<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1997
REGISTRATION NO. 333-37159
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IOMED, INC.
(NAME OF ISSUER IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
UTAH 2834 87-0441272
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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)
------------------------
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)
------------------------
COPIES TO:
<TABLE>
<S> <C>
J. GORDON HANSEN, ESQ. RODD M. SCHREIBER, ESQ.
ROBERT C. DELAHUNTY, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
SCOTT R. CARPENTER, ESQ. 333 WEST WACKER DRIVE
PARSONS BEHLE & LATIMER CHICAGO, ILLINOIS 60606
201 SOUTH MAIN STREET, (312) 407-0700
SUITE 1800
SALT LAKE CITY, UTAH 84111
(801) 532-1234
</TABLE>
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. [ ]
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> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 17, 1997
- --------------------------------------------------------------------------------
1,700,000 COMMON SHARES
LOGO
All of the 1,700,000 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. It is currently estimated that
the initial public offering price will be between $11.00 and $13.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to list
the Common Shares for quotation on the Nasdaq National Market under the symbol
"IOMD."
Elan Corporation, plc, through certain affiliates, has agreed to purchase
directly from the Company, in private placement transactions which will be
completed concurrently with the closing of the Offering, 833,333 Common Shares
(subject to adjustment under certain circumstances) for approximately $10.2
million and approximately $5.1 million of Common Shares at a price per share
equal to the initial public offering price hereunder. Simultaneously with such
purchases, the Company will repay $15.3 million in notes, including interest,
previously issued to Elan. See "Transactions Related to the Offering,"
"Business -- Collaborative Relationships and Licenses" and "Certain
Transactions."
------------------------
THE COMMON SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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===================================================================================================
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------
Per share $ $ $
- ---------------------------------------------------------------------------------------------------
Total(3) $ $ $
===================================================================================================
</TABLE>
(1) Excludes the issuance of warrants to the Representatives of the Underwriters
(the "Representatives") to purchase, after the first anniversary of the date
hereof, up to an aggregate of 170,000 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 of this Prospectus and (ii) 150% of the
initial public offering price set forth above after the third anniversary of
the date of this Prospectus. 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. In
addition, the Company has granted the Representatives a nonaccountable
expense allowance of $245,000. 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 $917,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 255,000 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.
HANIFEN, IMHOFF INC.
WEDBUSH MORGAN SECURITIES
<PAGE> 3
[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."
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> 4
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 into and 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 to monitor and control the onset of drug
effectiveness and maintain, reduce or cease drug administration once a desired
therapeutic effect is observed. Additionally, the Company is developing systems
designed to permit patient control and selfadministration. 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 and through the
skin.
Dexamethasone. The Company's acute local inflammation product is a system
used principally by physical therapists and professional athletic trainers for
the delivery of Dexamethasone. Since it was
3
<PAGE> 5
introduced in 1979, the Company's product has been used in over 10 million
patient applications for the treatment of acute inflammatory conditions such as
tendonitis (e.g. tennis elbow, golfers elbow and achilles tendonitis), bursitis
and carpal tunnel syndrome. More than 8 million of these applications have
occurred since 1990, when the Company introduced its present family of gel
electrodes for use with its microprocessor controlled dose controller. 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 was approved by the
FDA in January 1996 for use in inducing local dermal anesthesia, and the Company
began marketing the product in early 1997. 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. The Company was recently granted the Alliance of Children's
Hospital's ("ACH") Seal of Acceptance in connection with the promotion of Numby
Stuff. The Seal of Acceptance was granted by ACH in recognition of the
significant therapeutic benefits ACH believes Numby Stuff offers in the practice
of pediatric medicine. In order to use the Seal of Acceptance to promote Numby
Stuff, the Company was required to make royalty payments to ACH. The Company
satisfied ACH's royalty requirement by issuing ACH warrants to acquire 44,791
Common Shares. In addition, in connection with obtaining the right to use the
ACH Seal of Acceptance, the Company sold an ACH affiliate 37,202 Common Shares.
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 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"), an affiliate of Novartis Pharma, A.G.,
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
4
<PAGE> 6
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. The Company, Dermion and
Novartis amended the terms of their collaborative arrangement. Under the terms
of the amendment, effective November 1, 1997, Novartis exchanged its interest in
Dermion for 238,541 Common Shares of the Company and warrants to acquire under
certain conditions and through November 1, 2002, an additional 18,750 Common
Shares at an exercise price of $21.60 per share. As a result, Dermion became a
wholly-owned subsidiary of the Company. Pursuant to the agreements, Novartis is
required to pay for research costs under the program and to make milestone
payments upon the successful completion of certain later stage development
objectives. In addition, the Company granted Novartis a perpetual,
non-exclusive, royalty bearing license to the Company's iontophoretic technology
as well as certain rights with respect to future technology developed or
acquired by the Company.
Elan. In March 1997, the Company entered into agreements with Elan
Corporation, plc and certain of its affiliates (collectively, "Elan"), an
international developer and manufacturer of advanced drug delivery technologies.
The agreements provide the Company with exclusive, worldwide licenses 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 iontophoretic 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 (the "Elan Notes"). Under the agreement
with Elan, Elan will purchase directly from the Company, in private placement
transactions which will be completed concurrently with the closing of the
Offering, 833,333 Common Shares (subject to adjustment under certain
circumstances) for approximately $10.2 million and approximately $5.1 million of
Common Shares at a price per share equal to the initial public offering price
hereunder (425,000 shares assuming an initial public offering price of $12.00
per share) (collectively, the "Elan Shares"). Simultaneously with such
purchases, the Company will repay the Elan Notes, 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 Dermion. 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.
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.
5
<PAGE> 7
THE OFFERING
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Common Shares offered.................... 1,700,000 shares
Common Shares to be outstanding after the
Offering............................... 6,360,204 shares(1)
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. See "Use of Proceeds."
Proposed Nasdaq National Market symbol... IOMD
</TABLE>
- ---------------
(1) Based on Common Shares outstanding as of November 1, 1997. Includes the sale
of the Elan Shares (1,258,333 Common Shares, assuming an initial public
offering price of $12.00 per share) concurrently with the closing of the
Offering and the mandatory conversion of 28,800 Series C Preferred Shares
into 28,800 Common Shares in connection with the closing of the Offering.
Excludes (i) 339,512 Common Shares issuable upon exercise of options granted
pursuant to the Company's stock option plans, at a weighted average exercise
price of $4.80 per share; (ii) 312,500 Common Shares reserved for future
grants of options or awards under the Company's stock option plans; (iii)
170,000 Common Shares issuable upon exercise of warrants to be issued to the
Representatives at an initial exercise price of $15.00 per share, assuming
an initial offering price of $12.00 per share (the "Representatives'
Warrants"); and (iv) 169,791 Common Shares issuable upon exercise of other
outstanding warrants, at a weighted average exercise price of $18.04 per
share. The number of Elan Shares is dependent upon the initial public
offering price. See "Transactions Related to the Offering,"
"Management -- Employee Benefit Plans -- Stock Option Plans," "Certain
Transactions," "Description of Capital Shares," and "Underwriting."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ---------- ------------ ---------- ----------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Total revenues........................... $ 6,964 $ 9,238 $ 9,283 $ 2,462 $ 2,500
Operating costs and expenses:
Cost of products sold.................. 3,369 3,138 3,338 821 893
Research and development............... 1,467 1,099 1,488 391 375
Selling, general and administrative.... 3,338 3,283 3,501 769 1,061
Non-recurring charges.................. -- 430(1) 15,059(2) -- --
----------- ---------- ------------ ---------- ----------
Total costs and expenses........ 8,174 7,950 23,386 1,981 2,329
----------- ---------- ------------ ---------- ----------
Income (loss) from operations............ (1,210) 1,288 (14,103) 481 171
Interest expense......................... 32 9 242 1 287
Interest income and other, net........... 120 167 291 58 91
Minority interest........................ -- (17) 23 44 11
Income tax expense (benefit)............. (173) (79) 5 20 --
----------- ---------- ------------ ---------- ----------
Income (loss) from continuing
operations............................. (949) 1,542 (14,082) 474 (36)
Income from discontinued operations, net
of income taxes(3)..................... 290 201 44 (7) --
----------- ---------- ------------ ---------- ----------
Net income (loss)........................ $ (659) $ 1,743 $ (14,038) $ 467 $ (36)
=========== ========== ============ ========== ==========
PER COMMON SHARE DATA(4):
Income (loss) from continuing
operations............................. $ (0.46) $ 0.48 $ (4.48) $ 0.14 $ (0.01)
Income from discontinued operations...... 0.14 0.06 0.01 -- --
----------- ---------- ------------ ---------- ----------
Net income (loss)........................ $ (0.32) $ 0.54 $ (4.47) $ 0.14 $ (0.01)
=========== ========== ============ ========== ==========
Shares used in computing per share
amounts................................ 2,090 3,222 3,140 3,282 3,150
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(5)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 5,910 $ 23,965
Total assets................................................................ 8,469 26,524
Long-term obligations, including current portion............................ 16,247(6) --
Accumulated deficit......................................................... (21,574) (21,574)
Shareholders' equity (deficit).............................................. (9,527) 25,684
</TABLE>
- ---------------
(1) Costs incurred in connection with the settlement of certain trade dress
litigation. See Note 3 of the Notes to Consolidated Financial Statements.
(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) Discontinued operations include the operating results (exclusive of any
corporate allocations and net of applicable income taxes) of the Company's
prosthetics division, which was sold in December 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) See Note 1 of the Notes to Consolidated Financial Statements for information
concerning the computation of per share amounts.
(5) Adjusted to reflect the following: (i) the issuance and sale of 1,700,000
Common Shares offered hereby, at an assumed initial public offering price of
$12.00 per share and the receipt of the net proceeds therefrom; (ii) the
sale of the Elan Shares to Elan and the simultaneous repayment of the Elan
Notes, including interest thereon, concurrently with the closing of the
Offering; (iii) the mandatory conversion of the outstanding Series C
Preferred Shares into 28,800 Common Shares concurrently with the closing of
the Offering; and (iv) the exchange of Novartis' 20% equity interest in
Dermion for 238,541 Common Shares, which was effected November 1, 1997. See
"Transactions Related to the Offering" and "Use of Proceeds."
(6) Reflects (i) $15,527,000 in notes, including accrued interest, issued to
Elan; and (ii) $720,000 in redeemable, convertible preferred shares. See
"Business -- Collaborative Relationships and Licenses."
Unless otherwise indicated, all information in this Prospectus (i) assumes
no exercise of the Underwriters over-allotment option; (ii) reflects the
1-for-4.8 reverse split of the Company's Common Shares effective November 7,
1997; and (iii) reflects the mandatory conversion of the outstanding Series C
Preferred Shares into 28,800 Common Shares concurrently with the closing of the
Offering.
7
<PAGE> 9
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
$21.6 million as of September 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 current 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
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<PAGE> 10
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 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 potential for effective 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 a decision by a collaborative partner not 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
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<PAGE> 11
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. Since 1995, 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. Either party can
terminate the collaboration upon six months prior written notice. 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 or that it will not terminate the
collaboration prior to its expiration. In addition, in connection with this
collaboration, the Company granted Novartis a perpetual, non-exclusive, royalty
bearing license to the Company's iontophoretic technology which will survive the
termination of the collaboration. The license to Novartis, though non-exclusive,
may make it more difficult for the Company to enter into new collaborations,
which could have a material adverse effect on the Company. Further, other than
in collaboration with Novartis, the Company has agreed that during the term of
the agreement and for a period of up to two years thereafter, the Company will
not develop any product in certain Novartis fields, as defined in the agreement,
without Novartis' consent. There can be no assurance that Novartis will not
terminate its agreement with the Company and independently develop products
using the licensed technology, including products which may compete directly
with those currently marketed or under development by the Company. 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 and Novartis acquired a 20% equity interest in Dermion.
