicated below:
IOMED, Inc.
3385 West 1820 South
Salt Lake City, Utah 84104
Telecopier: (801) 972-9072
Attention: President
(j) Termination. This Agreement shall terminate on the date as
of which each Holder has sold all remaining Registrable Securities in a
transaction or transactions of the type described in Section 12 hereof.
(k) Standstill. The Holders shall not sell any Registrable
Securities (and if requested by the Company's underwriters, EIS will not sell
any Common Stock received in connection with the repayment of the B Note),
publicly or otherwise, or exercise any Demand Registration rights acquired
hereunder within 180 days of the IPO; provided, that all or a substantial
portion of (I) the Company's directors and senior executive officers and (II)
holders of securities representing 5% or greater of the outstanding Common
Stock, on a fully diluted basis, shall have agreed in writing to substantially
similar provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
IOMED, Inc.
By: /s/ Ned M. Weinshenker
Name: Ned M. Weinshenker
Title: President & CEO
Elan International Services, Ltd.
By: /s/ Kevin Insley
Name: Kevin Insley
Title:
102 St. James Court
Flatts Smiths
FL 04 Bermuda
Attention: Chief Executive Officer
Facsimile No.
ASSET ACQUISITION AGREEMENT
THIS ASSET ACQUISITION AGREEMENT ("Agreement") is made and entered into
upon the 27th day of December, 1996 and shall be effective as of January 1,
1997, by and between IOMED, INC., ("Seller") and FILLAUER, INC., ("Purchaser").
WITNESSETH:
WHEREAS, Seller is a corporation, duly organized and existing under the
laws of the State of Utah, owning and operating a research, development,
manufacturing and selling division devoted to prosthetics and products derived
therefrom known as "Motion Control" located at 3385 West 1820 South, Salt Lake
City, Utah 84101 ("Location");
WHEREAS, Purchaser is a corporation, duly organized and existing under
the laws of the State of Delaware, and desires to purchase from Seller the
assets of Motion Control;
WHEREAS, Seller is willing to sell the assets of and associated with
Motion Control to Purchaser;
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
terms and conditions herein contained the parties hereto agree as follows:
ARTICLE I.
Purchase and Sale of Assets
1.1 Purchase and Sale of Assets. Subject to the terms and conditions
set forth in this Agreement, Seller shall sell, transfer and convey to
Purchaser, and Purchaser shall purchase and acquire from Seller, on the
Effective Date (as hereinafter defined), the following tangible assets of the
Seller used by Seller exclusively in the operation of Seller's Motion Control
division (such assets, excluding, however, those listed in Section 1.3 hereof,
collectively, the "Assets"), all said Assets being owned by Seller on the
Effective Date:
(a) All Accounts Receivable as set forth on Schedule 1.1(a);
(b) All inventory of materials, work in process, finished
goods and overhead as set forth on Schedule 1.1(b);
(c) All machinery, equipment, furniture and fixtures as set
forth on Schedule 1.1(c); (d) All demonstrators and loaners as
set forth on Schedule 1.1(e); and (e) All customer files and
records as set forth on Schedule 1.1(f).
1.2 Transfer of Government Equipment. The Seller has disclosed to the
Purchaser that Seller utilizes certain property and equipment owned by various
governmental agencies and authorities in connection with the business of Motion
Control. Such property and equipment is referred to herein as the "Government
Equipment" and is more particularly described on Schedule 1.2 hereto. On or
promptly after the Effective Date, the Seller will transfer control and
possession of the Government Equipment to the Purchaser; provided, however, that
the Seller makes no representation or warranty, whatsoever, concerning the right
of the Purchaser to retain possession of or to continue to use the Government
Equipment, and the Purchaser shall assume all risks associated with or
attributable to its possession of and continued use of the Government Equipment.
At the Purchaser's request, the Seller shall provide the Purchaser with
reasonable assistance in connection with any efforts undertaken by the Purchaser
to secure consents and approvals from the appropriate governmental agencies for
the continued possession and use of the Government Equipment. The Seller shall
have no obligation or liability to the Purchaser in regard to the Government
Equipment except as specifically set forth in this paragraph 1.2, and it is
specifically agreed that no adjustment in the Purchase Price (as hereinafter
defined) for the Assets shall be required in the event the Purchaser is unable
to continue to use all or any portion of the Government Equipment.
1.3 Excluded Assets. Seller shall not sell or transfer and Purchaser
shall not purchase or accept any of the property or assets used in connection
with Motion Control which are set forth on Schedule 1.3 attached hereto and
incorporated herein, and which are specifically excluded from the Assets
(collectively, "Excluded Assets").
1.4 Consideration for Tangible Assets. As consideration for the Assets
purchased hereunder, Purchaser shall pay Seller the amount of One Million
Dollars, (the "Purchase Price"). The Purchase Price shall be paid at the Signing
(as hereinafter defined) by transfer of immediately available funds to an
account designated by Seller.
1.5 License Agreement. Purchaser and Seller have in good faith
negotiated a License Agreement in the form attached hereto as Schedule 1.5 and
incorporated herein by reference (the "License Agreement"), pursuant to which
the Seller will authorize the Purchaser to utilize certain proprietary,
intellectual property rights in connection with its continued operation of
Motion Control. As provided in paragraph 1.9 hereof, the Seller and the
Purchaser shall execute and deliver the License Agreement in connection with the
Signing.
1.6 Assumption of Obligations. Except as otherwise specifically
provided herein, Purchaser shall assume no liability or obligation whatsoever
arising out of or connected with the Assets or any other liabilities or
obligations the Seller, except for those liabilities set forth on Schedule 1.6
attached hereto and incorporated herein ("Assumed Liabilities").
1.7 UCC Searches. Purchaser, at Seller's expense, shall obtain a report
of a recognized search firm of a search of the records of the Utah Secretary of
State and the appropriate county Recorder of Deeds regarding financing
statements and tax liens filed against the Assets and/or Seller in connection
with the Assets, (the "UCC Search").
ARTICLE II.
Signing and Effective Date
2.1 Time and Place. The execution and delivery of this Agreement (the
"Signing") will take place on the 27th day of December, 1996, at the offices of
Parsons, Behle & Latimer, located in Salt Lake City, Utah, at a time mutually
agreeable to the parties. The transactions contemplated by this Agreement shall
be effective upon January 1, 1997 (the "Effective Date").
2.2 Seller's Obligation at Signing. At the Signing, Seller shall
deliver or cause to be delivered to Purchaser executed counterparts of the
following instruments of transfer and other documents in form and substance
reasonably satisfactory to Purchaser's counsel, effectively vesting in Purchaser
title to the Assets upon the Effective Date and evidencing compliance with the
terms and conditions of this Agreement:
(a) A Bill of Sale conveying the Assets listed on Schedule
1.1(a) through and including Schedule 1.l(e) to Purchaser and
a General Assignment; and
(b) Such other instruments of assignment, transfer,
conveyance, endorsement, direction or authorization as will be
sufficient or requisite to vest in Purchaser full, complete,
legal and equitable right, title and interest in and to all
the Assets to be acquired pursuant to this Agreement as may
reasonably be requested by Purchaser's counsel; and
(c) The License Agreement; and
(d) A Temporary Use Agreement with Purchaser for Purchaser's
continued operation of the Motion Control operations at the
Location, in the form of Schedule 2.2(d) (the "Use
Agreement"); and
(e) An Administrative Services Agreement, in the form of
Schedule 2.2(e) hereto, pursuant to which the Seller shall
provide the Purchaser with certain services in connection with
the Purchaser's operation of the business of Motion Control
(the "Administrative Services Agreement").
2.3 Purchaser's Obligations at Signing. At the Signing, Purchaser shall
deliver or cause to be delivered to Seller:
(a) The sum of $1,000,000 in immediately available funds, by
wire transfer, to an account designated by the Seller; and
(b) An executed counterpart of the License Agreement; and
(c) An executed counterpart of the Use Agreement; and
(d) An executed counterpart of the Administrative Services
Agreement; and
(e) An Assumption Agreement in form and substance reasonably
satisfactory to Seller's counsel pursuant to which the
Purchaser specifically assumes those obligations and
liabilities of the Seller specified on Schedule 1.6 hereto.
2.4 Possession of the Assets. On the Effective Date the Seller shall
deliver possession and control of the Assets to the Purchaser, and the Purchaser
shall assume possession and control thereof.
ARTICLE III.
Representations and Warranties
3.1 Representation and Warranties of Seller. Seller represents and
warrants to Purchaser as follows:
(a) Authorization. This Agreement has been duly authorized
and approved by the Board of Directors of the Seller in
accordance with State law. No other approval or
authorization is necessary for Seller to execute, deliver
and perform this Agreement. The execution, delivery and
performance of this Agreement by Seller will not result in
any breach of or conflict with any of the terms, conditions
or provisions of the Articles of Incorporation or the Bylaws
of Seller, any material agreement, indenture, mortgage,
lease, license, research, development or other instrument by
which Seller is a party or by which Seller is bound.
(b) Customer Files and Records. To the knowledge of Seller,
the customer files and records specified on Schedule 1.1(e)
contain materially complete records (including the names,
addresses, and telephone numbers) of all customers of Motion
Control for at least the twelve month period prior to the
Effective Date.
(c) Title to Assets. Seller has, and upon the execution and
delivery by Seller at the Signing of the documents referred
to in Section 2.2 hereof, Purchaser, upon the Effective
Date, will be vested with, good and marketable title to the
Assets, free and clear of all liens and charges of
encumbrance, other than the Assumed Liabilities set forth on
Schedule 1.6.
(d) Litigation and Violations. No claim, litigation,
investigation or other proceeding is pending, or to the best
knowledge of Seller, threatened against Seller, which
relates to or affects the Assets, or Motion Control, except
as set forth in Schedule 3.1(d).
(e) Employees. None of the employees of Seller who are
identified on Schedule 3.1(e) (the "Motion Control
Employees") are covered by or subject to any employment
contract, collective bargaining agreement, union contract,
labor agreement or conciliation agreement.
(f) Taxes. For all periods prior to the Effective Date,
proper and accurate amounts have been withheld by Seller
from the Motion Control Employees for all such periods to
insure full and complete compliance with tax withholding
provisions of applicable federal, State and local tax laws;
proper and accurate federal, State and local tax returns
have been filed by Seller for all periods for which returns
were due with respect to sales, withholding, F.I.C.A. and
unemployment taxes, in the amount shown thereunder to be due
and payable and all such amounts have been paid in full. For
all periods up to and including the Effective Date, Seller
has duly filed or will file when due all federal, State and
local tax returns and reports, and all tax returns and
reports of all government units having jurisdiction with
respect to taxes imposed on Seller which might create a lien
or encumbrance on any of the Assets, which would be a valid
and subsisting lien thereon after transfer thereof to
Purchaser hereunder or affect adversely Purchaser's ability
to operate the business of Motion Control through the use of
the Assets after the Effective Date, and Seller has paid or
will pay when due all such taxes shown thereon to be due and
payable.
(g) Employee Benefit Plans. Seller has no unfunded
liabilities to the Motion Control Employees under any
pension or other employee benefit plan. Seller, not
Purchaser, shall make any required contribution to such
plans as to the Motion Control Employees. Seller, not
Purchaser, is legally responsible in regard to all matters
involving such plans.
(h) Binding Effect. This Agreement has been duly executed
and delivered by Seller and constitutes the legal, valid and
binding obligation of Seller enforceable in accordance with
its terms, except as limited by bankruptcy, insolvency,
reorganization, or other laws affecting the rights of
creditors generally.
3.2 Representations and Warranties of Purchaser. Purchaser represents
and warrants to Seller as follows:
(a) Authorization. This Agreement has been duly authorized
and approved by the Board of Directors of the Purchaser in
accordance with State law. No other approval or
authorization is necessary for Purchaser to execute, deliver
and perform this Agreement. The execution, delivery and
performance of this Agreement by Purchaser will not result
in any breach of or conflict with any of the terms,
conditions or provisions of the Articles of Incorporation or
the Bylaws of Purchaser, any material agreement, indenture,
mortgage, lease, license, research, development or other
instrument by which Seller is a party or by which Purchaser
is bound.
(b) Binding Effect. This Agreement has been duly executed
and delivered by Purchaser and constitutes the legal, valid
and binding obligation of Purchaser enforceable in
accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, or other laws affecting the
rights of creditors generally.
ARTICLE IV.
Covenants, of Seller and Purchaser
4.1 Liability for Expenses.
(a) Seller. With the exception of the Assumed Liabilities,
Seller shall be responsible for the payment of all
liabilities incurred in connection with the operation of
Motion Control up to the Effective Date and shall promptly
pay all such obligations.
(b) Purchaser. Purchaser shall be responsible for the
payment of all liabilities incurred in connection with the
operations of Motion Control from and after the Effective
Date and shall promptly pay all such obligations.
Additionally, the Purchaser shall be responsible for and
shall promptly pay all of the Assumed Liabilities as set
forth on Schedule 1.6.
4.2 Seller's Maintenance of Insurance. Seller shall maintain
appropriate insurance coverage which provides continuing coverage of its
manufacturing and product liability up to the Effective Date. Seller shall
provide evidence of such insurance to Purchaser upon request.
4.3 Collection of Accounts Receivable. Except as specifically provided
in the Administrative Services Agreement, the collection of all accounts
receivable specified on Schedule 1.l(a), and of all accounts receivable arising
on or after the Effective Date as the result of the Purchaser's operation of
Motion Control, shall, on and after the Effective Date be the sole
responsibility of Purchaser.
ARTICLE V.
Condition of Assets
5.1 AS-IS SALE. THE ASSETS BEING SOLD HEREUNDER ARE BEING SOLD AS-IS,
AND SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO THE CONDITION OR FITNESS OF THE ASSETS.
ARTICLE VI.
Transition of Motion Control and Notice to Customers
6.1 Seller's Obligations. Seller will use reasonable efforts to
transfer the operations of Motion Control to Purchaser as soon as practicable
following the Effective Date by appropriate means, including the following:
(a) Notices to Customers. At Purchaser's direction and
expense, Seller and Purchaser will jointly author notices to
customers of Motion Control as soon as reasonably practical
after the Effective Date, informing them of Seller's transfer
of operations to Purchaser pursuant to the purchase and sale
of Assets hereunder (the "Notices").
(b) Notices to Other Interested Parties. At Purchaser's
direction and expense, Seller and Purchaser will jointly
author notices to other interested parties of Motion Control
as soon as reasonably practical after the Effective Date,
informing them of Seller's transfer to Purchaser pursuant to
the purchase and sale of Assets hereunder (the "Notices").
ARTICLE VII.
Employees of Seller
7.1 Termination. Effective at the close of business on December 31,
1996, Seller shall terminate the employment of all of the Motion Control
Employees. On the Effective Date, Purchaser shall offer employment to all of the
Motion Control Employees in the capacities, and for the compensation set forth
opposite their respective names on Schedule 3. l(e) hereto. Additionally, the
Purchaser shall provide the Motion Control Employees with benefits generally
comparable to those provided by the Seller. Purchaser shall not assume any
obligations and liabilities of Seller to any of the Motion Control Employees,
including, without limitation, any liability or obligation for wages, bonuses,
medical reimbursement, pension or profit sharing benefits, or any other
liability or obligation whatsoever of Seller to such employees arising out of or
in connection with their prior employment with Seller or with their termination
as employees of Seller. The Purchaser will not terminate the employment of any
of the Motion Control Employees, without good cause, for at least 90 days
following the Effective Date.
ARTICLE VIII.
Indemnification
8.1 Survival. The representations, warranties and covenants of each
party shall survive the Effective Date for a period of one year.
8.2 Of Purchaser.
(a) Seller hereby agrees to indemnify and hold Purchaser
harmless against each and every claim, demand, loss,
liability, damage, or expense (including, without limitation,
any settlement payment, reasonable attorneys' fees, and other
expenses incurred in litigation or settlement or any claims)
of whatever nature suffered by Purchaser or arising out of or
in connection with (i) the conduct of the business of Motion
Control up to the Effective Date (other than the Assumed
Liabilities set forth on Schedule 1.6), and (ii) any material
breach of warranty, covenant, or agreement or any material
misrepresentation of Seller contained in this Agreement or in
any Schedule or Exhibit attached-to or furnished pursuant to
this Agreement any other document furnished or required to be
furnished in connection with this Agreement or pursuant
hereto.
(b) Seller hereby agrees to indemnify and hold Purchaser
harmless against each and every claim, demand, loss,
liability, damage, or expense, based on or rising out of
environmental matters attributable to Seller's operation of
its business, including Seller's use and occupation of the
Location, including, without limitation, contamination or
cleanup of contamination (also including, without limitation,
any settlement payment, reasonable attorney's fees, and other
expenses incurred in litigation or settlement of any claims)
that may occur prior to the Effective Date.
8.3 Of Seller.
(a) Purchaser hereby agrees to indemnify and hold Seller
harmless against each and every claim, demand, loss,
liability, damage, or expense (including, without limitation,
any settlement payment, reasonable attorney's fees, and other
expenses incurred in litigation or settlement of any claims)
of whatever nature suffered by Seller arising out of or in
connection with (i) the conduct by the Purchaser of the
business of Motion Control or the use of the Assets by
Purchaser from and after the Effective Date, (ii) any material
breach of warranty, covenant, or agreement or any material
misrepresentation of Purchaser contained in this Agreement, or
(iii) the failure of the Purchaser to timely pay or otherwise
satisfy its obligations in connection with the Assumed
Liabilities, set forth on Schedule 1.6.
(b) Purchaser hereby agrees to indemnify and hold the Seller
harmless against each and every claim, demand, loss,
liability, damage or expense, based on or arising out of
environmental matters attributable to the Purchaser's
operation of its business, including the business of Motion
Control and the Purchaser use and occupation of the Location,
including, without limitation, contamination or cleanup of
contamination (also including, without limitation, any
settlement payment, reasonable attorneys' fees and other
expenses incurred in any litigation or settlement of any
claims) that may occur on or after the Effective Date.
8.4 Notice and Participation. Upon receipt of written notice of any
claim or the service of a summons or other initial legal process upon it in any
action instituted against it in respect of which indemnity may be sought under
this Agreement, Purchaser, or Seller, as the case may be, shall promptly give
written notice of such claim, or the commencement of such action, or threat
thereof, to Seller or Purchaser, as the case may be. The party required
hereunder to provide indemnification in regard to such claim or action shall
assume the defense thereof, at its expense and with counsel of its choice. Such
party shall control the defense of such claim or action, as well as the terms of
its settlement or other termination. The indemnified party shall be entitled, at
its own expense, to participate in the defense of such claim or action, but such
participation shall not include the right to control the defense or approve a
settlement.
ARTICLE IX.
Other Agreements
9.1 License Agreement. Seller and Purchaser agree that the
effectiveness of this Agreement shall be contingent upon the execution and
delivery by both parties of the License Agreement.
9.2 Use Agreement. Seller and Purchaser agree that the effectiveness of
this Agreement shall further be contingent upon the execution and delivery by
both parties of the Use Agreement.
9.3 Administrative Services Agreement. The Seller and the Purchaser
agree that the effectiveness of this Agreement shall further be contingent upon
the execution and delivery by both parties of the Administrative Services
Agreement.
ARTICLE X.
Miscellaneous Provisions
10.1 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expenses incurred by their own respective legal counsel, accountants, other
experts and all other expenses incurred by such party incidental to the
negotiation, preparation and execution of this Agreement.
10.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of all of the parties hereto and their successors in interest;
provided, however, that this Agreement may not be assigned by either party
without the prior written consent of the other.
10.3 Amendments. This Agreement may not be amended in whole or in part
at any time except by a written instrument setting forth such changes and signed
by each of the parties hereto.
10.4 Entire Agreement. This Agreement, the Schedules and the Exhibits
hereto, and the License Agreement, the Use Agreement and the Administrative
Services Agreement set forth the entire understanding between the parties
relating to the transactions described herein, there being no terms, conditions,
warranties or representations, other than those contained herein, and no change
or modification hereto shall be valid unless made in writing and signed by the
parties hereto.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed-an original, but all of which shall
constitute one and the same instrument.
10.6 Governing Law. This Agreement shall be governed by the laws of the
State of Utah.
10.7 Headings. The headings contained herein are for reference only,
are not a part of this Agreement and shall have no substantive meaning.
10.8 Notices. All notices, requests or demands and other communications
from any of the parties hereto to the other shall be sufficient and shall be
deemed given, made or served, on personal delivery or seventy-two (72) hours
after deposit with the U.S. Postal Service if sent by certified mail, postage
prepaid, return receipt requested, to the other party at the address set forth
below, or at any other address as any party may later designate by written
notice.
As to Purchaser: Attn: President and Chief Operating Officer
FILLAUER, INC.
2710 Amnicola Highway
P.O. Box 5189
Chattanooga, TN 37406-0189
with a copy to:
Steven K. Bowling, Esquire
Shumate & Bowling
The Financial Center at Capital Place
9950 Kingston Pike, Suite 200
Knoxville, TN 37922
As to Seller:
Attn: President and Chief Executive Officer
IOMED, INC.
3385 West 1820 South
Salt Lake City, Utah 84104
with a copy to:
Robert C. Delahunty, Esquire
Parsons, Behle & Latimer
One Utah Center
201 South Main Street, Suite 1800
P.O. Box 46898
Salt Lake City, Utah 84145-0898
10.9 Severability. If any portion or portions of this Agreement shall
be, for any reason, invalid or unenforceable, the remaining portion or portions
shall nevertheless be valid, enforceable and carried into effect, unless to do
so would clearly violate the present legal and valid intention of the parties
hereto.
10.10 Further Assurances. Seller agrees that after the Closing Date it
will execute and deliver such further instruments of conveyance and transfer as
Purchaser may reasonably request to effect the transfer of the Assets to
Purchaser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first written above.
IOMED, INC. FILLAUER, INC.
By: /s/ Ned M. Weinshenker By:
Title: President & CEO Title:
SELLER'S FEIN: 87-0441272 PURCHASER'S FEIN: 62-1474076
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF THIS WARRANT OR
OF ANY SHARES OF STOCK ISSUED PURSUANT HERETO MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION
LETTER REASONABLY SATISFACTORY TO THE COMPANY FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUESTED, OR (iv) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
IOMED, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Alliance of Children's
Hospitals, Inc., ("Alliance") or its assigns is entitled to subscribe for and
purchase up to 215,000 shares (as adjusted pursuant to Paragraph 4 hereof, the
"Shares") of the fully paid and nonassessable common stock, par value $.001 (the
"Common Stock"), of IOMED, INC., a Utah corporation (together with its
successors and assigns, the "Company"), at the price of $1.85 per Share (such
price, and such other price as shall result, from time to time, from the
adjustments specified in Paragraph 4 hereof, is herein referred to as the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth.
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time, and from time to time, from and after December
1, 1996 and until 5 p.m. Mountain Time on December 1, 2003. To the extent not
exercised at 5 p.m. Mountain Time on December 1, 2003, this Warrant shall
completely and automatically terminate and expire, and thereafter it shall be of
no force or effect whatsoever.
2. Method of Exercise; Payment; Issuance of New Warrant.
(a) The purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit "A" duly executed) at the principal office of the Company and by the
payment to the Company of an amount, in cash or other immediately available
funds, equal to the then applicable Warrant Price per Share multiplied by the
number of Shares then being purchased.
(b) The person or persons in whose name(s) any certificate(s)
representing shares of Common Stock shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the Shares represented
thereby (and such Shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. Upon any exercise of the rights represented by this Warrant,
certificates for the Shares purchased shall be delivered to the holder hereof as
soon as possible and in any event within thirty days of receipt of such notice
and payment, and, unless this Warrant has been fully exercised or expired, a new
Warrant representing the portion of the Shares, if any, with respect to which
this Warrant shall not then have been exercised, shall also be issued to the
holder hereof as soon as possible and in any event within such thirty day
period.
1. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, fully paid and nonassessable, and will be free
from all taxes, liens and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of the
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
2. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Reclassification, Merger, Etc. In case of (i) any
reclassification, reorganization, change or conversion of securities of the
class issuable upon exercise of this Warrant (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any merger or consolidation of the
Company with or into another corporation (other than a merger or consolidation
with another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or (iii) any
sale of all or substantially all of the assets of the Company, then the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant or a supplement
hereto (in form and substance reasonably satisfactory to the holder of this
Warrant), so that the holder of this Warrant shall have the right to receive, at
a total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, reorganization, change, conversion, merger or consolidation by
a holder of the number of shares of Common Stock then purchasable under this
Warrant. Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Paragraph 4. The provisions of this subparagraph 4(a) shall similarly apply to
successive reclassifications, reorganizations, changes, mergers, consolidations
and transfers.
(b) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, (i) in the case of a subdivision, the Warrant Price
shall be proportionately decreased and the number of Shares purchasable
hereunder shall be proportionately increased, and (ii) in the case of a
combination, the Warrant Price shall be proportionately increased and the number
of Shares purchasable hereunder shall be proportionately decreased.
(c) Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall (i) pay a dividend with respect to
Common Stock payable in Common Stock, or (ii) make any other distribution with
respect to Common Stock (except any distribution specifically provided for in
the foregoing subparagraphs (a) and (b)) of Common Stock, then the Warrant Price
shall be adjusted, from and after the date of determination of shareholders
entitled to receive such dividend or distribution to a price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution. Upon each adjustment in the Warrant Price pursuant to this
Paragraph 4(c), the number of Shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
(d) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Paragraph 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Paragraph 4 hereof,
the Company shall prepare a certificate setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated. Such certificate shall be signed by its
chief financial officer and shall be delivered to the holder of this Warrant.
6. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Common Stock on the date of exercise as reasonably determined in
good faith by the Company's Board of Directors.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Common Stock.
(a) Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant and the Shares to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant or any Shares
to be issued upon exercise hereof except under circumstances which will not
result in a violation of applicable securities laws. Upon exercise of this
Warrant, unless the Shares being acquired are registered under the Securities
Act of 1933, as amended (the "Act"), or an exemption from the registration
requirements of such Act is available, the holder hereof shall confirm in
writing, by executing the form attached as Schedule 1 to Exhibit "A" hereto,
that the Shares so purchased are being acquired for investment and not with a
view toward distribution or resale. This Warrant and all Shares issued upon
exercise of this Warrant (unless registered under the Act) shall be stamped or
imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER, REASONABLY IN FORM AND CONTENT TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF AN
APPROPRIATE NO-ACTION LETTER REASONABLY SATISFACTORY TO THE
COMPANY FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE
WARRANT UNDER WHICH THIS SECURITY WAS ISSUED."
(b) Disposition of Warrant or Shares. With respect to any
offer, sale or other disposition of this Warrant or any Shares acquired pursuant
to the exercise of this Warrant prior to registration of such Shares, the holder
hereof and each subsequent holder of this Warrant agrees to give written notice
to the Company prior thereto, describing briefly the manner thereof, together
with a written opinion of such holder's counsel, if requested by the Company, to
the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state law then in effect) of this Warrant or such Shares and indicating whether
or not under the Act certificates for this Warrant or such Shares to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the Act.
Promptly upon receiving such written notice and reasonably satisfactory opinion,
if so requested, the Company, as promptly as practicable, shall notify such
holder that such holder may sell or otherwise dispose of this Warrant or such
Shares, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this subparagraph (b) that the
opinion of counsel for the holder is not reasonably satisfactory to the Company,
the Company shall so notify the holder promptly after such determination has
been made. Notwithstanding the foregoing, this Warrant or such Shares may be
offered, sold or otherwise disposed of in accordance with Rule 144 as
promulgated under the Act ("Rule 144"), provided that the Company shall have
been furnished with such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 have been
satisfied. Each certificate representing this Warrant or the Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to insure compliance with the Act. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions.
8. Rights as Shareholders. No holder of this Warrant, as such, shall be
entitled to vote or receive dividends or be deemed the holder of Shares or any
other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
9. Registration Rights.
(a) Definitions. As used in this paragraph 9:
(i) The term "Registrable Securities" means the
Shares issued upon the exercise of this Warrant, in whole or in part, in the
manner described herein, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his or its rights under
this paragraph 9 are not assigned to the purchaser; provided, however, that such
Shares shall only be treated as Registrable Securities if and so long as they
have not been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction.
(ii) The term "Holder" means Alliance and any other
person or entity that acquires
at least 50,000 Registrable Securities in compliance with paragraphs 2, 7 and
9(e) hereof.
(iii) The term "SEC" means the Securities and
Exchange Commission or any successor agency thereto.
(b) Company Registration.
(i) If at any time, or from time to time, prior to
the date seven (7) years after the effective date of this Warrant, the Company
shall determine to register any of its securities, either for its own account or
for the account of a security holder or holders, other than a registration on
Form S-1 or S-8 relating solely to employee benefit plans, or a registration on
Form S-4 relating solely to an SEC Rule 145 transaction, or a registration on
any other form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
(A) promptly give to each Holder written notice thereof; and
(B) include in such registration, and in any underwriting
involved therein, all the Registrable Securities specified in any written
request or requests by any Holder or Holders received by the Company within
twenty (20) days after the date of the written notice required by paragraph
9(b)(i)(A) above, on the same terms and conditions as the shares of Common
Stock, if any, otherwise being sold through the underwriter in such
registration.
(ii) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to paragraph 9(b)(i)(A) above. In such event the right of any Holder to
registration pursuant to this paragraph 9 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
(iii) Notwithstanding any other provision of this
paragraph 9, if the underwriter determines that marketing factors require a
limitation of the number of shares of Common Stock to be underwritten, the
underwriter may limit the amount of Registrable Securities to be included in the
registration and underwriting. The Company shall so advise all Holders of
Registrable Securities which would otherwise be registered and underwritten
pursuant hereto, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all of
the Holders, in proportion, as nearly as practicable, to the amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration.
(iv) Notwithstanding any other provision of this
paragraph 9, no Holder shall be entitled to include any Registrable Securities
in a registration pursuant to this paragraph 9(b) if, and to the extent, that
such inclusion would reduce the number of shares of Registrable Securities
entitled to participate in such registration pursuant to Section 7.2, 7.3 or 7.4
of that certain Preferred Stock Purchase Agreement, dated August 4, 1987,
between the Company and the Investors named therein. The Company shall so advise
all Holders of Registrable Securities which would otherwise be registered
pursuant hereto but for the foregoing sentence, and the number of shares of
Registrable Securities that may be included in the registration shall be
allocated among all of the Holders, in proportion, as nearly as practicable, to
the amounts of Registrable Securities held by such Holders at the time of filing
the registration statement.