The Company, Dermion and Novartis recently amended the terms of their
relationships. Under these amendments (the "1997 Amendments"), effective
November 1, 1997, Novartis exchanged its 20% equity interest in Dermion for
238,541 Common Shares and warrants to acquire up to an additional 18,750 Common
Shares at an exercise price of $21.60 per share. Novartis can currently exercise
one-third of the warrants, and its right to exercise the remaining warrants will
vest, as to an additional one-third in each instance, at the time it agrees, if
ever, to provide research and development funding under the parties' agreements
for each of 1999 and 2000. In addition, under the agreement with Novartis, the
Company is restricted in its ability to sell or otherwise dispose of the assets
or control of Dermion through March 1998, and Novartis has a right of first
offer to acquire either the Company's interest in Dermion or Dermion's business
and assets 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.
The Company has also agreed that, during the term of the agreement with
Novartis and for a period of five years thereafter, the Company will negotiate
in good faith to license to Novartis rights to any iontophoretic drug delivery
technologies developed or acquired by the Company but which are not covered
under the existing license agreements (the "Second Generation Technology").
Further the Company has agreed to negotiate such additional licenses prior to
entering into any agreement to license or otherwise transfer any rights to such
Second Generation Technology to a third party. Under the 1997 Amendments, the
parties agreed to treat the technology acquired by the Company from Elan
Corporation, plc and its affiliates ("Elan") as Second Generation Technology.
Accordingly, the Company intends to negotiate with Novartis to license such
technology to Novartis prior to initiating efforts to negotiate any rights to
such technology with any third party. See "Business -- Collaborative
Relationships and Licenses."
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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. In addition, the technology license and rights to future licenses granted
to Novartis may make it more difficult for the Company to find collaborative
partners for its product development programs. 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. The Company could also 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.
Under an agreement with a prior collaborative partner, Laboratoires
Fournier S.C.A. ("Laboratoires Fournier"), the Company has agreed, among other
things, not to pursue the development of a fentanyl-based iontophoretic drug
delivery system for chronic pain or sedation, or a hydromorphone-based
iontophoretic drug delivery system for the treatment of acute post-operative
pain, until the second quarter of calendar year 1998. See "Business -- Products
and Products Under Development."
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 a
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 that offered by the
Company's iontophoretic drug delivery systems, which could have a material
adverse effect on the Company's business, financial condition and 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 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 that are more effective or
commercially attractive than the Company's current or future products, or that
would render the Company's products obsolete or noncompetitive. 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 certain rights to its iontophoretic drug delivery
technologies to other parties, including Alza Corporation ("Alza"), Laboratoires
Fournier and Novartis, that may become or are direct competitors of the Company.
These companies could compete with the Company for contracts with the Company's
collaborative partners and could also develop iontophoretic drug delivery
systems that will compete directly with many of those currently marketed or
being developed by the Company. See "Business -- Collaborative Relationships and
Licenses."
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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 in 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 inducement of
local dermal 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
October 1, 1997, the Company owned or had 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
licenses, defend infringement actions or challenge the validity of those 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 protected by such patents.
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
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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 and 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 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 any iontophoretic drug delivery system it develops 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 improved 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.
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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 for use with ions of soluble
salts or other drugs 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") of
marketed devices currently used with drugs not specifically labeled for
iontophoretic delivery, which would include the Company's dose controller 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
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<PAGE> 16
the FDA's announced position as to certain other devices) that the FDA would
permit continued commercial distribution of the Company's dose controller for
use with Dexamethasone during the time necessary to review the PMA. There can be
no assurance, however, that the 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 pending approval of a PMA or NDA, the Company's business,
financial conditions and results of operations could be adversely affected. 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 could 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. In the course of the
practice of medicine, medical practitioners legally can 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, the Company 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
significantly affects the safety or efficacy of the device, or if the
modification results in a
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major change in intended use. 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)
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 Company may be prohibited from marketing the modified
device until the 510(k) notice is cleared by the FDA.
The Company may be subject to certain user fees that the FDA is authorized
to collect under the Food and Drug Modernization Act of 1997, which reauthorized
the user fees established in the Prescription Drug User Fees Act of 1992 for
certain drugs.
Because of the known safety and efficacy profile of Dexamethasone and other
approved drugs for which the Company may seek NDA approval for iontophoretic
delivery, the clinical trials and other studies may not be as lengthy or
extensive as would be required for unapproved new drugs that are subject to full
NDA requirements. This strategy, however, depends upon the Company's ability to
obtain a contractual right to reference the safety and efficacy data for such
drugs contained in approved NDAs held by other entities. The Company has
obtained a right to reference safety and efficacy data for Dexamethasone. There
can be no assurance that the Company will be able to obtain a right of reference
for all unapproved drugs that may be used for iontophoretic delivery. The
Company's failure to obtain a right of reference to safety and efficacy data for
any drug for which the Company would like to obtain approval for iontophoretic
delivery could result in the Company being required to independently satisfy any
requirements regulatory agencies may impose with respect to such references,
which could delay the Company's use of such drug or increase the Company's
costs. See "Business -- Government Regulation."
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 also has the right to obtain
Dexamethasone from Luitpold Pharmaceuticals, Inc./American Regent Laboratories,
Inc. under a contract expiring in January 2005. 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 and 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.
16
<PAGE> 18
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 will 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, particularly 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 future federal or state 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 and used. 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
17
<PAGE> 19
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
representatives 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 6,360,204 Common Shares. In addition, the
Company has reserved for issuance 679,303 shares issuable upon exercise of
outstanding options and warrants. The 1,700,000 Common Shares offered hereby
will be freely transferable without restriction or further registration
18
<PAGE> 20
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 or other provisions of 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 4,560,934 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 lock-up periods, approximately 1,903,533 Common Shares will be
eligible for sale in the public market without restriction under Rule 144(k) and
an additional 79,808 Common Shares will be eligible for sale subject to certain
volume, manner of sale and other restrictions of Rule 144. All restricted shares
held by existing shareholders of the Company not subject to lock-up agreements
will be eligible for immediate sale in the public market without restriction
under Rule 144(k). In addition, holders of stock options or warrants exercisable
for an aggregate of approximately 220,227 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." If the initial public offering price is less than $12.00 per share,
the number of Common Shares that Elan will have the right to purchase for the
$10.2 million will be equal to $10.2 million divided by the initial public
offering price. As a result of any issuance to Elan of shares in excess of
833,333, investors in the Offering will own a lower percentage of the total
Common Shares outstanding after the closing of the Offering. See "Transactions
Related to the Offering" and "Certain Transactions."
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 66.7% 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 AND CERTAIN OF THE COMPANY'S AGREEMENTS. Certain provisions of the Company's
Articles of Incorporation, as amended, and the provisions of the Utah Revised
Business Corporation 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. The Company's Articles of
Incorporation provide, among other things, for a classified Board of Directors,
and 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. Any such
19
<PAGE> 21
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."
Certain of the provisions of a cross-license agreement between the Company
and Alza may have the effect of deferring, delaying or preventing a change in
control of the Company, a merger involving the Company or the assignment or
transfer of certain technologies of the Company. Under the agreement, the
Company and Alza, 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. Both parties are prohibited from
assigning their rights under the agreement to certain named companies or any
other entity that derives more than 50 percent of its income from the
development, licensing and/or sale of drug delivery systems to other
pharmaceutical companies without first receiving the consent of the other party.
Restrictions imposed on the Company's ability to assign its rights under this
agreement may limit the Company's ability to capitalize on the commercial and
other economic potential of these technologies through a technology license,
asset sale, merger, combination or similar transaction, and could have an
adverse effect on the market value of the Common Shares. See
"Business -- Collaborative Relationships and Licenses."
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.
20
<PAGE> 22
TRANSACTIONS RELATED TO THE OFFERING
In March 1997, the Company entered into a series of agreements with 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 (collectively, the "Elan Notes"),
together with a warrant to purchase 104,166 Common Shares at an exercise price
of $21.60 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, Elan will purchase directly
from the Company, in private placement transactions (i) 833,333 Common Shares
(subject to adjustment under certain circumstances) for approximately $10.2
million (the amount outstanding under the $10.0 million note) and (ii)
approximately $5.1 million of Common Shares at a price per share equal to the
initial public offering price hereunder (425,000 shares assuming an initial
public offering price of $12.00 per share) (collectively, the "Elan Shares").
Simultaneously with such purchases, the Company will repay the Elan Notes,
including interest thereon. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Collaborative
Relationships and Licenses," "Certain Transactions," "Description of Capital
Shares -- Warrants" and "Underwriting."
If the initial public offering price of the Common Shares is less than
$12.00 per share, the number of Common Shares that Elan will have the right to
purchase for the approximately $10.2 million (the amount outstanding under the
$10.0 million note) will be equal to that amount divided by the initial offering
price. If, as a result of Elan's purchase of the Elan Shares, Elan's aggregate
interest in the Common Shares exceeds 19.9% of the outstanding Common Shares,
Elan may elect to receive non-voting preferred shares to the extent of such
excess. Any such preferred shares would rank pari passu with the Common Shares,
and would be non-voting and convertible into Common Shares on a one-for-one
basis initially. See "Certain Transactions."
Effective November 1, 1997, the Company, Novartis and Dermion amended the
terms of their contractual relationships. Among other things, Novartis exchanged
its 20% interest in Dermion for 238,541 Common Shares and warrants to acquire an
additional 18,750 Common Shares at an exercise price of $21.60 per share. See
"Business -- Collaborative Relationships and Licenses" and "Description of
Capital Shares -- Warrants."
21
<PAGE> 23
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be approximately $18.1
million ($20.9 million if the Underwriters' exercise the over-allotment option
in full) at an assumed initial public offering price of $12.00 per Common Share.
The Company intends to use approximately $11.8 million of the net proceeds from
the Offering to conduct research and development activities. The balance of the
net proceeds (approximately $6.3 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."
Elan has agreed to purchase in private placement transactions concurrently
with the closing of the Offering the Elan Shares for approximately $15.3
million. Simultaneously with such purchases, the Company will repay the Elan
Notes, including interest thereon. 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."
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<PAGE> 24
CAPITALIZATION
The following table sets forth (a) the actual capitalization of the Company
as of September 30, 1997 (giving effect to the 1-for-4.8 reverse split) and (b)
the pro forma capitalization of the Company as adjusted to reflect (i) the
issuance and sale of 1,700,000 Common Shares offered hereby, at an assumed
initial public offering price of $12.00 per share and the receipt of the net
proceeds therefrom; (ii) the sale of the Elan Shares to Elan and the
simultaneous repayment of the Elan Notes, including interest thereon,
concurrently with the closing of the Offering; (iii) the mandatory conversion of
the outstanding Series C Preferred Shares into 28,800 Common Shares concurrently
with the closing of the Offering; and (iv) the exchange of Novartis' 20% equity
interest in Dermion for 238,541 Common Shares, which was effected November 1,
1997. The number of the Elan Shares is dependent upon the initial public
offering price. See "Transactions Related to the Offering" and "Certain
Transactions."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997(1)
-------------------------------
PRO FORMA AS
ACTUAL ADJUSTED
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including accrued interest(2)..................... $ 15,527 --
Minority interest................................................. 909 --
Redeemable, convertible Series C Preferred Shares, no par value,
28,800 shares issued and outstanding, actual; no shares issued
and outstanding, pro forma as adjusted.......................... 720 --
Shareholders' equity:
Common Shares, no par value; 3,134,392 shares issued and
outstanding, actual; 6,360,066 shares issued and outstanding,
pro forma as adjusted........................................ 12,047 47,258
Accumulated deficit............................................. (21,574) (21,574)
--------- ----------
Total shareholders' equity (deficit).............................. (9,527) 25,684
--------- ----------
Total capitalization.............................................. $ 7,629 $ 25,684
========= ===========
</TABLE>
- ---------------
(1) Excludes (i) 339,512 Common Shares issuable upon exercise of options granted
pursuant to the Company's stock option plans, at a weighted average exercise
price of $4.80 per share; (ii) 312,500 Common Shares reserved for future
grants of options or awards under the Company's stock option plans; (iii)
170,000 Common Shares issuable upon exercise of warrants to be issued to the
Representatives at an initial exercise price of $15.00 per share, assuming
an initial public offering price of $12.00 per share (the "Representatives'
Warrants"); and (iv) 169,791 Common Shares issuable upon exercise of other
outstanding warrants, at a weighted average exercise price of $18.04 per
share. See "Management -- Employee Benefit Plans -- Stock Option Plans,"
"Certain Transactions," "Description of Capital Shares" and "Underwriting."
(2) Reflects $15,527,000 in notes, including accrued interest, issued to Elan.
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.
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<PAGE> 25
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 (giving effect to the 1-for-4.8 reverse split), was $7,483,000, or $1.61
per share. Pro forma net tangible book value per share is equal to total
tangible assets of the Company, less total pro forma liabilities, divided by the
pro forma number of Common Shares outstanding, giving effect to (i) the sale of
the Elan Shares to Elan and the simultaneous repayment of the Elan Notes,
including interest thereon, concurrently with the closing of the Offering; (ii)
the mandatory conversion of the outstanding Series C Preferred Shares into
28,800 Common Shares concurrently with the closing of the Offering; and (iii)
the exchange of Novartis' 20% equity interest in Dermion for 238,541 Common
Shares, which was effected November 1, 1997. Without taking into account any
other changes in pro forma net tangible book value after September 30, 1997
other than to give effect to the issuance and sale of the 1,700,000 Common
Shares offered hereby at an assumed initial public offering price of $12.00 per
share and the receipt of the net proceeds therefrom, the pro forma net tangible
book value of the Company as of September 30, 1997 would have been approximately
$25,684,000, or $4.04 per share. This represents an immediate increase in pro
forma net tangible book value of $2.43 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $7.96 per share to
investors in the Common Shares offered hereby. The number of the Elan Shares is
dependent upon the initial public offering price, See "Transactions Related to
the Offering" and "Certain Transactions." 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............. $12.00
Pro forma net tangible book value per share as of
September 30, 1997..................................... $ 1.61
Increase per share attributable to new investors.......... 2.43
------
Pro forma net tangible book value per share after
Offering.................................................. 4.04
------
Dilution per share to new investors......................... $ 7.96
======
</TABLE>
The following table sets forth, on the pro forma basis as of September 30,
1997, the differences between the existing shareholders on a pro forma basis and
the new investors with respect to the number of Common Shares 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>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 4,660,066 73% $29,203,000 59% $ 6.27
New Investors....................... 1,700,000 27% 20,400,000 41% 12.00
--------- --- ----------- ---
Total............................. 6,360,066 100% $49,603,000 100%
========= === =========== ===
</TABLE>
The foregoing tables assume no exercise of any options or warrants
subsequent to September 30, 1997. As of September 30, 1997, there were (i)
339,512 Common Shares issuable upon exercise of options granted pursuant to the
Company's stock option plans, at a weighted average exercise price of $4.80 per
share; (ii) 312,500 Common Shares reserved for future grants of options or
awards under the Company's stock option plan; (iii) 170,000 Common Shares
issuable upon exercise of the Representatives' Warrants at an initial exercise
price of per share; and (iv) 169,791 Common Shares issuable upon exercise of
other outstanding warrants, at a weighted average exercise price of $18.04 per
share. See "Management -- Employee Benefit Plans -- Stock Option Plan," "Certain
Transactions," "Description of Capital Shares" and "Underwriting."
24
<PAGE> 26
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. Certain reclassifications have been made to the audited
financial statements for the years ended June 30, 1993 and 1994 to reflect the
effects of the discontinued operations (see footnote (4)) in the selected
consolidated financial data in a manner consistent with the presentation of the
discontinued operations for the years ended June 30, 1995, 1996 and 1997. The
financial data for the three month periods ended September 30, 1997 and 1996 are
derived from the unaudited consolidated financial statements of the Company
included elsewhere herein and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth herein. The results for the three
months ended September 30, 1997, are not necessarily indicative of the results
to be expected for the full year. 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>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Product Sales...................... $ 6,980 $ 6,991 $ 6,964 $ 6,829 $ 7,483 $ 1,813 $ 1,997
Contract research revenues,
royalties and license fees....... -- -- -- 2,409 1,800 649 503
-------- -------- -------- -------- --------- -------- --------
Total revenues................... 6,980 6,991 6,964 9,238 9,283 2,462 2,500
OPERATING COSTS AND EXPENSES:
Cost of products sold.............. 4,124 3,499 3,369 3,138 3,338 821 893
Research and development........... 1,984 1,665 1,467 1,099 1,488 391 375
Selling, general and
administrative................... 4,338 3,307 3,338 3,283 3,501 769 1,061
Non-recurring charges.............. 459(1) -- -- 430(2) 15,059(3) -- --
-------- -------- -------- -------- --------- -------- --------
Total costs and expenses......... 10,905 8,471 8,174 7,950 23,386 1,981 2,329
-------- -------- -------- -------- --------- -------- --------
Income (loss) from operations........ (3,925) (1,480) (1,210) 1,288 (14,103) 481 171
Interest expense..................... 152 39 32 9 242 1 287
Interest income and other, net....... 45 102 120 167 291 58 91
-------- -------- -------- -------- --------- -------- --------
Income (loss) from continuing
operations before income taxes and
minority interest.................. (4,032) (1,417) (1,122) 1,446 (14,054) 538 (25)
Minority interest.................... -- -- -- (17) 23 44 11
Income tax expense (benefit)......... (143) (264) (173) (79) 5 20 --
-------- -------- -------- -------- --------- -------- --------
Income (loss) from continuing
operations......................... (3,889) (1,153) (949) 1,542 (14,082) 474 (36)
Income from discontinued
operations(4)...................... 241 444 290 201 44 (7) --
-------- -------- -------- -------- --------- -------- --------
Net income (loss).................... $ (3,648) $ (709) $ (659) $ 1,743 $ (14,038) $ 467 $ (36)
======== ======== ======== ======== ========= ======== ========
PER COMMON SHARE AMOUNTS(5):
Income (loss) from continuing
operations......................... $ (2.77) $ (0.62) $ (0.46) $ 0.48 $ (4.48) $ 0.14 $ (0.01)
Income from discontinued
operations......................... 0.17 0.24 0.14 0.06 0.01 -- --
-------- -------- -------- -------- --------- -------- --------
Net income (loss).................... $ (2.60) $ (0.38) $ (0.32) $ 0.54 $ (4.47) $ 0.14 $ (0.01)
======== ======== ======== ======== ========= ======== ========
Shares used in computing per share
amounts............................ 1,404 1,875 2,090 3,222 3,140 3,282 3,150
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 1,350 $ 2,541 $ 1,861 $ 4,507 $ 6,346 $ 5,213 $ 5,910
Total assets......................... 4,593 5,501 4,770 7,251 8,664 7,816 8,469
Long-term obligations, including
current portion.................... 332 3,263 3,099 44 15,242(6) 33 15,527(6)
Redeemable, convertible preferred
shares............................. 2,380 2,308 2,235 1,270 900 900 720
Accumulated deficit.................. (7,875) (8,584) (9,243) (7,500) (21,538) (7,032) (21,574)
Shareholders' equity (deficit)....... (250) (945) (1,592) 3,992 (9,491) 4,762 (9,527)
</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 trade dress
litigation. See Note 3 of the Notes to Consolidated Financial Statements.
(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.
(4) Discontinued operations include the operating results (exclusive of any
corporate allocations and net of applicable income taxes) of the Company's
prosthetics 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 and $15,527,000 in notes, including accrued interest,
issued to Elan at June 30, 1997 and September 30, 1997, respectively.
25
<PAGE> 27
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 September 30, 1997, the
Company's accumulated deficit was approximately $21.6 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
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Revenues. Product sales increased 10% from $1.8 million in the three months
ended September 30, 1996 to $2.0 million in the three months ended September 30,
1997. The increase can be attributed to higher sales of the Company's
iontophoretic drug delivery products for the treatment of local inflammatory
conditions resulting from overall market growth in this segment.
Contract research revenues, royalties and license fees decreased 23% from
$649,000 in the three months ended September 30, 1996 to $503,000 in the three
months ended September 30, 1997. This decrease can be attributed to the
Company's receipt of a milestone payment pursuant to its research and
development agreement with Novartis during the three months ended September 30,
1996.
Costs of Products Sold. Costs of products sold increased 9% from $821,000
in the three months ended September 30, 1996 to $893,000 in the three months
ended September 30, 1997, reflecting increased material and labor costs
associated with higher unit sales volume.
Research and Development Expense. Research and development expenditures
decreased 4% from $391,000 in the three months ended September 30, 1996 to
$375,000 in the three months ended September 30, 1997. This decrease reflects
differences in the timing of certain expenditures on the Company's internally
financed product development projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 38%, from $769,000 in the three months ended
September 30, 1996 to $1.1 million in the three months ended September 30, 1997.
The increase to the current period can be attributed primarily to the
recruiting, personnel and other sales and marketing costs associated with the
Company's continued investment in the market introduction of Numby Stuff. In
addition, the Company realized increased costs associated with routine
maintenance and prosecution of the patent portfolio acquired from Elan.
26
<PAGE> 28
Other Costs and Expenses. Interest expense increased from $1,000 in the
three months ended September 30, 1996 to $287,000 in the three months ended
September 30, 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
$58,000 in the three months ended September 30, 1996, compared to $91,000 in the
three months ended September 30, 1997, reflecting interest earnings on higher
average invested cash balances during the current period.
The Company has substantial net operating loss carryforwards which, under
the current "change of ownership" rules of the Internal Revenue Code, may be
subject to substantial annual limitation. Income taxes for the three months
ended September 30, 1996 reflect the Company's effective income tax rate for
fiscal 1997. No income tax expense was recognized for the three months ended
September 30, 1997, which reflects management's estimate of its fiscal 1998 tax
position.
Income (loss) from Continuing Operations. Income from continuing operations
of $474,000 in the three months ended September 30, 1996 compares to a loss from
continuing operations of $36,000 in the three months ended September 30, 1997.
The decrease in fiscal 1997 can be attributed to the receipt of the milestone
payment from Novartis in the prior year, non-cash interest charges on the Elan
indebtedness and the Company's investment in the sales and marketing of Numby
Stuff.
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 treatment of local
inflammatory conditions resulting from the first full year of sales of the
Company's newly introduced electrode kits for this market segment.
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.
27
<PAGE> 29
During fiscal 1996, the Company recorded a non-recurring charge of $430,000
for costs incurred in connection with the settlement of a trade-dress
infringement suit brought by a competitor of the Company relating to a newly
developed series of the Company's electrode kits for the treatment of acute
local inflammation (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.
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
28
<PAGE> 30
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 September 30, 1997, the Company had cash and cash equivalents
totaling approximately $5.9 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.
In the three month period ended September 30, 1996, the Company generated
$829,000 of cash from operating activities compared to a use of cash of
approximately $194,000 in the three month period ended September 30, 1997. This
decrease in cash flow is due to the Company's net loss for the current period,
as discussed above, and to changes in working capital during the three month
period ended September 30, 1997. 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. See "Transactions Related to the
Offering."
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
29
<PAGE> 31
depend on many factors, some of which are outside the Company's control. See
"Risk Factors -- Future Capital Needs; Uncertainty of Additional Funding" and
"Use of Proceeds."
Concurrently with the closing of the Offering, Elan has agreed to purchase
the Elan Shares directly from the Company, in private placement transactions,
for approximately $15.3 million. Simultaneously with Elan's purchase of such
shares, the Company will repay the Elan Notes, including interest thereon. See
"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 the Notes to the Consolidated Financial
Statements.
30
<PAGE> 32
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
into and 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 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 Company is developing
systems designed to enable patient monitoring and control. 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. Since it
was introduced in 1979, 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. More
than 8 million of these applications have occurred since 1990, when the Company
introduced its present family of gel electrodes for use with its microprocessor
controlled dose controller. 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 the 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. Like conventional oral dosage forms, however, 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
31
<PAGE> 33
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 the 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 many 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 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
following illustration, 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 the Company's currently marketed
products consist of discrete components, the Company has begun the development
of more advanced systems which integrate all components in a single miniaturized
patch.
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LOGO
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, if successfully developed and
approved by applicable regulatory authorities, 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:
- 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.
- 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.
- Variable Dose Control -- Iontophoretic drug delivery systems may be
designed to offer precision controlled dosing that can be customized for
desired therapeutic profiles or for individual patient needs, including
baseline and/or bolus dosing.
- Patient Controlled Dosing -- Iontophoretic drug delivery systems may 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.
- 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.