(c) Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
paragraph 9, including without limitation, all registration, filing and
qualification fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, accounting fees and expenses, and expenses of any
special audits incidental to or required by such registration, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities,
or any fees or expenses of counsel to any of the selling Holders.
(d) Information and Indemnification. It shall be a condition
precedent to the obligations of the Company hereunder in regard to Registerable
Securities, that each Holder participating in any registration under this
paragraph 9 provide to the Company all information concerning such Holder and
the Registerable Securities to be included by such Holder in such registration,
as the Company, its legal counsel or any underwriter involved in such
registration reasonably requests. Additionally, each such Holder shall indemnify
and hold the Company harmless (to the full extent permitted by law) from and
against any losses, claims, damages or expenses which the Company may suffer or
incur in connection with such registration as the result of any omission or
inaccuracy in such requested information.
(e) Transfer of Registration Rights. The rights to cause the
Company to register securities granted by the Company under this paragraph 9
hereof may be assigned in writing by any Holder of Registrable Securities to a
transferee or assignee of not less than fifty thousand (50,000) shares of the
Registrable Securities (as appropriately adjusted from time to time for stock
splits and the like); provided, that such transfer is effected in accordance
with the terms of this Warrant and applicable securities laws and, provided
further, that the Company is given written notice by such Holder of Registrable
Securities at the time of such transfer, stating the name and address of the
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned.
(f) "Market Stand-off" Agreement. The Holders hereby agree not
to sell or otherwise transfer or dispose of any Registrable Securities held by
them during the one hundred eighty (180) day period following the effective date
of a registration statement of the Company filed under the Act; provided that:
(i) such agreement shall only apply to the first such
registration statement of the Company including shares of Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(ii) such agreement shall not apply to any shares of
Registrable Securities that are included in such public offering; and
(iii) all executive officers and directors of the
Company and all other persons with registration rights (whether or not granted
pursuant to this Warrant) enter into similar agreements.
The Company may impose stop-transfer instructions with respect to the
Registrable Securities subject to the foregoing restriction until the end of
said one hundred eighty (180) day period.
(g) Limitations. The rights set forth in this paragraph 9
shall apply only to Shares acquired through the exercise of this Warrant, and
the Company shall have no duty or obligation, whatsoever, to register this
Warrant itself under the Act.
10. Notice of Change-in-Control. If the Company receives notice that a
shareholder or group of shareholders, other than Alliance (collectively the
"Selling Shareholders") intend to sell or exchange all or a portion of their
common shares of the Company in a transaction or series of transactions which
will not be registered under the Act, and which will result in a
change-in-control of the Company, (a "Change-In-Control Transaction"), the
Company shall, to the extent it may do so without violating any other agreement
or obligation to which it is a party or by which it is bound (regardless of when
such agreement or obligation was undertaken or became effective), give notice of
such Change-In-Control Transaction to Alliance. Such notice shall set forth, to
the extent known by the Company, the identity of the Selling Shareholders, the
identity of the proposed buyer, and the general terms and conditions of the
proposed Change-In-Control Transaction. The notice obligations of the Company,
as set forth in this paragraph 10, shall apply only to proposed sales or
exchanges which take place prior to the issuance by the Company of its
securities in a registered, underwritten public offering in which the Company
receives at least $5,000,000 in gross proceeds. Additionally, the Company shall
have no obligation, whatsoever, under or pursuant to this paragraph 10 unless,
prior to the date of the notice contemplated hereby, Alliance shall have
exercised this Warrant as to at least 50,000 Shares.
For purposes of this paragraph 10, the term "change-in-control" shall mean a
transaction or series of transactions pursuant to which securities of the
Company representing 50% or more of the combined voting power of all of the
Company's issued and outstanding common shares (or securities convertible by
their terms into common shares) are transferred to a person or persons not owned
or controlled by, or under common control with, one or more of the Selling
Shareholders.
11. Representations and Warranties. The Company represents and warrants
to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Articles of
Incorporation, as amended, or by-laws, and do not and will not constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound.
12. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by both the Company and the holder of this Warrant.
13. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall (a)
be in writing, (b) be delivered personally or sent by mail or overnight courier
to the intended recipient to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor on the
signature page of this Warrant, unless the recipient has given notice of another
address, and (c) be effective on receipt if delivered personally, two (2)
business days after dispatch if mailed, and one business day after dispatch if
sent by overnight courier service.
14. Transferability. Subject to the satisfaction of all of the
provisions of paragraph 7 thereof, the holder hereof may transfer this Warrant
at any time, but only in whole and not in part.
15. Lost Warrants. The Company covenants to the holder hereof that upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of a bond or indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company will make and deliver a
new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
16. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Utah, without giving effect to the choice of law rules thereof.
IOMED, INC.
BY: /s/ Ned M. Weinshenker
Its: Chief Executive Officer
Address:
3385 West 1820 South
Salt Lake City, Utah 84104
Dated effective December 1, 1996
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and shall be effective as of November 29, 1996,
by and between IOMED, Inc., a Utah corporation (the "Company") and Child Health
Investment Corporation, a Kansas corporation ("CHIC").
WHEREAS: The Company desires to issue and sell to CHIC, and CHIC
desires to purchase from the Company, certain authorized, but previously
unissued shares of the Company's common stock, on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recital and the
covenants and agreements set forth herein, together with other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged the
parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK
1.1 Common Stock. On the terms and subject to the conditions set forth
in this Agreement, at the Closing (as defined below) the Company agrees to sell
to CHIC, and CHIC agrees to purchase from the Company, a total of 178,571 shares
of the Company's authorized but unissued common stock, par value $.001 per share
(the "Common Shares").
1.2 Purchase Price. The purchase price for each of the Common Shares
shall be $1.40, for an aggregate purchase price of $249,999.40 (the "Purchase
Price").
1.3 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Company, in
Salt Lake City, Utah, on December 3, 1996, or on such other date as may be
mutually agreed upon by the parties. At the Closing, the Company shall deliver
to CHIC one or more certificates evidencing the Common Shares, and CHIC shall
deliver the Purchase Price to the Company, in cash, by wire transfer to an
account designated by the Company, or by the delivery of other immediately
available funds.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents and warrants to, and covenants with, CHIC
as follows:
2.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah and is
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business or financial condition of the Company.
2.2 Authorization. The Company has full corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly authorized, executed and
delivered by the Company, and constitutes the valid and binding obligation of
the Company, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights and by general equitable principles.
2.3 Valid Issuance. The Common Shares, when issued, sold and delivered
in accordance with the terms hereof and for the consideration expressed herein,
will be duly and validly issued, fully paid and nonassessable.
2.4 No Violation. Neither the execution and delivery of this Agreement
by the Company nor its performance and consummation of the transactions
contemplated hereby will violate (a) any provision of the Articles of
Incorporation or the Bylaws of the Company, (b) any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental agency
that is applicable to the Company, or (c) any material agreement to which the
Company is a party.
2.5 Capitalization. As of the date hereof, the authorized capital stock
of the Company consists solely of (i) 40,000,000 shares of common stock, $.001
par value per share (the "Common Stock"), and (ii) 4,215,618 shares of preferred
stock, $.001 par value per share (the "Preferred Stock"). Immediately following
the Closing, after giving effect to the transactions contemplated hereby, the
issued and outstanding capital stock of the Company will consist solely of
15,037,966 shares of Common Stock and 172,800 shares of Series C Preferred
Stock. As of October 31, 1996, options to purchase approximately 1,553,314
shares of Common Stock, and a warrant to purchase 10,000 shares of Common Stock,
were outstanding. Except for (a) the options and warrants described above, (b)
an obligation to issue additional shares of Common Stock to Laboratoires
Fournier, pursuant to the adjustment provisions of the agreement between Iomed,
Inc. and Laboratoires Fournier S.C.A. ("Fournier"), dated February 20, 1996 (the
"Fournier Agreement") and (c) a Warrant, dated December 1, 1996, to purchase
215,000 shares of Common Stock, issued by the Company to the Alliance for
Children's Hospitals, Inc. (a subsidiary of CHIC), the Company does not have
outstanding any rights (either preemptive or other) or options to subscribe for
or purchase, or any warrants or other agreements providing for or requiring the
issuance by the Company of, any capital stock or securities convertible into or
exchangeable for its capital stock. Pursuant to the Fournier Agreement, the
Company will issue 4,644 additional shares of Common Stock to Fournier in
connection with this sale of Common Stock to CHIC.
2.6 Litigation. The Company is not a party, nor has it been threatened,
in writing, to be made a party to any charge, complaint, action, suit,
proceeding, hearing or investigation of or in any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator, which could result in any material adverse change in the
assets, liabilities, business, financial condition, operations, results of
operations or future prospects of the Company.
2.7 Reports and Financial Statements.
(a) CHIC heretofore has been furnished with complete and
correct copies of the unaudited consolidated balance sheet of the Company as of
September 30, 1996 and of the unaudited interim consolidated statements of
operations and cash flow for the three month period then ended and of the
audited balance sheets of the Company as of June 30, 1996 and as of June 30,
1995 and the related income statements and statements of cash flows for the
fiscal years then ended.
(b) Each of the financial statements referred to in (a) above
was prepared in accordance with generally accepted accounting principles applied
on a basis consistent with prior periods. Each of the balance sheets included in
such financial statements fairly presents the financial condition of the Company
as of the close of business on the date thereof, and each of the statements of
income included in such financial statements fairly presents the results of
operations of the Company for the fiscal period then ended.
(c) The Company shall deliver to CHIC:
(i) as soon as available and in any event within 90
days after the end of each fiscal year of the Company, beginning with the fiscal
year ending June 30, 1997, audited financial statements of the Company for such
year, accompanied by a report thereon of independent public accountants of
recognized national standing, which report shall state that such financial
statements fairly present the financial condition and results of operations of
the Company as at the end of, and for, such fiscal year; and
(ii) as soon as available and in any event within 45
days after the end of each fiscal quarter of the Company (other than the last
fiscal quarter in each fiscal year) unaudited financial statements of the
Company for such fiscal quarter accompanied, in each case, by a certificate of
the chief financial officer of the Company, which certificate shall state that
such financial statements fairly present the financial position and results of
operations of the Company in accordance with generally accepted accounting
principles, subject to changes resulting from year-end audit adjustments.
2.8 Material Adverse Change. There has been no material adverse change
in the business, properties or financial condition of the Company since June 30,
1996.
2.9 Other Documents. CHIC heretofore has been furnished with complete
and correct copies of (i) the Articles of Incorporation and the Bylaws of the
Company, (ii) the Preferred Stock Purchase Agreement, dated as of August 4,
1987, by and between the Company and the Investors named therein (the "Preferred
Stock Purchase Agreement").
2.10 Use of Proceeds. The proceeds from the sale of the Common Share
will be used by the Company for general corporate purposes in connection with
its primary business activity.
2.11 Disclosure. No representation or warranty by the Company contained
in this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein not
misleading in light of the circumstances under which they were made; provided,
it is understood that any projections or other forward-looking information
contained herein represent the Company's good faith estimate under the
circumstances based on assumptions which the Company believes are reasonable,
and the Company does not represent or warrant that such projections or future
events will occur; and provided further, that CHIC acknowledges the disclosures
made by IOMED with respect to (i) the status of the Ciba-Geigy development
projects and (ii) patent issues, and agrees that such disclosures shall
constitute supplements to the other written statements and certificates
furnished to CHIC pursuant hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CHIC
CHIC hereby represents and warrants to the Company as follows:
3.1 Organization. CHIC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas.
3.2 Authorization. CHIC has full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered by CHIC,
and constitutes the valid and binding obligation of CHIC, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights and by
general equitable principles.
3.3 Experience. It is experienced in evaluating and investing in
emerging companies such as the Company.
3.4 Investment Intent. It is acquiring the Common Shares pursuant to
this Agreement (the "Securities"), for its own account and not with a present
view to, or for resale in connection with, any distribution. It understands that
the Securities have not been registered under the Securities Act of 1933, as
amended (the "Act"), by reason of a specific exemption from the registration
requirements of the Act which depends upon, among other things, the bona fide
nature of the investment intent as expressed herein.
3.5 Holding Period. It acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act, or unless an
exemption from the registration requirements thereof is available. It is aware
of the provisions of Rule 144 promulgated under the Act, the limitations on
resales of securities imposed thereby, that the public information required
thereby is not presently published by the Company, and that the Company is under
no obligation to so publish such information in the future.
3.6 No Public Market. It understands that no public market now exists
for any of securities issued by the Company (including without limitation the
Securities) and that there is no assurance that a public market will ever exist
for the Securities. Additionally, it is aware that, except as specifically set
forth in Article IV hereof, the Company is under no obligation to register any
of the Securities under the Act.
3.7 Discussions with the Company. It has had an opportunity to discuss
the Company's business, management and financial affairs with management of the
Company and an opportunity to review the Company's facilities. It understands
that such discussions were intended to describe the aspects of the Company's
business and prospects which the Company believes to be material, but were not
necessarily a thorough or exhaustive description, and do not constitute
representations or warranties of the Company hereunder.
3.8 Sophisticated Investor. It is a sophisticated investor with such
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of a prospective investment in the
Securities, and it is capable of bearing the economic risks of an investment in
the Securities.
3.9 Due Diligence. It, both by itself and through its agents, has been
solely responsible for its "due diligence" investigation of the Company and its
management and business, for the analysis of the merits and risks of this
investment and of the fairness and desirability of the terms of the investment.
3.10 Independent Legal Counsel. It has had the opportunity to be
advised by legal counsel of its own choice in connection with the purchase of
the Securities and has either been advised by such counsel or concluded that
such advice is not required. It acknowledges that Parsons Behle & Latimer is
acting solely as counsel for the Company in connection therewith.
3.11 Restrictive Legend. It acknowledges that the certificates
representing the Common Share shall be endorsed with the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE
AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC
EXEMPTION FROM REGISTRATIONS UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER
COUNSEL ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS
CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW.
The Company need not register a transfer of any of the Securities,
unless the conditions specified in the foregoing legend are satisfied. The
Company may also instruct its transfer agent not to register the transfer of any
of the Securities unless such conditions are satisfied.
3.12 Reliance on Written Representations and Warranties. In connection
with its decision to enter into this Agreement and to purchase the Common Shares
hereunder, CHIC has relied only upon the written representations and warranties
of the Company which are set forth herein, and it has not relied upon any other
representation, warranty document or statement by the Company, its officers,
directors, employees or agents concerning the Company, its business or its
affairs.
3.13 Disclosure. No representation or warranty by CHIC contained in
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein not
misleading in light of the circumstances under which they were made.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Definitions. As used in this Article IV:
(a) The term "Registrable Securities" means the Common Shares
issued hereunder excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this Article IV are
not assigned to the purchaser; provided, however, that such Common Shares shall
only be treated as Registrable Securities if and so long as they have not been
sold to or through a broker or dealer or underwriter in a public distribution or
a public securities transaction.
(b) The term "Holder" means CHIC and any other person or
entity that acquires any Registrable Securities in compliance with Sections 3.11
and 4.5 hereof.
(c) The term "SEC" means the Securities and Exchange
Commission or any successor agency thereto.
4.2 Company Registration.
(a) If at any time, or from time to time, prior to the date
seven (7) years after the date of this Agreement, the Company shall determine to
register any of its securities, either for its own account or for the account of
a security holder or holders, other than a registration on Form S-1 or S-8
relating solely to employee benefit plans, or a registration on Form S-4
relating solely to an SEC Rule 145 transaction, or a registration on any other
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Securities, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration, and in any
underwriting involved therein, all the Registrable securities specified in any
written request or requests by any Holder or Holders received by the Company
within twenty (20) days after the date of the written notice required by Section
4.2(a)(i) above, on the same terms and conditions as the shares of Common Stock,
if any, otherwise being sold through the underwriter in such registration.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to clause (i)
of Section 4.2(a). In such event the right of any Holder to registration
pursuant to this Section 4.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
(c) Notwithstanding any other provision of this Section 4.2,
if the underwriter determines that marketing factors require a limitation of the
number of shares of Common Stock to be underwritten, the underwriter may limit
the amount of Registrable Securities to be included in the registration and
underwriting. The Company shall so advise all Holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all of the Holders, in
proportion, as nearly as practicable, to the amounts of Registrable Securities
held by such Holders at the time of filing the registration statement. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
(d) Notwithstanding any other provision of this Section 4.2,
no Holder shall be entitled to include any Registrable Securities in a
registration pursuant to this Section 4.2 if and to the extent that such
inclusion would reduce the number of shares of Registrable Securities entitled
to participate in such registration pursuant to Section 7.2, 7.3 or 7.4 of the
Preferred Stock Purchase Agreement. The Company shall so advise all Holders of
Registrable Securities which would otherwise be registered pursuant hereto but
for the foregoing sentence, and the number of shares of Registrable Securities
that may be included in the registration shall be allocated among all of the
Holders, in proportion, as nearly as practicable, to the amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement.
4.3 Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Article IV,
including without limitation, all registration, filing and qualification fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, accounting fees and expenses, and expenses of any special audits
incidental to or required by such registration, shall be borne by the Company;
provided, however, that the Company shall not be required to pay underwriters'
fees, discounts or commissions relating to Registrable Securities, or any fees
or expenses of counsel to any of the selling Holders.
4.4 Information and Indemnification. It shall be a condition precedent
to the obligations of the Company hereunder in regard to Registerable
Securities, that each Holder participating in any registration under this
Article IV provide to the Company all information concerning such Holder and the
Registerable Securities to be included by such Holder in such registration, as
the Company, its legal counsel or any underwriter involved in such registration
reasonably requests. Additionally, each such Holder shall indemnify and hold the
Company harmless (to the full extent permitted by law) from and against any
losses, claims, damages or expenses which the Company may suffer or incur in
connection with such registration as the result of any omission or inaccuracy in
such requested information.
4.5 Transfer of Registration Rights. The rights to cause the Company to
register securities granted by the Company under Section 4.2 hereof may be
assigned in writing by any Holder of Registrable Securities to a transferee or
assignee of not less than fifty thousand (50,000) shares of the Registrable
Securities (as appropriately adjusted from time to time for stock splits and the
like); provided, that such transfer is effected in accordance with the terms of
this Agreement and applicable securities laws; and provided further, that the
Company is given written notice by such holder of Registrable Securities at the
time of such transfer, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being assigned.
4.6 "Market Stand-off" Agreement. The Holders hereby agree not to sell
or otherwise transfer or dispose of any Registrable Securities held by them
during the one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed under the Act; provided that:
(a) such agreement shall only apply to the first such
registration statement of the Company including shares of Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) such agreement shall not apply to any shares of
Registrable Securities that are included in such public offering; and
(c) all executive officers and directors of the Company and
all other persons with registration rights (whether or not granted pursuant to
this Agreement) enter into similar agreements.
The Company may impose stop-transfer instructions with respect to the
Registrable Securities subject to the foregoing restriction until the end of
said one hundred eighty (180) day period.
ARTICLE V
NOTICE OF CHANGE-IN-CONTROL
5.1 Change-in-Control Transactions. If the Company receives notice that
a shareholder or group of shareholders, other than CHIC (collectively the
"Selling Shareholders"), intend to sell or exchange all or a portion of their
common shares of the Company in a transaction or series of transactions which
will not be registered under the Act, and which will result in a
change-in-control of the Company, (a "Change-In-Control Transaction"), the
Company shall, to the extent it may do so without violating any other agreement
or obligation to which it is a party or by which it is bound (regardless of when
such agreement or obligation was undertaken or became effective), give notice of
such Change-In-Control Transaction to CHIC. Such notice shall set forth, to the
extent known by the Company, the identity of the Selling Shareholders, the
identity of the proposed buyer, and the general terms and conditions of the
proposed Change-In-Control Transaction. The notice obligations of the Company,
as set forth in this Section 5.1, shall apply only to proposed sales or
exchanges which take place prior to the issuance by the Company of its
securities in a registered, underwritten public offering in which the Company
receives at least $5,000,000 in gross proceeds. For purposes of this Section
5.1, the term "change-in-control" shall mean a transaction or series of
transactions pursuant to which securities of the Company representing 50% or
more of the combined voting power of all of the Company's issued and outstanding
common shares (or securities convertible by their terms into common shares) are
transferred to a person or persons not owned or controlled by, or under common
control with, one or more of the Selling Shareholders.
ARTICLE VI
MISCELLANEOUS
6.1 Notice. Any notice or other communication required or permitted
hereunder must be in writing, and shall be delivered personally, by facsimile or
by certified, registered, or express mail, postage prepaid and return receipt
requested. Such notice shall be deemed given when so delivered personally or
when sent by confirmed facsimile transmission on a business day to the party in
question or, if mailed, three (3) business days after the date of deposit in the
United States mails, as follows:
(i) if to the Company:
IOMED, Inc.
3385 West 1820 South
Salt Lake City, Utah 84104
Attn: President
Fax: (801) 972-9072
with a copy to:
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
Attn: Robert C. Delahunty
(ii) if to CHIC, to:
Child Health Investment Corporation
6803 West 64th Street
Suite 208
Shawnee Mission, Kansas 66220
Attn: President
Fax:
with a copy to:
Attn:
6.2 Governing Law. This Agreement shall be governed by the laws of the
State of Utah, without giving effect to the choice of laws provisions thereof.
6.3 Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
6.4 Entire Agreement. This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
THE COMPANY:
IOMED, Inc.
a Utah Corporation
By: /s/ Ned M. Weinshenker
Ned M. Weinshenker, President and
Chief Executive Officer
CHIC:
CHILD HEALTH INVESTMENT
CORPORATION, a Kansas corporation
By: /s/ illegible
Its: Chief Operating Officer
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of March 29,
1996, is made by and among IOMED, Inc., a Utah corporation ("IOMED"), Ciba-Geigy
Corporation, a New York corporation ("Purchaser"), acting through its
Pharmaceuticals Division, and Dermion, Inc., a Delaware corporation (the
"Company").
RECITALS:
The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, shares of the Company's Common Stock, par
value $.001 per share (the "Common Stock"), on the terms and subject to the
conditions set forth herein.
The Company and Purchaser are entering into this Agreement in
connection with their execution of the Research and Development Agreement, dated
of even date herewith, by and between the Company, Purchaser and IOMED (the "R&D
Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings given to them in the R&D Agreement.
Now, therefore, in consideration of the mutual promises and covenants
hereinafter contained, and intending to be legally bound, the parties agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.01 Stock to Be Purchased. Subject to the terms and conditions
contained in this Agreement, the Company agrees to issue and sell to Purchaser
at the Closing (as defined in Section 1.03), and Purchaser agrees to purchase
from the Company, Two Hundred Thousand (200,000) newly issued shares of Common
Stock (the "Shares").
1.02 Purchase Price. The purchase price for the Shares (the "Purchase
Price") shall consist of cash in the amount of One Million Dollars ($1,000,000).
The Purchase Price shall be paid at the Closing, in the form of a check made
payable to the Company or in such other form agreed upon by the parties.
1.03 Closing. The closing of the purchase and sale of the Shares under
this Agreement (the "Closing") shall take place simultaneously with the
execution of this Agreement.
1.04 Delivery of Shares. At the Closing, the Company shall deliver to
Purchaser certificates representing the Shares, registered in the name of
Purchaser.
1.05 Legal Opinion. At the Closing, the Company will deliver to
Purchaser an opinion of Morrison & Foerster LLP, counsel to the Company, in the
form of Exhibit A attached hereto.
1.06 Further Assurances. In addition to the actions, documents and
instruments specifically required to be taken or delivered hereby, the Company
and Purchaser shall execute and deliver, or cause to be executed and delivered,
such other instruments and take such other actions as the other party may
reasonably request in order to complete and perfect the transactions
contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01. Representations and Warranties of the Company and IOMED. The
Company and IOMED hereby jointly and severally represent and warrant to
Purchaser on the date hereof as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company is duly licensed or qualified to do business, and is in good standing
under the laws of, each state in which the Company is required to be so licensed
or qualified. The Company has the corporate power and authority to own or lease
its properties, rights and assets and to conduct its business as now conducted
or presently proposed to be conducted. Since its date of incorporation, the
Company has not engaged in any activities or operations of any nature, except as
contemplated by this Agreement and the Transaction Documents. IOMED is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah.
(b) The Company and IOMED have full corporate power and
authority to enter into this Agreement, the Patent License Agreement in the form
attached as Exhibit B hereto (the "License Agreement"), the Support Services
Agreement in the form attached as Exhibit C hereto (the "Services Agreement"),
the Agreement of Sublease (the "Sublease Agreement") in the form attached as
Exhibit D hereto, the Stockholders' Agreement in the form attached as Exhibit E
hereto (the "Stockholders' Agreement"), the, Contribution Agreement in the form
attached as Exhibit F hereto (the "Contribution Agreement") and the R&D
Agreement (collectively, the "Transaction Documents"), and to carry out the
transactions contemplated hereby and thereby. All corporate action on the part
of the Company and of IOMED required to authorize the execution, delivery and
performance by the Company and IOMED of this Agreement and each of the
Transaction Documents, and the consummation of the transactions contemplated
hereby and thereby, has been taken. This Agreement and each of the Transaction
Documents has been duly and validly authorized, executed and delivered by the
Company and IOMED, and each constitutes a valid and binding obligation of the
Company and IOMED, enforceable against each of them in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights and to
general equitable principles.
(c) The execution, delivery and performance by the Company and
IOMED of this Agreement and each of the Transaction Documents do not and will
not (i) violate or breach the certificate of incorporation or bylaws of the
Company or the articles of incorporation or bylaws of IOMED, (ii) violate or
conflict with any applicable law, (iii) violate, breach, cause a default under
or otherwise give rise to a right of termination, cancellation or acceleration
with respect to (presently, with the giving of notice or the passage of time)
any material agreement, contract or instrument to which the Company or IOMED is
a party or by which any of their respective assets are bound, or (iv) result in
the creation or imposition of any lien, pledge, mortgage, claim, charge or
encumbrance upon any assets of the Company or IOMED.
(d) Assuming the accuracy of Purchaser's representations and
warranties in Section 2.02(e), no consent, authorization, license, permit,
registration or approval of, or exemption or other action by, any governmental
authority or other person is required in connection with the Company's or
IOMED's execution and delivery of this Agreement or any of the Transaction
Documents, or with the performance by the Company or IOMED of their respective
obligations hereunder or thereunder, except in each case for any consent,
authorization, license, permit, registration or approval as have been obtained
and remain in full force and effect.
(e) The authorized capital stock of the Company consists of
Four Million (4,000,000) shares, of Common Stock, of which Eight Hundred
Thousand (800,000) are issued and outstanding, all of which issued and
outstanding shares are owned beneficially and of record by IOMED, and One
Million (1,00.0,000) shares of Preferred Stock, $.001 par value per share, none
of which are issued and outstanding. Upon consummation of the transactions
contemplated by this Agreement and the Contribution Agreement, One Million
(1,000,000) shares of Common Stock will be issued and outstanding. The Shares
will, upon issuance pursuant to the terms of this Agreement, be duly and validly
authorized and issued, fully paid and nonassessable. Except as set forth in the
Stockholders' Agreement, the Company does not have outstanding any rights
(preemptive or other) or options to subscribe for or purchase, or any warrants
or other agreements providing for or requiring the issuance by the Company of,
any of its capital stock or securities convertible into or exchangeable for its
capital stock, nor is the Company under any obligation to repurchase or redeem
any shares of its capital stock or securities convertible into or exchangeable
for its capital stock.
(f) The Company has provided to Purchaser true and correct
copies of all agreements executed by the Company and IOMED pursuant to the
Contribution Agreement. (g) The Company is the owner or licensee of the Dermion
Technology, and has the right to license said Dermion Technology free of any
Lien (other than the obligations to pay royalties as provided in the University
of Utah License) in the manner set forth in the R&D Agreement. IOMED is the
licensee of the IOMED Technology and has the right to license said IOMED
Technology free of any Lien (other than the obligation to pay royalties as
provided in the Alza License) in the manner set forth in the R&D Agreement.
There are no existing defaults under the Alza License or University of Utah
License (or events which, with notice or lapse of time or both, would constitute
a default) either by IOMED or, to the best of IOMED's knowledge, by any other
party thereto, and true and correct copies of such licenses have been delivered
to Purchaser. Except as set forth on Schedule 7.01(e) to the R&D Agreement,
neither IOMED nor the Company has assigned or conveyed any interest in the
Dermion Technology or the IOMED Technology which may be inconsistent with the
rights granted under the R&D Agreement; to the best knowledge of the Company and
IOMED, the practice of the Dermion Technology and the IOMED Technology by the
Company and IOMED in connection with their respective business activities does
not infringe any rights of third parties; neither IOMED nor the Company is aware
that any third party is infringing any Dermion Technology or any IOMED
Technology; with respect to all Patent Rights constituting Dermion Technology or
IOMED Technology which were prosecuted by IOMED, such Patent Rights have been
prosecuted in good faith; and neither IOMED nor the Company has reason to
believe that any patent included within the Dermion Technology or the IOMED
Technology would be invalid or would be held to be unenforceable by a court of
competent jurisdiction. To the best of IOMED's and the Company's knowledge,
after reasonable inquiry, Schedules 1.1(b)(i) and 1.1(b)(ii) to the R&D
Agreement set forth all Patent Rights and identifiable Know-How owned or
licensed by IOMED or the Company or their respective Affiliates, applicable to
the development of the Systems.
(h) IOMED has contributed to the Company assets, properties
and rights that are sufficient, when taken together with the facilities to be
made available to the Company pursuant to the Sublease Agreement and the
services to be made available to the Company pursuant to the Services Agreement,
for the conduct of the Business as previously conducted by IOMED, other than the
IOMED Technology. The Company currently owns or has full-right to use all
assets, rights and properties (including all authorizations, approvals and
consents of Governmental Authorities) necessary to (i) to conduct, the Business
as previously conducted by IOMED and (ii) to perform the transactions
contemplated by this Agreement and the R&D Agreement except, in each case, for
the IOMED Technology.