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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 that 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. The
Company's current iontophoretic drug delivery systems are not designed to
facilitate patient self-administration, but drug delivery systems currently
being developed by the Company may allow patients significant control over the
administration of certain drugs.
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, autocalculating 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
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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 ("NCEs"), it can reduce regulatory and
development risks and shorten the product development cycle for certain
products. See "Risk Factors -- Uncertainty of Government Regulation" and
"Business -- Government Regulation."
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 principally 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. The following
table lists the therapeutic applications of the principal products developed or
currently under development by the Company. This table is qualified in its
entirety by reference to the more
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detailed descriptions set forth elsewhere in this section. There can be no
assurance that any products or products under development listed below, other
than those currently approved by or cleared for marketing by the FDA, will be
developed successfully or approved in a timely manner at all, or even if
developed or approved, be successfully manufactured or marketed. See "Risk
Factors." In addition, the status of development indicated below does not
necessarily indicate the order in which the products shown may be approved by
the FDA. See "Business -- Government Regulation" for description of phases of
clinical development.
<TABLE>
<CAPTION>
APPLICATION THERAPEUTIC AGENT PRODUCT STATUS
- --------------------------------- ----------------------- ------------------------------
<S> <C> <C>
Acute local inflammation Dexamethasone Currently marketed(1)
Local dermal anesthetic Iontocaine Currently marketed
Pain control Hydromorphone Phase II clinicals(2)
Conscious sedation Fentanyl Phase I clinicals(3)
Local mucosal anesthetic Iontocaine Preclinical
Remission of pre-term labor Terbutaline Preclinical
Osteoporosis Novartis compound(4) Preclinical
</TABLE>
- ---------------
(1) Currently marketed under a 510(k) clearance for use with "ions of soluble
salts or other drugs." The Company is developing Phase III protocols and
intends to file an NDA in the future, as is currently required by the FDA.
See "Business -- Government Regulation."
(2) Initial Phase II clinical studies were conducted by Elan. The Company
acquired the rights to the data from those studies under the Elan
Agreements. The Company will be required to conduct expanded Phase II and
Phase III clinical trials. The Company does not intend to pursue development
of a hydromorphone product until the second quarter of calendar year 1998.
(3) The Company has conducted, or participated in the conduct of, two
independent human blood level studies for the iontophoretic delivery of
fentanyl. The Company does not intend to pursue development of a fentanyl
product until the second quarter of calendar year 1998. See "Risks
Factors -- Dependence on Patents and Proprietary Technology."
(4) Under development pursuant to an agreement with Novartis. See
"Business -- Collaborative Relationships and Licenses."
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. Based on market data with respect to the number of
corticosteroid injections for acute inflammation as well as data gathered by the
Company in a survey it conducted of 54 physical therapy clinics around the
United States with respect to the number of patients that visit physical therapy
clinics for acute inflammation, 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 retail
sales into this market by the Company and its competitors are under $30 million.
The Company believes iontophoretic delivery of Dexamethasone provides
significant advantages over other current treatment regimens for acute local
inflammation. The Company believes iontophoresis eliminates many of 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
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administered NSAIDS. The Company believes 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 in 1979. The product is used principally by physical therapists
(under a doctor's prescription) and has been administered in over 10 million
patient treatments for the iontophoretic delivery of Dexamethasone. More than 8
million of these treatments occurred since 1990, when advancements in electrode
technology made by the Company led to the introduction of its present family of
gel electrodes for use with its microprocessor controlled dose controller. The
Company's system 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.
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.
Products Under Development. Currently, due to limited labeling of
Dexamethasone, neither the Company nor its competitors has the requisite
regulatory approval to specifically promote the use of 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
requires that each new drug/device combination be approved through an NDA
process. 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. See "Risk Factors -- Uncertainty of Government Regulation."
The Company believes the approval of an NDA (if obtained) 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
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,
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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.
Commercial Products. 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.
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
Investment Corporation ("CHIC"), a consortium of 36 of the leading free standing
children's hospitals in the United States. In December 1996, the committee
granted Numby Stuff ACH's "Seal of Acceptance." The Seal of Acceptance was
granted by ACH in recognition of the significant therapeutic benefits ACH
believes Numby Stuff offers in the practice of pediatric medicine. Numby Stuff
is one of only 24 products used in pediatric hospitals that bear the ACH Seal of
Acceptance. In order to use the Seal of Acceptance to promote Numby Stuff, the
Company was required to make royalty payments to ACH. The Company satisfied
ACH's royalty requirements by
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issuing ACH warrants to acquire, through December 1, 2003, 44,791 Common Shares
at an exercise price of $8.88 per share. In connection with obtaining the rights
to use the ACH Seal of Acceptance, and at CHIC's request, the Company sold CHIC
37,202 Common Shares for $250,000. CHIC maintains a venture fund to make
investments in medical products companies. In connection with the awarding of
the Seal of Acceptance, ACH will provide continued support and endorsement for
Numby Stuff and, although ACH's member hospitals are not required to purchase
any product awarded ACH's Seal of Acceptance, ACH 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. For example, according to published studies, there are over 250 million
venous catheters inserted each year, of which a large percentage are inserted in
adult patients.
The Company also believes 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, the Company believes the 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. The Company does not
believe gynecological procedures involving the vulva would require additional
FDA approval. 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 the Company
estimates 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 small number of gynecologists who are
mainly located in high density population areas that are also the major centers
for the Company's pediatric marketing efforts. See "Risk Factors -- Uncertainty
of Government Regulation."
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 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 for or experience pre-term labor and pre-term
birth are placed on one or more forms of tocolytic drug
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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 intravenous ("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 a 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 a over a month, with a mean treatment period of approximately three weeks,
and costs approximately $1,500 to $2,000 per week. Those 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 NDA
approval for the delivery of terbutaline for remission and pre-term labor using
its iontophoretic drug delivery system. It 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. See "Risk Factors -- Uncertainty of Government
Regulation."
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 intramuscular ("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. Based on market data, the
Company estimates that annual worldwide sales of the top two products used for
conscious sedation are approximately $950 million.
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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 calendar year 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 post
operative pain. In addition, 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 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 according to market reports 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. 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. 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. 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 an NCE, since hydromorphone's safety and
efficacy profile is well known and the clinical
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endpoints are both well established and easy to measure. See "Risk
Factors -- Uncertainty of Government Regulation."
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 have demonstrated that fentanyl can be delivered 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 with its former
collaborative partner, the Company has agreed not to pursue development of a
fentanyl pain product until the second quarter of calendar year 1998. Further,
the Company's ability to market a product using fentanyl in the United States
may be limited by certain litigation before the PTO. See "Risk
Factors -- Dependence on Patents and Proprietary Technology" and
"Business -- Collaborative Relationships and Licenses."
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 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 those drugs and human blood level studies on nine of
those 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 have significant limitations. 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.
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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 development
and 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 as amended in March 1996, the Company
entered into various research and development agreements (the "R&D Agreements")
with the ethical pharmaceuticals 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. In
connection with the R&D Agreements, the Company formed Dermion to conduct the
Company's iontophoretic drug delivery research and development activities other
than those relating to the Company's current products, and Ciba then acquired a
20% equity interest in Dermion. In 1997, Ciba was merged with Sandoz Corporation
to form Novartis Pharma A.G.
Under the 1997 Amendments, effective November 1, 1997, Novartis exchanged
its 20% equity interest in Dermion for 238,541 Common Shares and warrants to
acquire an additional 18,750 Common Shares at an exercise price of $21.60 per
share. Novartis may currently exercise one-third of the warrants, and will
obtain the right to exercise an additional one-third of the warrants in each
instance, when it agrees to provide research and development funding at a
minimum level of $1.5 million per year under the R&D Agreements for each of the
calendar years 1999 and 2000. The warrants, once exercisable, may be exercised
at any time through November 1, 2002.
In connection with the R&D Agreements, the Company and Dermion granted
Novartis perpetual non-exclusive, royalty bearing licenses to the Company's
iontophoretic technology. Further, other than in collaboration with Novartis,
the Company has agreed that, during the term of the agreement (and, under
certain circumstances, for a period of up to two years thereafter), the Company
will not develop any product in certain Novartis fields, as defined in the
agreement, without Novartis' consent.
Pursuant to the R&D Agreements, as amended, 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. 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 Agreements is
scheduled to enter Phase I clinical trials during 1998. The R&D Agreements may
be terminated by Novartis or the Company at any time on at least six months'
notice.
The R&D Agreements, as amended, require Novartis to pay Dermion milestone
payments in connection with products developed for Novartis by Dermion, based on
the successful completion of certain later stage 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.
The Company has also agreed that, during the term of the agreement with
Novartis and for a period of five years thereafter, the Company will negotiate
in good faith to license to Novartis rights to any iontophoretic drug delivery
technologies developed or acquired by the Company but which are not covered
under the existing license agreements (the "Second Generation Technology").
Further, the Company has agreed to negotiate such additional licenses prior to
entering into any agreement to license or otherwise transfer any rights to such
Second Generation Technology to a third party. Under the 1997 Amendments, the
parties
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agreed to treat the Elan technology acquired by the Company as Second Generation
Technology. Accordingly, the Company intends to negotiate with Novartis to
license such technology to Novartis prior to initiating efforts to negotiate any
rights to such technology with any third party. Under the R&D Agreements, as
amended, the parties agreed that they will jointly own the technology developed
in the collaboration.
The Company's agreements with Novartis contain contractual restrictions on
any change of control of Dermion (either through the sale of IOMED's stock in
Dermion or through the sale by Dermion of its securities, assets or business).
Through March 1998, any such change of control is prohibited and, during the
remaining term of the R&D Agreements, and for one year thereafter, Novartis has
a right of first offer to purchase Iomed's interest in Dermion or the assets of
Dermion in the event of any proposed change of control of Dermion. The right of
first offer does not extend to any overall change of control transaction
involving IOMED, such as the sale by IOMED of its securities or assets, or a
merger or consolidation. 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 the Elan Notes, issued Elan warrants to
purchase, through December 1, 2003, 104,166 Common Shares of the Company at a
price of $21.60 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. Both parties are prohibited from assigning
their rights under the agreement to certain named companies or any other entity
that derives more than 50 percent of its income from the development, licensing
and/or sale of drug delivery systems to other pharmaceutical companies without
first receiving the consent of the other party. Restrictions imposed on the
Company's ability to assign its rights under this agreement may have the effect
of prohibiting a sale of the Company to such named companies, or may otherwise
limit the Company's ability to capitalize on the commercial and other economic
potential of these technologies. The Company does not believe these restrictions
inhibit its existing business development strategy. See "Risk
Factors -- Anti-Takeover Provisions of the Company's Articles of Incorporation;
Utah Law and Certain of the Company's Agreements."
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 sold the assets comprising its prosthetic technologies
operations to Fillauer, Inc. and, in connection with that sale, sublicensed its
rights in the prosthetic technologies covered by the license to Fillauer, Inc.
Fillauer Agreements. 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 1995, the Company sold the assets of its prosthetics
technologies operations to Fillauer, Inc. for $1.0 million and granted Fillauer
an exclusive, worldwide license and sublicense to the patents, trademarks,
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know-how and other intellectual property of the Company relating to its
prosthetics products. Under the terms of the sublicense agreement, the Company
will receive license fees and royalties on future sales of such products.
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 wearable 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 to
Alza for the iontophoretic delivery of fentanyl and its analogs after the
Company and Laboratoires Fournier had entered into their agreement posed a
potential barrier to the commercial viability of the proposed system in the
United States. As a result, the Company elected to suspend development efforts
in the area. In February 1996, the parties terminated their collaborative
research and development activities and amended their initial agreement. In
connection with the termination of their collaborative efforts the Company
issued Laboratoires Fournier 337,837 Common Shares in satisfaction of a $3.0
million loan Laboratoires Fournier had made to the Company. Under the amended
agreements, 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.
Boston University Agreement. In December 1997, the Company acquired a
non-exclusive, fully-paid, perpetual, non-royalty bearing license to certain
iontophoretic drug delivery technology developed by Boston University. The
agreement also provides the Company with the right to sublicense the technology
upon the payment of a sublicense fee.
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 practices 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.
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 its needs for the foreseeable future.
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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 clearance
or PMA approval 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. See "Risk Factors -- Uncertainty of Government
Regulation."
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 NDA, if approved, 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
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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 intends 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 and hire such personnel successfully within such time frame,
or at all. 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.
In addition, under the terms of the Company's agreements with ACH, ACH has
agreed to assist the Company in introducing Numby Stuff to pharmacy directors
and other clinical specialties within ACH member hospitals. ACH has also agreed
to provide the Company with other marketing and sales assistance, including
access to certain marketing data developed by ACH.
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.
As of October 1, 1997, the Company held or had 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
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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
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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 sec. 510(k) of the Federal Food, Drug, and Cosmetic Act (the
"FDC Act"). In order for a device to qualify under the sec. 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 (as defined below) for which FDA has not called
for PMAs. In such cases, marketing of the product may commence when the FDA
issues a letter finding that 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 studies 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 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 Company 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
sec. 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
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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 subject to full NDA requirements, FDA approval process
entails (i) conducting preclinical laboratory and animal testing to enable FDA
authorization 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
and must obtain the informed consent of subjects in the 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 Company may be subject to certain user fees that the FDA is authorized
to collect under the Food and Drug Modernization Act of 1997, which reauthorized
the user fees established in the Prescription Drug User Fees Act of 1992 for
certain drugs.
Because of the known safety and efficacy profile of Dexamethasone and other
approved drugs for which the Company may seek NDA approval for iontophoretic
delivery, the clinical trials and other studies may not be as lengthy or
extensive as would be required for unapproved new drugs that are subject to full
NDA requirements. This strategy, however, depends upon the Company's ability to
obtain a contractual right to reference in the Company's NDA application of the
safety and efficacy data for such drugs in approved NDAs held by other
companies. The Company has obtained a right to reference safety and efficacy
data for Dexamethasone. There can be no assurance that the Company will be able
to obtain a right of reference for all unapproved drugs that may be used for
iontophoretic delivery. The Company's failure to obtain a right of reference to
safety and efficacy data for any drug for which the Company would like to obtain
approval for iontophoretic delivery could have a material adverse effect on the
Company's business, financial condition and results of operations.
The regulatory status of iontophoresis devices is also 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. 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
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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 effectiveness were not being resolved or, to the agency's knowledge, had
little 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 would be materially and adversely affected pending approval of a PMA
or NDA.
The FDA also regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate current GMP compliance, including compliance with the Quality System
Regulation (for devices) and the current GMP regulations (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 manufac-
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tured in violation of the FDC 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, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
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
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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.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The current executive officers, directors, and key employees of the Company
are:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------- --- ----------------------------------------------------
<S> <C> <C>
Ned M. Weinshenker, Ph.D. 55 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 Operations
Mary A. 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 has served as Executive Vice President, Sales and Marketing
and General Manager, Clinical Systems since joining the Company in 1994. 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 in 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.
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THOMAS M. PARKINSON, PH.D. joined the Company in 1991 and presently serves
as Vice President, Research and Development and General Manager, Dermion. Prior
to joining the Company 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 of 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, 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 has served as Vice President, Finance, Chief Financial
Officer and Secretary since joining the Company in 1993. 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
and various other management capacities. 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 has served as the President and Chief Executive Officer of DepoMed, Inc., a
pharmaceutical company, since 1996. Dr. Fara also serves as a director of two
other companies, PediaPharm, Inc. and Cooks Pharma, Inc. 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 in Pharmacy 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 has served as the Executive Vice President of SensorMedics, Inc., a
cardiopulmonary diagnostic device manufacturer and a subsidiary of
ThermoElectron, Inc, since 1996. Mr. Sidwell served as the Vice President of
Operations and as Executive Vice President for SensorMedics between 1991 and
1996. 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. In 1996 Mr.
Wood retired as Chairman of the Board of Directors, President and Chief
Executive Officer of Cabot Medical Corporation, a
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<PAGE> 57
medical device company, a position he held since 1983. 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 1996 and 1997, Mr. Lewis was Global Marketing Director,
Patient Care Division for Zimmer, Inc., a manufacturer of orthopedic products.
Between 1995 and 1996, Mr. Lewis was Director of Marketing for Seabrook Medical
Systems, Inc., a manufacturer of temperature management therapy products. From
1994 to 1995, Mr. Lewis was the Director of Client Business Development for
On-Target Media, Inc., a company which develops media displays for medical
practitioners. From 1991 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 presently serves as the
Director of Operations. From 1992 to 1997, Mr. Yanaki was 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
The Company's Articles of Incorporation provide for a classified Board of
Directors consisting of three classes, as nearly equal in number as possible.
The directors in each class serve staggered three year terms. The class three
directors (consisting of Messrs. Wardel and Wood) serve until 1998, the class
two directors (consisting of Mr. Sidwell and Dr. Fara) serve until 1999, and the
class one directors (consisting of Messrs. Weersing and Sember and Dr.
Weinshenker) 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. The
Company's Articles of Incorporation 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
56
<PAGE> 58
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 plans. 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 plans. 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 received options to purchase 6,250, 5,208 and 4,166 Common
Shares, respectively. The option grants vest over a four-year period. 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.
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:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- ---------------------------------------------------------- -------- ------- ------------
<S> <C> <C> <C>
Ned M. Weinshenker, Ph.D. ................................ $189,000 $25,000 $ 5,000
President, Chief Executive Officer and Director;
President, Chief Executive Officer, Dermion
W. Tim Miller............................................. $152,000 $25,000 $ 11,000(2)
Executive Vice President, Sales and Marketing and
General Manager, Clinical Systems
Thomas M. Parkinson, Ph.D. ............................... $115,000 $25,000 $ 5,000
Vice President, Research and Development;
General Manager, Dermion
Robert J. Lollini......................................... $145,000 $25,000 $ 5,000
Vice President, Finance, Chief Financial Officer and
Secretary;
Vice President, Secretary and Treasurer, Dermion
Timothy B. Lucas.......................................... $119,000 $16,000 $ 12,000(3)
Director of National Sales
</TABLE>
- ---------------
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<PAGE> 59
(1) Represents premiums on group term life insurance and medical and dental
insurance.
(2) Also 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) Also includes automobile reimbursement of $7,000.
STOCK OPTION GRANTS
There were no options granted to the Named Executive Officers during the
fiscal year ended June 30, 1997.
FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the number and value of
options held by the Named Executive Officers on June 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ned M. Weinshenker, Ph.D. ................. 41,615 15,469 $ 106,019 $ 9,333
W. Tim Miller.............................. 29,774 17,101 $ 55,000 $25,000
Thomas M. Parkinson, Ph.D. ................ 28,906 6,510 $ 105,583 $ 4,667
Robert J. Lollini.......................... 29,340 12,326 $ 52,000 $ 8,000
Timothy B. Lucas........................... 2,693 3,557 $ 3,870 $ 2,130
</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 $6.72 per share on June 30, 1997,
which is the estimated fair market value the Board of Directors attributed
to the Common Shares in March, 1997, in connection with certain grants of
options under the Company's stock option plans. The option value is based on
the difference between the fair market value of the shares on June 30, 1997,
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.
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.
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.
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<PAGE> 60
EMPLOYEE BENEFIT PLANS
Stock Option Plans. The Company has adopted and approved two incentive
compensation plans. 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 Company's 1997
Share Incentive Plan (the "Share Incentive Plan") was approved and adopted by
the Company's Board of Directors in October 1997 and was approved by its
shareholders in November 1997. The Stock Option Plan and Share Incentive Plan
provide 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 of 1986, as amended (the "Code")). The
Share Incentive Plan also provides for the grant of certain other incentive
compensation, including stock awards, stock appreciation rights, dividend
equivalent rights, performance-based awards and cash bonus rights. The purpose
of the Stock Option Plan and Share Incentive 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 520,833 Common Shares were reserved for issuance under the Stock
Option Plan. As of November 1, 1997, options to purchase a total of 135,679
Common Shares had been exercised, options to purchase a total of 339,512 Common
Shares at a weighted average exercise price of $4.80 per share were outstanding,
and 45,642 Common Shares remained available for future option grants or awards.
A total of 312,500 Common Shares were reserved for issuance under the Share
Incentive Plan. The Board of Directors has not granted any options for, or
issued any Common Shares under, the Share Incentive Plan.
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 any 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 exercisable 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.
The Share Incentive Plan is also administered by the Compensation
Committee, which in general is responsible for determining the type, amount and
terms of any consideration awarded to a recipient. Under the Share Incentive
Plan, any options granted to a recipient are exercisable in accordance with the
terms of the agreement governing the grant. If the option is an incentive stock
option, those terms must be consistent with the requirements of the Code, as
amended, and applicable regulations, including the requirement that the option
price not be less than the fair market value of the Common Shares on the date of
the grant. If the option is not an incentive stock option, the option price may
be any price determined by the Compensation Committee.
In addition to incentive stock options and non-incentive stock options, the
Compensation Committee may award other types of incentive compensation under the
Share Incentive Plan. Such additional incentive compensation can include stock
awards, stock appreciation rights (which entitle the holder of the right upon
59
<PAGE> 61
exercise thereof to receive payment from the Company of an amount equal in value
to the excess of the fair market value of the Company's Common Shares on the
date of exercise over the fair market value of the Company's Common Shares on
the date of grant or, if granted in connection with an option, the option price
per share under the option to which the stock appreciation right relates), cash
bonuses, performance-based awards (which are intended to qualify as
performance-based compensation under sec. 162(m) of the Code) and Common Shares
which are subject to a purchase agreement between the Company and the
prospective recipient.
401(k) Plan. In 1990, the Company adopted a deferred compensation plan
under sec. 401(k) of the Code (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.
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<PAGE> 62
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 a number of
Novartis compounds for several therapeutic applications. In connection with the
collaboration, Novartis purchased a 20% equity interest in Dermion. Pursuant to
the R&D Agreements, as amended, Novartis is required to pay research costs under
the program and to make milestone payments if Dermion successfully completes
certain objectives. The R&D Agreements may be terminated by either party for any
reason upon six months notice. In addition, the Company granted Novartis a
perpetual, non-exclusive, royalty-bearing license to certain of the Company's
iontophoretic technology, as well as certain rights with respect to future
technology developed or acquired by the Company. In addition, the Company agreed
to certain limitations on its ability to develop products in certain Novartis
fields. Novartis also shares rights to all technology jointly developed pursuant
to the collaboration.
Effective November 1, 1997, the Company, Dermion and Novartis amended the
terms of their relationship by entering into the 1997 Amendments. Under the 1997
Amendments, Novartis exchanged its 20% equity interest in Dermion for 238,541
Common Shares and warrants to acquire 18,750 Common Shares at an exercise price
of $21.60 per share. One-third of Novartis' warrants are currently exercisable.
Another one-third will be exercisable if Novartis commits to provide research
and development funding under the R&D Agreements for 1999. The balance will be
exercisable if Novartis commits to such funding for the year 2000. 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 104,166 Common Shares at $21.60 per share and agreed
to pay Elan a royalty on the net revenues derived from sales of all of the
Company's products. 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, Elan will acquire, directly from the Company in
private placement transactions, approximately 833,333 Common Shares (subject to
adjustment as described below) for approximately $10.2 million (the amounts
outstanding under the $10.0 million note) and approximately $5.1 million of
Common Shares at a price per share equal to the initial public offering price
hereunder. Simultaneously with such purchases, the Company will repay the Elan
Notes, including interest thereon. If the initial public offering price
hereunder is less than $12.00 per share, the number of Common Shares that Elan
will have the right to purchase for the approximately $10.2 million (the amounts
outstanding under the $10.0 million note) will be equal to approximately $10.2
million divided by the initial public offering price hereunder. If, as a result
of Elan's purchase of the Elan Shares, Elan's aggregate interest in the Common
Shares exceeds 19.9% of the outstanding Common Shares, Elan may elect to receive
non-voting preferred shares of the Company to the extent of such excess. Any
such preferred shares would rank pari passu with the Common Shares, be
non-voting and convertible into Common Shares initially on a one-for-one basis.
See "Risk Factors -- Potential Dilution; Absence of Dividends" and "Transactions
Related to the Offering."