(i) Attached as Schedule 2.01(i) is the unaudited pro forma
balance sheet of the Company as of March 29, 1996, (the "Balance Sheet"). The
Balance Sheet fairly presents the assets, liabilities and financial position of
the Company (assuming consummation of the transactions contemplated by the
Contribution Agreement as of such date) and was prepared in accordance with
generally accepted accounting principles.
2.02 Representations and Warranties of Purchaser. Purchaser represents
and warrants to the Company and to IOMED as follows:
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York.
(b) Purchaser has full corporate power and authority to enter
into this Agreement and each of the Transaction Documents to which it is a party
and to carry out the transactions contemplated hereby and thereby. All corporate
action on the part of Purchaser required to authorize the execution, delivery
and performance of this Agreement and each of the Transaction Documents to which
it is a party and the consummation of the transactions contemplated hereby and
thereby, has been taken. This Agreement and each of the Transaction Documents to
which it is a party has been duly and validly authorized, executed and delivered
by Purchaser, and each constitutes a valid and binding obligation of Purchaser
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equitable principles.
(c) The execution, delivery and performance by Purchaser of
this Agreement and each of the Transaction Documents to which it is a party do
not and will not (i) violate or breach the articles of incorporation or bylaws
of Purchaser, (ii) violate or conflict with any applicable law, (iii) violate,
breach, cause a default under or otherwise give rise to a right of termination,
cancellation or acceleration with respect to (presently, with the giving of
notice or the passage of time) any material agreement, contract or instrument to
which Purchaser is a party or by which any of its assets is bound, or (iv)
result in the creation or imposition of any lien, pledge, mortgage, claim,
charge or encumbrance upon any assets of Purchaser.
(d) No consent, authorization, license, permit, registration
or approval of, or exemption or other action by, any governmental authority or
other person is required in connection. with Purchaser's execution and delivery
of this Agreement. or any Transaction Document to which it is a party or with
the performance by Purchaser of its obligations hereunder or thereunder, except
in each case for any consent, authorization, license, permit, registration or
approval as have been obtained and remain in full force and effect.
(e) Purchaser is acquiring the Shares for investment for its
own account and not with a view to, or for resale in connection with, any public
distribution, and understands that neither the Shares nor the shares of Common
Stock issuable upon conversion thereof have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein.
ARTICLE III
DISCLAIMER OF IMPLIED WARRANTIES, REPRESENTATIONS
AND COVENANTS: SURVIVAL
3.01 Disclaimer. In entering into this Agreement, Purchaser, the
Company and IOMED have relied solely upon the representations and warranties set
forth in this Agreement and the Schedules hereto and the information referred to
herein as having been supplied by one to the other, and there are no
representations, warranties, covenants or agreements, express or implied, made
by any party to any other party in connection with the transactions contemplated
hereby other than as set forth in this Agreement and/or such Schedules.
3.02 Survival. The representations and warranties of the Company and
IOMED set forth in Sections 2.01(g), (h) and (i) shall survive the consummation
of the transaction contemplated herein and any examination or investigation of
the parties for a period of two years after the Closing Date. All other
representations and warranties of the parties set forth in this Agreement shall
survive the consummation of the transactions contemplated herein, and any
examination or investigation of the parties, indefinitely, without limitation as
to the duration thereof.
ARTICLE IV
INDEMNIFICATION
4.01 Indemnification by the Company and IOMED. Subject to the
provisions of this Article IV, the Company and IOMED shall jointly and severally
indemnify, defend and hold harmless Purchaser from and against any and all loss,
claim, liability, damage, cost and expense (including reasonable attorneys' fees
and expenses) (hereinafter referred to as a "Loss") asserted against, resulting
to, imposed upon or incurred or suffered by Purchaser or any assignee or
successor of Purchaser as a result of or arising out of any of the following:
(a) Any breach of any of the representations or warranties of
the Company or IOMED set forth in this Agreement or in any Schedule to this
Agreement; or
(b) Any breach or nonfulfillment by the Company or IOMED of
any of the covenants or agreements of the Company or IOMED contained in this
Agreement.
4.02 Indemnification by Purchaser. Subject to the provisions of this
Article IV, Purchaser shall indemnify, defend and hold harmless the Company and
IOMED from and against any and all Loss asserted against, resulting to, imposed
upon or incurred or suffered by the Company or any of its successors or assigns
as a result of or arising out of any of the following:
(a) Any breach of any of the representations or warranties of
Purchaser set forth in this Agreement or in any Schedule to this Agreement; or
(b) Any breach or nonfulfillment by Purchaser of any of the
covenants or agreements of Purchaser contained in this Agreement.
4.03 Procedure for Indemnification.
(a) Demands, Etc. Each indemnified party hereunder agrees that
upon its obtaining knowledge of facts indicating that there may be a basis for a
claim for indemnity under the provisions of this Agreement, including receipt by
it of notice of any demand, assertion, claim, action or proceeding, judicial or
otherwise, by any third party (such third party actions being collectively
referred to hereinafter as the "Claim"), with respect to any matter as to which
it may be entitled to indemnity under the provisions of this Agreement, it will
give notice thereof in writing to the indemnifying party within a reasonable
time after obtaining such knowledge, together with a statement of such
information respecting any of the foregoing as it shall then have. The
indemnifying party shall be obligated to indemnify the indemnified party
notwithstanding failure to give such notice in a timely manner, except if and to
the extent that the indemnifying party is materially prejudiced by any delay in
delivering, or non-delivery of, such notice.
(b) Right to Contest and Defend. The indemnifying party is
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, however,
that notice of the intention so to contest shall be delivered by the
indemnifying party to the indemnified party within thirty (30) days after the
indemnifying party becomes aware of such Claim (or within such shorter period of
time as may be necessary to avoid prejudice to the rights of the indemnified
party hereunder). Any such contest may be conducted in the name and on behalf of
the indemnifying party or the indemnified party, as may be appropriate. Such
contest shall be conducted by attorneys employed by the indemnifying party, but
the indemnified party shall have the right to participate in such proceedings
and to be represented by attorneys of its own choosing at its cost and expense.
If the indemnified party joins in any such contest, the indemnifying party shall
have full authority to determine all action to be taken with respect thereto. If
after such opportunity, the indemnifying party does not elect to contest any
such Claim, the indemnifying party shall be bound by the result obtained with
respect thereto by the indemnified party and the indemnified party shall be
entitled to abandon the contesting of the Claim or to settle or compromise the
Claim, and the indemnifying party shall be bound by all actions of the
indemnified party with respect to such Claim. At any time after the commencement
of defense of any Claim by the indemnifying party, the indemnifying party may
notify the indemnified party in writing of the abandonment of such contest or of
the payment or compromise by the indemnifying party of the asserted Claim,
whereupon such action shall be taken; provided, however, that the sole relief
provided is monetary damages that are paid in full by the indemnifying party;
provided, further, that the indemnified party may determine that the contest
should be continued, and shall so notify the indemnifying party in writing
within 15 days of such notice from the indemnifying party. In the event that the
indemnified party determines that the contest should be continued (and provided
the timing of notice condition has been met and the sole relief provided is
monetary damages that are paid in full by the indemnifying party), the
indemnifying party shall be liable hereunder only to the extent of the lesser of
(i) the amount which the other party to the contested Claim had agreed to accept
in payment or compromise as of the time the indemnifying party made its request
therefor to the indemnified party, or (ii) such amount for which the
indemnifying party may be liable with respect to such Claim by reason of the
provisions hereof. Notwithstanding the foregoing, if the indemnified party
determines in, good faith that there is a reasonable probability that an action
regarding a Claim either (i) may materially and adversely affect it or its
Affiliates other than as a result of monetary damages, or (ii) will
substantially impair its ability to continue to conduct its business or the
business of the Company as previously conducted, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise or settle such action, but the indemnifying party shall not be bound
by any determination of an action so defended or any compromise or settlement
thereof effected without its consent (which shall not be unreasonably withheld
or delayed). All of the foregoing is subject to the rights of any indemnified
party's insurance carrier which is defending any such above proceedings.
(c) Cooperation. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim which the indemnifying party elects to contest
or, if appropriate and not inconsistent with the reasonable commercial interests
of the indemnified party, in making any counterclaim against the person
asserting the Claim, or any cross-complaint against any person and further
agrees to take such other action as reasonably may be requested by an
indemnifying party to reduce or eliminate any loss or expense for which the
indemnifying party would have responsibility, but the indemnifying party will
reimburse the indemnified party for any expenses incurred by it in so
cooperating or acting at the request of the indemnifying party.
(d) Payment of Losses. The indemnifying party shall pay to the
indemnified party in cash the amount of any Losses to which the indemnified
party may become entitled by reason of the provisions of this Agreement, such
payment to be made within fifteen (15) days after any such amount of Losses is
finally determined either by mutual agreement of the parties hereto or pursuant
to the judgment of a court of competent jurisdiction. Any claim for which
indemnification occurs hereunder shall be, to the extent appropriate, assigned
to the indemnifying party.
ARTICLE V
MISCELLANEOUS
5.01 Publicity. Except after consultation with the other parties, no
party shall publicize, advertise, announce or describe to any Governmental
Authority or other Person, the terms of this Agreement, the parties hereto or
the transactions contemplated hereby, except as required by Applicable Law or as
required pursuant to this Agreement.
5.02 Assignment. This Agreement shall inure to the benefit of, and
shall be binding upon, the parties and their respective successors and permitted
assigns. No party may assign or delegate this Agreement or any of its rights or
duties under this Agreement (including, without limitation, by operation of law)
without the prior written consent of the other parties, except (i) to an
Affiliate of such party who expressly assumes the obligations of the assigning
party hereunder and (ii) in the case of Ciba, to a successor to Ciba's
Pharmaceuticals Division, whether by merger, consolidation, stock sale, asset
sale or otherwise.
5.03 Amendment. This Agreement may be amended, modified or supplemented
only by a written instrument specifically referring to this Agreement that is
signed and delivered by duly authorized officers of each party.
5.04 Waiver. The failure of any party to enforce at any time any
provision of this Agreement shall not be construed to be a waiver of any such
provision and will not effect the validity of this Agreement or any part hereof
or the right of such party to enforce any such provision. No waiver of any
breach hereof will be construed to be a waiver of any other breach.
5.05 Notices. All notices and communications required or authorized to be given
hereunder shall be in writing and shall be deemed to have been duly given (a)
when delivered by messenger, (b) upon actual receipt if sent by telecopy (with
receipt confirmed), provided that a copy is mailed by registered or certified
mail, postage prepaid, return receipt requested, or (c) when received by the
addressee, if sent by overnight courier, in each case to the appropriate address
or telecopier:
If to IOMED or the Company:
IOMED, Inc.
3385 West 1820 South
Salt Lake City, Utah 84104
Attn: Chief Executive Officer
Tel: (801) 975-1191
Fax: (801) 972-9072
with a copy to:
Morrison & Foerster LLP
345 California Street
San Francisco, California
Attn: C. Patrick Machado, Esq.
Tel: (415) 677-7589
Fax: (415) 677-7522
If to Purchaser:
Ciba-Geigy Corporation
Pharmaceuticals Division
556 Morris Avenue
Summit, New Jersey 07901
Attn: President
Tel: (908) 277-5200
Fax: (908) 277-7627
with a copy to:
Ciba-Geigy Corporation
Pharmaceuticals Division
556 Morris Avenue
Summit, New Jersey 07901
Attn: Division Counsel
Tel: (908) 277-5616
Fax: (908) 277-5753
or to such other person or address as any party may designate in writing from
time to time.
5.06 Disclaimer of Agency. This Agreement shall not be construed to
constitute the parties as partners, joint venturers, agents or otherwise as
participants in a joint or common undertaking. No party (or its agents and
employees) is the representative of the other party for any purpose and no party
has power or authority as agent, legal representative, employee or in any other
capacity to represent, act for, bind, or otherwise create or assume any
obligation on behalf of, any other party for any other purpose whatsoever.
5.07 Further Assurances. The parties shall each perform such acts,
execute and deliver such instruments and documents, and do all such other things
as may be reasonably necessary to accomplish the transaction's contemplated in
this Agreement.
5.08 Expenses. The parties shall each bear their own costs and expenses
(including attorneys' fees) incurred in connection with the negotiation and
preparation of this Agreement and, except as otherwise provided herein,
consummation of the transactions contemplated hereby.
5.09 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of New York, without giving effect to the conflicts
of laws provisions thereof.
5.10 Entire Agreement. This Agreement, including the exhibits and
schedules hereto, each of which is incorporated herein by this reference,
contains the entire agreement and understanding of the parties, and supersedes
any prior understandings and agreements, with respect to its subject matter,
including the Interim Agreement.
5.11 Severability. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other Persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth herein. In such event, the
parties shall negotiate, in good faith, a substitute, valid and enforceable
provision or agreement which most nearly effects the parties' intent in entering
into this Agreement.
5.12 Broker's Fees. Each of the parties represents and warrants that it
has not dealt with any broker or finder in connection with any of the
transactions contemplated by this Agreement, and, to its knowledge, no broker or
other Person is entitled to any commission or finder's fee in connection with
any of these transactions. Each of the parties shall be responsible for, and
shall indemnify and hold the other parties harmless against, the fees of its
investment bankers and other advisors, if any.
5.13 Article and Section Headings. The article and section headings
included in this Agreement are for convenience of the parties only and shall not
affect the construction or interpretation of this Agreement.
5.14 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall contribute an original instrument but all of
which, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
IOMED, INC., a Utah corporation
By: /s/ Ned M. Weinsheaker
Ned M. Weinsheaker
President and Chief Executive Officer
CIBA-GEIGY CORPORATION,
a New York corporation, acting through
its Pharmaceuticals Division
By: /s/ James M. Callahan
Its:
DERMION, INC., a Delaware corporation
By: /s/ Robert J. Lollini
Its: Secretary
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement ("Agreement") is made as of March 29,
1996, by and among Dermion, Inc., a Delaware corporation (the "Company"),
Ciba-Geigy Corporation, a New York corporation ("Ciba"), acting through its
Pharmaceuticals Division, and IOMED, Inc., a Utah corporation ("IOMED").
A. The Company and IOMED have entered into that certain Contribution
Agreement, dated of even date herewith (the "Contribution Agreement"), pursuant
to which IOMED has agreed to contribute certain assets to the Company in
exchange for Eight Hundred Thousand (800,000) newly issued shares (the "IOMED
Shares") of the Company's Common Stock, $.001 par value per share (the "Common
Stock").
B. The Company and Ciba have entered into a Stock Purchase Agreement,
dated of even date herewith (the "Stock Purchase Agreement"), pursuant to which
Ciba has agreed to purchase from the Company, and the Company has agreed to sell
to Ciba, Two Hundred Thousand (200,000) newly issued shares (the "Ciba Shares")
of Common Stock.
C. In consideration of the investment to be made by Ciba in the Company
pursuant to the Stock Purchase Agreement, the Company desires to grant certain
rights to Ciba, and IOMED desires to agree to certain provisions, in each case
on the terms and subject to the conditions set forth herein.
Accordingly, in consideration of the covenants set forth herein and in
the Contribution Agreement and the Stock Purchase Agreement and as an inducement
for the purchase of the Ciba Shares by Ciba, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the
meanings set forth below.
Act. The term "Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
Affiliate. The term "Affiliate" shall mean, with respect to any party
hereto, any person or entity which controls, is controlled by, or is under
common control with, such party, or any shareholder or other equity owner in a
control relationship with any of the foregoing. For this purpose the term
"control" shall mean the direct or indirect beneficial ownership of more than
fifty percent (50%) of the voting stock or interest in the income of such person
or entity, or such other relationship as, in fact, constitutes actual control.
Affiliate Transfer. The term "Affiliate Transfer" means any Transfer to
(i) the ancestors, descendants or spouse of the transferor, (ii) to a trust for
the benefit of either the transferor or any of the persons referred to in clause
(i) above, (iii) to the partners, shareholders or other holders of any equity
interest in the transferor, or (iv) to any Affiliate of the transferor.
Change of Control. The term "Change of Control" means any transaction or
series of related transactions, other than a registered public offering, as a
result of which the owners of the outstanding Voting Stock immediately prior to
such transaction or series of related transactions cease to own a majority of
the outstanding Voting Stock thereafter.
Ciba Percentage. The "Ciba Percentage" shall initially be twenty five
percent (25%); provided, however, that such percentage shall be subject to
reduction from time to time in the event that Ciba and its Affiliates cease to
own in the aggregate at least Two Hundred Thousand (200,000) shares (the
"Initial Share Number") of Eligible Securities (adjusted for stock splits,
combinations and the like). At any such time or times, the Ciba Percentage shall
be reduced by the percentage by which the number of shares of Eligible
Securities then owned by Ciba and its Affiliates in the aggregate is less than
the Initial Share Number. Any downward adjustment made to the Ciba Percentage
pursuant to the previous sentence shall be reversed in a like manner if, when
and to the extent that Ciba or its Affiliates subsequently acquire additional
shares of Eligible Securities; provided, however, that the Ciba Percentage shall
in no event exceed twenty five percent (25%).
Common Stock. The term "Common Stock" means the common stock, $.001 par
value per share, of the Company.
Eligible Securities. The term "Eligible Securities" means (i) the Ciba
Shares, and (B) any Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Ciba Shares.
Exchange Act. The term "Exchange Act" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Form S-3. The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
Holder. The term "Holder" means Ciba and any other person or entity
that acquires any Registrable Securities in compliance with Sections 3. 1 0 and
6.1 hereof
Initial Public Offering. The term "Initial Public Offering" means the
first registered underwritten public offering of the Company's Common Stock that
generates aggregate proceeds to the Company (net of underwriting discounts and
commissions but prior to other offering expenses payable by the Company) of at
least $ 1 0,000,000 at a price per share of at least $ 1.00 (adjusted to reflect
subsequent stock dividends, stock splits and the like).
Initiating Holders. The term "Initiating Holders" means any Holder or
Holders of not less than the lesser of (i) One Hundred Thousand (100,000) shares
of Registrable Securities (as adjusted for stock splits, combinations and the
like) and (ii) seventy-five percent (75%) of all shares of Registrable
Securities then held by the Holders.
Prohibited Transfer. The term "Prohibited Transfer" means any Transfer
other than (i) to the partners, shareholders of other holders of any equity
interest in the transferor, or (ii) pursuant to an effective registration
statement under the Act.
Registrable Securities. The term "Registrable Securities" means (i) the
Ciba Shares, (ii) any Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Ciba Shares, and (iii) any Common Stock, and any Common Stock issuable upon
the conversion, exercise or exchange of any warrant, right or other security,
acquired by Ciba pursuant to its preemptive rights under Section 4.4 hereof-,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which its rights under Article III of this Agreement are not
assigned; provided, however, that such shares of Common Stock shall only be
treated as Registrable Securities if and so long as they have not been sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction or pursuant to Rule 144 under the Act.
Sale of Control. The term "Sale of Control" means any of the following
events: (i) any transaction or series of related transactions, other than a
registered public offering, as a result of which persons owning the outstanding
Voting Stock of the Company immediately prior to such transaction or series of
related transactions cease to own a majority of the outstanding Voting Stock of
the Company thereafter; (ii) the consolidation or merger of the Company with or
into another person, whether or not the Company is the surviving entity of such
transaction, unless immediately after such consolidation or merger persons
owning (directly or indirectly) the outstanding Voting Stock of the Company
prior to the transaction own a majority of the outstanding Voting Stock of such
new or surviving entity, or (iii) the sale, assignment or other transfer of all
or substantially all of the business or assets of the Company to a third party
in a single transaction or series of related transactions. Notwithstanding the
foregoing, an Affiliate Transfer shall in no event constitute a Sale of Control.
Sale of Control Premium. The term "Sale of Control Premium" means (i)
if the Acquisition Consideration is Seven Million Dollars ($7,000,000) or less,
zero, (ii) if the Acquisition Consideration is more than Seven Million Dollars
($7,000,000) and less than Ten Million Dollars ($10,000,000), the product of (x)
.4167 multiplied by (y) the amount by which the Acquisition Consideration
exceeds Seven Million Dollars ($7,000,000), and (iii) if the Acquisition
Consideration is Ten Million Dollars ($10,000,000) or more, One Million Two
Hundred Fifty Thousand Dollars ($1,250,000).
SEC. The term "SEC" means the Securities and Exchange Commission or any
successor agency thereto.
Securities. The term "Securities" means any shares of, or securities
convertible into or exercisable or exchangeable for any shares of, any class of
capital stock of the Company, excluding (i) up to Eighty Eight Thousand Eight
Hundred Eighty Eight (88,888) shares of Common Stock (or options issued
therefor) to employees, consultants and independent contractors of the Company
in connection with their employment by or performance of services for the
Company, and (ii) any securities issued in connection with a bona fide business
acquisition by the Company, whether by merger, consolidation, purchase of
assets, exchange of stock or otherwise.
Transfer. The term "Transfer" means (i) the making of any sale,
exchange, assignment, conveyance, gift or other disposition (whether voluntary
or involuntary), (ii) the granting of any lien, security interest, pledge or
other encumbrance, or (iii) the entering into any agreement to do any of the
foregoing.
Voting Stock. The term "Voting Stock" means any issued and outstanding
shares of capital stock or other securities of the Company at any given time,
which entitle the holders thereof to vote generally in the election of
directors.
ARTICLE 11
BOARD REPRESENTATION
Section 2.1 Size of Board. The Company agrees to maintain the size of
its board of directors at no more than five persons. IOMED agrees to vote all
shares of Voting Stock owned by it at the time of such vote (a) in favor of any
proposal to fix the size of the Company's board of directors at no more than
five persons and (b) against any proposal to fix the size of the Company's board
of directors at more than five persons.
Section 2.2 Right to Appoint Director. Ciba shall have the right,
exercisable by it at its option, to nominate one (1) person for election to the
Company's board of directors; provided that such person shall be reasonably
acceptable to the Company (the "Ciba Nominee"). Ciba may replace the Ciba
Nominee at any time and from time to time in its discretion, provided that each
replacement is reasonably acceptable to the Company.
Section 2.3 Voting Agreement; Cooperation of Company. In the event Ciba
exercises its right to nominate a Ciba Nominee, IOMED agrees to vote all shares
of Voting Stock owned by it at the time of such vote to nominate, elect and
maintain in office the Ciba Nominee, and the Company agrees promptly to take all
corporate actions required to enable IOMED to fulfill such obligation.
Section 2.4 Certain Restrictions on Participation. Notwithstanding
anything to the contrary contained herein, the Ciba Nominee shall not be
entitled to attend any meeting, vote on or consent to any matter or receive any
material distributed to the directors of the Company if and to the extent that
any subject or document (a) to be reviewed, discussed or voted upon at any such
meeting, (b) to be consented to without a meeting, or (c) contained in any such
distributed material is, in the good faith determination of the members of the
Company's board of directors other than the Ciba Nominee, one that should not be
disclosed to Ciba because of confidentiality or competitive concerns of either
the Company or any person with whom the Company has engaged, or proposes to
engage, in a business relationship.
Section 2.5 Termination. The rights granted to Ciba in this Article II
shall terminate upon the earlier to occur of (a) the closing of the first public
offering of the Company's securities pursuant to a registration statement
declared effective under the Act, or (b) such time as Ciba and its Affiliates
cease to own an aggregate of One Hundred Thousand (100,000) shares of
Registrable Securities (as adjusted for stock splits, combinations and the
like).
Section 2.6 No Assignment. The rights of Ciba under this Article II ma
not be assigned to, or exercised by, any other person or entity, other than a
successor to Ciba's Pharmaceutical Division, whether by merger, consolidation,
stock sale, asset sale or otherwise.
Section 2.7 Legends.
(a) Until the termination of the rights granted to Ciba in
this Article II, each certificate representing shares of Common Stock now owned
or hereafter acquired by IOMED shall bear a legend in substantially the,
following forms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS' AGREEMEENT, DATED MARCH 29, 1996, PURSUANT TO WHICH THE
HOLDER HEREOF HAS AGREED TO VOTE THESE SECURITIES IN THE MANNER SET
FORTH THEREIN. A COPY OF THE STOCKHOLDERS' AGREEMEENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMEPANY.
The Company shall reissue promptly certificates without such legend upon
expiration of the rights granted to Ciba in this Article II.
(b) Until the termination of the restrictions imposed on IOMED
pursuant to Section 4.3(a) hereof, each certificate representing shares of
Common Stock now owned or hereafter acquired by IOMED shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS' AGREEMIENT, DATED MARCH 29, 1996, PURSUANT TO WHICH THE
HOLDER HEREOF IS SUBJECT TO CERTAIN RESTRICTIONS ON ITS ABILITY TO
TRANSFER THESE SECURITIES. A COPY OF THE STOCKHOLDERS' AGREEMEENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.
The Company shall reissue promptly certificates without such legend upon
expiration of the restrictions imposed on IOMED pursuant to Section 4.3 (a)
hereof
(c) Until the termination of the restrictions imposed on IOMED
pursuant to Section 4.3(b) hereof, each certificate representing shares of
Common Stock now owned or hereafter acquired by IOMED shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS' AGREEMEENT, DATED MARCH 29, 1996, PURSUANT TO WHICH THE
HOLDER HEREOF IS SUBJECT TO A RIGHT OF FIRST OFFER IN CONNECTION WITH
TRANSFERS OF THESE SECURITIES. A COPY OF THE STOCKHOLDERS' AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMEPANY.
The Company shall reissue promptly certificates without such legend upon
expiration of the restrictions imposed on IOMED pursuant to Section 4.3(b) or
the last sentence of Section 6.1 hereof.
ARTICLE III
REGISTRATION RIGHTS
Section 3.1 Requested Registration.
(a) In case the Company shall receive from Initiating Holders,
at any time after one hundred eighty (180) days following the first registered
public offering of the Company's Common Stock, regardless of whether such
offering is the Initial Public Offering, a written request that the Company
effect any registration under the Act, qualification or compliance with respect
to all of the Registrable Securities then held by such Initiating Holders, or
any portion thereof the sale of which is reasonably expected to yield gross
proceeds to the Initiating Holders of at least $2,000,000, the Company will:
(i) give written notice of the proposed registration,
qualification or compliance to all other Holders within ten (10) days after
receipt thereof, and
(ii) use its diligent best efforts to effect, as soon
as practicable, all such registrations, qualifications and compliances as may be
so requested and as would permit or facilitate the sale and distribution of all
of the Registrable Securities held by such Initiating Holders, together with all
of the Registrable Securities of any Holder or Holders who joins in such request
in a written request received by the Company within thirty (30) days after such
written notice is given; provided, that the Company shall not be obligated to
take any action to effect any such registration, qualification, or compliance
pursuant to this Section 3.1:
(A) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of
process, to register as a dealer, or to cause any officer or employee of the
Company to register as a salesman in effecting such registration, qualification
or compliance;
(B) Within one hundred eighty (180) days
immediately following the effective date of any registration statement
pertaining to an underwritten public offering of securities of the Company for
its own account;
(C) After the Company has effected two (2)
such registrations pursuant to this Section 3.1;
(D) If the Company shall furnish to the
Initiating Holders a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to a material transaction then being pursued by
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 3.1 shall be deferred for a period not to
exceed one hundred eighty (180) days from the date of receipt of written request
from the Initiating Holders; provided, however, that the Company shall only be
entitled to such deferral one (1) time with respect to each registration
pursuant to this Section 3.1
(b) Subject to the foregoing, the Company will use its best
efforts to file a registration statement covering the Registrable Securities as
soon as practicable after receipt of the request or requests of the Initiating
Holders.
(c) The Initiating Holders shall include in their request made
pursuant to this Section 3.1 the name, if any, of the underwriter or
underwriters that such Initiating Holders would propose, with the consent of the
Company (which consent shall not be unreasonably withheld), to employ in
connection with the public offering proposed to be made pursuant to the
registration requested, and the Company shall include such information in the
written notice referred to in clause (i) of Section 3.1(a). The right of any
Holder to registration pursuant to this Section 3.1 shall be conditioned on such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting. The Company shall (together with all
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting in the manner set forth above.
Notwithstanding any other provision of this Section 3. 1, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise all Holders of Registrable Securities and the number of
shares of Registrable Securities that may be included in the registration and
underwriting, as determined by the underwriters, shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities requested to be registered by such Holders (or
in such other manner as the Holders requesting registration may elect in a
written notice to the Company signed by all such Holders). No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
Section 3.2 Form S-3 Registration.
(a) In case the Company shall receive from any Holder or
Holders a written request or requests that the Company effect a registration on
Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(ii) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 3.2: (i) if
the Company is not qualified as a registrant entitled to use Form S-3; (ii) if
the Holders propose to sell Registrable Securities at an aggregate sales price
to the public of less than $1,000,000; (iii) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance and in which
it has not already filed such a consent; (iv) if the Company has effected one
such registration pursuant to this Section 3.2 during the preceding twelve (12)
months; or (v) if the Company has effected a registration on Form SI within the
preceding one hundred eighty (180) days. Subject to the foregoing, the Company
shall file a registration statement covering the Registrable " Securities and
other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders.
(b) Registrations effected pursuant to this Section 3.2 shall
not be counted as a Request for Registration effected pursuant to Section 3.1
hereof.
Section 3.3 Company Registration.
(a) If at any time, or from time to time, the Company shall
determine to register any of its securities, either for its own account or f6r
the account of a security holder or holders, other than (i) a registration on
Form S-8 relating solely to employee benefit plans, or a registration on Form
S-4 relating solely to an SEC Rule 145 transaction, or a registration on any
other form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Securities, (ii) a registration pursuant to Sections 3.1 or 3.2
hereof, or (iii) the Initial Public Offering (provided that at least ninety
percent (90%) of the securities sold therein are sold for the account of the
Company and that any selling shareholders acquired their shares in their
capacity as employees of the Company or its Affiliates), the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration, and in any
underwriting involved therein, all the Registrable securities specified in any
written request or requests by any Holder or Holders received by the Company
within thirty (30) days after such written notice is given on the same terms and
conditions as the Common Stock, if any, otherwise being sold through the
underwriter in such registration.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to clause (i)
of Section 3.3(a). In such event the right of any Holder to registration
pursuant to this Section 3.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. The
Company and all Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement
in-customary form with the underwriter or underwriters selected for such
underwriting by the Company.