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<PAGE> 63
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Shares as of November 1, 1997, and
as adjusted to reflect the issuance and sale of the 1,700,000 Common Shares
offered hereby, the sale of the Elan Shares in private placement transactions
concurrently with the closing of the Offering (1,258,833 Common Shares assuming
an initial public offering price of $12.00 per share) 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. See "Transactions Related to the Offering" and "Certain
Transactions."
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED
NUMBER OF ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) PRIOR TO OFFERING AFTER OFFERING
------------------------------------------------- --------- ----------------- --------------
<S> <C> <C> <C>
5% SHAREHOLDERS
Elan International Services, Ltd.(2)........... 104,166 3.0.% 21.1%
102 St. James Court
Flatts Smiths FL04 Bermuda
Newtek Ventures................................ 618,431 18.3% 9.7%
500 Washington Street, Suite 720
San Francisco, CA 94111
MBW Venture Partners, LP(3).................... 610,692 18.1% 9.6%
350 Second Street, Suite 8
Los Altos, CA 94022
Laboratoires Fournier, S.C.A................... 338,802 10.0% 5.3%
42, rue de Longvic 21300
Chenove France
Stephen C. Jacobsen............................ 264,166 7.8% 4.2%
274 South 1200 East
Salt Lake City, UT 84102
Novartis Pharmaceuticals Corporation(4)........ 244,791 7.3% 3.8%
59 Route 10
East Hanover, NJ 07936-1080
Utah Ventures.................................. 224,377 6.7% 3.5%
423 Wakara Way, Suite 206
Salt Lake City, UT 84108
CIT Group/Venture Capital, Inc................. 208,333 6.2% 3.3%
650 CIT Drive
Livingston, NJ 07039-5795
Vadex-Panama, S.A.............................. 208,333 6.2% 3.3%
PO Box 60040
Palo Alto, CA 94306-0040
DIRECTORS
James R. Weersing(5)........................... 2,760 * *
Ned M. Weinshenker, Ph.D.(6)................... 64,838 1.9% 1.0%
John W. Fara, Ph.D.(7)......................... 5,642 * *
Steven P. Sidwell(8)........................... 5,208 * *
Peter J. Wardle(9)............................. 0 * *
Warren Wood(10)................................ 902 * *
Michael T. Sember(11).......................... 0 * *
NAMED EXECUTIVE OFFICERS
W. Tim Miller(12).............................. 36,197 1.1% *
Thomas M. Parkinson, Ph.D(13).................. 30,648 1.0% *
Robert J. Lollini(14).......................... 35,416 1.1% *
Tim Lucas(15).................................. 4,973 * *
Executive Officers and directors as a group (11
persons)(16)................................ 186,584 5.3% 2.9%
</TABLE>
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<PAGE> 64
- ---------------
* Less than 1%.
(1) Assumes 3,373,072 Common Shares issued and outstanding as of November 1,
1997. 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 November 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) Elan International Services, Ltd. is a subsidiary of Elan. Includes 104,166
Common Shares subject to outstanding warrants. "Percentage Beneficially
Owned After the Offering" reflects the purchase of the Elan Shares
(1,258,333 Common Shares assuming an initial public offering price of
$12.00 per share) in private placement transactions, concurrently with the
closing of the Offering. See "Transactions Related to the Offering,"
"Business -- Collaborative Relationships and Licenses" and "Certain
Transactions."
(3) Includes 140,459 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.
(4) Includes 6,250 Common Shares subject to warrants held by Novartis
Pharmaceuticals Corporation.
(5) 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.
(6) Includes 19,786 Common Shares held in the name of a pension plan over which
Dr. Weinshenker holds investment control. Includes 45,052 Common Shares
subject to options held by Dr. Weinshenker.
(7) Includes 5,642 Common Shares subject to options held by Dr. Fara.
(8) Includes 5,208 Common Shares subject to options held by Mr. Sidwell.
(9) Mr. Wardle is a general partner of Newtek Ventures, but disclaims
beneficial ownership of the Common Shares held by Newtek Ventures.
(10) Includes 902 Common Shares subject to options held by Mr. Wood.
(11) Mr. Sember is an executive officer of Elan. Mr. Sember disclaims any
beneficial ownership of shares owned beneficially by Elan.
(12) Includes 35,503 Common Shares subject to options held by Mr. Miller.
(13) Includes 30,648 Common Shares subject to options held by Dr. Parkinson.
(14) Includes 33,159 Common Shares subject to options held by Mr. Lollini.
(15) Includes 3,307 Common Shares subject to options held by Mr. Lucas.
(16) Includes 159,421 Common Shares subject to options.
DESCRIPTION OF CAPITAL SHARES
The authorized capital of the Company consists of 100 million Common
Shares, without par value and 10 million Preferred Shares, also without par
value. As of November 1, 1997, 3,373,072 Common Shares and 28,800 Series C
Redeemable Preferred Shares were outstanding. The Series C Preferred Shares will
be converted into 28,800 Common Shares concurrently with the closing of the
Offering. An additional 339,512 Common Shares may be issued upon the exercise of
outstanding share options, and an additional 169,791 shares may be issued upon
the exercise of outstanding warrants. As of November 1, 1997, there were
approximately 147 holders of record of the Common Shares.
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<PAGE> 65
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
As of November 1, 1997, there were 28,800 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 initial public offering 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 four warrants which, in the aggregate, entitle the
holders thereof to acquire 169,791 Common Shares. On November 1, 1997, the
Company issued Novartis warrants to acquire, through November 1, 2002, 18,750
Common Shares at an exercise price of $21.60 per share. One-third of the
Novartis warrants are currently exercisable. Another one-third of the warrants
are exercisable if Novartis agrees to certain funding commitments under its
agreements with the Company for 1999, and the other one-third of the warrants is
exercisable if Novartis makes such funding commitments for the year 2000. Under
the Elan Agreements, Elan was issued a warrant to acquire, through April 19,
2002, 104,166 Common Shares at an exercise price of $21.60 per share. On
December 1, 1996, the Company issued ACH a warrant to acquire, through December
1, 2003, 44,791 Common Shares at an exercise price of $8.88 per share. On June
25, 1992, the Company issued a warrant to Silicon Valley Bank to acquire,
through June 24, 2002, 2,083 Common Shares at an exercise price of $4.80 per
share.
In connection with the closing of the Offering, the Company has agreed to
issue to the Representatives, warrants to purchase, after the first anniversary
of the date hereof, an aggregate of 170,000 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 of this
Prospectus 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 of this
Prospectus. The Representatives's Warrants expire on the fifth anniversary of
the date of this Prospectus.
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
64
<PAGE> 66
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. Under the terms of the Company's
Bylaws, the Company has opted out of these provisions.
The Company's Articles of Incorporation provide for the 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 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 Elan Shares (1,258,333 Common Shares, assuming an initial
public offering price of $12.00 per share) and the 104,166 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
with respect to an offering by the Company. 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 Company's original agreements with Novartis, Dermion had certain
obligations with respect to registering the Dermion shares previously held by
Novartis. Under the terms of the 1997 Amendments, subject to certain exceptions
and limitations, after 180 days following the effective date of the Offering,
the holders of the lesser of (i) 52,083 Common Shares purchased pursuant to the
1997 Amendments (the "1997 Amendments Shares") or (ii) 75% of all 1997
Amendments Shares 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 1997 Amendments 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, the Company is required to notify the
holders of the 1997 Amendments Shares, and subject to certain limitations is
required to include in such registration the 1997 Amendments Shares requested by
such holders to be included therein. In connection with the Offering, the
holders of the 1997 Amendments Shares have agreed not to sell or otherwise
dispose of their shares for a period of 180 days following the Offering.
Under the terms of an agreement between the Company and 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
65
<PAGE> 67
relating to an employee benefit plan, and other than on Form S-4, any holder of
at least 10,416 Common Shares issuable upon conversion of the warrant issued to
CHIC and any holder of 10,416 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 208,333 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 Representatives with respect to the 170,000 Common Shares issuable
upon exercise of the Representatives' Warrants. See "Underwriting."
66
<PAGE> 68
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. will be the transfer agent and
registrar for the Common Shares.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of 6,360,204 Common Shares. In addition, the Company has reserved for
issuance 679,303 shares issuable upon exercise of outstanding options and
warrants, including the Representatives' Warrants. The 1,700,000 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 or otherwise. Pursuant to certain "lock-up" agreements, the
Company's directors, officers and certain of its shareholders who collectively
hold an aggregate of 4,560,934 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 lock-up periods,
approximately 1,903,533 Common Shares will be eligible for sale in the public
market without restriction under Rule 144(k) and an additional 79,808 Common
Shares will be eligible for sale subject to certain volume, manner of sale and
other limitations under Rule 144. Of the approximately 76,418 restricted shares
held by existing shareholders of the Company not subject to lock-up agreements,
all such Common Shares will be eligible for immediate sale in the public market
without restriction under Rule 144(k). In addition, holders of stock options or
warrants exercisable for an aggregate of approximately 220,227 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
(63,602 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 4,036,010 Common Shares and warrants to purchase 337,708
Common Shares have certain registration rights. See "Description of Capital
Shares -- Registration Rights."
67
<PAGE> 69
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 "Representatives"), have severally agreed to
purchase, and the Company has agreed to sell to the Underwriters, the following
respective number of Common Shares.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
EVEREN Securities, Inc.......................................
Hanifen, Imhoff Inc..........................................
Wedbush Morgan Securities....................................
----------------
Total.............................................. 1,700,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel 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 Representatives.
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 255,000 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 Representatives warrants to
purchase, after the first anniversary of the date hereof, up to an aggregate of
170,000 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 of this Prospectus 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 of this Prospectus. Holders of the Representatives'
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 Representatives' Warrants. See "Description of Shares -- Registration
Rights" and "Shares Eligible For Future Sale." The Representatives' Warrants
expire on the fifth anniversary of the date of this Prospectus.
The Company has also granted the Representatives a nonaccountable expense
allowance of $245,000.
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
68
<PAGE> 70
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 Representatives have 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 or
Share Incentive 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 Representatives. 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.
69
<PAGE> 71
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.
70
<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
IOMED, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1996............................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996 and
1995............................................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended June
30, 1997, 1996 and 1995.......................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and
1995............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets at September 30, 1997 and June 30, 1997....... F-18
Condensed Consolidated Statements of Operations for the Three Months Ended September
30, 1997 and 1996................................................................ F-19
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September
30, 1997 and 1996................................................................ F-20
Notes to Condensed Consolidated Financial Statements................................ F-21
</TABLE>
F-1
<PAGE> 73
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, except for
Note 15 as to which the date
is November 7, 1997
F-2
<PAGE> 74
IOMED, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1996 1997
----------- ------------
<S> <C> <C>
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, no par value;
10,000,000 authorized; issued and outstanding shares of all
series 38,800 in 1996 and 36,000 in 1997....................... 1,270,000 900,000
Subordinated, convertible debt................................... -- 15,240,000
Shareholders' equity (deficit):
Common shares, no par value; 100,000,000 shares authorized;
issued and outstanding 2,925,056 shares in 1996 and
3,134,392 shares in 1997.................................... 11,492,000 12,047,000
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
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 75
IOMED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
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................. $ (.46) $ .48 $ (4.48)
Income from discontinued operations...................... .14 .06 .01
--------- ---------- ------------
Net income (loss)........................................ $ (.32) $ .54 $ (4.47)
--------- ---------- ------------
Shares used in computing per share amounts............... 2,090,007 3,222,496 3,140,054
========= ========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 76
IOMED, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK*
----------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994..................... 2,032,741 $ 7,639,000 $ (8,584,000) $ (945,000)
Stock options exercised.................... 14,930 9,000 -- 9,000
Conversion of redeemable, convertible
preferred shares........................ 1,380 3,000 -- 3,000
Net loss................................... -- -- (659,000) (659,000)
----------
-
----------- ------------ -----------
BALANCE AT JUNE 30, 1995..................... 2,049,051 7,651,000 (9,243,000) (1,592,000)
Stock options exercised.................... 43,974 23,000 -- 23,000
Conversion of redeemable, convertible
preferred shares........................ 494,193 895,000 -- 895,000
Conversion of subordinated debt............ 337,838 2,923,000 -- 2,923,000
Net income................................. -- -- 1,743,000 1,743,000
----------
-
----------- ------------ -----------
BALANCE AT JUNE 30, 1996..................... 2,925,056 11,492,000 (7,500,000) 3,992,000
Stock options exercised.................... 6,483 5,000 -- 5,000
Conversion of redeemable, convertible
preferred shares........................ 165,651 300,000 -- 300,000
Sale of common shares for cash............. 37,202 250,000 -- 250,000
Net loss................................... -- -- (14,038,000) (14,038,000)
----------
-
----------- ------------ -----------
BALANCE AT JUNE 30, 1997..................... 3,134,392 $12,047,000 $(21,538,000) $(9,491,000)
=========== =========== ============ ===========
</TABLE>
- ---------------
* Adjusted to reflect 1-for-4.8 reverse stock split and elimination of par
value -- see Note 15.