(c) Notwithstanding any other provision of this Section 3.3,
if the underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, and gives written notice
thereof to the Company or the Holders, the underwriter may limit the amount of
Registrable Securities to be included in the registration and underwriting. The
Company shall so advise all Holders of Registrable Securities which would
otherwise be registered and underwritten pursuant hereto, and the number of
shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all of the Holders, in proportion, as
nearly as practicable, to the amounts of Registrable Securities requested to be
registered by such Holder.- 'or in such ot4ier manner as the Holders requesting
registration may eject in a written notice to the Company signed by all such
Holders). No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
Section 3.4 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Article III, including without limitation, all registration, filing and
qualification fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one counsel
to the selling stockholders, accounting fees and expenses, and expenses of any
special audits incidental to or required by such registration, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
underwriters' discounts or commissions relating to Registrable Securities.
Section 3.5 Registration Procedures. If and whenever the Company is
required by the provisions of this Article III to use its best efforts to effect
the registration of any of the Registrable Securities under the Act, the Company
will, as expeditiously as possible:
(a) Prepare and file with the SEC a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
necessary to permit the successful marketing of such securities (but not
exceeding one hundred eighty (180) days) or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Act; and to
keep such registration statement effective for that period of time specified in
Section 3.5(a) hereof.
(c) Furnish to each Holder participating in the registration
such number of prospectuses and preliminary prospectuses in conformity with the
requirements of the Act, and such other documents as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities being sold by such Holder;
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(e) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(f) Furnish, at the request of' any Holder requesting
registration of Registrable Securities pursuant to this Article III, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Article III, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(g) Use its best efforts to register or qualify the
Registrable Securities covered by such registration statements under such other
securities or blue sky laws of such jurisdictions as each such selling Holder of
Registrable Securities shall reasonably request and do any and all other acts
and things which may be necessary or desirable to enable such Holder to
consummate the public sale or other disposition in such jurisdictions, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or file a general consent to service of
process in any such jurisdictions.
(h) Give the Holders requesting registration of Registrable
Securities pursuant to this Article III, their underwriters, if any, and their
respective counsel and accountants, the opportunity to participate in the
preparation of any registration statement, each prospectus included therein or
filed with the SEC, and each amendment thereof or supplement thereto, and will
give each of them such access to its books and records and such opportunities to
discuss the business, finances and accounts of the Company and its subsidiaries
with its officers, directors and the independent public accountants who have
certified its financial statements as shall be necessary, in the reasonable
judgment of such Holders' and such underwriters' respective counsel, to conduct
a reasonable investigation within the meaning of the Act.
(i) Provide a transfer agent and registrar for all Registrable
Securities covered by such registration not later than the effective date of the
registration statement with respect to such Registrable Securities.
(j) Use its best efforts to list all Registrable Securities
covered by the registration statement on any securities exchange on which any of
the Registrable Securities are then listed.
Section 3.6 Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Holder of Registrable Securities with respect to which a registration statement
has been filed under the Act pursuant to this Article III, each of such Holder's
partners, officers, directors, employees, agents and advisors, each underwriter
of any of the Registrable Securities included in such registration statement,
and each person, if any, who controls any such Holder or underwriter within the
meaning of the Act or the Exchange Act (hereinafter collectively referred to as
the "Holder Underwriters"), as follows:
(i) against any and all loss, liability, claim (joint
or several), damage and expense whatsoever arising out of any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement (or any amendment thereto), or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any final prospectus
(or any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
unless such untrue statement or omission or such alleged untrue statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by any Holder-Underwriter expressly for use in such
registration statement (or any amendment thereto) or such final prospectus (or
any amendment or supplement thereto);
(ii) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission or any such alleged
untrue statement or omission, if such settlement is effected with the written
consent of the Company; and
(iii) against any and all legal or other expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under clause (i) or
(ii) above, which expenses under this clause (iii) shall be paid by the Company
as incurred.
(b) The Company shall be notified in writing of any matter
potentially giving rise to a claim under this Section 3.6 within a reasonable
time after the assertion thereof, but failure to so notify the Company shall not
relieve the Company from any liability which it may have pursuant to this
indemnity agreement or otherwise, except if and to the extent that the Company
is materially prejudiced by such delay. In case of any such notice, the Company
shall be entitled to participate at its expense in the defense, or if it so
elects within a reasonable time after receipt of such notice, to assume the
defense of any suit brought to enforce any such claim (unless in the
Holder-Underwriter's reasonable judgment a conflict of interest between such
Holder-Underwriter and the Company may exist in respect of such claim); but if
it so elects to assume the defense, such defense shall be conducted by counsel
chosen by it and reasonably acceptable to the Holder-Underwriter or
Holder-Underwriters. In the event that the Company elects to assume the defense
of any such suit and retain such counsel, the Holder-Underwriter or
Holder-Underwriters shall have the right to retain separate counsel to
participate in such proceedings, but at the sole cost. and expense of the
Holder-Underwriters. No indemnifying party shall consent to entry of any
judgment or enter into any settlement of any pending or threatened proceeding in
respect of which an indemnified party is or could have been a party and
indemnity could have been sought under paragraph (a) of this Section 3.6 which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation without the consent of the indemnified party.
(c) Each Holder severally agrees that it will indemnify and
hold harmless the Company, each officer, director, employee, agent and advisor
of the Company, each person, if any, who controls the Company within the meaning
of the Act, each underwriter of Registrable Securities included in any
registration statement which has been filed under the Act pursuant to this
Article III, and each person, if any, who controls such underwriter within the
meaning of the Act, against any and all loss, liability, claim, damage and
expense described in clauses (a)(i) through (a)(iii), inclusive, of Section 3.6
above, up to the amount of the gross proceeds actually received from the
offering by such Holder, but only with respect to statements or omissions, or
alleged statements or omissions made in such registration statement (or any
amendment thereto) or final prospectus (or any amendment or supplement thereto)
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in such registration statement (or any
amendment thereto) or such final prospectus (or any amendment or supplement
thereto). In case any action shall be brought against the Company or any person
so indemnified pursuant to the provisions of this Section 3.6(c) and in respect
of which indemnity may be sought against any Holder, the Holders from whom
indemnity is sought shall have the rights and duties given to the Company, and
the Company and the other persons so indemnified shall have the rights and
duties given to the persons entitled to indemnification by the provisions of
Section 3.6(b) above.
Section 3.7 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, and the distribution proposed by
such Holder or Holders, as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Article III.
Section 3.8 Sale Without Registration. If at the time of any transfer
(other than a transfer not involving a change in beneficial ownership) of any
Registrable Securities, such Registrable Securities shall not be registered
under the Act, the Company may require, as a condition of allowing such
transfer, that the Holder or transferee furnish to the Company (a) such
information as is necessary in order to establish that such transfer may be made
without registration under the Act, and (b) (if the transfer is not made in
compliance with Rule 144) at the expense of the Holder or transferee, an opinion
of counsel reasonably satisfactory to the Company in form and substance to the
effect that such transfer may be made without registration under the Act.
Section 3.9 Rule 144 Reporting. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for an offering of its Common Stock to the general public; and
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act.
Section 3.10 Transfer of Registration Rights. The rights to cause the
Company to register securities granted by the Company under Sections 3.1, 3.2
and 3.3 hereof may be assigned in writing by any Holder of Registrable
Securities to a transferee or assignee of not less than Forty Thousand (40,000)
shares of the Registrable Securities (as appropriately adjusted from time to
time for stock splits and the like); provided, that such transfer may otherwise
be effected in accordance with the terms of this Agreement and applicable
securities laws; and provided further, that the Company is given written notice
by such holder of Registrable Securities at the time of or within a reasonable
time after said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being assigned.
Section 3.11 "Market Stand-off" Agreement.
(a) If requested by the underwriter in any registration
pursuant to Section 3.3, the Holders shall not sell or otherwise transfer or
dispose of any Registrable Securities held by them during the one hundred eighty
(180) day period following the effective date of a registration statement of the
Company filed under the Act; provided that (i) such agreement shall not apply to
any shares of Registrable Securities that are included in such public offering
in accordance with the terms hereof and (ii) all executive officers and
directors of the Company, and all persons who own more than ten percent (10%) of
the issued and outstanding shares of capital stock of the Company, enter into
similar agreements. The Company may impose stop transfer instructions with
respect to the Registrable Securities subject to the foregoing restriction until
the end of said one hundred eighty (180) day period.
(b) If requested by an underwriter in any registration
pursuant to Section 3.1 or 3.2, the Company shall not sell or otherwise transfer
or dispose of any shares of the Company's capital stock during the one hundred
eighty (180) day period following the effective date of a registration statement
of the Company filed under the Act, except for sales by the Company (i) pursuant
to registrations on Form S-4 or S-8 (or any successor or similar forms thereto),
or (ii) in connection with a bona fide acquisition or strategic alliance
transaction.
Section 3.12 Additional Registration Rights. The Company has not
previously entered into any agreement granting any registration rights to any
person or entity. If on or after the date of this Agreement the Company enters
into any agreement with respect to its securities which grants more favorable
registration rights to any person or entity than those granted to the Holders
pursuant to this Agreement, this Agreement shall be deemed to be amended, as of
the date of any such agreement, to grant such more favorable registration rights
to the Holders.
ARTICLE IV
COVENANTS
Section 4.1 Transactions with Affiliates. Prior to the occurrence of an
Initial Public Offering, the Company shall not (and shall not permit any of its
subsidiaries to), without the consent of Ciba, enter into or perform any
transaction, including without limitation, the purchase, leasing, sale or
exchange of property or assets or the hiring or rendering of any service (a
"Transaction"), with any affiliate of the Company (including IOMED and
directors, officers or employees of the Company or IONLED), except at prices and
on terms not less favorable to the Company or such subsidiary than that which
would have been obtained in an arms-length transaction with a non-affiliated
party.
Section 4.2 Financial Statements. So long as Ciba holds at least five
percent (5%) of the outstanding shares of the Company's capital stock and the
Company is not otherwise publicly reporting, the Company will deliver to Ciba
the following financial statements. As soon as available and in any event within
forty five (45) days after the end of each fiscal quarter (other than the fiscal
quarter ending on the fiscal year end), the Company will deliver an unaudited
consolidated balance sheet of the Company and its subsidiaries as of the end of
such fiscal quarter and the related consolidated statements of income,
stockholders' equity and cash flows for such fiscal quarter and for the period
from the beginning of the then current fiscal year to the end of such fiscal
quarter, setting forth in each case in comparative form the corresponding
figures for the corresponding periods of the previous fiscal year. As soon as
available and in any event within ninety (90) days after the end of each fiscal
year, the Company will deliver (a) the consolidated balance sheet of the Company
and its subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the previous fiscal year, and (b) a report thereon of independent
certified public accountants of recognized national standing selected by the
Company and stating that such consolidated financial statements fairly present
the consolidated financial position of the Company and its subsidiaries as of
the dates indicated and the results of their operations and their cash flows for
the periods indicated in accordance with generally accepted accounting
principles applied on a basis consistent with prior years (except as otherwise
disclosed in such financial statements) and that the examination by such
accountants has been made in accordance with Unites States generally accepted
auditing standards.
Section 4.3 Transfer Restrictions.
(a) Prohibition on Certain Transfers. For a period of two (2)
years from the date of this Agreement, IOMED shall not, without the prior
written consent of Ciba, make a Prohibited Transfer of any, shares of Common
Stock (or securities convertible into, exchangeable for or otherwise entitling
the holder thereof to receive shares of Common Stock) now owned or hereafter
acquired by it.
(b) Right of First Offer on Certain Transfers.
(i) Offer. Subject to Section 4.3(a), if at any time
IOMED proposes to enter into a Prohibited Transfer of any shares of Common Stock
(or securities convertible into, exchangeable for or otherwise entitling the
holder thereof to receive shares of Common Stock) now owned or hereafter
acquired by it, and the consequence of such Prohibited Transfer would be to
cause a Change of Control of the Company (any such Prohibited Transfer, a
"Transaction"), then it shall promptly forward to Ciba a written notice (the
"Offer Notice") offering to enter into a Transaction with Ciba and specifying
the purchase price (the "Proposed Purchase Price") and other terms and
conditions under which it would enter into such Transaction with Ciba (the offer
made in any such Offer Notice, the "Offer"). Ciba shall have sixty (60) days
after its receipt of an Offer Notice (the "Acceptance Period") to provide
written notice to IOMED of its acceptance of the Offer.
(ii) Response to Offer. If Ciba accepts the Offer, it
shall be obligated to consummate such Transaction at the price and other terms
specified in the Offer Notice within one hundred twenty (120) days after the
acceptance of the Offer, subject to negotiation of a definitive acquisition
agreement containing representations and warranties, covenants, conditions to
closing and such other terms and conditions customary for agreements of its
type. If Ciba rejects the Offer (or otherwise fails to forward an acceptance of
the Offer prior to the expiration of the Acceptance Period), IOMED shall, for a
period of two hundred seventy (270) days after expiration of the Acceptance
Period, have the right to consummate a Transaction of the type described in the
Offer Notice only at a price greater than ninety percent (90%) of the Proposed
Purchase Price and on such other terms and conditions more favorable to it than
those offered to Ciba (unless Ciba consents to such lower price or other terms
and conditions, which consent shall not be unreasonably withheld, it being
understood that Ciba's withholding of consent based on its desire to consummate
a Transaction at such lower price or other terms and conditions shall be deemed
reasonable), provided, however, that in the event that a Transaction has not
been consummated within such two hundred seventy (270) day period, then any
proposed future Transaction shall continue to be subject to this Section 4.3(b).
(iii) Survival. The offer rights of Ciba described in
this Section 4.3(b) shall survive for a period of twelve (12) months from the
effective date of termination of that certain Research and Development
Agreement, dated of even date herewith, by and between the Company, IOMED and
Ciba, and shall thereafter terminate automatically and cease to be of any
further force and effect.
Section 4.4 Preemptive Rights.
(a) At least ten (10) days prior to consummating any sale of
Securities (a "Sale"), the Company shall notify Ciba in writing of such pending
Sale (the "Sale Notice"). Each Sale Notice shall describe all of the material
terms of the Sale and of the Securities to be sold therein (including, without
limitation, the number of such Securities to be sold and the sale price). Ciba
shall have the right, exercisable for a period of ninety (90) days following its
receipt of each Sale Notice, to purchase from the Company, at the purchase price
set forth in such Sale Notice, up to a number of newly issued Securities of the
type to be sold in such Sale (which Securities shall be in addition to those
sold by the Company in such Sale) equal to the product of the Ciba Percentage
multiplied by the total number of such Securities proposed to be sold in such
Sale. Such right shall be exercised by delivering to the Company, within the
ninety (90) day period noted above, a written notice of exercise (an "Exercise
Notice"), which shall specify the number of Securities Ciba wishes to purchase
and the date on which Ciba wishes to consummate such purchase (the "Closing
Date"), which shall be no later than ten (10) business days after the later of
(i) the date of the consummation of the, Sale and (ii) the date of the Exercise
Notice.
(b) The preemptive right granted in this Section 4.4 shall
terminate upon the consummation of, and shall not be valid with respect to, the
Initial Public Offering.
(c) The closing of a purchase of Securities by Ciba pursuant
to this Section 4.4 shall take place at the principal office of the Company on
the Closing Date (or at such other time and place. as the Company and Ciba shall
agree upon). At such closing the Company shall issue and deliver the applicable
Securities and Ciba shall deliver a certified check to the Company for the
applicable purchase price. The parties shall also execute and deliver customary
closing documents, including, without limitation, investment representations.
(d) The rights of Ciba under this Section 4.4 may not be
assigned to, or exercised by, any other person or entity, other than a successor
to Ciba's Pharmaceutical Division, whether by merger, consolidation, stock sale,
asset sale or otherwise.
Section 4.5 Payment upon First Sale of Control. No later than thirty
(30) days after consummation of the first Sale of Control of the Company
occurring after March 29, 1996 in which the consideration paid by the acquiring
party or parties (the "Acquisition Consideration") is more than Seven Million
Dollars ($7,000,000) (the "First Sale of Control"), the Company shall pay to the
holders of the Ciba Shares, on a pro-rata basis, cash in an aggregate amount
equal to the product of (x) the Sale of Control Premium, multiplied by (y) the
percentage of the Ciba Shares that remain outstanding immediately prior to the
closing of the First Sale of Control. Such payment shall be paid prior and in
preference to any dividend or distribution of the assets or surplus funds of the
Company to the holders of any other shares of stock of the Company by reason of
their ownership of such stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to Ciba and IOMED as follows:
(a) Corporate Authorization. The Company has full corporate
power and authority to execute and deliver this Agreement and to perform its
respective obligations hereunder. The execution, delivery and performance by the
Company of this Agreement has been duly and validly authorized, and no
additional corporate authorization or consent is required in connection with the
execution, delivery and performance by the Company of this Agreement.
(b) Consents and Approvals. No consent, approval, waiver or
authorization is required to be obtained by the Company from, and no notice or
filing is required to be given by the Company to, or to be made by the Company
with, any federal, state, local or other governmental authority or any other
person in connection with the execution, delivery and performance by the Company
of this Agreement.
(c) Non-Contravention. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby does not and will not (i) violate any provision
of the charter, bylaws or other organizational documents of the Company, (ii)
conflict with, or result in the breach of, or constitute a default under, or
result in the termination, cancellation or acceleration (whether after the
filing of notice or the lapse of time or both) of any right or obligation of the
Company under, or to a loss of any benefit to which the Company is entitled
under, any agreement, contract, lease, license, note, bond, indenture or other
written document of any type, or result in the creation of any encumbrance upon
any of the assets of the Company, or (iii) violate or result in a breach of or
constitute a default under any law, rule, regulation, judgment, injunction,
order, decree or other restriction of any court or governmental authority to
which the Company is subject.
(d) Binding Effect. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and legally binding obligation
of the Company, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors, rights and to general equity principles.
(e) Capitalization. The authorized capital stock of the
Company consists of Four Million (4,000,000) shares of Common Stock, $.001 par
value per share, Eight Hundred Thousand (800,000) of which are issued and
outstanding, and One Million (1,000,000) shares of Preferred Stock, $.001 par
value per share, none of which are issued and outstanding. Except as set forth
in this Agreement, the Company does not have outstanding any rights (preemptive
or other) or options to subscribe for or purchase, or any warrants or other
agreements providing for or requiring the issuance by the Company of, any
capital stock or securities convertible into or exchangeable for its capital
stock.
Section 5.2 Representations and Warranties of Ciba. Ciba hereby
represents and warrants to the Company and IOMED as follows:
(a) Corporate Authorization. Ciba has full corporate power and
authority to execute and deliver this Agreement and to perform its respective
obligations hereunder. The execution, delivery and performance by Ciba of this
Agreement has been duly and validly authorized, and no additional corporate
authorization or consent is required in connection with the execution, delivery
and performance by Ciba of this Agreement.
(b) Consents and Approvals. No consent, approval, waiver or
authorization is required to be obtained by Ciba from, and no notice or filing
is required to be given by Ciba to, or to be made by Ciba with, any federal,
state, local or other governmental authority or any other person in connection
with the execution, delivery and performance by Ciba of this Agreement.
(c) Non-Contravention. The execution, delivery and performance
by Ciba of this Agreement and the consummation by Ciba of the transactions
contemplated hereby does not and will not (i) violate any provision of the
charter, bylaws or other organizational documents of Ciba, (ii) conflict with,
or result in the breach of, or constitute a default under, or result in the
termination, cancellation or acceleration (whether after the filing of notice or
the lapse of time or both) of any right or obligation of Ciba under, or to a
loss of any benefit to which Ciba is entitled under, any agreement, contract
lease, license, note, bond, indenture or other written document of any type, or
result in the creation of any encumbrance upon any of the assets of Ciba, or
(iii) violate or result in a breach of or constitute a default under any law,
rule, regulation, judgment, injunction, order, decree or other restriction of
any court or governmental authority to which Ciba is subject.
(d) Binding Effect. This Agreement has been duly executed and
delivered by Ciba and constitutes a valid and legally binding obligation of
Ciba, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors, rights and to general equity principles.
Section 5.3 Representations and Warranties of IOMED. IOMED hereby
represents and warrants to the Company and Ciba as follows:
(a) Authorization. IOMED has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance by IOMED of this Agreement
has been duly and validly authorized, and no additional corporate authorization
or consent is required in connection with the execution, delivery and
performance by IOMED of this Agreement.
(b) Consents and Approvals. No consent, approval, waiver or
authorization is required to be obtained by IOMED from, and no notice or filing
is required to be given by IOMED to, or to be made by IOMED with, any federal,
state, local or other governmental authority or any other person in connection
with the execution, delivery and performance by IOMED of this Agreement.
(c) Non-Contravention. The execution, delivery and performance
by IOMED of this Agreement and the consummation by IOMED of the transactions
contemplated hereby does not and will not (i) violate any provision of the
articles of incorporation or bylaws of IOMED, (ii) conflict with, or result in
the breach of, or constitute a default under, or result in the termination,
cancellation or acceleration (whether after the filing of notice or the lapse of
time or both) of any right or obligation of IOMED under, or to a loss of any
benefit to which IOMED is entitled under, any agreement, contract, lease,
license, note, bond, indenture or other written document of any type, or result
in the creation of any encumbrance upon any of the assets of IOMED, or (iii)
violate or result in a breach of or constitute a default under any law, rule,
regulation, judgment, injunction, order, decree or other restriction of any
court or governmental authority to which IOMED is subject.
(d) Binding Effect. This Agreement has been duly executed and
delivered by IOMED and constitutes a valid and legally binding obligation of
IOMED, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors, rights and to general equity principles.
(e) Ownership of Shares. IOMED owns of record and beneficially
the IOMED Shares, free and clear of any judgment, lien, charge, claim, security
interest or other encumbrance of any kind whatsoever, other than as set forth on
Schedule 5.3(e).
ARTICLE VI
MISCELLANEOUS
Section 6.1 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes. Without limiting the generality of the foregoing,
the provisions of Article II and Section 4.3 hereof shall be binding upon any
persons who acquire shares of Common Stock from IOMED; provided, however, that
the provisions of Section 4.3(b) shall not be binding upon any shareholders of
IOMED who acquire shares of Common Stock from IOMED pursuant to the declaration
and payment by IOMED of a dividend payable in Common Stock.
Section 6.2 Amendment and Waiver. Any term hereof may be amended and
the observance of any term hereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with (a) the
written consent of the Company, Ciba and IOMED, with respect to the terms of
Article II hereof or any other provision of this Agreement as it pertains to
such Article II, and (b) the written consent of the Company and of the Holders
of a majority of the outstanding Registrable Securities, with respect to any
other terms or provisions of this Agreement. Any amendment or waiver of this
Agreement so effected shall be binding upon the Company, Ciba, IOMED and all
Holders of Registrable Securities.
Section 6.3 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
Section 6.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York as applied to contracts among
New York residents entered into and to be performed entirely within New York.
Section 6.5 Counterparts. 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.
Section 6.6 Notice. Any notice required under this Agreement shall be
given in writing and shall be deemed effectively given upon actual receipt if
delivered either personally (including by overnight express courier) or by
facsimile to the party to be notified or three (3) business days after deposit
with the United States Post Office by registered or certified mail, postage
prepaid (or with an equivalent independent postal service or courier) and
addressed to the party at the address last shown on the books of the Company for
such purpose or to such other address as may be designated by a party by ten
(10) days' advance notice to the Company.
Section 6.7 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
DERMION, INC., a Delaware corporation CIBA-GEIGY CORPORATION, a New
York corporation, acting through its
Pharmaceuticals Division
By: /s/ Robert J. Lollini By: /s/ James M. Callahan
Name: Robert J. Lollini Name: James M. Callahan
Title: Secretary Title:
IOMED, INC., a Utah corporation
By: /s/ Ned M. Weinshenker
Name: Ned M. Weinshenker
Title: President & CEO
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
March 8, 1993, is made by and between IOMED, Inc., a Utah corporation (the
"Company") and The CIT Group/Venture Capital, Inc., a New Jersey corporation
("CIT").
A. The Company desires to issue and sell to CIT, and CIT
desires to purchase from the Company, shares of the Company's common stock,
$.001 par value (the "Common Stock"), and rights to acquire additional shares of
the Common Stock, on the terms and subject to the conditions set forth in this
Agreement
Accordingly, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK AND COMMON STOCK RIGHTS
1.1 Common Stock. On the terms and subject to the conditions
set forth in this Agreement, at the Closing (as defined below) the Company
agrees to sell to CIT, and CIT agrees to purchase from the Company, the number
of shares of Common Stock set forth below CIT's name on the signature page of
this Agreement. At the Closing, title to such shares of Common Stock shall pass
to CIT, who, as record and beneficial owner, shall thereafter be entitled to all
rights with respect to its ownership of such shares.
1.2 Common Stock Rights.
(a) Each share of Common Stock purchased by CIT
hereunder shall be accompanied by a contingent right (a "Common Stock Right") to
receive from the Company on March 8. 1994, automatically, without any further
action being required on the part of CIT and without the payment of any
consideration in addition to the Purchase Price (as defined below), the
Applicable Number (as defined below) of newly issued shares of Common Stock, in
the event, but only in the event, that the closing of an initial public offering
of the Company's Common Stock that meets the conditions set forth in Section
1.2(b) below has not occurred prior to such date.
(b) Each Common Stock Right shall automatically
terminate and cease to be of any further force and effect, without any liability
on the part of the company or any of its officers or directors, upon the closing
of the initial public offering of the Company's Common Stock in which the
Company receives proceeds (net of any underwriting discounts and commissions but
prior to the deduction of any other offering expenses) in excess of $5,000,000
and in which the public offering price is not less than $2.00 per share (as
adjusted to reflect stock splits, combinations or the like).
(c) As used herein, "Applicable Number" shall be the
number of shares equal to the product of one Dollar ($1.00) divided by the
"Conversion Price." The "Conversion Price" shall initially be One Dollar
($1.00); provided, however, that in the event that, on or before March 8, 1994,
the Company shall issue shares of its Common Stock, options or warrants thereon,
or securities convertible into or exchangeable for its Common Stock, in a
transaction the primary purpose of which is to raise capital for a price per
share (the "Subsequent Issue Price") less than the Conversion Price in effect
immediately prior to such issuance, the Conversion Price shall be adjusted by
multiplying such conversion Price by a fraction (1) the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of shares so issued
would purchase at such Conversion Price, and (2) the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such shares of Common Stock so issued or sold.
(d) For purposes of determining a new Conversion
Price pursuant to Section 1.2(c) above, shares of Common Stock issuable upon the
exercise or conversion of outstanding securities of the Company which are, by
their terms, exercisable or convertible into Common Stock shall be taken into
account but only to the extent that (i) such securities have been exercised,
converted or exchanged or (ii) the consideration to be paid upon such exercise
or conversion per share of underlying Common Stock is less than (including zero)
or equal to the Conversion Price.
(e) No fractional shares shall be issuable upon
maturity of the Common Stock Rights held by CIT. In lieu thereof, the Company
shall round up to the nearest whole number of shares the aggregate number of
shares issuable upon maturity of the Common Stock Rights held by CIT.
(f) The number of shares of Common Stock issuable
upon maturity of the Common Stock Rights shall be equitably adjusted to account
for any stock splits, combinations or the like.
1.3 No Rights as Shareholder. The Common Stock Rights shall
not entitle CIT to any rights as a shareholder of the Company until such time,
if ever, that shares of Common Stock are issued to CIT pursuant to the maturity
of such Common Stock Rights.
1.4 Purchase Price. The purchase price for the Common Stock
and the accompanying Common Stock Rights being purchased hereunder shall be Two
Dollars ($2.00) per unit (the "Purchase Price"), each unit consisting of one
share of Common Stock and one Common Stock Right.
1.5 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the Company on
March 8, 1993, or on such later date as may be mutually agreed upon by the
parties. At the Closing, the Company shall deliver to CIT one or more
certificates evidencing the shares of Common Stock being purchased by it
hereunder against receipt from CIT of a check, made payable to the Company, in
an amount equal to the Purchase Price multiplied by the number of shares of
Common Stock and accompanying Common Stock Rights being purchased by it. In
addition, at the Closing (i) the Company shall deliver to CIT completed,
executed copies of SBA Form 480 and SBA Form 652; and (ii) CIT shall have
received an executed copy of a Redemption Rights Agreement in substantially the
form attached hereto as Exhibit A.
ARTICLE II
REPRESENTATIONS,_WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents, warrants and covenants to CIT
as follows:
2.1 Organization, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah and is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on the business or financial condition of the Company.
2.2 Authorization, etc. The Company has full corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Company, and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights and by general equitable principles.
2.3 Valid Issuance. The shares of Common Stock being purchased
by CIT hereunder, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, and the shares of Common Stock,
if any, that are issued upon the maturity of the Common Stock Rights, when
issued and delivered in accordance with the terms hereof, will be duly and
validly issued, fully paid and nonassessable and, based in part upon the
representations of CIT in this Agreement, will be issued in compliance with
applicable state and federal securities laws.
2.4 No Violation. Neither the execution and delivery of this
Agreement by the Company nor its performance and consummation of the
transactions contemplated hereby (including the issuance of the Common Stock
underlying the Common Stock Rights) will violate (a) any provision of the
Articles of Incorporation or the Bylaws of the Company, (b) any statute or law
or any judgment, decree, order, regulation or rule of any court or governmental
agency that is applicable to the Company, or (c) any material agreement to which
the Company is a party.
2.5 Capitalization. As of the date hereof, the authorized
capital stock of the Company consists solely of (i) 15,000,000 shares of Common
Stock, $.001 par value per share, and (ii) 4,215,618 shares of preferred stock,'
$.001 par value per share (the "Preferred stock"). Immediately following the
Closing, after giving effect to the transactions contemplated hereby (other than
the issuance of shares of Common Stock upon the maturity of the Common Stock
Rights), the issued and outstanding capital stock of the Company will consist
solely of 8,157,096 shares of Common Stock and 3,407,057 shares of Preferred
Stock. As of January 29, 1993, options to purchase 1,322,576 shares of Common
Stock, and a warrant to purchase 10,000 shares of Common Stock, were
outstanding. Except for (i) the options and warrants set forth above and (ii)
the Common Stock Rights issued hereunder and pursuant to the Stock Purchase
Agreement, dated as of February 19, 1993, by and between the Company and the
Investors named therein (the "Prior Agreement"), the Company does not have
outstanding any rights (either preemptive or other) or options to subscribe for
or purchase, or any warrants or other agreements providing for or requiring the
issuance by the Company of, any capital stock or securities convertible into or
exchangeable for its capital stock. Except for the Shareholder Agreement, dated
as of August 4, 1987, by and between the Company, Stephen C. Jacobsen, Stephen
H. Ober and the Investors named therein, a copy of which has previously been
provided to CIT, the Company is not a party to, or aware of, any stockholders'
agreement, voting trust, proxy or similar arrangement relating to the Company or
its capital stock.
2.6 Reports and Financial Statements.
(a) CIT heretofore has been furnished with complete
and correct copies of (i) the unaudited balance sheet of the Company as of
December 31, 1992 and the related income statements and statements of cash flows
for the six months then ended, and (ii) the audited balance sheets of the
Company as of June 30, 1992 and 1991 and the related income statements and
statements of cash flows for the fiscal years then ended.
(b) Each of the financial statements referred to in
(a) above was prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods, except that the
financial statements referred to in (a)(i) above are subject to year end audit
adjustments and do not include footnotes which might be required by such
accounting principles. Each of the balance sheets included in such financial
statements fairly presents the financial condition of the Company as of the
close of business on the date thereof, and each of the statements of income
included in such financial statements fairly presents the results of operations
of the Company for the fiscal period then ended.
2.7 Material Adverse Change. There has been no material
adverse change in the business, properties or financial condition of the Company
since December 31, 1992.
2.8 Other Documents. CIT heretofore has been furnished with
complete and correct copies of (i) the Articles of Incorporation and the Bylaws
of the Company, (ii) the Prior Agreement, and (iii) the Preferred Stock Purchase
Agreement, dated as of August 4, 1987, by and between the Company and the
Investors named therein.
2.9 Environmental Protection. The Company has obtained all
material permits, licenses and other authorizations that are required under
applicable federal, state and local laws including, without limitation,
regulations, codes, plans, orders, decrees, judgments, injunctions, notices or
demand letters issued, entered, promulgated or approved thereunder relating to
pollution control or hazardous substances (the "Environmental Laws"), including,
without limitation, emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic, or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water, land surface, or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, toxic, or hazardous substances or wastes. The Company
is in material compliance with all terms and conditions of such permits,
licenses and authorizations, and is in material compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws. There
is no pending or, to the best knowledge of the Company, threatened, civil or
criminal litigation, notice of violation or lien, or administrative proceeding
relating to Environmental Laws involving the Company. The Company has not, to
the best of its knowledge, transported hazardous substances or arranged for the
transportation of hazardous substances to any location which is the subject of
federal, state, provincial or local enforcement actions or other investigations
which could reasonably be expected to lead to materially adverse claims against
the Company for clean-up costs, remedial work, damages to natural resources or
personal injury.
2.10 Small Business Concern. The information provided by the
Company on SBA Forms 480 and 652 delivered in connection herewith is true and
correct as of the date of such forms.
2.11 Use of Proceeds. The proceeds from the sale of the Common
Stock issued hereby will be used solely for general corporate purposes in
connection with its primary business activity. No portion of the proceeds will
be used (i) to provide capital to a corporation licensed under the Small
Business Investment Act of 1958, as amended, or (ii) outside the United States
(except (x) to acquire abroad materials and industrial property rights for a
domestic operation or (y) for transfer to a controlled foreign subsidiary, so
long as at least 51% of the assets and activities of the Company will remain
within the United States). The Company's primary business activity does not
involve, directly or indirectly, providing funds to others, the purchase or
discounting of debt obligations, factoring or long-term leasing or equipment
with no provision for maintenance or repair, and the Company is not classified
under Major Group 65 (Real Estate) of the SIC Manual.
2.12 SBIC Compliance Information. Upon request, the Company
promptly (and in any event within 20 days of such request) will furnish to CIT
all information necessary in order to enable CIT to prepare and file SBA Form
684 and any other information requested or required by any governmental
authority asserting jurisdiction over CIT. The Company will at all times comply
with the nondiscrimination requirements of 13 C.F.R. Parts 112 and 113.
2.13 Conversion. Pursuant to a Conversion Agreement, dated as
of February 18, 1993, by and between the Company and the Investors named
therein, the promissory notes previously issued by the Company to such
Investors, in the aggregate principal amount of $750,000, have been converted
into shares of Common Stock.
2.14 Disclosure. No representation or warranty by the Company
contained in this Agreement, nor, to the best of the Company's knowledge, any
other written statement or certificate furnished to CIT pursuant hereto (when
read together and as supplemented in the second proviso below) contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading in light of
the circumstances under which they were made; provided, however, it is
understood that any projections or other forward-looking information contained
therein represent the Company's good faith estimate under the circumstances
based on assumptions which the Company believes are reasonable, and the Company
does not represent or warrant that such projections or future events will occur;
and provided further, that CIT acknowledges the disclosures made by IOMED with
respect to (i) the status of the onychomychosis project and (ii) the patent
issues with ALZA Corporation, and agrees that such disclosures shall constitute
supplements to the other written statements and certificates furnished to CIT
pursuant hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CIT
CIT hereby represents and warrants to the Company as follows:
3.1 It is experienced in evaluating and investing in emerging
companies such as the Company.
3.2 It is acquiring the Common Stock and the accompanying
Common Stock Rights being issued pursuant to this Agreement (collectively, the
"Securities"), for its own account and not with a view to, or for resale in
connection with, any distribution. It understands that the Securities have not
been registered under the Securities Act of 1933, as amended (the "Act"), by
reason of a specific exemption from the registration provisions of the Act which
depends upon, among other things, the bona fide nature of the investment intent
as expressed herein.
3.3 It acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or an exemption from
such registration is available. It is aware of the provisions of Rule 144
promulgated under the Act and the limitations on resales of securities imposed
thereby.
3.4 It understands that no public market now exists for any of
the securities issued by the Company and that there can be no assurances that-a
public market will ever exist for the Securities.
3.5 It has had an opportunity to discuss the Company's
business, management and financial affairs with its management and an
opportunity to review the Company's facilities. It understands that such
discussions were intended to describe the aspects of the Company's business and
prospects which the Company believes to be material but were not necessarily a
thorough or exhaustive description.
3.6 It is a sophisticated investor with such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of a prospective investment in the Securities and who is
capable of bearing the economic risks of such investment.
3.7 It, both by itself and through its agents, has been solely
responsible for its "due diligence" investigation of the Company and its
management and business, for the analysis of the merits and risks of this
investment and of the fairness and desirability of the terms of the investment;
provided, however, that the representations, warranties and covenants of the
Company herein are absolute regardless of any such investigation or analysis.
3.8 It has had the opportunity to be advised by legal counsel
of its own choice in connection with the purchase of the Securities and has
either been advised by such counsel or concluded that such advice is not
required. It acknowledges that Morrison & Foerster is acting sole y as counsel
for the Company in connection therewith.
3.9 It acknowledges that the Common Stock issued hereunder,
including the shares of Common Stock, if any, issued upon maturity of the Common
Stock Rights, shall be endorsed with the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE
AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC
EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER
COUNSEL ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS
CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW.
The Company need not register a transfer of any of the
Securities, unless the condition specified in the foregoing legend is satisfied.
The Company may also instruct its transfer agent not to register the transfer of
any of the Securities unless the condition specified in the foregoing legend is
satisfied.
3.10 It acknowledges that in no event will all or any portion
of the Common Stock Rights acquired by it hereunder be assignable separate from
the accompanying share(s) of Common Stock.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Definitions. As used in this Article IV:
(a) The term "Registrable Securities" means the
Common Stock issued hereunder and issuable upon maturity of the Common Stock
Rights issued hereunder, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Article IV are not assigned; provided, however, that such shares of Common Stock
shall only be treated as Registrable Securities if and so long as they have not
been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction.
(b) The term "Form S-311 means such form under the
Act as i-h effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "Holder" means CIT and any other person
or entity that acquires any Registrable Securities in compliance with Sections
3.9 and 4.6 hereof.
(d) The term "Initiating Holders" means any Holder or
Holders of not less than (i) 500,000 shares of Registrable Securities (as
adjusted for stock splits, combinations and the like), if measured prior to, the
maturity of the Common Stock Rights, or (ii) 1,000,000 shares of Registrable
Securities (as adjusted for stock splits, combinations and the like), if
measured after the maturity of the Common Stock Rights.
(e) The term "SEC" means the Securities and Exchange
commission or any successor agency thereto.
4.2 Requested Registration.
(a) In case the Company shall receive from Initiating
Holders, at any time after the earlier of (i) one hundred eighty (180) days
following the first registered public offering of Company's Common Stock,
regardless of whether such offering meets the threshold size and per share price
levels set forth in Section 1.2 above, and (ii) March 8, 1996, a written request
that the Company effect any registration, qualification or compliance with
respect to all of the Registrable Securities then held by such Initiating
Holders, or any portion thereof the sale of which is reasonably expected to
yield gross proceeds to the Initiating Holders of at least $500,000, the Company
will:
(i) give written notice of the proposed
registration, qualification or compliance to all other Holders within ten (10)
days after receipt thereof; and
(ii) use its diligent best efforts to
effect, as soon as practicable, all such registrations, qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all of the Registrable Securities held by such Initiating
Holders, together with all of the Registrable Securities of any Holder or
Holders who joins in such request in a written request received by the Company
within thirty (30) days after such written notice is given; provided, that the
Company shall not be obligated to take any action to effect any such
registration, qualification, or compliance pursuant to this Section 4.2:
(A) In any particular jurisdiction
in which the--Company would be required to execute a general consent to service
of process, to register as a dealer, or to cause any officer or employee of the
Company to register as a salesman in effecting such registration, qualification
or compliance;
(B) Within one hundred eighty (180)
days immediately following the effective date of any registration statement
pertaining to an underwritten public offering of securities of the Company for
its own account;
(C) After the Company has effected
one (1) such registration pursuant to this Section 4.2;
(D) If the Company shall furnish to
such Holders a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, then the Company's obligation to use
its best efforts to register, qualify or comply under this Section 4.2 shall be
deferred for a period not to exceed one hundred eighty (180) days from the date
of receipt of written request from the Initiating Holders; or
(E) If taking any such action could
result in a registration statement being declared effective within one hundred
twenty (120) days of the effective date of any registration statement filed
pursuant to Section 7.2 of that certain Preferred Stock Purchase Agreement,
dated as of August 4, 1987, by and between the Company, Motion Control, Inc. and
the investors named therein (the "Preferred Stock Purchase Agreement").
Subject to the foregoing, the Company will use its best
efforts to file a registration statement covering the Registrable Securities as
soon as practicable after receipt of the request or requests of the Initiating
Holders.
(b) The Initiating Holders shall include in their
request made pursuant to this Section 4.2 the name, if any, of the underwriter
or underwriters that such Initiating Holders would propose, with the consent of
the Company (which consent shall not be unreasonably withheld), to employ in
connection with the public offering proposed to be made pursuant to the
registration requested, and the Company shall include such information in the
written notice referred to in clause (i) of Section 4.2(a). The right of any
Holder to registration pursuant to this Section 4.2 shall be conditioned on such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting. The Company shall (together with all
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting in the manner set forth above.
Notwithstanding any other provision of this Section 4.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise all Holders of Registrable Securities and the number of
shares of Registrable Securities that may be included in the registration and
underwriting, as determined by the underwriters, shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration.
4.3 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within twenty (20) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 4.3: (i) if
the Company is not qualified as a registrant entitled to use Form S-3; (ii) if
the Holders propose to sell Registrable Securities at an aggregate sales price
to the public of less than $500,000; (iii) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance and in which
it has not already filed such a consent; (iv) if the Company has effected one
such registration pursuant to this Section 4.3 during the preceding twelve (12)
months; (v) if the Company has effected a registration on Form S-1 within the
preceding one hundred eighty (180) days, or (vi) if the date of such written
request occurs more than seven (7) years after the date hereof. Subject to the
foregoing, the Company shall file a registration statement covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 4.3 shall not
be counted as a Request for Registration effected pursuant to Section 4.2
hereof.
4.4 Company Registration.
(a) If at any time, or from time to time, prior to
the date seven (7) years after the date hereof, the Company shall determine to
register any of its securities, either for its own account or for the account of
a security holder or holders, other than (i) a registration on Form S-1 or S-8
relating solely to employee benefit plans, or a registration on Form S-4
relating solely to an SEC Rule 145 transaction, or a registration on any other
form which does not include substantially the same information as would be
required to be included in a registration statement covering he sale of
Registrable Securities, or (ii) a registration pursuant to Sections 4.2 or 4.3
hereof, the company will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration, and in any underwriting
involved therein, all the Registrable securities specified in any written
request or requests by any Holder or Holders received by the Company within
twenty (20) days after such written notice is given on the same terms and
conditions as the Common Stock, if any, otherwise being sold through the
underwriter in such registration.
(b) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to clause (i) of Section 4.4(a). In such event the right of any Holder
to registration pursuant to this Section 4.4 shall be conditioned upon such
Holder's participation in such underwriting--and the inclusion of such Holder's
Registrable securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
(c) Notwithstanding any other provision of this
section 4.4, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may limit
the amount of Registrable Securities to be included in the registration and
underwriting. The Company shall so advise all Holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all of the Holders, in
proportion, as nearly as practicable, to the amounts of Registrable Securities
held by such Holders at the time of filing the registration statement. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
(d) Notwithstanding any other provision of this
Section 4.4, no Holder shall be entitled to include any Registrable Securities
in a registration pursuant to this Section 4.4 if and to the extent that such
inclusion would reduce the number of shares of Registrable Securities entitled
to participate in such registration pursuant to Section 7.2, 7.3 or 7.4 of the
Preferred Stock Purchase Agreement. The Company shall so advise all Holders of
Registrable Securities which would otherwise be registered pursuant hereto but
for the foregoing sentence, and the number of shares of Registrable Securities
that may be included in the registration shall be allocated among all of the
Holders, in proportion, as nearly as practicable, to the amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement.
4.5 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Article IV, including without limitation, all registration, filing and
qualification fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, accounting fees and expenses, and expenses of any
special audits incidental to or required by such registration, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities,
or any fees for counsel to the selling shareholders.
4.6 Transfer of Registration Rights. The rights to cause the
Company to register securities granted by the Company under Sections 4.2, 4.3
and 4.4 hereof may be assigned in writing by any Holder of Registrable
Securities to a transferee or assignee of not less than fifty thousand (50,000)
shares of the Registrable Securities (as appropriately adjusted from time to
time for stock splits and the like); provided, that such transfer may otherwise
be effected in accordance with the terms of this Agreement and applicable
securities laws; and provided further, that the Company is given written notice
by such holder of Registrable Securities at the time of or within a reasonable
time after said transfer, stating the name and address of, said transferee or
assignee and identifying the securities with respect to which such registration
rights are being assigned.
4.7 "Market Stand-off" Agreement. The Holders hereby agree not
to sell or otherwise transfer or dispose of any Registrable Securities held by
them during the one hundred eighty (180) day period following the effective date
of a registration statement of the Company filed under the Act; provided that:
(a) such agreement shall only apply to the first such
registration statement of the Company including shares of Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) such agreement shall not apply to any shares of
Registrable Securities that are included in such public offering in accordance
with the terms hereof; and
(c) all executive officers and directors of the
Company and all other persons with registration rights (whether or not granted
pursuant to this Agreement) enter into similar agreements.
The Company may impose stop-transfer instructions with respect
to the Registrable Securities subject to the foregoing restriction until the end
of said one hundred eighty (180) day period.
MISCELLANEOUS
5.1 Notice. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally or by facsimile or, if
mailed, three (3) days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
IOMED, Inc.
1290 West 2320 South, Suite A
Salt Lake City, Utah 81119
Attn: President
with a copy to:
Morrison & Foerster
345 California Street
San Francisco, California 94104
Attn: Bruce A. Mann, Esq.
(ii) if to CIT, to:
The CIT Group/Venture Capital, Inc.
650 CIT Drive
Livingston, NJ 07039
Attn: Mr. Colby Collier
with a copy to:
Schulte, Roth & Zabel
900 Third Avenue
New York, NY 10022
Attn: Marc Weingarten, Esq.
5.2 Governing Law. This Agreement shall be governed by the
laws of the State of Utah, excluding the conflicts of laws provisions thereof.
5.3 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.4 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
IOMED, INC.
a Utah corporation
By: /s/ Ned M. Weinshenker
Ned M. Weinshenker
Chief Executive Officer
THE CIT GROUP/VENTURE CAPITAL, INC.,
a New Jersey corporation
By: /s/ Colby W. Collier
Name: Colby W. Collier
Its: Vice President
500,000 shares of Common Stock
500,000 Common Stock Rights
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
February 19, 1993, is made by and between IOMED, Inc., a Utah corporation (the
"Company"), Newtek Ventures, a California limited partnership ("Newtek"), MBW
Venture Partners, Limited Partnership, a Michigan limited partnership
("MBWVP"),, Michigan Investment Fund, L.P., a Michigan limited partnership
("MIF"), Interhealth Limited Partnership, a California limited partnership
("Interhealth"),, and Vadex-Panama, S.A., a Panamanian corporation ("Vadex").
MBWVP and MIF shall sometimes be referred to collectively herein as "MBW."
Newtek, MBW, Interhealth and Vadex shall sometimes be referred to individually
herein as an "Investor," and collectively as the "Investors."
A. The Company desires to issue and sell to the Investors, and
the Investors desire to purchase from the Company, shares of the Company's
common stock, $.001 par value (the "Common Stock"), and rights to acquire
additional shares of the Common Stock,, on the terms and subject to the
conditions set forth in this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK AND COMMON STOCK RIGHTS
1.1 Common Stock. On the terms and subject to the conditions set
forth in this Agreement, at the Closing (as defined below) the Company agrees to
sell to the Investors, and the Investors agree, severally and not jointly, to
purchase from the Company, the number of shares of Common Stock set forth below
each Investor's name on the signature pages of this Agreement. At the Closing,
title to such shares of Common Stock shall pass to the Investors, who, as record
and beneficial owners, shall thereafter be entitled to exercise all rights with
respect to their ownership of such shares.
1.2 Common Stock Rights.
(a) Each share of Common Stock purchased by the
Investors hereunder shall be accompanied by a contingent right (a "Common Stock
Right") to receive from the Company on February 19, 1994, automatically, without
any further action being required on the part of any such Investor and without
the payment of any additional consideration other than the Purchase Price (as
defined below), the Applicable Number (as defined below) of newly issued shares
of Common Stock, in the event, but only in the event, that the closing of an
initial public offering of the Company's Common Stock that meets the conditions
set forth in Section 1.2(b) below has not occurred prior to such date.
(b) Each Common Stock Right shall automatically
terminate and cease to be of any further force and effect, without any liability
on the part of the Company or any of its officers or directors, upon the closing
of the initial public offering of the Company's Common Stock in which the
Company receives proceeds (net of any underwriting discounts and commissions but
prior to the deduction of any other offering expenses) in excess of $5,000,000
and in which the public offering price is not less than $2.00 per share (as
adjusted to reflect stock splits, combinations or the like).
(c) As used herein, "Applicable Number" shall be the
number of shares equal to the product of One Dollar ($1.00) divided by the
"Conversion Price." The "Conversion Price" shall initially be One Dollar
($1.00); provided, however, that in the event that, on or before February 14,
1994, the Company shall issue shares of its Common Stock, or securities
convertible into or exchangeable for its Common Stock, in a transaction the
primary purpose of which is to raise capital-for a price per share (the
"Subsequent Issue Price") less than the Conversion Price in effect immediately
prior to such issuance, the Conversion Price shall be adjusted by multiplying
such Conversion Price by a fraction (1) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of shares so issued would purchase
at such Conversion Price, and (2) the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue plus the
number of such shares of Common Stock so issued or sold.
(d) For purposes of determining a new Conversion
Price pursuant to Section 1.2(c) above, shares of Common Stock issuable upon the
exercise or conversion of outstanding securities of the Company which are, by
their terms, exercisable or convertible into Common Stock shall be taken into
account but only to the extent that (i) such securities have been exercised,
converted or exchanged or (ii) the consideration to be paid upon such exercise
or conversion per share of underlying Common Stock is less than (including zero)
or equal to the Subsequent Issue Price.
(e) No fractional shares shall be issuable upon
maturity of the Common Stock Rights held by any Investor. In lieu thereof, the
Company shall round up to the nearest whole number of shares the aggregate
number of shares issuable upon maturity of the Common Stock Rights held by each
Investor.
(f) The number of shares of Common Stock issuable
upon maturity of the Common Stock Rights shall be equitably adjusted to account
for any stock splits, combinations or the like.
1.3 No Rights as Shareholder. The Common Stock Rights shall
not entitle any holder thereof to any rights as a shareholder of the Company
until such time, if ever, that shares of Common Stock are issued to such holder
pursuant to the maturity of such Common Stock Rights.
1.4 Purchase Price. The purchase price for the Common Stock
and the accompanying Common Stock Rights being purchased hereunder shall be Two
Dollars ($2.00) per unit (the "Purchase Price"), each unit consisting of one
share of Common Stock and one Common Stock Right.
1.5 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the Company on
February 19, 1993, or on such later date as may be mutually agreed upon by the
parties. At the Closing, the Company shall deliver to each Investor one or more
certificates evidencing the shares of Common Stock being purchased by such
Investor hereunder against receipt from such Investor of a check, made payable
to the Company, in an amount equal to the Purchase Price multiplied by the
number of shares of Common Stock and accompanying Common Stock Rights being
purchased by such Investor; provided, however, that the consideration payable by
Newtek and MBWVP shall be payable first by the . cancellation of any outstanding
indebtedness owed to such Investors by the Company at the Closing, and the
balance, if any, shall be payable in cash.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the
Investors as follows:
2.1 Organization, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah and is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on the business or financial condition of the Company.
2.2 Authorization, etc. The Company has full corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Company, and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors, rights and by general equitable principles.
2.3 Valid Issuance. The shares of Common Stock being purchased
by the Investors hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, and the shares of
Common Stock, if any, that are issued upon the maturity of the Common Stock
Rights, when issued and delivered in accordance with the terms hereof, will be
duly and validly issued, fully paid and nonassessable and, based upon the
representations of the Investors in this Agreement, will be issued in compliance
with applicable state and federal securities laws.
2.4 No Violation. Neither the execution and delivery of this
Agreement by the Company nor its performance and consummation of the
transactions contemplated hereby will violate (a) any provision of the Articles
of Incorporation or the Bylaws of the Company or (b) any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental agency
that is applicable to the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors, on behalf of itself only and not on
behalf of any of the other Investors, hereby represents and warrants to the
Company as follows:
3.1 The Investor is experienced in evaluating and investing in
emerging companies such as the Company.
3.2 The Investor is acquiring the Common Stock and the
accompanying Common Stock Rights being issued pursuant to this Agreement
(collectively, the "Securities"), for its own account and not with a view to, or
for resale in connection with, any distribution. The Investor understands that
the Securities have not been registered under the Securities Act of 1933, as
amended (the "Act"), by reason of a specific exemption from the registration
provisions of the Act which depends upon, among other things, the bona fide
nature of the investment intent as expressed herein.
3.3 The Investor acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Act or an exemption from
such registration is available. The Investor is aware of the provisions of Rule
144 promulgated under the Act and the limitations on resales of securities
imposed thereby.
3.4 The Investor Understands that no public market now exists
for any of the securities issued by the Company and that there can be no
assurances that a public market will ever exist for the Securities.
3.5 The Investor has had an opportunity to discuss the
Company's business, management and financial affairs with its management and an
opportunity to review the Company's facilities. The Investor understands that
such discussions were intended to describe the aspects of the Company's business
and prospects which it believes to be material but were not necessarily a
thorough or exhaustive description.
3.6 The Investor is a sophisticated investor with such
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of a prospective investment in the Securities
and who is capable of bearing the economic risks of such investment.
3.7 The Investor, both by itself and through its agents, has
been solely responsible for the Investor's "due diligence,, investigation of the
Company and its management and business, for the analysis of the merits and
risks of this investment and of the fairness and desirability of the terms of
the investment; that in taking any action or performing any role relative to the
arranging of the proposed investment, such Investor has acted solely in the
Investor's interest, and that neither the Investor nor any of its agents or
employees has acted as an agent of the company, or as an issuer, underwriter,
broker, dealer or investment advisor relative to any of the Securities.
3.8 The Investor has had the opportunity to be advised by
legal counsel of the Investor's own choice in connection with the purchase of
the Securities and has either been advised by such counsel or concluded that
such advice is not required. The Investor acknowledges that Morrison & Foerster
is acting solely as counsel for the Company in connection therewith.
3.9 Each Investor acknowledges that the Common Stock issued
hereunder, including the shares of Common Stock, if any, issued upon maturity of
the Common Stock Rights, shall be endorsed with the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE -ACT-), AND NAY NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE
AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC
EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF. COUNSEL To THE CORPORATION, OR OTHER
COUNSEL ACCEPTABLE To THE CORPORATIONR THAT THE PROPOSED DISPOSITION IS
CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW.
The Company need not register a transfer of any of the
Securities, unless the conditions specified in the foregoing legend is
satisfied. -The Company may also instruct its transfer agent not to register the
transfer of any of the Securities unless the conditions specified in the
foregoing legend is satisfied.
3.10 Each Investor acknowledges that in no event will all or
any portion of the Common Stock Rights acquired by it hereunder be assignable
separate from the accompanying share(s) of Common Stock.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Definitions. As used in this Article IV:
(a) The term "Registrable Securities" means the
Common Stock issued hereunder and issuable upon maturity of the Common Stock
Rights issued hereunder, and any like securities as may be issued in the future
to The CIT Group/Venture Capital, Inc. or any of its affiliates pursuant to a
written agreement which incorporates the terms of this Article IV, excluding in
all cases, however, any Registrable Securities sold by a person in a transaction
in which his rights under this Article IV are not assigned; provided, however,
that such shares of Common Stock shall only be treated as Registrable Securities
if and so long as they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction.
(b) The term "Form S-31, means such form under the
Act as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "Holder" means each of the Investors and
any other person or entity that acquires any Registrable Securities in
compliance with Sections 3.9 and 4.6 hereof.
(d) The term "Initiating Holders" means any Holder or
Holders of not less than (i) 550,000 shares of Registrable Securities (as
adjusted for stock splits, combinations and the like), if measured prior to the
maturity of the Common Stock Rights, or (ii) 1,100,000 shares of Registrable
Securities (as adjusted for stock splits, combinations and the like), if
measured after the maturity of the Common Stock Rights.
(e) The term "SEC" means the Securities and Exchange
Commission or any successor agency thereto.
4.2 Requested Registration.
(a) In case the Company shall receive from Initiating
Holders, at any time after one hundred eighty (180) days following the first
registered public offering of Company's Common Stock, regardless of whether such
offering meets the threshold size and per share price levels set forth in
Section 1.2 above, a written request that the Company effect any registration,
qualification or compliance with respect to all of the Registrable Securities
then held by such Initiating Holders, the Company will:
(i) give written notice of the proposed
registration, qualification or compliance to all other Holders within ten (10)
days after receipt thereof; and
(ii) use its diligent best efforts to
effect, as soon as practicable, all such registrations, qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all of the Registrable Securities held by such Initiating
Holders, together with all of the Registrable Securities of any Holder or
Holders who joins in such request in a written request received by the Company
within thirty (30) days after such written notice is given; provided, that the
Company shall not be obligated to take any action to effect any such
registration, qualification, or compliance pursuant to this Section 4.2:
(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process, to register as a dealer, or to cause any officer or employee of the
Company to register as a salesman in effecting such registration, qualification
or compliance;
(B) Within one hundred eighty (180)
days immediately following the effective date of any registration statement
pertaining to an underwritten public offering of securities of the Company for
its own account;
(C) After the Company has effected
one (1) such registration pursuant to this Section 4.2;
(D) If the Company shall furnish to
such Holders a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, then the Company's obligation to use
its best efforts to register, qualify or comply under this Section 4.2 shall be
deferred for a period not to exceed one hundred eighty (180) days from the date
of receipt of written request from the Initiating Holders; or
(E) If taking any such action could
result in a registration statement being declared effective within one hundred
twenty (120) days of the effective date of any registration statement filed
pursuant to Section 7.2 of that certain Preferred Stock Purchase Agreement,
dated as of August 4, 1987, by and between the Company, Motion Control, Inc. and
the investors named therein (the "Preferred Stock Purchase Agreement").
Subject to the foregoing, the Company will use its best
efforts to file a registration statement covering the Registrable Securities as
soon as practicable after receipt of the request or requests of the Initiating
Holders.
(b) The Initiating Holders shall include in their
request made pursuant to this Section 4.2 the name, if any, of the underwriter
or underwriters that such Initiating Holders would propose, with the consent of
the Company (which consent shall not be unreasonably withheld), to employ in
connection with the public offering proposed to be made pursuant to the
registration requested, and the Company shall include such information in the
written notice referred to in clause (i) of Section 4.2(a). The right of any
Holder to registration pursuant to this Section 4.2 shall be conditioned on such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting. The Company shall (together with all
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting in the manner set forth above.
Notwithstanding-any other provision of this Section 4.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise all Holders of Registrable Securities and the number of
shares of Registrable Securities that may be included in the registration and
underwriting as determined by the underwriters, shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration.
4.3 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-3 and any related qualification or compliance
with-respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within twenty (20) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 4.3: (i) if
the Company is not qualified as a registrant entitled to use Form S-3; (ii) if
the Holders propose to sell Registrable Securities at an aggregate sales price
to the public of less than $500,000; (iii) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance and in which
it has not already filed such a consent; (iv) if the Company has effected one
such registration pursuant to this Section 4.3 during the preceding twelve (12)
months; (v) if the Company has effected a registration on Form S-1 within the
preceding one hundred eighty (180) days, or (vi) if the date of such written
request occurs more than seven (7) years after the date hereof. Subject to the
foregoing, the -Company shall file a registration statement covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 4.3 shall not be
counted as a Request for Registration effected pursuant to Section 4.2 hereof.