See accompanying notes.
F-5
<PAGE> 77
IOMED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
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 in-process research and development................. -- -- $ 15,000,000
Preferred shares converted to common shares.............. $ 3,000 $ 895,000 300,000
Subordinated debt converted to common shares............. -- 2,923,000 --
</TABLE>
See Accompanying Notes.
F-6
<PAGE> 78
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:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- --------
<S> <C> <C>
Raw materials...................................... $ 862,000 $568,000
Work-in-progress................................... 72,000 31,000
Finished goods..................................... 228,000 115,000
---------- --------
$1,162,000 $714,000
========== ========
</TABLE>
F-7
<PAGE> 79
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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>
<CAPTION>
JUNE 30,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
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
F-8
<PAGE> 80
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, shares and equivalent
shares issued by the Company at prices below the assumed public offering price
during the twelve-month period prior to the proposed offering have been included
in the calculation as if they were outstanding for all periods presented (using
the treasury stock method and using the assumed midpoint of the initial public
offering price range).
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 $21.60 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
F-9
<PAGE> 81
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------
1995 1996 1997
---------- ---------- --------
<S> <C> <C> <C>
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:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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
F-10
<PAGE> 82
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the idle space, plus estimated maintenance and construction costs. At June 30,
1997, approximately $69,000 of these charges remained in accrued liabilities.
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 833,333 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 $12.00
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 $8.88 per share, into
337,838 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.
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.
F-11
<PAGE> 83
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. REDEEMABLE, CONVERTIBLE PREFERRED SHARES
In connection with a reorganization of the Company in fiscal 1988, the
Company issued 878,254 shares of $.001 par value redeemable convertible
preferred shares in three series; Series A, Series B and Series C. Pursuant to
the terms of such preferred shares, the Series A shares were redeemed in equal
installments beginning in July 1992 through July 1996 at a redemption price of
$25.00 per share and the Series B shares (828,254 shares with a carrying value
of $1,500,000) were converted prior to July 15, 1996 into common shares on a
share for share basis at the equivalent of $1.811 per share.
The Series C preferred shares outstanding as of June 30, 1997 are comprised
of 36,000 shares with an aggregate redemption value of $900,000. The Series C
preferred shares are redeemable at $25.00 per share in five equal annual
installments beginning in July 1997. 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, each share of the Series A, B and C preferred shares
either are, or were, as applicable, 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 outstanding 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 $5.4331 per share and which
results in gross proceeds to the Company of at least $5,000,000.
Each share of the Series A, B and C preferred shares 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 cost 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.
F-12
<PAGE> 84
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
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.
F-13
<PAGE> 85
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
There were no deferred income tax provisions in any of the years presented.
Significant components of the provision for income taxes attributable to
continuing operations are as follows.
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- ------
<S> <C> <C> <C>
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>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
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 520,833
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
$0.05 per share).
F-14
<PAGE> 86
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity, and related information for the years
ended June 30, 1995, 1996, and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 272,031 -- 293,620 $3.41 328,610 $4.51
Granted................................. 60,729 -- 84,271 6.19 15,417 6.72
Exercised............................... (14,930) -- (43,974) 0.48 (6,483) 1.01
Canceled................................ (24,210) -- (5,307) 4.37 (7,163) 4.18
------- ------- -------
Outstanding at end of year.............. 293,620 -- 328,610 $4.51 330,381 $4.70
======= ======= =======
Exercisable at end of year.............. 173,833 -- 175,416 $3.64 220,706 $4.13
Weighted-average fair value of options
granted during the year............... -- $ 1.97 $ 2.11
</TABLE>
Exercise prices for options outstanding as of June 30, 1997 ranged from
$0.38 to $6.72. 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>
<CAPTION>
RANGE OF EXERCISE PRICES
----------------------------------------
<S> <C> <C> <C>
$0.38-0.72 $2.16-3.60 $4.80-6.72
---------- ----------
Options outstanding.................................. 20,313 49,876 260,192
Weighted-average exercise price of options
outstanding........................................ $ 0.58 $ 2.83 $ 5.38
Weighted-average remaining contractual life of
options outstanding................................ 2 years 4 years 7 years
Options exercisable.................................. 20,313 49,876 150,517
Weighted-average exercise price of options
exercisable........................................ $ 0.58 $ 2.83 $ 4.99
</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 140,166 shares for an exercise price of $21.60
per share. In December 1996, the Company issued a warrant to the Alliance of
Children's Hospitals, Inc. to acquire up to 44,791 shares for an exercise price
of $8.88 per share. In June 1995, the Company issued a warrant to the Silicon
Valley Bank to acquire up to 2,083 shares for an exercise price of $4.80 per
share. The warrants expire in April 2002, December 2003 and June 2002,
respectively.
15. SUBSEQUENT EVENTS
Initial Public Offering
On October 3, 1997, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission pursuant to which the Company
intends to consummate an initial public offering of newly issued common shares.
Reverse Stock Split
On November 7, 1997, pursuant to a vote of the shareholders, the Company
effected a one for 4.8 reverse share split for each common and preferred share
then outstanding and amended and restated its Articles of Incorporation and
Corporate Bylaws. Among other things, these amendments changed the par value of
the Company's common shares from $0.001 per share to no par value common shares;
increased the number of authorized common shares from 40,000,000 shares to
100,000,000 shares; and increased the number of
F-15
<PAGE> 87
IOMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
authorized preferred shares from 4,215,618 shares to 10,000,000 shares. For
comparative purposes, all share amounts in the accompanying financial statements
and related footnotes have been retroactively restated to reflect the effects of
the reverse stock split and the increases in the authorized shares of the
Company's common and preferred shares.
Novartis Exchange Agreement
Effective November 1, 1997, the Company entered into an Exchange Agreement
with Novartis Pharmaceuticals Corporation. Among other things, the Exchange
Agreement provided for the exchange of Novartis' 20% minority interest in
Dermion, the Company's research and development subsidiary, for 238,541 common
shares of the Company and warrants to purchase, under certain conditions,
through November 1, 2002 an additional 18,750 common shares at a price equal to
$21.60 per share, making Dermion a wholly owned subsidiary of Iomed, Inc. In
addition, the Company and Novartis amended their research and development
agreement to, among other things, expand Iomed's rights to conduct research and
development in areas other than in the areas of acute local inflamation and
local dermal anesthesia.
F-16
<PAGE> 88
IOMED, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
F-17
<PAGE> 89
IOMED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, 1997
1997 ------------
------------ (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 6,346,000 $ 5,910,000
Accounts receivable........................................... 1,189,000 1,291,000
Inventories................................................... 714,000 719,000
Prepaid expenses.............................................. 12,000 15,000
------------ ------------
Total current assets.................................. 8,261,000 7,935,000
Equipment and furniture, net.................................... 385,000 388,000
Other assets.................................................... 18,000 146,000
------------ ------------
Total Assets.......................................... $ 8,664,000 $ 8,469,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable........................................ $ 171,000 $ 214,000
Accrued liabilities........................................... 944,000 626,000
Current portion of long-term obligations...................... 2,000 -
------------ ------------
Total current liabilities............................. 1,117,000 840,000
Commitments
Minority interest............................................... 898,000 909,000
Redeemable, convertible preferred shares........................ 900,000 720,000
Subordinated, convertible debt.................................. 15,240,000 15,527,000
Shareholders' equity (deficit):
Common shares................................................. 12,047,000 12,047,000
Accumulated deficit........................................... (21,538,000) (21,574,000)
------------ ------------
Total shareholders' equity (deficit).................. (9,491,000) (9,527,000)
------------ ------------
Total liabilities and shareholders' equity
(deficit)........................................... $ 8,664,000 $ 8,469,000
============ ============
</TABLE>
See accompanying notes.
F-18
<PAGE> 90
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Product sales...................................................... $1,813,000 $1,997,000
Contract research revenue, royalties and license fees.............. 649,000 503,000
---------- ----------
Total revenues............................................. 2,462,000 2,500,000
Operating costs and expenses:
Cost of products sold.............................................. 821,000 893,000
Research and development........................................... 391,000 375,000
Selling, general and administrative................................ 769,000 1,061,000
---------- ----------
Total costs and expenses................................... 1,981,000 2,329,000
---------- ----------
Income from operations............................................... 481,000 171,000
Interest expense..................................................... 1,000 287,000
Interest income and other, net....................................... 58,000 91,000
---------- ----------
Income (loss) from continuing operations before income taxes and
minority interest.................................................. 538,000 (25,000)
Minority interest.................................................... 44,000 11,000
Income tax expense................................................... 20,000 --
---------- ----------
Income (loss) from continuing operations............................. 474,000 (36,000)
Loss from discontinued operations, net of income taxes............... (7,000) --
---------- ----------
Net income (loss).................................................... $ 467,000 $ (36,000)
========== ==========
Income (loss) per common share amounts:
Income (loss) from continuing operations............................. $ 0.14 $ (0.01)
---------- ----------
Income (loss) from discontinued operations........................... -- --
---------- ----------
Net income (loss).................................................... $ 0.14 $ (0.01)
---------- ----------
Shares used in computing per share amounts........................... 3,281,712 3,149,522
========== ==========
</TABLE>
See accompanying notes.
F-19
<PAGE> 91
IOMED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 467,000 $ (36,000)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization..................................... 88,000 57,000
Interest expense.................................................. -- 287,000
Minority interest losses and other non-cash charges............... 44,000 11,000
Changes in assets and liabilities:
Accounts receivable............................................ 315,000 (102,000)
Inventories.................................................... (218,000) (5,000)
Prepaid expenses and other assets.............................. 2,000 (131,000)
Trade accounts payable......................................... 149,000 43,000
Other current liabilities...................................... (18,000) (318,000)
---------- ----------
Net cash provided by (used in) operating activities................. 829,000 (194,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and furniture................................ (46,000) (60,000)
---------- ----------
Net cash provided by (used in) investing activities................. (46,000) (60,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares............................. 4,000 --
Payments on term loans.............................................. (11,000) (2,000)
Redemptions of redeemable preferred shares.......................... (70,000) (180,000)
---------- ----------
Net cash provided by (used in) financing activities................. (77,000) (182,000)
---------- ----------
Net increase (decrease) in cash and cash equivalents................ 706,000 (436,000)
Cash and cash equivalents at beginning of period.................... 4,507,000 6,346,000
---------- ----------
Cash and cash equivalents at end of period.......................... $5,213,000 $5,910,000
========== ==========
</TABLE>
See accompanying notes.
F-20
<PAGE> 92
IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 proprietary
iontophoretic technology. Iontophoresis is a method of enhancing and controlling
the transport of drugs through the skin utilizing a low level electrical
current.
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
statement of operations for the three months ended September 30, 1996 presents
the results of operations of the Motion Control Division as a discontinued
operation. There were no remaining assets or liabilities related to discontinued
operations reflected in the financial statements as of September 30, 1997 or
June 30, 1997.
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 systems
on its own behalf and on behalf of third party clients. All significant
intercompany transactions and accounts have been eliminated.
Basis of Presentation
In the opinion of management, the accompanying condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of the Company as of September 30, 1997
and the results of its operations and cash flows for the three month periods
ended September 30, 1997 and 1996. The operating results for the interim periods
are not necessarily indicative of the results for a full year. These statements
should be read in conjunction with the Company's audited consolidated financial
statements for the year ended June 30, 1997, included elsewhere in this
prospectus.