4.4 Company Registration.
(a) If at Any time, or from time to time, prior to
the date seven (7) years after the date hereof, the Company shall determine to
register any of its securities, either for its own account or for the account of
a security holder or holders, other than (i) a registration on Form S-1 or S-8
relating solely to employee benefit plans, or a registration on Form S-4
relating solely to an SEC Rule 145 transaction, or a registration on any other
form which does not include substantially the same information as would be
required to be included in a registration statement covering he sale of
Registrable Securities, or (ii) a registration pursuant to Sections 4.2 or 4.3
hereof, the company will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration, and in any underwriting
involved therein, all the Registrable securities specified in any written
request or requests by any Holder or Holders received by the Company within
twenty (20) days after such written notice is given on the same terms and
conditions as the Common Stock, if any, otherwise being sold through the
underwriter in such registration.
(b) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to clause (i) of Section 4.4(a). In such event the right of any Holder
to registration pursuant to this Section 4.4 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
(c) Notwithstanding any other provision of this
Section 4.4, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may limit
the amount of Registrable Securities to be included in the registration and
underwriting. The Company shall so advise all Holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in
the-registration and underwriting shall be allocated among all of the Holders,
in proportion, as nearly as practicable, to the amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
(d) Notwithstanding any other provision of this
Section 4.4. no Holder shall be entitled to include any Registrable Securities
in a registration pursuant to this Section 4.4 if and to the extent that such
inclusion would reduce the number of shares of Registrable Securities entitled
to participate in such registration pursuant to Section 7.2, 7.3 or 7.4 of the
Preferred Stock Purchase Agreement. The Company shall so advise all Holders of
Registrable Securities which would otherwise be registered pursuant hereto but
for the foregoing sentence, and the number of shares of Registrable Securities
that may be included in the registration shall be allocated among all of the
Holders, in proportion, as nearly as practicable, to the amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement.
4.5 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Article IV, including without limitation, all registration, filing and
qualification fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, accounting fees and expenses, and expenses of any
special audits incidental to or required by such registration, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
underwriters, fees, discounts or commissions relating to Registrable Securities,
or any fees for counsel to the selling shareholders.
4.6 Transfer of Registration Rights. The rights to cause the
Company to register securities granted by the Company under Sections 4.2, 4.3
and 4.4 hereof may be assigned in writing by any Holder of Registrable
Securities to a transferee or assignee of not less than fifty thousand (50,000)
shares of the Registrable Securities (as appropriately adjusted from time to
time for stock splits and the like); provided, that such transfer may otherwise
be effected in accordance with the terms of this Agreement and applicable
securities laws; and provided further, that the Company is given written notice
by such holder of Registrable Securities at the time of or within a reasonable
time after said transfer, stating the name and address of said transferee or
assignee and identifying the securities .-.with respect to which such
registration rights are being assigned.
4.7 "Market Stand-off" Agreement. The Holders hereby agree not
to sell or otherwise transfer or dispose of any Registrable Securities held by
them during the one hundred eighty (180) day period following the effective date
of a registration statement of the Company filed under the Act; provided that:
(a) such agreement shall only apply to the first such
registration statement of the Company including shares of Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) such agreement shall not apply to any shares of
Registrable Securities that are included in such public offering in accordance
with the terms hereof; and
(c) all executive officers and directors of the
Company and all other persons with registration rights (whether or not granted
pursuant to this Agreement) enter into similar agreements.
The Company may impose stop-transfer instructions with respect
to the Registrable Securities subject to the foregoing restriction until the end
of said one hundred eighty (180) day period.
MISCELLANEOUS
5.1 Notice. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered per.-tonally, by
facsimile or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally or by facsimile or, if
mailed, three (3) days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
IOMED, Inc.
1290 West 2320 South, Suite A
Salt Lake City, Utah 81119
Attn: President
with a copy to:
Morrison & Foerster
345 California Street
San Francisco, California 94104
Attn: Bruce A. Mann, Esq.
(ii) if to the Investors, to:
their addresses specified on the records of the Company
5.2 Governing Law. This Agreement shall be governed by the
laws of the State of Utah, excluding the conflicts of laws provisions thereof.
5.3 Counterparts. This Agreement may be executed in any of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.4 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
IOMED, INC.
a Utah Corporation
By: /s/ Ned M. Weinshenker
Ned M. Weinshenker
Chief Executive Officer
NEWTEK VENTURES
a California limited partnership
By: /s/ Peter J. Wardle
Name: Peter J. Wardle
Its: General Partner
250,000 shares of Common Stock
250,000 Common Stock Rights
MBW VENTURE PARTNERS, LIMITED PARTNERSHIP, a Michigan
Limited partnership
By: MBW Management Inc.
Its: Authorized Agent
By: /s/ James R. Weering
Name: James R. Weering
Its: Managing Director
192,000 shares of Common Stock
192,000 Common Stock Rights
MICHIGAN INVESTMENT FUND, L.P.,
a Michigan limited partnership
By: MBW Management Inc.
Its: Authorized Agent
By: /s/ James R. Weering
Name: James R. Weering
Its: Managing Director
57,500 shares of Common Stock
57,500 Common Stock Rights
INTERHEALTH LIMITED
PARTNERSHIP, a California
limited partnership
By: /s/ Alejandro Zaffaroni Ph.D.
Name: Alejandro Zaffaroni Ph.D.
Its: General & Limited Partner
175,000 shares of Common Stock
175,000 Common Stock Rights
VADEX-PANAMA, S.A., a
Panamanian corporation
By: /s/ Gustavo Nicolich
Name: Gustavo Nicolich
Its President
325,000 shares of Common Stock
325,000 Common Stock Rights
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
This assignment and assumption agreement is entered into among
Vadex-Panama, S.A., a Panamanian corporation "Vadex"), Interhealth Limited
Partnership; a California limited partnership ("Interhealth"), and IOMED, Inc. ,
a Utah corporation ("IOMED").
1. Interhealth hereby assigns to Vadex all of its rights,
interests and obligations under the Stock Purchase Agreement, dated February 19,
1993, among IOMED, Vadex, Interhealth, and the other parties thereto (the
"Purchase Agreement").
2. In consideration of the foregoing, Vadex agrees to assume
and be bound by all the liabilities, obligations and duties of Interhealth under
the Purchase Agreement.
3. Vadex also agrees to be bound by all the provisions of the
Purchase Agreement relating to the foregoing assigned rights, interests and
obligations.
4. IOMED acknowledges and agrees to the assignment and
assumption on the terms set forth above.
IN WITNESS WHEREOF,, the Parties hereto have entered into this
Agreement as of this 12th day of March, 1993.
VADEX-PANAMA, S.A., a Panamanian corporation
By: /s/ Gustavo Nicolich
Title: President
VADEX-PANAMA, S.A.
INTERHEALTH LIMITED PARTNERSHIP,
a California limited partnership
By: /s/ Alejandro Zaffaroni Ph.D.
Title: General and Limited Partner
INTERHEALTH LIMITED
IOMED, INC., a Utah corporation
By: /s/ Ned M. Weinshenker
Title: CEO
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDDED, AND
MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEI, THAT SUCH REGISTRATION IS NOT
REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: IOMED, Inc., a Utah corporation
Number of Shares: 10,000
Class of Stock: Common
Initial Exercise Price: $__*__ per share *As determined by Appendix 3
-
Issue Date: June 25, 1992
Expiration Date: June 24, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warranty subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering in its entirety subject to provisions in Appendix 3, a duly executed
Notice of Exercise in substantially the form attached as Appendix 1 to the
principal office of the Company. Unless Holder is exercising the conversion
right set forth in Section l.2, Holder shall also deliver to the Company a check
for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Section 1.1. Holder may convert this Warrant, in whole, into a
number of Shares determined by dividing (a) the aggregate fair market value of
the Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Warrant Price of such Shares by (b) the fair market value of
one Share. The fair market value of the Shares shall be determined pursuant
Section 1.4.
1.3 Alternative Stock Appreciation Right. At Holder's option,
the Companv shall pay Holder the fair market value of the Shares issuable upon
conversion of this Warrant pursuant to Section 1.2 in cash in lieu of such
Shares.
1.4 Fair Market Value. As Amended by Appendix 3.
1.5 Delivery of Certificate and New .Warrant. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the
Company.
1.7.1. "Acquisition". For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 Assumption of Warrant. If upon the closing of
any Acquisition the successor entity assumes the obligations of this Warrant,
then this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 Nonassumption. If upon the closing of any
Acquisition the successor entity does not assume the obligations of his Warrant,
then this Warrant shall be deemed to have been automatically converted pursuant
to Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4 Purchase Right. Notwithstanding the foregoing,
at the election of Holder, the Company shall purchase the full amount of shares
issuable under this Warrant for cash upon the closing of any Acquisition for an
amount equal to (a) the fair market value of any consideration that would have
been received by Holder in consideration of the Shares had Holder exercised this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding
Shares are combined or consolidated by reclassification or otherwise, into a
lesser number of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and
the number of Shares issuable upon exercise of this Warrant or, if the Shares
are Preferred Stock. the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time in
the manner set forth on Exhibit A in the event of Diluting Issuances (as defined
on Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price' shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the factional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby
represents and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first
page of this Warrant is not greater than (i) the price per share at which the
Shares were last issued in an arms-length transaction in which at least $500,000
of the Shares were sold and (ii) the fair market value of the Shares as of the
date of this Warrant.
(b) All Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares shall, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable, and free of any liens and
encumbrances except for restrictions on transfer provided for herein or under
applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock- for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this
Warrant and/or any of the Shares, the Company shall deliver to the Holder (a)
promptly after mailing, copies of all notices or other written communications to
the shareholders of the Company, (b) within ninety (90) days after the end of
each fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 Registration Under Securities Act of 1993, as Amended. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable,
in whole or in part, at any time and from time to time an or before the
Expiration Date set forth above. The Company shall give Holder written notice of
Holder's right to exercise this Warrant in the form attached as Appendix 2 not
more than 90 days and not less than 30 days before the Expiration Date. If the
notice is not so given, the Expiration Date shall automatically be extended
until 30 days after the date the Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder so long as an
affiliate is a financial institution who is in the business of lending funds or
buying and selling financial instruments or if there is no material question as
to the availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder s notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section
4.2 or indirectly, and Section 4.3 Holder may transfer all or part of this
Warrant or the Shares issuable upon exercise of this Warrant (or the securities
issuable, directly or indirectly upon conversion of the Shares, if any) by
giving the Company notice of the portion of the Warrant being transferred
setting forth the name, address and taxpayer identification number of the
transferee and surrendering this Warrant to the Company for reissuance to the
transferees) (and holder if applicable). Unless the Company is filing financial
information with the SEC pursuant to the Securities Exchange Act of 1934, the
Company shall have the right to refuse to transfer any portion of this Warrant
to any person who directly competes with the Company.
4.5 Notices. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time.
4.6 Waiver. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument it in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought.
4.7 Attorneys Fees. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute, shall be entitled to collect from the other party
all costs incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing-Law, This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to its principles regarding conflicts of law.
"COMPANY"
By: /s/ Stephen J. Ober
Name: Stephen J. Ober
Title: President
By: /s/ Mary A. Crowther
Name: Mary A. Crowther
Title: Assistant Secretary
1988 STOCK OPTION PLAN
IOMED INC.
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1. Purpose. This 1988 Stock Option Plan (the "Plan") is intended as an
incentive to employees (whether or not officers) of IOMED, INC., a Utah
corporation (the "Corporation"), or its subsidiaries, and to others who perform
substantial services for the Corporation, by enabling them to acquire or
increase their proprietary interest in the Corporation through ownership of the
Corporation's common shares. The purposes of the Plan are to enable the
Corporation to retain valuable employees, to attract new employees, to obtain
the services of experts and consultants, to encourage the sense of
proprietorship of such persons in the Corporation, and to stimulate the active
interest of such persons in the development and financial success of the
Corporation.
2. Status of Options. Options granted under the Plan shall constitute
either incentive stock options ("Incentive Stock Options") within the meaning of
Section 422A of the Internal Revenue Code, as amended (the "Code"), or options
which are not incentive stock options ("Non-Incentive Stock Options"). The
Incentive Stock Options and the Non-Incentive Stock Options which may be granted
under the Plan are referred to herein collectively as "Options".
3. Administration. The Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors of the Corporation. The
Committee shall consist of at least three (3) members of the Board of Directors
and may include the entire Board of Directors; provided, that no member of the
Committee shall be eligible to receive Options under the Plan while serving as a
member of the Committee. The Board of Directors may from time to time, remove
members from, or add members to, the Committee. Vacancies on the Committee,
howsoever caused, shall be filled by the Board of Directors from the Board of
Directors. The Committee shall select one of its members as Chairman, and shall
hold meetings at such times and places as it shall select. Acts approved by a
majority of the Committee at meetings at which a quorum is present, or acts
reduced to and approved in writing by all of the members of the Committee, shall
be the valid acts of the Committee. The Committee shall have full and complete
power and authority, without further approval by the Board of Directors, to
designate those persons who shall receive Options pursuant to the Plan; to grant
Options pursuant to the Plan; to determine whether Option's granted pursuant to
the Plan shall be Incentive Stock Options or Non-Incentive Stock Options; to
establish the dates upon which Options granted pursuant to the Plan shall be
exercisable, the option purchase price of the Corporation's common shares which
are subject to Options granted under the Plan, and all other terms and
conditions concerning the Options or their exercise; to interpret the provisions
and supervise the administration of the Plan; and to otherwise further the
purposes of the Plan. The interpretation and construction by the Committee of
any provision of the Plan, or of any Option granted under it, shall be final,
conclusive and binding upon the Corporation and all persons who are granted
Options under the Plan. No member of the Board of Directors or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan, or any Option granted under it.
4. Eligibility.
(a) The persons who shall be eligible to receive Incentive
Stock Options under the Plan shall be such full or part time employees
(including officers, whether or not they are directors) of the Corporation, or
of its subsidiaries, as the Committee shall select from time to time. Except as
otherwise specifically provided herein, no employee shall be eligible to receive
Incentive Stock Options under the Plan if, at the date such Options are granted,
such employee owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation, or of any
parent or subsidiary corporation, including stock attributable to the employee
pursuant to Section 425(d) of the Code; provided, however, that any employee who
would have been otherwise eligible to receive Incentive Stock Options under the
Plan, but for the fact that such employee owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock, as
provided above, shall be eligible to receive Incentive Stock Options under the
Plan if, at the time such Incentive Stock Options are granted, the option
purchase price for the Corporation's common shares subject to such Option is at
least 110% of the fair market value such common shares, and if the Incentive
Stock Option granted to such employee is not exercisable after the expiration of
five (5) year from the date such Option is granted.
(b) The persons who shall be eligible to receive Non-Incentive
Stock Options under the Plan shall be such persons (whether or not employees of
the Corporation) who perform substantial services for or on behalf of the
Corporation or any of its subsidiaries, affiliates or any entity in which the
Corporation has an interest, all as the Committee shall select from time to
time.
5. Common Shares Subject to the Plan. The shares which shall be subject
to Options granted pursuant to the Plan shall be the Corporation's authorized
but unissued or reacquired common shares, par value $.001 per share. The
aggregate number of common shares which may be issued pursuant to Options
granted under the Plan shall not exceed One Million (1,000,000) shares (the
"Shares"). The limitations established by each of the preceding sentences shall
be subject to adjustment as provided in paragraph 8 hereof. In the event that
any outstanding Option under the Plan for any reason expires or is terminated,
the Shares allocable to the unexercised portion of such Option may again be made
the subject of an Option under the Plan.
6. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options granted pursuant to the Plan shall be authorized by the Committee and
shall be evidenced by agreements which shall be in such form and which shall
contain such provisions consistent with the Plan as the Committee shall deem
necessary and appropriate. Each Incentive Stock Option granted pursuant to the
Plan shall comply with and be subject to the following terms and conditions:
(a) Employment Arrangement. The granting of an Incentive Stock
Option to any employee shall not impose upon the Corporation any obligation to
retain the employee in its employ for any period.
(b) Number of Shares. Each Incentive Stock Option shall state
the number of Shares to which it pertains.
(c) Option Price. Each Incentive Stock Option shall state the
option purchase price of the Shares subject to such Options, which shall not be
less than 100% of the fair market value of the Shares on the date of the
granting of the Incentive Stock Option. The fair market value of the Shares
shall be determined by the Committee in good faith, by reference to market
quotations, appraisals by disinterested parties, or such other means as the
Committee shall deem appropriate. The option purchase price of Shares subject to
Incentive Stock Options granted to any employee who owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation, shall be determined in accordance with paragraph 4(a)
hereof.
(d) Medium and Time of Payment. The option purchase price of
Incentive Stock Options shall be payable upon the exercise of the Option and may
be paid by cash or check, or by the delivery to the Corporation of such other
form of consideration, including but not limited to common shares of the
Corporation or options to purchase common shares of the Corporation, provided
that no type of consideration which would disqualify the Option as an Incentive
Stock Option under Section 422A of the Code shall be approved by the Committee.
The Incentive Stock Option shall be exercised by written notice to the
Corporation, in the form attached hereto as Exhibit "All (or in such other form
as the Committee shall, in its sole discretion, deem acceptable) at its
principal office. Such notice shall state the optionee's election to exercise
the Option, shall state the exact number of Shares as to which exercise is being
made and shall be accompanied by payment of the full purchase price of such
Shares. The Incentive Stock Option shall be deemed exercised upon the date the
Corporation actually receives the notice and payment required by this paragraph
6(d). The Corporation shall deliver to the person exercising the Incentive Stock
Option a certificate or certificates representing the Shares covered by such
Option as soon as practical after the required notice and payment have been
received by the Corporation.
(e) Terms and Exercise. Each Incentive Stock Option granted
pursuant to the Plan may be exercised only as provided in the agreement executed
by the Corporation and the employee, which shall contain such provisions as to a
vesting schedule and other terms or conditions for exercise of the Incentive
Stock Options as the Committee may, in its sole discretion, determine and
approve. Unless otherwise provided in the Plan or the agreement between the
employee and the Corporation, any portion of the Incentive Stock Option not in
fact exercised in the year in which it vests shall not lapse and may be
exercised at any time during the remaining term of the Incentive Stock Option.
Notwithstanding anything in the Plan to the contrary, each Incentive Stock
Option granted under the Plan shall terminate and may not be exercised to any
extent after the expiration of ten (10) years from the date such Option is
granted. No Incentive Stock Option or installment thereof shall be exercisable
except as to whole shares, and fractional share interests shall be disregarded.
During the lifetime of the employee, the Incentive Stock Option shall be
exercisable only by the employee. No Incentive Stock Option shall be assignable
or transferable by the employee, other than by will or the laws of descent and
distribution, as provided in paragraph 6(g) hereof.
(f) Termination of Employment Except Disability or Death. If
the employee shall cease to be employed by the Corporation, or by one of its
subsidiaries, for any reason except disability or death, Incentive Stock Options
granted to such employee, to the extent vested upon the date such employee's
employment terminates and to the extent not theretofore exercised, shall be
exercisable at any time within three (3) months after such cessation of
employment. The transfer of the employee from the employ of the Corporation to a
subsidiary, or vice versa, or from one subsidiary to another, shall not be
deemed a cessation of employment; provided, however, that Incentive Stock
Options shall not be exercisable, under any condition, after the expiration of
ten (10) years from the date they are granted. Whether authorized leave of
absence or absence for military or governmental service shall constitute
termination of employment, for the purposes of the Plan, shall be determined by
the Committee, which determination shall be final and conclusive.
(g) Death or Disability of Employee or Transfer of Incentive
Stock Options. If the employee shall die or become disabled (within the meaning
of Section 422A(c)(7) of the Code) while in the employ of the Corporation, or a
subsidiary, and shall not have theretofore fully exercised Incentive Stock
Options granted under the Plan, such Incentive Stock Options may be exercised,
to the extent that the employee's right to exercise such Incentive Stock Option
had accrued and become vested upon the date of his death or disability, at any
time within twelve (12) months after the employee's death or disability, by the
employee or his legal representative, in the case of disability, or by the
personal representatives, executors or administrators of the employee's estate,
in the case of death, or by any person or persons who shall have acquired the
Incentive Stock Option directly from the employee by bequest or inheritance,
provided, that under no circumstances may an Incentive Stock Option granted
under the Plan be exercisable after the expiration of ten (10) years from the
date upon which such Option was granted.
(h) Value of Shares Issued. Notwithstanding anything to the
contrary provided herein, the aggregate fair market value, as determined at the
time an Incentive Stock Option is granted, of the Shares with respect to which
Incentive Stock Options granted under this Plan are exercisable for the first
time by the optionee during any calendar year (under all incentive stock option
plans of the Corporation and its parent and subsidiary corporations) shall not
exceed $100,000.
7. Terms and Conditions of Non-Incentive Stock Options. Non-Incentive
Stock Options granted pursuant to the Plan shall be authorized by the Committee
and shall be evidenced by agreements which shall be in such form and which shall
contain such provisions consistent with the Plan as the Committee shall deem
necessary and appropriate. Each Non-Incentive Stock Option granted pursuant to
the Plan shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Non-incentive Stock Option shall
state the number of shares to which it pertains.
(b) Option Price. Each Non-Incentive Stock Option shall state
the option purchase price for the shares covered by such Option, which shall not
be less than the par value of the shares.
(c) Medium and Time of Payment. The option purchase price of
Non-Incentive Stock Options shall be paid by the delivery to the Corporation of
such consideration as the Committee shall determine. The Non-Incentive Stock
Options shall be exercised by written notice to the Corporation, in the form
attached hereto as Exhibit "B" (or in such other form as the Committee shall, in
its sole discretion, deem acceptable) at its principal office. Such notice shall
state the optionee's election to exercise the Non-Incentive Stock Option, shall
state the exact number of Shares as to which exercise is being made and shall be
accompanied by payment of the full option purchase price of such shares. The
Non-incentive Stock Option shall be deemed exercised upon the date the
Corporation actually receives the notice and payment required by this paragraph
7(c). The Corporation shall deliver to the person exercising the Non-Incentive
Stock Option a certificate or certificates representing the shares covered by
such option as soon as practical after the required notice and payment have been
received by the Corporation.
(d) Expiration of Non-Incentive Stock Options. No
Non-Incentive Stock Option granted pursuant to the Plan shall be exercisable by
the optionee, in whole or in part, at any time after the expiration of ten (10)
years from the date such option is granted.
(e) Terms and Exercise. Each Non-Incentive Stock Option
granted pursuant to the Plan may be exercised only as provided in the agreement
executed by the Corporation and the optionee, which shall contain such
provisions as to a vesting schedule and other terms or conditions for exercise
of the Non-Incentive Stock Option as the Committee may, in its sole discretion,
determine and approve. Unless otherwise provided in the Plan or in the agreement
between the optionee and the Corporation, any portion of a Non-Incentive Stock
Option not in fact exercised in the year in which it vests shall not lapse and
may be exercised at any time during the remaining term of such Non-Incentive
Stock Option. No Incentive Stock Option or installment thereof shall be
exercisable except as to whole shares, and fractional share interests shall be
disregarded.
8. Recapitalization of the Corporation. Subject to any required action
by the shareholders of the Corporation, the number of Shares covered by an
Option, and the option purchase price of Shares subject to Options, shall be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding common shares of the Corporation resulting from a subdivision or
consolidation of such shares or the payment of a share dividend or any other
increase or decrease in the number of such shares effected without receipt of
consideration by the Corporation.
If the Corporation shall be the surviving corporation in any
merger or consolidation, each outstanding Option shall pertain and apply to the
number of securities to which the owner of the number of Shares subject to an
Option would have been entitled had the optionee been the owner of such Shares
on the date of the merger or consolidation. In the event of a dissolution or
liquidation of the Corporation, or the sale of all or substantial all of the
assets of the Corporation, or a merger or consolidation in which the Corporation
is not the surviving corporation (collectively "Terminating Events"), the
optionee shall have the right, for a period of thirty (30) days after the date
upon which the Corporation shall, at its sole election, send to the optionee (by
certified United States mail, with postage prepaid and return receipt requested)
written notice of such Terminating Event, to exercise his Option in whole or in
part without regard to any vesting schedule otherwise applicable to the Option.
If the optionee shall fail to exercise his Option within such thirty (30) day
period, the Option (or any unexercised portion thereof) shall terminate and
shall be of no further force or effect. If the Corporation elects not to give
the optionees written notice of the Terminating Event, then each outstanding
Option shall pertain and apply to the number of securities or other property to
which the owner of the number of Shares subject to an Option would have been
entitled had the optionee been the owner of such Shares on the date of the
Terminating Event.
In the event of a change in the Shares as presently
constituted, the securities resulting from any such change shall be deemed to be
Shares within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
Except as hereinbefore expressly provided in this paragraph 8,
the optionee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger, consolidation or spin-off of
assets or stock of another corporation, and any issue by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of the Shares subject to the Option.
The grant of an Option pursuant to the Plan shall not affect
in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or
any part of its business or assets.
9. Rights as a Shareholder. An optionee or an authorized transferee of
an Option shall have no rights as a shareholder of the Corporation with respect
to any Shares covered by an Option until the date of the issuance of a
certificate representing such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in paragraph 8 hereof.
10. Modification, Extension and Renewal of Options. The Committee may
modify, extend or renew outstanding Options granted under the Plan, or accept
the surrender of outstanding Options (to the extent not theretofore exercised);
provided, however, that in regard to Incentive Stock Options such actions shall
be taken subject to the terms and conditions and strictly in accordance with the
statutorily imposed limitations of Section 422A of the Code. Notwithstanding the
foregoing, however, without the consent of the optionee, no modification of an
Option shall materially alter or impair-any rights or obligations under any
Option theretofore granted under the Plan.
11. Restrictive Legends. Each certificate representing Shares issued
pursuant to the exercise of an Option may have impressed thereupon such
restrictive legends as the Committee shall deem appropriate.
12. Right of First Refusal. Until the date which shall occur 120 days
after the effective date of the first registration statement relating to the
common shares of the Corporation which is filed by the Corporation on a form of
general applicability with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended, no optionee who acquires Shares pursuant
to the exercise of an Option granted under the Plan shall sell, transfer,
pledge, encumber or otherwise hypothecate (collectively a "Sale") any of such
Shares except in accordance with the provisions of this paragraph 12.
(i) Any optionee who desires to engage in a Sale of any Shares
acquired pursuant to the exercise of an Option granted under the Plan shall give
the Corporation written notice of the proposed Sale, which written notice shall
set forth, in detail, all of the terms and conditions of the proposed Sale.
(ii) For a period of 30 days from and after the date upon
which the Corporation actually receives the written notice required by paragraph
12(i) hereof, the Corporation, or its designee(s), shall have the right to
purchase all (but not less than all) of the Shares described in such written
notice for a purchase price which shall be equal to either the cash purchase
price specified in such notice or, in the event that the proposed Sale provides
for noncash consideration, an amount of cash which shall be equal to the fair
market value (as determined in good faith by the Committee) of such noncash
consideration.
(iii) If the Corporation, or its designee(s) shall fail to
exercise its right to purchase the Shares described in the written notice within
such 30 day period, the optionee shall be free to engage in and carry out the
Sale, but only upon the exact terms and conditions specified in the written
notice.
13. Loans. The Corporation shall have the right, but not the
obligation, to loan to any optionee an amount equal to all or a portion of the
option purchase price for Shares subject to Options granted under the Plan in
order to enable the optionee to exercise all or a portion of an Option. All
loans made to optionees pursuant to this paragraph 13 shall be made upon such
terms and conditions as the Committee shall recommend, shall provide for
adequate security for the repayment of such loan and shall be made only upon the
specific approval of the Board of Directors of the Corporation. The Corporation
shall not make loans to any officer, director or control person of the
Corporation who is an optionee unless each such loan is approved by the
shareholders of the Corporation.
14. Other Provisions. Options granted under the Plan shall contain such
other provisions, including, without limitation, restrictions upon the exercise
of the Option, as the Committee shall deem advisable.
15. Term of Plan. Options may be granted pursuant to the Plan from time
to time within a period of ten (10) years from the date this Plan is adopted by
the Board of Directors, or the date upon which this Plan is approved by the
shareholders of the Corporation, whichever shall first occur.
16. Indemnification of Committee. The members of the Committee shall be
indemnified by the Corporation, to the full extent permitted by the Articles of
Incorporation and Bylaws of the Corporation and the laws of the State of Utah,
against the reasonable expense, including attorneys' fees, actually or
necessarily incurred by them in connection with the defense or settlement of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be made a party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted thereunder.
17. Amendment of the Plan. The Board of Directors may, from time to
time, insofar as permitted by law suspend or discontinue the Plan or revise or
amend it in any respect whatsoever with respect to any Shares not at the time
subject to Options at the time of such action; provided, however, that, without
approval of the shareholders of the Corporation, no such revision or amendment
shall change the number of Shares subject to the Plan, change the designation of
the class of persons eligible to receive Options, decrease the price at which
Options may be granted, or remove the administration of the Plan from the
Committee.
18. Application of Funds. The proceeds received by the Corporation from
the sale of Shares pursuant to Options will be used for general corporate
purposes.
19. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the optionee to exercise such Option.
20. Approval of Shareholders. The Plan shall be approved by the holders
of a majority of the outstanding shares of each class of stock of the
Corporation, which approval must occur within the period beginning twelve months
before and ending twelve months after the date the Plan is adopted by the Board
of Directors.
21. Severability. It is the intent of the Board of Directors that
Incentive Stock Options granted pursuant to the terms of this Plan shall qualify
for treatment under Section 422A of the Code as incentive stock options. To that
end, should any provision of this Plan be determined to invalidate such
incentive stock option treatment, such provision shall not be a part of -this
Plan, and shall be severable from and shall not affect the remaining provisions
of this Plan.
CERTIFICATE OF CORPORATE SECRETARY
I hereby certify that the foregoing 1988 Stock Option Plan was
approved and adopted by the Board of Directors of lomed, Inc. on April 15, 1988.
/s/ Joel D. Kell
Secretary
JMW ACQUISITION CO.
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT is made as of August 4, 1987,
by and among JMW Acquisition Co., a Utah corporation (the "Company"), Motion
Control, Inc., a Utah corporation ("MCI"), and the persons and entities listed
on the Schedule of Investors attached hereto as Exhibit A (the "Schedule of
Investors"). The persons and entities listed on the Schedule of Investors are
hereinafter collectively referred to as the "Investors" and each individually as
an "Investor".
A. MCI is a manufacturer and marketer of medical products. Cordis
Corporation ("Cordis") currently owns 2,913,750 shares of the common stock of
MCI, which is approximately 84% of MCI's outstanding common stock. Additionally,
MCI owes Cordis approximately $1,950,933 for loans made by Cordis to MCI,
$70,000 of which was loaned pursuant to a working capital line of credit and
shall be referred to as the "Working Capital Loan", and the remaining $1,880,933
of which shall be referred to as the "Loans". Cordis is also guarantor on a
certain loan in principal amount of $750,000 from the Continental Illinois
National Bank and Trust Company of Chicago to MCI (the "Guarantee").
B. The Company, Cordis and MCI entered into a Class A Convertible
Preferred Share Agreement dated February 1, 1986 (the "Cordis Agreement")
pursuant to which Cordis agreed, in general, to transfer its shares in MCI to
the Company in exchange for certain shares of the Company's preferred stock, and
to cancel the Loans, upon the closing of a financing in which the Company raised
at least $750,000 and upon the simultaneous purchase of shares of the Company's
common stock by certain subscribers in accordance with paragraph 3 of the Cordis
Agreement, all on the terms and conditions set forth in the Cordis Agreement.
C. The Investors other than Cordis (the "New Investors") desire to
purchase $1,500,000 of the Company's preferred stock, and the Company desires to
sell such preferred stock to the New Investors, on the terms and conditions set
forth herein.
D. In light of such investment, and as contemplated by the Cordis
Agreement, Cordis desires to transfer all of its shares in MCI to the Company in
exchange for certain shares of the Company's preferred stock, and to cancel the
Loans, on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1 Authorization. The Company will have authorized as of the
Closing (as defined below) the issuance pursuant to the terms and conditions
hereof of 4,215,618 shares of preferred stock, par value $0.01 per share, of
which 67,200 shares shall be designated Series A Preferred Stock (the "Series A
Stock"), 3,975,618 shares shall be designated Series B Preferred Stock (the
"Series B Stock"), and 172,800 shares shall be designated Series C Preferred
Stock (the "Series C Stock") (the Series A Stock, Series B Stock and Series C
Stock to be referred to collectively as the "Preferred Stock"), having the
rights, preferences and privileges set forth in the Revised Articles of
Incorporation (the "Revised Articles") attached hereto as Exhibit B.
1.2 Issuance and Sale. The Company shall issue and sell to
each Investor, and each Investor shall purchase from the Company, the number of
shares of Preferred Stock set forth opposite such Investor's name on Exhibit A
to this Agreement (all shares of Preferred Stock purchased hereunder being
collectively hereinafter referred to as the "Purchased Shares"). The
consideration for the Series B Stock shall be $0.3773 per share. The aggregate
consideration for the Series A Stock and Series C Stock, all of which is being
purchased by Cordis, and the release of Cordis from its obligations under the
Guarantee, shall be the transfer by Cordis to the Company of all shares in MCI
held by Cordis and the assignment to the Company of all of Cordis' right title
and interest in and to the Loans, all on the terms and conditions set forth in
this Agreement. The Company's agreements hereunder with each of the Investors
are separate agreements, and the sales of Preferred Stock to each of the
Investors hereunder are separate sales.
2. CLOSING. The purchase and sale of the Purchased Shares shall take
place at the offices of Fenwick, Davis & West, Two Palo Alto Square, Palo Alto,
CA 94306, at 1:00 p.m., on August 4, 1987, or at such other time and place as
the Company and the Investors mutually agree upon in writing (which time and
place are designated as the "Closing"). At the Closing, the Company shall
deliver to each Investor a certificate representing the Purchased Shares that
such Investor is purchasing hereunder against delivery to the Company by each
New Investor of the full purchase price of such Purchased Shares, which, shall
be paid in accordance with reasonable instructions from the Company provided to
each New Investor, in writing, at least two business days prior to the Closing,
and against delivery to the Company by Cordis of share certificates representing
all shares of MCI held by Cordis, properly endorsed for transfer to the Company,
free and clear of any liens or encumbrances. Additionally, Cordis shall deliver
to the Company the promissory note(s) evidencing the Loans endorsed and assigned
to the Company. The Company shall provide Cordis with evidence satisfactory to
Cordis that it has been released from the Guarantee.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MCI. The Company
and MCI each hereby represent and warrant, jointly and severally, to each
Investor, that, except as expressly set forth on the Schedule of Exceptions
("Schedule of Exceptions") attached hereto as Exhibit C, (which exceptions shall
be deemed to be representations and warranties as if made hereunder) the
statements in the following paragraphs of this Section 3 are all true and
correct:
3.1 Organization, Good Standing and Qualification. The Company
and MCI are each a corporation duly organized, validly existing and in good
standing under the laws of the State of Utah with all requisite corporate power
and authority to own their respective properties and assets, and to carry on
their business as now conducted and as proposed to be conducted in that certain
Iomed Systems, Inc. Five Year Business Plan 1987-1992, heretofore furnished to
each of the Investors and furnished to Fenwick, Davis & West, Investors'
counsel, on May 27, 1987 (the "Business Plan"). The Company and MCI are both
duly qualified to transact intrastate business in the State of Utah and neither
the Company nor MCI is required to be qualified to do business as a foreign
corporation in any other jurisdiction.
3.2 Capitalization.
(a) The Company. Immediately prior to the Closing,
the authorized capitalization of the Company shall consist of:
(i) Preferred Stock. A total of 4,215,618
shares of Preferred Stock; 67,200 of which shall be designated Series A Stock;
3,975,618 of which shall be designated Series B Stock; and 172,800 of which
shall be designated Series C Stock. None of the Preferred Stock shall be issued
or outstanding. The rights, preferences and privileges of the Preferred Stock
will be as stated in the Revised Articles.
(ii) Common Stock. A total of 15,000,000
shares of common stock, $0.01 par value per share ("Common Stock"), of which
500,000 shares shall be issued and outstanding.
(iii) Options, Subscription Agreements,
Reserved Shares. Except for (A) the conversion privileges of the Preferred
Stock, and (B) certain Subscription Agreements to purchase 3,313,195 shares of
Common Stock (the "Subscription Agreements") which were entered into by the
Company in accordance with the specific terms, conditions and requirements of
the Cordis Agreement, there are not outstanding any options, warrants, rights,
(including conversion or preemptive rights, or rights of first refusal) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of the Company's capital stock. Except as to the
3,313,195 shares of Common Stock subject to purchase pursuant to the
Subscription Agreements, none of the Company's outstanding capital stock, or
stock issuable on exercise or exchange of any outstanding options, warrants or
rights, is subject to any rights of first refusal or other rights to purchase
such stock (whether in favor of the Company or any other person), pursuant to
any agreement or commitment of the Company.
(iv) Outstanding Shareholders, Option
Holders and Subscription Agreement Holders. Attached hereto as part of Exhibit D
is a complete list of all outstanding shareholders, option holders, parties to
Subscription Agreements, and other security holders of the Company immediately
prior to the Closing.
(b) MCI. Immediately prior to the Closing, the
authorized capitalization of the MCI shall consist of:
(i) Preferred Stock. A total of 100,000
shares of preferred stock, $0.50 par value per share ("MCI Preferred Stock"),
none of which shall be designated or issued and outstanding.
(ii) Common Stock. A total of 10,000,000
shares of common stock, $0.01 par value per share ("MCI Common Stock"), of which
3,487,875 shares shall be issued and outstanding, and 100,000 issued and held in
treasury.
(iii) Options, Subscription Agreements
Reserved Shares. There are hot outstanding any options, warrants, rights,
(including conversion, preemptive rights or rights of first refusal) or
agreements for the purchase or acquisition from MCI of any shares of its capital
stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of MCI's capital stock. None of the outstanding
capital stock, or stock issuable on exercise or exchange of any outstanding
options, warrants or rights, is subject to any rights of first refusal or other
rights to purchase such stock (whether in favor of the MCI or any other person),
pursuant to any agreement or commitment of MCI.
(iv) Outstanding Shareholders and Option
Holders and Subscription Agreement Holders. Attached hereto as part of Exhibit D
is a complete list of all outstanding shareholders, option holders, and other
security holders of MCI immediately prior to the Closing.
(c) Post-Closing Shareholder Status. Attached hereto
as part of Exhibit D is a complete list of all shareholders, option holders and
other security holders of the Company and MCI immediately after the Closing.
3.3 Subsidiaries. The Company and MCI do not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, joint venture, association, or other business entity; except that,
contemporaneously with the Closing, the Company will acquire all right, title
and interest in and to not less than 95% of the issued and outstanding capital
stock of MCI, and all options, warrants, rights or agreements for the purchase
or acquisition from MCI of any shares of its capital stock, or any securities
convertible into or ultimately exchangeable or exercisable for any shares of
MCI's capital stock (except for options and warrants to purchase a total of
25,400 shares of MCI Common Stock).
3.4 Due Authorization.
(a) All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, and the Shareholder Agreement referred
to in Section 5.4 hereof (the "Shareholder Agreement"), the performance of all
obligations of the Company hereunder and under the Shareholder Agreement, and
the authorization, issuance (or reservation for issuance) and delivery of all of
the Purchased Shares being sold hereunder and of the Common Stock issuable on
conversion of the Purchased Shares (the "Conversion Shares") has been taken or
will be taken prior to the Closing, and this Agreement and the Shareholder
Agreement each constitute a valid and legally binding obligation of the Company,
enforceable in accordance with their respective terms, except as may be limited
by general principles of equity or by bankruptcy or similar laws affecting the
rights of creditors generally;
(b) all corporate action on the part of MCI, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, and the performance of all obligations of MCI
hereunder has been taken or will be taken prior to the Closing and this
Agreement constitutes a valid and legally binding obligation of MCI, enforceable
in accordance with its terms, except as may be limited by general principles of
equity or by bankruptcy or similar laws affecting the rights of creditors
generally.
3.5 Valid Issuance of Stock.
(a) The Purchased Shares, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable. The
Conversion Shares have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Revised Articles, will be duly and
validly issued, fully paid and nonassessable. Based in part on the
representations made by the Investors in Section 4 hereof, the Purchased Shares
and, based on current facts and laws, the Conversion Shares, will be issued in
full compliance with all applicable federal and state securities laws.
(b) The outstanding shares of Common Stock of the
Company are all duly and validly issued, fully paid and nonassessable, and such
shares of Common Stock and all outstanding options, warrants, and other
securities of the Company have been issued in full compliance with the
registration requirements of the 1933 Act and the registration and qualification
requirements of all applicable state securities laws.
(c) The outstanding shares of Common Stock of MCI are
all duly and validly issued, fully paid and nonassessable.
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part of
the Company or MCI is required in connection with the consummation of the
transactions contemplated by this Agreement, or the Shareholder Agreement,
except for (i) any filing which may be-required pursuant to the Utah Securities
Laws (the "Law"), and the rules thereunder, and (ii) such other qualifications
or filings under the United States Securities Act of 1933 (the "1933 Act") and
the regulations thereunder and all other applicable federal and state securities
laws as may be required in connection with the transactions contemplated by this
Agreement. All such qualifications and filings, if required, will be listed on
the Schedule of Exceptions, and in the case of qualifications, will be effective
on the Closing date and, in the case of filings, will be made within the time
prescribed by law.
3.7 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the best of the Company's and MCI's
knowledge, currently threatened against the Company or MCI or their respective
activities, properties or assets or, to the best of the Company's and MCI's
knowledge, against any officer, director, or employee of the Company or MCI, nor
is any officer of the Company or MCI aware of any factual or legal basis for any
such action, suit, proceeding, claim, arbitration or investigation, including,
without limitation, actions pending or, to the best of the Company's or MCI's
knowledge, threatened (or any basis therefor known to the Company or MCI)
relating to the prior employment of any of the Company's or MCI's employees or
consultants, their use in connection with the Company's or MCI's business, of
any information or techniques allegedly proprietary to any of their former
employers or clients, or their obligations under any agreements with prior
employers or clients. To the best of the Company's and MCI's knowledge, none of
the employees, officers or directors of the Company or MCI are subject to any
agreement with any of their former employers regarding proprietary information
of such former employers. Neither the Company nor MCI is a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality and there is no action, suit,
proceeding, claim, arbitration or investigation by the Company or MCI currently
pending or which the Company or MCI intends to initiate.
3.8 Employee Invention and Trade Secret Agreement. Each
employee and officer of the Company and MCI, and each consultant of the Company
and MCI, has entered into and executed an Invention and Trade Secret Agreement
in the forms attached hereto as Exhibit E-1 and E-2, respectively; provided,
however, that non-officer employees and consultants not involved in the creation
or development of inventions, improvements, works of authorship, formulas,
processes, computer programs, databases or trade secrets need only sign a Non
Disclosure Agreement in the form attached hereto as Exhibit E-3. To the best of
the Company's and MCI's knowledge, none of the employees, officers or
consultants of the Company or MCI are in violation of such agreements.
3.9 Status of Proprietary Assets. The Company and MCI have
full right, title and ownership of all patents, patent applications, trademarks,
service marks, trade names, copyrights, trade secrets, confidential and
proprietary information, compositions of matter, formulas, designs, proprietary
rights, know-how and processes (all of the foregoing collectively hereinafter
referred to as the respective "Proprietary Assets") necessary to enable them to
produce and market their current products and services- and proposed products
and services described in the Business Plan (the "Products") and to conduct
their businesses as now conducted and as proposed to be con- ducted as described
in the Business Plan, without any conflict with or infringement of the rights of
others. A complete list of all Proprietary Assets of the Company and of MCI is
included in Exhibit C. No third party has any ownership right, title, interest,
claim in or lien on any of the Proprietary Assets and the Company and MCI have
taken, and in the future the Company and MCI will take, all steps necessary to
preserve the secrecy of all of their Proprietary Assets, except those for which
disclosure is required for legitimate business or legal reasons. The Company and
MCI have and will maintain in place systems to preserve their rights in, and the
secrecy of, the Proprietary Assets, and will protect their rights in the
Proprietary Assets. There are no outstanding options, licenses, or agreements of
any kind relating to any Proprietary Asset, nor is the Company nor MCI bound by
or a party to any option, license or agreement of any kind with respect to any
patent, trademark, service mark, trade name, copyright, trade secret, license,
information, composition of matter, formula, design, proprietary right, know-how
or process of any other person or entity. Neither the Company nor MCI is
obligated to pay any royalties or other payments to third parties with respect
to the marketing, sale, license or use of any Proprietary Asset. Neither the
Company nor MCI has received any communications alleging that the Company or MCI
has violated or, by conducting their respective businesses as proposed, would
violate any patent, trademark, service mark, trade name, copyright or trade
secret, license, composition of matter, formula, design, or other proprietary or
contractual rights of any other person or entity. Neither the Company nor MCI is
aware that any employee of the Company or MCI is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or MCI or to promote the interests
of the Company and MCI or that would conflict with the Company's or MCI's
business as proposed to be conducted. To the best of the Company's and MCI's
knowledge, neither the execution nor delivery of this Agreement nor the carrying
on of the Company's or MCI's business by the employees of the Company or MCI,
nor the conduct of the Company's or MCI's business as proposed, will conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such employees is now obligated. Neither the Company nor MCI believes it is
or will be necessary to utilize any inventions of any employees of the Company
or MCI (or persons either currently intends to hire) made prior to their
employment by the Company or MCI. Notwithstanding the foregoing, the Company's
and MCI's interest in the Proprietary Assets-are subject to certain rights of
the University of Utah, as specifically described in the Schedule of Exceptions
attached hereto as Exhibit C.
3.10 Compliance with Law and Charter Documents. Neither the
Company nor MCI is in violation or default of any provisions of its Articles of
Incorporation or Bylaws, and, except for any violations which individually and
in the aggregate would have no material adverse impact on the Company's or MCI's
businesses, the Company and MCI are in compliance with all applicable statutes,
laws, regulations and executive orders of the United States of America and all
states, foreign countries or other governmental bodies and agencies having
jurisdiction over the Company's or MCI's business or properties. Neither the
Company nor MCI has received any notice of any such violation of such statutes,
laws, regulations or orders which has not been remedied prior to the date
hereof. The execution, delivery and performance of this Agreement, the
Shareholder Agreement and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or default, or be in
conflict with or constitute, with or without the passage of time or the giving
of notice or both, either a default under the Company's or MCI's Articles of
Incorporation or Bylaws, or a material default under any statutes, laws,
regulations or orders, or any agreement or contract of the Company or MCI, or an
event which results in the creation of any lien, charge or encumbrance upon any
asset of the Company or MCI.
3.11 Material Agreements. Set forth on Exhibit F attached
hereto is a complete list of all agreements, contracts, leases, licenses,
instruments and commitments to which the Company or MCI is a party or is bound
which, individually or in the aggregate, are material to the business,
properties, financial conditions or results of operations of the Company or MCI;
provided that for purposes of this Section 3.11 only, no agreement under which
the only remaining obligation of the Company or MCI is to-make a payment of
money in the amount of $10,000 or less will be deemed to be material to its
business, properties, financial condition or results of operations if the
failure to make such payment will not result in the loss by the Company or MCI
of any rights that are material to the conduct of its business (provided that
such agreements, in the aggregate, do not require payment of more than
$100,000). Neither the Company nor MCI has breached, nor does the Company or MCI
have any knowledge of any claim or threat that the Company or MCI has breached,
any term or condition of (i) any agreement, contract, lease, license, instrument
or commitment set forth in Exhibit F, or (ii) any other agreement, contract,
lease, license, instrument or commitment if any such breach or breaches, whether
individually or in the aggregate, would have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company or MCI. Each agreement set forth in Exhibit F is in full force and
effect and, to the Company's and MCI's knowledge, no other party to such
agreement is in material default thereunder. Neither the Company nor MCI is a
party to any agreement that restricts its ability to market or sell any Product
(whether by territorial restriction or otherwise).
3.12 Certain Actions. Since the Balance Sheet Date (as defined
in Section 3.17) neither the Company nor MCI has (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess of $10,000 or
in excess of $25,000 in the aggregate, (iii) made any loans or advances to any
person, other than advances made in the ordinary course of business (none of
which are material), (iv) sold, exchanged or otherwise disposed of any assets or
rights, other than the sale of inventory in the ordinary course of business, or
(v) entered into any transactions with any of their respective officers,
directors or employees or any entity controlled by such individuals.
3.13 Disclosure. The Company and MCI have provided each
Investor with all the information that such Investor has requested in writing in
connection with its purchase of the Purchased Shares. Neither this Agreement nor
any exhibit hereto or certificates of any officer of the Company or MCI
delivered at the Closing (when all of such written information is read together)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading. The
Business Plan has been prepared in a good faith effort to describe the Company's
present and proposed products, operations and projected growth, and neither the
Company nor any officer of the Company is aware of any untrue statement of a
material fact in the Business Plan, or any omission to state a material fact
necessary to be included in the Business Plan to make the statements therein not
misleading except for information otherwise provided to the Investors in
writing. With respect to any financial projections contained in the Business
Plan, the Company represents only that such projections were prepared in good
faith and that the Company reasonably believes there is a reasonable basis for
such projections.
3.14 Registration Rights. Except as provided in that certain
Employment and Consultation Agreement dated June 1, 1986 between MCI and Stephen
C. Jacobsen, and in the Cordis Agreement (which will be null and void as of the
Closing) and in Section 7 of this Agreement, neither the Company nor-MCI has
granted or agreed to grant to any person or entity any rights (including
piggyback registration rights) to have any securities of the Company or MCI
registered with the United States Securities and Exchange Commission ("SEC") or
any other governmental authority.
3.15 Corporate Documents. The Revised Articles of
Incorporation and Bylaws of the Company and the Articles of Incorporation and
Bylaws of MCI are in the form previously provided to Fenwick, Davis & West,
special counsel to the Investors.
3.16 Title to Property and Assets. Except as set forth on the
Financial Statements attached hereto as Exhibit G, the Company and MCI own their
respective properties and assets free and clear of all mortgages, liens,
encumbrances, security interests and claims except for liens, encumbrances and
security interests rich arise in the ordinary course of business and do not
affect heir respective material properties. With respect to the property and
assets they each lease, the Company and MCI are in compliance with such leases
and hold valid leasehold interests free of any liens, encumbrances, security
interests or claims of any party other than the lessors of such property and
assets.
3.17 Financial Statements. MCI has delivered to each Investor
its unaudited financial statements (consisting of a balance sheet, income
statement and statement of changes in financial position) for the fiscal year
ended June 30, 1986. MCI has also delivered to each Investor its unaudited,
interim financial statements (consisting of a balance sheet, income statement
and statement of changes in financial position) for the period ended May 31,
1987. The Company has delivered to each Investor its unaudited interim balance
sheet at May 31, 1987. May 31, 1987 is hereinafter referred to as the "Balance
Sheet Date". Copies of such documents are attached hereto as Exhibits G-1, G-2
and G-3 (the respective "Financial Statements"). The Financial Statements
present fairly the financial condition and operating results of the Company and
of MCI as of the dates and for the periods indicated therein, in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated except that the interim statements are subject
to customary year-end adjustments permitted or required by generally accepted
accounting principles (which, as to MCI, are currently estimated to decrease net
income by approximately $20,000). Except as set forth in the Financial
Statements, neither the Company nor MCI has any liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the Balance Sheet Date and (ii) obligations under
contracts and commitments incurred in the ordinary course of business which are
not required-under generally accepted accounting principles to be reflected in
the Financial Statements and which, individually and in the aggregate, are not
material to the financial condition or operating results of the Company or MCI.
The Company and MCI maintain and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
3.18 Changes Since Date of Financial Statements. Since the
Balance Sheet Date there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company or MCI from that reflected in the
Financial Statements, except changes in the ordinary course of business which
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company or
MCI (as presently conducted and as proposed to be conducted);
(c) any waiver by the Company or MCI of a valuable
right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Company or MCI, except such a
satisfaction, discharge or payment made in the ordinary course of business that
is not material to the assets, properties, financial condition, operating
results or business of the Company;
(e) any material change or amendment to a material
contract or arrangement by which the Company or MCI or any of their respective
assets or properties are bound or subject, except for changes or amendments
which are expressly provided for in this Agreement;
(f) any material change in any compensation
arrangement or agreement with any present or prospective employee; or
(g) any other event or condition of any character
which the Company or MCI has reason to believe would materially and adversely
affect the assets, properties, financial condition, operating results or
business of the Company or MCI.
3.19 ERISA Plans. Neither the Company nor MCI has any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974,
as amended.
3.20 Tax Returns and Payments. The Company and MCI have timely
filed all tax returns and reports required by law and have never been audited by
any state or federal taxing authority. All tax returns and reports of the
Company and MCI are true and correct in all material respects. The Company and
MCI have paid all taxes and other assessments due, except those, if any,
contested by them in good faith which are listed in the Schedule of Exceptions.
The provisions for taxes of the Company and MCI as shown in the Financial
Statements are adequate for taxes due or accrued as of the date thereof.
3.21 Insurance. The Company and MCI have in full force and
effect (i) fire and casualty insurance policies, with extended coverage,
sufficient in amount (subject to reasonable deductibles) to allow them to
replace any of their respective properties that might be damaged or destroyed
(except for properties that, in the aggregate, are not material) and (ii) such
amount of product liability insurance as the Board of Directors deems
reasonable.
3.22 Labor Agreements and Actions. Neither the Company nor MCI
is bound by or subject to any contract, commitment or arrangement with any labor
union, and no labor union has requested or, has sought to represent any of the
employees, representatives or agents of the Company or MCI. There is no strike
or other labor dispute involving the Company or MCI pending or, to the knowledge
of the Company and MCI, threatened, nor is the Company or MCI aware of any labor
organization activity involving the Company's or MCI's employees. Neither the
Company nor MCI is aware that any officer, employee or consultant intends to
terminate their employment or relationship with the Company or MCI, nor does the
Company or MCI have any present intention to terminate the employment or
relationship of any of the foregoing.
3.23 Real Property Holding Corporation Status. Since their
respective dates of incorporation (and that of-their earliest predecessor)
neither the Company nor MCI has been a "United States real property holding
corporation", as defined in Section 897(c)(2) of the Internal Revenue Code of
1986 (the "Code"), and in Section 1.897-2(b) of the Treasury Regulations issued
thereunder (the "Regulations").
3.24 Shareholder Agreement. Except for the Shareholder
Agreement referred to in Section 5.4, and the Cordis Agreement (which will be
null and void upon the Closing) neither the Company nor MCI has any agreement,
obligation or commitment with respect to voting of any shares of its capital
stock, and to the best of the Company's and MCI's knowledge, there is no voting
agreement or other arrangement among its shareholders with respect to the voting
of any shares of its capital stock.
3.25 FDA Approval. After due investigation, (i) the Company
and MCI have no reason to believe that the United States Food and Drug
Administration ("FDA") will ultimately prohibit the marketing, sale, license or
use in the United States of any of the Products and (ii) neither the Company nor
MCI know of any product or process which the FDA has prohibited from being
marketed or used in the United States which in function and composition is
substantially similar to any Product.
4. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Except as to Section
4.8, which shall apply only to Cordis, each Investor hereby represents and
warrants to the Company, severally and not jointly, that:
4.1 Authorization. This Agreement constitutes its valid and
legally binding obligation. Each Investor represents that it has full power and
authority to enter into this Agreement. Each Investor has duly and validly taken
all corporate or partnership action necessary for the execution, delivery and
performance of this Agreement by such Investor.
4.2 Purchase for Own Account. The Purchased Shares to be
purchased by such Investor hereunder and the Conversion Shares issuable upon
conversion thereof (collectively hereinafter referred to as the "Securities")
will be acquired for investment for such Investor's own account, not as a
nominee or agent, and not with a view to the public resale or distribution
thereof within the meaning of the 1933 Act, and such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same.
4.3 Disclosure of Information. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Purchased Shares to be purchased by it hereunder. Such
Investor further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Purchased Shares. The foregoing, however, does not in any way
limit or modify the representations and warranties made by the Company and MCI
in Section 3.
4.4 Investment Experience. Such Investor has experience as an
investor in securities of companies in the development stage and acknowledges
that it is able to fend for itself, can bear the economic risk of its investment
in the Purchased Shares and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of this
investment in the Purchased Shares. Such Investor also represents that it has
not been organized for the purpose of acquiring the Purchased Shares and that
the amount of this investment does not exceed 10%-of such Investor's net worth.
4.5 Restricted Securities. Such Investor understands that the
Securities such Investor is purchasing are characterized as "restricted
securities" under the 1933 Act inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under the 1933
Act and applicable regulations thereunder such Securities may be resold without
registration under the 1933 Act only in certain limited circumstances. In this
connection, each Investor represents that it is familiar with Rule 144 of the
SEC, as presently in effect, and understands the resale limitations imposed
thereby and by the 1933 Act.
4.6 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, each Investor further agrees not
to make any disposition of all or any portion of the Purchased Shares or the
Conversion Shares unless and until:
(a) there is then in effect a registration statement
under the 1933 Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii)
such Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Purchased Shares or Conversion Shares in accordance with SEC
Rule 144, or (ii) for any transfer of any Purchased Shares or Conversion Shares
by an Investor that is a partnership to the estate of any such partner ! or for
the transfer by gift, will or intestate succession by any partner to his or her
spouse or lineal descendants or ancestors, provided that in each of the
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 4 to the same extent as if the transferee were an original Investor
hereunder.
4.7 Legends. It is understood that the certificates evidencing
the Purchased Shares and the Conversion Shares may bear the legend set forth
below, together with other legends required by the laws of the State of Utah or
any other state:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
-ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
The legend set forth above shall be removed by the Company from any certificate
evidencing Purchased Shares or Conversion Shares upon delivery to the Company of
an opinion by counsel, in form and substance reasonably satisfactory to the
Company, that a registration statement under the 1933 Act is at that time in
effect with respect to the legended security or that such security can be freely
transferred in a public sale without such a registration statement being in
effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Purchased Shares or Conversion Shares
were issued.
4.8 Cordis Representations. Cordis hereby represents and
warrants to the Company, MCI and the New Investors that:
(a) the shares of MCI Common Stock being transferred
to the Company in connection with the Closing are the only securities of MCI
held by Cordis, or in which Cordis has any interest, and such shares shall be
transferred to the Company free and clear of any liens or encumbrances.
(b) it owns no securities in the Company, other than
the Series A Stock and Series C Stock to be issued pursuant to this Agreement.
(c) it has not assigned or otherwise transferred any
part of its interest in the Loans or Working Capital Loan, and upon the Closing
and repayment of the Working Capital Loan-an, neither the Company nor MCI will
owe any sums to Cordis; and
(d) upon the Closing the Cordis Agreement will be
null and void, and of no further effect.
(e) the consummation of the transactions contemplated
herein do not violate any obligation of the Company or MCI to Cordis.
Except for the Subscription Agreements referred to in the Cordis Agreement,
which shall remain in effect, Cordis-hereby waives, to and including the date of
the Closing, each and every provision of the Cordis Agreement that may be in
conflict with the terms or conditions of this Agreement, or which may be
necessary, required or appropriate for MCI or the Company to carry out and
perform their obligations under this Agreement.
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
each Investor under Sections 1.2 and 2 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
thereto, which consent may be given by written, oral or telephonic communication
to special counsel to the Investors:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company and MCI contained in Section 3
shall be true and correct on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of the Closing.
5.2 Performance. The Company and MCI shall have performed and
complied with all material agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by each of
them on or before the Closing and the Company shall have obtained all approvals,
consents and qualifications necessary to complete the purchase and sale of the
Purchased Shares described herein.
5.3 Certificate Effective. The Revised Articles shall have
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and shareholders, and shall have been duly filed with the Secretary
of State of the State of Utah.
5.4 Shareholder Agreement. Stephen Jacobsen and Stephen Ober
shall have executed and delivered the Shareholder Agreement in the form attached
hereto as Exhibit H.
5.5 Company Compliance Certificate. The Company shall have
delivered to the Investors at the Closing a certificate signed on its behalf by
the President of the Company certifying that the conditions specified in
Sections 5 have been fulfilled and stating that there shall have been no
material adverse change in the business, affairs, prospects, operations,
properties, assets or condition of the Company not previously disclosed to the
Investors in writing.
5.6 Securities Exemptions. The offer and sale of the Purchased
Shares to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, requirements of the Utah Securities
Law and the registration and/or qualification requirements of all other
applicable securities laws.
5.7 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to each Investor and to the Investors' special counsel, and they shall
each have received all such counterpart originals and certified or other copies
of such documents as they may reasonably request.
5.8 Ownership of Technology. Each Investor shall have received
from the Company and MCI all documents and other materials requested by it for
the purpose of examining and determining the Company's and MCI's rights in and
to any technology, the Products, and Proprietary Assets now used, proposed to be
used in, or necessary to, the Company's or MCI's business as now conducted and
as proposed to be conducted as described in the Business Plan; and the status of
the Company's and MCI's ownership rights in and to all such technology, the
Products and Proprietary Assets shall be satisfactory to each Investor and to
special counsel to the Investors.
5.9 Bylaws. The Bylaws of the Company shall have been duly
amended in the form attached hereto as Exhibit J by the Company by all necessary
corporate action of its Board of Directors and shareholders.
5.10 Board of Directors. Effective at the Closing, the
directors of the Company shall be Messrs. Jacobsen, Ober, Kellman, Wardle and
Weersing.
5.11 Certified Charter Documents. There shall have been
delivered to special counsel to the Investors a copy of the Revised Articles and
the Bylaws of the Company (as amended through the date of the Closing) and of
the Articles of Incorporation and Bylaws of MCI, certified by the Secretary of
the Company or MCI as applicable, as true and correct copies thereof as of the
time immediately prior to the Closing.
5.12 No Material Change. There shall have been no material
adverse change since the Balance Sheet Date in the business, properties,
financial condition or results of operations of the Company or MCI.
5.13 Opinion of Company Counsel. Each Investor shall have
received from Hansen and Andersen, counsel for the Company and MCI, an opinion,
dated as of the date of the Closing, in the form attached as Exhibit I.
5.14 Acquisition of MCI. Pursuant to and in accordance with
the terms and conditions of this Agreement and the Subscription Agreements, the
Company shall acquire, contemporaneously with the Closing, at least 95% of the
issued and outstanding capital stock of MCI and all outstanding options,
warrants, other securities, or rights to purchase or otherwise obtain any
capital stock of MCI (except for options and warrants to purchase a total of
25,400 shares of MCI Common Stock).
5.15 Release of Guaranty. Cordis shall have been released from
any obligation under the Guarantee, and the Company and/or MCI shall have
provided evidence of such release to Cordis.
5.16 Working Capital Loan. Cordis shall have been repaid the
Working Capital Loan and neither the Company nor MCI shall owe any amounts to
Cordis.
5.17 MCI Compliance Certificate. MCI shall have delivered to
the Investors at the Closing a certificate signed on its behalf by the President
of MCI certifying that the conditions specified in Subsections 5.1, 5.2, 5.7,
5.8, 5.11, 5.12, 5.13, 5.14, 5.15, and 5.16 have been fulfilled and stating that
there shall have been no material adverse change in the business, affairs,
prospects, operations, properties, assets, or condition of MCI not previously
disclosed to the Investors in writing.
5.18 Cordis Transaction. Cordis shall have transferred all of
its shares in MCI, and assigned the Loans, to the Company, as set forth in
Sections 1.2 and 2.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by such
Investor:
6.1 Representations and Warranties. The representations and
warranties of the Investors contained in Section 4 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investors shall have
delivered the purchase price specified for each such Investor in Section 2 and
Exhibit A.
6.3 Certificate Effective. The Revised Articles shall have
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and shareholders, and shall have been duly filed with the Division
of Corporations and Commercial Code of the State of Utah.
6.4 Securities Exemptions. The offer and sale of the Purchased
Shares to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualification requirements of the
Law and the registration and/or qualification requirements of all other
applicable securities laws.
6.5 Bylaws. The Bylaws of the Company shall have been duly
amended in the form attached hereto as Exhibit J by the Company by all necessary
corporate action of its Board of Directors and shareholders.
7. REGISTRATION RIGHTS. The Company covenants and agrees with each
Investor as follows:
7.1 Definitions. For purposes of this Section 7:
(a) The terms "register", "registered," and of
registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the 1933 Act, and
the declaration or ordering of effectiveness of such registration statement or
document;
(b) The term "Registrable Securities" means the
Common Stock issued or issuable upon conversion of any of the Purchased Shares
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, the Purchased Shares and/or the other securities described above
in this paragraph (b), excluding in all cases, however, any Registrable
Securities acquired in a transaction or series of transactions in which the
rights under this Section 7 were not assigned or were not assignable;
(c) The term "Registrable Securities then
outstanding" means the shares of Common Stock which are Registrable Securities
and (i) are then issued and outstanding or (ii) are then issuable pursuant to
then exercisable or convertible securities;
(d) The term "Holder" means any person owning of
record Registrable Securities that have not been sold to the public pursuant to
an effective registration statement under the 1933 Act or exemption therefrom;
provided that a holder of Purchased Shares or other securities convertible into,
or exercisable or exchangeable for, Registrable Securities shall be considered
to be a Holder of the Registrable Securities into which such securities can be
converted into, or exercised or exchanged for, provided, however, that in no
event shall the Company be required to register any securities except the
Registrable Securities; and
(e) The term "Form S-3" means such form under the
1933 Act as in effect on the date hereof or any successor registration form
under the 1933 Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
7.2 Demand Registration.
(a) Request for Registration. If the Company shall
receive at any time after the earlier of (i) July 15, 1990, or (ii) six (6)
months after the effective date of the first registration statement filed under
the 1933 Act for a public offering of securities of the Company (other than a
registration statement relating solely to a merger, recapitalization or
reorganization), a written request from the Holders of at least fifty percent
(50%) of the Registrable Securities then outstanding that the Company file a
registration statement under the 1933 Act covering the registration of all or a
portion of the Registrable Securities then outstanding held by such Hulders, and
the aggregate gross sales price of all Registrable Securities expected to be
registered is reasonably expected to be greater than $1,000,000, then the
Company shall, within ten (10) days of the receipt thereof, give written notice
of such request to all Holders and shall, subject to the limitations of
subsection 7.2(b), effect, as soon as practicable, the registration under the
1933 Act of all Registrable Securities which the Holders request to be
registered within twenty (20) days of the mailing of such notice by the Company
in accordance with Section 9.6.
(b) Underwriting Requirements. If the Holders
initiating the registration (the "Initiation Holders") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 7.2, and the Company shall include such information in the written
notice referred to in subsection 7.2(a). In such event, the right of any Holder
to include such Holder's Registrable Securities in a registration effected
pursuant to this Section 7.2 shall be conditioned upon such Holder's ,
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 7.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Initiating Holders and approved by the
Company, which approval shall not be unreasonably withheld. Notwithstanding any
other provision of this Section 7.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
Registrable Securities to be underwritten, then the Initiating Holders shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all Holders
thereof in proportion (as nearly as practicable) to the amount of Registrable
Securities then outstanding owned by each Holder.
(c) Number of Demand Registrations. The Company is
obligated to effect only two (2) such registrations pursuant to this Section
7.2.
(d) Expenses of Demand Registration. All expenses
other than underwriting discounts and commissions incurred in connection with
registrations pursuant to this Section 7.2, and related filings and
qualifications, including (without limitation) all registration, filing and
qualification fees, printer's and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements (up to
$10,000) of one counsel for the selling Holders shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to this Section 7.2 if
the registration request is subsequently withdrawn at the request of the Holders
of at least 60% of the Registrable Securities to be registered (in which case
the Holders requesting the withdrawal shall bear such expenses, pro rata, based
on the number of Registrable Securities each was to include in the
registration), unless the Holders of at least sixty percent (60%) of the
Registrable Securities then outstanding agree to forfeit their right to one
demand registration pursuant to this Section 7.2; provided further, however,
that if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from that
known to the Holders at the time of their registration request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to this Section 7.2.
7.3 Incidental (Piggyback) Registration.
(a) Request for Registration. If the Company proposes
to register any of its stock or other securities under the 1933 Act in
connection with the public offering of such securities (including for this
purpose a registration effected by the Company for shareholders other than the
Holders but excluding a registration relating solely either to the sale of
securities to employees of the Company pursuant to a stock purchase, stock
option or similar plan, or to a merger, recapitalization, or reorganization),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
9.6, the Company shall, subject to the provisions of Section 7.3(b), cause to be
registered under the 1933 Act all of the Registrable Securities that each such
Holder has requested to be registered.
(b) Underwriting Requirements. In connection with any
offering involving an underwriting of shares being issued by the Company, the
Company shall not be required under this Section 7.3 to include any of a
Holder's Registrable Securities in such underwriting unless such Holder accepts
the terms of the underwriting as agreed upon between the Company and terms and
conditions set forth herein the underwriters selected by it. If the total amount
of securities, including Registrable Securities, requested by security holders
of the Company to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters reasonably believe is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters believe will not jeopardize the
success of the offering. If any securities held by security holders of the
Company are to be included in the offering, Registrable Securities held by any
of the Holders shall be included prior to securities held by any other security
holders (the securities to be included to be apportioned pro rata first among
the Holders of Registrable Securities in proportion, as nearly as practical, to
the amount of Registrable Securities then outstanding owned by each Holder, and
then, if additional securities may be included, among the other selling security
holders according to the total amount of securities entitled to be included
therein owned by each such selling security holder; or in such other proportions
as shall mutually be agreed to by such other selling security holders).
For purposes of the preceding parentheticals concerning apportionment, for any
selling security holder which is a Holder of Registrable Securities and which is
a terms and conditions set forth herein partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
security holder", and any pro rata reduction with respect to such selling
security holder shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
selling security holder, as defined in this sentence.
(c) Expenses of Incidental (Piggyback) Registration.
The Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
registrations pursuant to Section 7.3 for each Holder, including without
limitation all registration, filing, and qualification fees, printers' and
accounting fees relating or apportionable thereto and the reasonable fees and
disbursements (up to $10,000) of one counsel for the selling Holders (as a
group) selected by them, but excluding underwriting discounts and commissions
relating to Registrable Securities. The Company shall have the right to select
the states in which the registration shall be qualified, provided, however, that
if the Holders request qualification in additional states the Company shall use
best efforts to qualify the registration in such states, provided that the
Holders pay any costs directly associated with such additional qualifications.
(d) Company withdrawal of Registration. The Company
shall have no liability to any Holder for the Company's withdrawal of any
registration (other than a registration made pursuant to Section 7.2) as to
which a Holder has registration rights under this Section 7.3, provided such
withdrawal is made in good faith by the Company and not for the purpose of
impairing any Holder's rights under this Section 7.3.
7.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 7.4:
(1) if Form S-3 is not available for such offering by the Holders; (2) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than $250,000; (3) if the Company has successfully effected one
or more registrations on Form S-3 pursuant to this Section 7.4 within the six
(6) month period immediately preceding the date on which the Company receives
from a Holder or Holders a written request to effect a registration pursuant to
this Section 4; (4) if the Company would be required to undertake an audit in
addition to its normal year-end audit, unless the Holders requesting the
registration agree to pay for such audit, or unless the additional audit is
necessitated by the Company's decision to delay the registration as permitted by
the following sentence. Additionally, the Company may postpone a requested S-3
registration for a period of time not to exceed four months, if the Board of
Directors determines in good faith, and so notifies the Holders requesting
registration, that an S-3 registration at the requested time would materially
adversely affect the public market for the Company's securities, provided that
this right may not be used more than once in a given 12-month period.
(c) Subject to the foregoing, the Company shall file
a Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All expenses incurred in connection with
the registrations requested pursuant to this Section 7.4, including (without
limitation) all registration, filing, qualification, printer's and accounting
fees and the reasonable fees and disbursements (up to $5,000) of one counsel for
the selling Holder or Holders (as a group) and counsel for the Company, shall be
borne by the Company. Registrations effected pursuant to this Section 7.4 shall
not be counted as registrations effected pursuant to Sections 7.2 or 7.3.
(d) The Company is obligated to effect only three (3)
such registrations pursuant to this Section 7.4.
7.5 Obligations of the Company. Whenever required under this
Section 7 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
consecutive days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them and covered by a registration statement filed under this Section 7.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, and provided further,
that, in connection with a registration pursuant to Sections 7.2 or 7.4 hereof,
the Company shall not be required to qualify securities in more than 10 states
unless the Holders pay the costs directly associated with such additional
qualifications.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriters of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement as promptly as possible, at any time when
a prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 7, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 7, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated as of
such date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities; provided that the Company need only use its best efforts to furnish
the letter from the Company's accountants described in the immediately preceding
clause (ii).
7.6 Obligations of Holders. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Section 7
that the selling Holders shall furnish to the Company, at their expense, such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities.
7.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
7.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, agents, officers and
directors of each Holder, any underwriter, (as defined in the 1933 Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act") , against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of `a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) 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 (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law in connection with the offering covered by such registration statement; and
the Company will reimburse each such Holder, partner, agent, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided however, that the
indemnity agreement contained in this Section 7.8(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder. Notwithstanding anything to the contrary
contained in this Section 7.8, this indemnity shall not apply to a person
indemnified in this Section 7.8(a) insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in a
prospectus used by such person after the Company has advised such person in
writing that the prospectus is out of date or no longer accurate and the Company
has stated that the use of the prospectus should be discontinued.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each of the
Company's agents, each person, if any, who controls the Company within the
meaning of the 1933 Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages, or -liabilities (joint or several) to which the Company
or any such director, officer, agent, controlling person, underwriter, or other
such Holder, partner or director, officer or controlling person of such other
Holder may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other Holder,
partner, officer, agent, director, or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 7.8(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, (which consent shall not be unreasonably withheld);
and provided further, that in no event shall any indemnity under this Section
7.8(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 7.8 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 7.8,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, shall not relieve such indemnifying party
of any liability to the indemnified party under this Section 7.8, unless and to
the extent that the indemnifying party is materially prejudiced thereby, and the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 7.8.
(d) The foregoing indemnity agreements of the Company
and Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration
statement-in question becomes effective or the amended prospectus filed with the
SEC pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any person if a copy of the Final
Prospectus was furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the 1933 Act.
(e) The obligations of the Company and Holders under
this Section 7.8 shall survive the conversion, if any, of the Purchased Shares,
the completion of any offering of Registrable Securities in a registration
statement under this Section 7, and otherwise.
7.9 Rule 144 Information; Reports Under-1934 Act. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the 1933 Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports
and other documents required of the Company under the 1933 Act and the 1934 Act;
and
(d) furnish to any Holder of Registrable Securities,
forthwith upon request (i) a written statement by the Company that it has
complied with the reporting requirements of SEC Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company), the 1933 Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), or that it qualified as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
7.10 Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee of at least 150,000 of the
Purchased Shares, or an equivalent amount of Registrable Securities, or any
combination thereof. The Company shall be furnished, within a reasonable time
after such transfer, with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned. Notwithstanding the foregoing, rights to
cause the Company to register securities may be assigned to any partner, partner
of a partner, retired partner, shareholder or affiliate of the Company or of a
Holder, or to the spouse, children, grandchildren, parents or siblings of an
Investor, or trust for the benefit of an Investor or any such persons,
regardless of the number of shares transferred.
7.11 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of sixty percent (60%) of the Registrable
Securities then outstanding, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 7.2, 7.3 or 7.4 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of such securities will
not reduce the amount of Registrable Securities of the Holders that are
included, or (b) to make a demand registration which could result in such
registration statement being declared effective prior to one hundred twenty
(120) days after the earlier of either of the dates set forth in the first
sentence of subsection 7.2(a), or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 7.2, or (c) to
have incidental (piggyback) registration rights that conflict with or are prior
or superior to the rights granted to the Holders in Section 7.3.
7.12 Suspension of Registration Rights. Provided that (i) the
Company has previously closed a firm commitment public offering of the Common
Stock of the Company pursuant to a registration statement on Form S-1, filed
with, and declared effective by, the SEC pursuant to the 1933 Act and (ii) there
then exists an active public trading market for the Company's Common Stock, the
registration rights contained in this Section 7 shall be suspended as to any
Holder who: (a) (i) is legally able to sell all such Holder's Registrable
Securities to the public without registration in two (2) consecutive three (3)
month periods pursuant to the provisions of Rule 144 promulgated under the 1933
Act and (ii) owns less than (2%) of the Company's outstanding Common Stock,
calculated as provided in this Section 7.12. In calculating the amount of Common
Stock held by such Holder and the total amount of Common Stock outstanding for
purposes of this Section 7.12, there shall be deemed outstanding all shares of
the Company's Common Stock issuable on conversion, exchange or exercise of any
outstanding securities of the Company.
7.13 Amendment of Registration Rights. Any provision of this
Section 7 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of sixty percent (60%) of the Registrable Securities then outstanding;
provided, however, that no such amendment or waiver that materially and
adversely affects Cordis in a manner substantially different than the New
Investors shall be binding on Cordis without Cordis' approval. Any amendment
or waiver effected in accordance with this Section shall be binding upon each
Holder and the Company and shall treat each Holder on an equal and ratable
basis, unless otherwise agreed to in writing by the adversely treated
Holder(s). By acceptance of any benefits under this Section 7, holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
7.14 Standoff Agreement. Each Holder hereby agrees that, in
connection with the first registration of the Company's Common Stock (or other
securities) covering an underwritten offering of such stock or securities to the
general public, such Holder shall not, to the extent requested by the Company or
the underwriter of such offering, sell or otherwise transfer or dispose (other
than to donees who agree to be similarly bound) of any Registrable Securities
(other than those Registrable Securities which are included, in such
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed ninety
(90) days) from the effective date of the registration statement for such
registration as the Company or such underwriters may specify in writing;
provided, however, that:
(a) such agreement shall be applicable only to the
first registration statement of the Company which covers .shares of Common Stock
(or other securities) to be sold on the Company's behalf to the general public
in an underwritten offering; and
(b) all executive officers and directors of the
Company and all other persons with registration rights (whether or not granted
pursuant to this Agreement) enter into similar agreements.
8. COVENANTS OF THE COMPANY.
8.1 Delivery of Financial Statements.
(a) The Company shall deliver to each Investor, for
so long as such Investor is a holder of Purchased Shares or Conversion Shares,
(1) as soon as available, and in any event within ninety (90) days after the
close of each fiscal year, consolidated balance sheets of the Company and its
subsidiaries, if any, including MCI, as at the end of such year, and
consolidated statements of income, shareholders' equity and changes in financial
position of the Company for such year. setting forth in comparative form the
figures for such year and for the preceding year, all in reasonable detail, and
duly audited by a firm of independent certified public accountants of nationally
recognized standing.
(b) The Company shall deliver to each Investor, for
so long as such Investor is a holder of at least 100,000 Purchased Shares, or
the equivalent number of Conversion Shares, or any combination of the two
equivalent to 100,000 Purchased Shares:
(i) as soon as available, but in any event
within forty-five (45) days prior to the end of each fiscal year, an annual plan
for the Company's next fiscal year, prepared on a monthly basis, including
projected balance sheets, profit and loss statements and sources and
applications of funds and cash flow statements for such months and, as soon as
prepared in final form, any other budgets or revised budgets prepared by the
Company;
(ii) as soon as available, but in any event
within twenty (20) days after the end of each month (except the last month of
the fiscal year), consolidated balance sheets of the Company and its
subsidiaries, if any, including MCI, as at the end of such month, backlog
report, and consolidated statements of income, shareholders' equity and changes
in financial position, and sources and applications of funds and cash flow
statements of the Company and its subsidiaries, if any, including MCI, for such
month, and a report in comparative form showing the figures for such month, the
figures for the corresponding month of the preceding year, and the budgeted
figures for the current month, accompanied by management's analysis of the
results of the month and a statement explaining any differences between budgeted
and actual results; and
(iii) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor or any assignee of the Investor may from time to time reasonably
request.
(c) All financial statements required to be delivered
pursuant to Section 8.1(a) above shall be prepared in accordance with generally
accepted accounting principles consistently applied (except that monthly
financial statements need not comply with footnote requirements and may be
subject to standard year-end audit adjustments, provided that the omission of
such information is not material to an understanding of the Company's financial
situation), shall present fairly the financial condition of the Company and its
subsidiaries, if any, including MCI, and its results of operations for the
period specified, and shall be accompanied by an instrument executed for the
Company by the chief financial officer or chief executive officer of the Company
certifying that such statements comply with the requirements of this Section
8.1(b).
8.2 Inspection Rights. The Company shall permit each Investor,
at such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Investor. At the Company's request, an Investor will sign a
non-disclosure agreement in the form of Exhibit E-3.
8.3 Termination of Covenants. The covenants set forth in
Section 8.1 shall terminate as to Investors and be of no further force or effect
upon the first sale of the Company's Common Stock pursuant to a registration
statement filed by the Company under the 1933 Act in connection with a firm
commitment underwritten offering of such Common Stock to the general public.
8.4 Insurance. The Company shall maintain in full force and
effect insurance policies issued by insurers of recognized responsibility
insuring the Company and its properties and business against such losses and
risks and in such amounts as are deemed adequate for the business of the Company
by its Board of Directors. The Company shall use its best efforts to obtain and
maintain product liability insurance in such amounts as the Board of Directors
deems appropriate.
8.5 Key Man Insurance. Within 60 days of the Closing the
Company will have procured a term life insurance policy on the life of Stephen
H. Ober or his successor in the amount of at least $1,000,000 with the proceeds
payable to the Company. The Company shall keep such policy in effect until the
termination of Mr. Ober's employment, and shall provide the Investors with
evidence that such policy is in effect, upon request.
8.6 FIRPTA. The Company acknowledges that certain Investors
may have foreign persons and entities as partners and that the Company may be
required, and hereby agrees, to file in the future with the IRS all statements
with its United States income tax returns which are required under Section
1.897-2(h) of the Regulations; provided that each Investor provides the Company,
upon request, with such information as the Company needs to prepare and file
such returns. The Company will use its reasonable efforts consistent with sound
business practice to avoid becoming a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code. However, in
the event the Company in the future becomes a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code, the
Company shall promptly notify each Investor in writing of such fact. Within
thirty (30) days after receipt of a request from an Investor, the Company shall
prepare and deliver to such Investor the statement required under Regulation
Section 1.8972(h)(iv) and either or both of the following documents: (i) an
affidavit in conformance with the requirements of Section 1445 (b)(3) of the
Code or (ii) a notarized statement, executed by an officer having actual
knowledge of the facts, that the shares of Company stock held by such Investor
are of a class that is regularly traded on an established securities market,
within the meaning of Section 1445(b)(6) of the Code. If the Company is unable
to provide either of the documents described in (i) or (ii) above, if requested,
it shall promptly notify such Investor in writing of the reasons for such
inability. Finally, upon the request of an Investor and without regard to
whether either document described in (i) or (ii) above has been requested, the
Company shall cooperate fully with the efforts of such Investor to obtain a
"qualifying statement," within the meaning of Section 1445(b)(4) of the Code or
such other documents as would excuse a transferee of a foreign investor's
interest from withholding of income tax imposed pursuant to Sections 897(a) And
1445 of the Code.
8.7 Board of Directors. The Company shall use its best efforts
to cause two nominees of the Investors to be members of the Company's Board of
Directors at all times. All travel and related expenses incurred in connection
with attending meetings of the Company's Board of Directors by such directors,
and any other director, shall be promptly reimbursed by the Company upon receipt
of reasonable documentation of such expense.
8.8 Employee Invention and Trade Secret Agreement. The Company
and MCI shall require all employees and officers of the Company and MCI, and all
consultants of the Company and MCI, to enter into an Invention and Trade Secret
Agreement in the forms attached hereto as Exhibit E-1 and E-2, respectively (or
in such other form as the Company's Board of Directors may approve), as of the
date of commencement of their employment, term of office, or consultancy, as the
case may be, with the Company, provided, however, that non-officer employees and
consultants not involved in the creation or development of inventions,
improvements, works of authorship, formulas, processes, computer programs,
databases or trade secrets need only sign a Non-Disclosure Agreement in the form
attached hereto as Exhibit E-3.
8.9 Activities of MCI. MCI shall not undertake any activities
not in the normal course of business. Without limiting the foregoing, MCI shall
not amend it articles of incorporation or bylaws, effect any sale, conveyance,
encumbrance or otherwise dispose of all or substantially all of the assets of
that corporation, merge or consolidate with any other corporation, effect a
reclassification or recapitalization, issue any shares of stock, or any bonds,
notes, or other obligations convertible into or exchangeable for, or having
option rights to purchase, any shares of MCI stock, declare or pay any dividends
or effect any stock split or combination, or redeem or purchase any shares of
its stock.
8.10 Fees of Special Counsel. At the Closing, the Company will
pay all reasonable legal fees and expenses of Fenwick, Davis & West, incurred by
the Investors, or any of them, in connection with the transactions contemplated
by this Agreement.
9. MISCELLANEOUS.
9.1 Survival of Warranties. The warranties, representations
and covenants of the Company contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing for a
period of 3 years after the Closing, and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors.
9.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
9.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Utah, except as pertains to conflict of
laws.
9.4 Counterparts. 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 instruments.
9.5 Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which are incorporated herein by this reference.
9.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the Schedule of Investors or, in the case of the
Company and MCI, 1290 West 2320 South, Suite A, Salt Lake City, Utah 84119, or
at such other address as such party may designate by ten (10) days advance
written notice to all other parties.
9.7 Finder's Fees. Each party represents that it neither is
nor will be obligated for any finder's or broker's fee or commission in
connection with this transaction, except that it is acknowledged by all parties
that the right of Joel D. Kellman and W. Edward Massey to purchase certain
shares of the Company's Common Stock are, or may be, conditioned upon the
closing of a financing. Each Investor agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the nature
of a finders' or broker's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Investor from any liability for any
commission or compensation in the nature of a finder's or broker's fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.
9.8 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Revised
Articles, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
9.9 Amendments and Waivers. Except as specified in subsection
7.13, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and the holders of Purchased Shares and/or Conversion Shares
representing at least sixty percent (60%) of the aggregate number of ` shares of
Common Stock into which the Purchased Shares then are convertible or have been
converted (excluding any of such shares that have been sold to the public);
provided, however, that no such amendment or waiver that materially and
adversely affects Cordis in a manner substantially different than the New
Investors shall be binding on Cordis without Cordis' approval. Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of such securities, and the Company; provided, however, that no condition
set forth in Section 5 may be waived with respect to any Investor who does not
consent thereto.
9.11 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.12 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto (including without limitation the Revised
Articles) constitutes the entire understanding and agreement of the parties with
respect to the transactions contemplated herein and supersede all prior
understandings and agreements with respect to such transactions. Without
limiting the foregoing, it is hereby agreed that this Agreement supersedes the
Cordis Agreement completely, and that the Cordis Agreement is null and void and
of no further effect.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
"THE "COMPANY" INVESTORS:
JMW ACQUISITION CO. NEWTEK VENTURES,
a California limited partnership
By: /s/ Steven A. Orth By: /s/ Peter J. Wardle
Print Name: Steven A. Orth Print Name: Peter J. Wardle
Title: President Title:General Partner
"MCI" MBW VENTURE PARTNERS
PARTNERSHIP
MOTION CONTROL, INC. By: MBW VENTURES, INC.
By: /s/ Stephen C. Jackson By: /s/ Robert J. Harrington
Print Name: Stephen C. Jackson Print Name: Robert J. Harrington
Title: Title:VIce President
MICHIGAN INVESTMENT FUND L.P.
By: MBW VENTURES, INC.
By: /s/ Robert J. Harrington
Print Name: Robert J. Harrington
Title: Vice President
UTAH TECHNOLOGY VENTURE FUND I
By: Impetus, Inc.
By: /s/ Richard Shanama
Print Name: Richard Shanama
Title: President
CORDIS CORPORATION
By: /s/ Robert C. Strauss
Print Name: Robert C. Strauss
Title: President
/s/ Ian R. N. Bund
Ian R.N. Bund
/s/ James R. Weersing
James R. Weersing
/s/ Robert J. Harrington
Robert J. Harrington
/s/ Ned M. Weinshenker, Trustee of
Ned M. Weinshenker Profit
Sharing Plan
<TABLE>
<CAPTION>
EXHIBIT 11.1
IOMED, Inc.
Statement Re Computation of Earnings Per Share
<S> <C> <C> <C>
Year ended June 30,
1995 1996 1997
----------------------------------------------------
Average shares outstanding 9,780,843 12,622,167 14,925,234
Dilutive common stock equivalents:
Conversion of preferred stock - 1,079,132 -
Conversion of convertible debt - 1,147,541 -
Exercise of options and warrants - 367,945 -
------------- ----------- -----------
Total shares 9,780,843 15,216,785 14,925,234
============= =========== ===========
Net income (loss) $(659,000) $1,743,000 $(14,038,000)
============= =========== ===========
Earnings (loss) per share $(.07) $.11 $(.94)
============= =========== ===========
</TABLE>
List of Subsidiaries of Iomed, Inc.
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Dermion, Inc. Delaware
Consent of Counsel
The undersigned hereby consents to the refernece to the firm of Parsons
Behle & Latimer under the caption "Legal Matters" in the Registration Statemnt
on Form S-1 of Iomed, Inc.
/s/ Parsons Behle & Latimer
---------------------------
Parsons Behle & Latimer
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
August 4, 1997, with respect to the consolidated financial statements included
in the Registration Statement (Form S-1) and related prospectus of IOMED, Inc.
for the registration of its common stock.
/s/ Ernst & Young LLP
Salt Lake City, Utah
October 2, 1997
Consent of Counsel
The undersigned hereby consents to the refernece to the firm of Workman
Nydegger & Seeley under the caption "Experts" in the Registration Statemnt on
Form S-1 of Iomed, Inc.
/s/ Workman Nydegger & Seeley
---------------------------
Workman Nydegger & Seeley
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001041652
<NAME> IOMED, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 6,346,000
<SECURITIES> 0
<RECEIVABLES> 1,217,000
<ALLOWANCES> (28,000)
<INVENTORY> 714,000
<CURRENT-ASSETS> 8,261,000
<PP&E> 3,885,000
<DEPRECIATION> 3,500,000
<TOTAL-ASSETS> 8,664,000
<CURRENT-LIABILITIES> 1,117,000
<BONDS> 15,240,000
900,000
0
<COMMON> 15,000
<OTHER-SE> (9,491,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,664,000
<SALES> 7,483,000
<TOTAL-REVENUES> 9,283,000
<CGS> 3,338,000
<TOTAL-COSTS> 8,327,000
<OTHER-EXPENSES> 15,059,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242,000
<INCOME-PRETAX> (14,077,000)
<INCOME-TAX> 5,000
<INCOME-CONTINUING> (14,082,000)
<DISCONTINUED> 44,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,038,000)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
</TABLE>