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 stock
equivalents (stock options, warrants, convertible preferred stock and
convertible debt), as determined using the treasury stock method, have been
included in such computations for the three month period ended September 30,
1996 and, except as noted below, have been excluded from the computations in the
three month period ended September 30, 1997 where their inclusion would have an
antidilutive effect.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, shares and equivalent shares issued by the Company at prices
below the assumed public offering price during the twelve-month period
immediately prior to the proposed public offering have been included in the
calculation of earnings per share (using the treasury stock method and using the
midpoint of the initial public offering range), as if they had been outstanding
for all periods presented, including periods in which such securities have an
antidilutive effect. Additional SAB No. 83 shares included in the computation of
per share amounts were 15,130 and 52,332 for the three month periods ended
September 30, 1997 and 1996, respectively.
F-21
<PAGE> 93
IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. 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 at
September 30, 1997 and June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
--------- --------------
<S> <C> <C>
Raw materials....................................... $ 568,000 $557,000
Work-in-progress.................................... 31,000 22,000
Finished goods...................................... 115,000 140,000
-------- --------
$714,000.. $719,000
======== ========
</TABLE>
3. 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. 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>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Net product sales......................................... $391,000
Income tax expense (benefit).............................. $ (4,000)
Income (loss) from discontinued operations................ $ (7,000)
</TABLE>
4. SUBSEQUENT EVENTS
Initial Public Offering
On October 3, 1997, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission pursuant to which the Company
intends to consummate an initial public offering of newly issued common shares.
Reverse Stock Split
On November 7, 1997, pursuant to a vote of the shareholders, the Company
effected a one for 4.8 reverse share split for each common and preferred share
then outstanding and amended and restated its Articles of Incorporation and
Corporate Bylaws. Among other things, these amendments changed the par value of
the Company's common shares from $0.001 per share to no par value common shares;
increased the number of authorized common shares from 40,000,000 shares to
100,000,000 shares; and increased the number of authorized preferred shares from
4,215,618 shares to 10,000,000 shares. For comparative purposes, all share
amounts in the accompanying financial statements and related footnotes have been
retroactively restated to reflect the effects of the reverse stock split and the
increases in the authorized shares of the Company's common and preferred shares.
F-22
<PAGE> 94
IOMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Novartis Exchange Agreement
Effective November 1, 1997, the Company entered into an Exchange Agreement
with Novartis Pharmaceuticals Corporation. Among other things, the Exchange
Agreement provided for the exchange of Novartis' 20% minority interest in
Dermion, the Company's research and development subsidiary, for 238,541 common
shares of the Company and warrants to purchase, under certain conditions,
through November 1, 2002, an additional 18,750 common shares at a price equal to
$21.60 per share, making Dermion a wholly owned subsidiary of Iomed, Inc. In
addition, the Company and Novartis amended their research and development
agreement to, among other things, expand Iomed's rights to conduct research and
development in areas other than in the areas of acute local inflamation and
local dermal anesthesia.
F-23
<PAGE> 95
[INSIDE BACK COVER]
[GRAPHICS DEPICTING THE COMPANY'S PRODUCTS]
<PAGE> 96
- ------------------------------------------------------
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Transactions Related to the Offering... 21
Use of Proceeds........................ 22
Capitalization......................... 23
Dividend Policy........................ 23
Dilution............................... 24
Selected Consolidated Financial Data... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 31
Management............................. 54
Certain Transactions................... 61
Principal Shareholders................. 62
Description of Capital Shares.......... 63
Shares Eligible for Future Sale........ 67
Underwriting........................... 68
Legal Matters.......................... 69
Experts................................ 69
Additional Information................. 70
Index to Financial Statements.......... F-1
</TABLE>
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.
- ------------------------------------------------------------
PROSPECTUS , 1997
- ------------------------------------------------------
1,700,000 COMMON SHARES
LOGO
------------------------------
EVEREN SECURITIES, INC.
HANIFEN, IMHOFF INC.
WEDBUSH MORGAN SECURITIES
- ------------------------------------------------------
<PAGE> 97
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.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 8,712
NASD Filing Fee................................................... 3,375
National Market Listing Fee....................................... 33,000
Printing and Engraving Expenses................................... 200,000
Legal Fees and Expenses........................................... 250,000
Accounting Fees and Expenses...................................... 125,000
Blue Sky Qualification Fees and Expenses.......................... 15,000
Transfer Agent and Registrar Fees and Expenses.................... 5,000
Other Non-Accountable Underwriting Expense........................ 245,000
Miscellaneous..................................................... 31,913
--------
Total................................................... $917,000
========
</TABLE>
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.
II-1
<PAGE> 98
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has entered into five 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 337,837
Common Shares in conversion and satisfaction of a non-interest bearing
$3,000,000 promissory note sold to Laboratoires Fournier in 1993. On November
29, 1996, the Company issued 37,202 Common Shares to CHIC, 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, a subsidiary of CHCA, a
warrant to acquire up to 44,791 Common Shares at an exercise price of $8.88 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 104,166 Common Shares in connection with the purchase of certain
technology from Elan. Effective November 1, 1997, the Company issued Novartis
238,541 Common Shares and warrants to acquire 18,750 Common Shares in connection
with the exchange by Novartis of its 20% equity interest in Dermion for an
equity position in the Company pursuant to the provisions of the 1997
Amendments.
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 sec. 4(2) of the
Securities Act, and the rules and regulations promulgated thereunder.
Concurrently with the closing of the Offering, Elan will acquire, directly
from the Company in private placement transactions, approximately 833,333 Common
Shares (subject to adjustment as described below) for approximately $10.2
million (the amount outstanding under the $10.0 million note) and approximately
$5.1 million of Common Shares at a price per share equal to the initial public
offering price hereunder. Simultaneously with such purchase, the Company will
repay the Elan Notes, including interest thereon. If the initial public offering
price hereunder is less than $12.00 per share, the number of Common Shares that
Elan will have the right to purchase for approximately $10.2 million (the amount
outstanding under the $10.0 million note) will be equal to approximately $10.2
million divided by the initial public offering price hereunder. Elan has
represented in the Elan agreements that it is aware that those Common Shares
will not be registered under federal securities laws, will acquire those Common
Shares for its own account and for investment purposes, understands that the
Common Shares will need to be held indefinitely unless registered or an
exemption from registration applies to any proposed disposition, and that the
certificates representing the shares will bear a restrictive legend. In light of
the foregoing, the Company believes that the acquisition of the approximately
833,333 Common Shares (subject to adjustment under certain circumstances) and
the approximately $5.1 million of Common Shares at a price per share equal to
the initial public offering price hereunder in private placement transactions
will not constitute the sale of an unregistered security in violation of federal
securities law by reason of the exemption provided under sec. 4(2) of the
Securities Act.
II-2
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ----------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
1.2* Form of Representatives' Warrant Agreement between the Company and the
Representatives
3.1** Amended and Restated Articles of Incorporation of the Company
3.2** Amended and Restated Bylaws of the Company
4.1** Reference is made to Exhibit 3.1
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
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ----------------------------------------------------------------------------
<S> <C>
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 1997 Share Incentive Plan
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
10.28** Exchange Agreement among the Company, Novartis Pharmaceuticals Corporation
and Dermion, Inc., dated November 1, 1997
10.29** Warrant to Purchase Shares of Common Stock in favor of Novartis
Pharmaceuticals Corporation, dated November 1, 1997
10.30** First Amendment of Research & Development Agreement among the Company,
Novartis Pharmaceuticals Corporation and Dermion, Inc. dated November 1,
1997.
10.31**** Supply Agreement between the Company and Luitpold Pharmaceuticals,
Inc./American Regent Laboratories, Inc. dated December 4, 1994
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
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** Confidential portions omitted and previously filed separately with the
Commission.
**** Confidential portions omitted and filed herewith
(b) FINANCIAL STATEMENT SCHEDULES
All required financial statement schedules are included as part of the
Consolidated Financial Statements.
II-4
<PAGE> 101
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.
II-5
<PAGE> 102
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
17th day of December, 1997.
IOMED, Inc.
/s/ NED M. WEINSHENKER
--------------------------------------
By: 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 posteffective 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>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------ ----------------
<S> <C> <C>
/s/ NED M. WEINSHENKER President, Chief October 3, 1997
- ----------------------------------------------- Executive Officer and
Ned M. Weinshenker Director (Principal
Executive Officer)
/s/ ROBERT J. LOLLINI Vice President and Chief October 3, 1997
- ----------------------------------------------- Financial Officer
Robert J. Lollini (Principal Financial and
Accounting Officer)
/s/ JAMES R. WEERSING Chairman of the Board of October 3, 1997
- ----------------------------------------------- Directors
James R. Weersing
/s/ JOHN W. FARA Director October 3, 1997
- -----------------------------------------------
John W. Fara, Ph.D.
/s/ PETER J. WARDLE Director October 3, 1997
- -----------------------------------------------
Peter J. Wardle
/s/ STEVEN P. SIDWELL Director October 3, 1997
- -----------------------------------------------
Steven P. Sidwell
/s/ WARREN WOOD Director October 3, 1997
- -----------------------------------------------
Warren Wood
Director October 3, 1997
- -----------------------------------------------
Michael T. Sember
</TABLE>
II-6
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement....................................
1.2* Form of Representatives' Warrant Agreement between the Company and
the Representatives...............................................
3.1** Amended and Restated Articles of Incorporation of the Company.....
3.2** Amended and Restated Bylaws of the Company........................
4.1** Reference is made to Exhibit 3.1..................................
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......................
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <S> <C>
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 1997 Share Incentive Plan.................................
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, Jamers R. Weersing
and Robert J. Harrington, dated August 4, 1987....................
10.28** Exchange Agreement among the Company, Novartis Pharmaceuticals
Corporation and Dermion, Inc., dated November 1, 1997.............
10.29** Warrant to Purchase Shares of Common Stock in favor of Novartis
Pharmaceuticals Corporation, dated November 1, 1997...............
10.30** First Amendment of Research & Development Agreement among the
Company, Novartis Pharmaceuticals Corporation and Dermion, Inc.
dated November 1, 1997.
10.31**** Supply Agreement between the Company and Luitpold Pharmaceuticals,
Inc./American Regent Laboratories, Inc. dated December 4, 1994.
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...........................................
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** Confidential portions omitted and previously filed separately with the
Commission
**** Confidential portions omitted and filed herewith
<PAGE> 1
DRAFT 12-16-97
1,700,000
IOMED, INC.
Common Shares
FORM UNDERWRITING AGREEMENT
December __, 1997
EVEREN SECURITIES, INC.
HANIFEN, IMHOFF INC.
WEDBUSH MORGAN SECURITIES
As Representatives of the Several Underwriters
c/o EVEREN SECURITIES, INC.
77 West Wacker Drive
31st Floor
Chicago, Illinois 60601
Dear Sirs:
Iomed, Inc., a Utah corporation (the "Company"), proposes to
issue and sell an aggregate of 1,700,000 common shares, without par value (the
"Initial Securities"), to the several Underwriters named in Schedule I hereto
(the "Underwriters") for whom EVEREN Securities, Inc. ("EVEREN"), Hanifen,
Imhoff Inc. and Wedbush Morgan Securities are acting as representatives (the
"Representatives"). In addition, solely for the purpose of covering
over-allotments, the Company proposes to grant to the several Underwriters, upon
the terms and conditions set forth in Section 2 hereof, an option to purchase up
to an additional 255,000 common shares of the Company (the "Option Securities").
The Company also proposes to issue and sell to the Representatives warrants (the
"Representatives' Warrants") pursuant to the Representatives' Warrant Agreement
between the Company and the Representatives for the purchase of an additional
170,000 common shares. The 170,000 common shares issuable upon exercise of the
Representatives' Warrants are herein referred to as the "Representatives'
Securities." The Initial Securities, the Option Securities and the
Representatives' Securities are hereinafter collectively referred to as the
"Securities." The Company's common
<PAGE> 2
shares, without par value, including the Securities, are hereinafter referred to
as the "Common Shares." The Company wishes to confirm as follows its agreements
with you and the other Underwriters on whose behalf you are acting in connection
with the several purchases by the Underwriters of the Securities:
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1 (No. 333-____) covering the registration of
the Securities under the Securities Act of 1933, as amended (the "1933 Act"),
including the related preliminary prospectus, or prospectuses, and either (A)
has prepared and filed, prior to the effective date of such registration
statement, an amendment to such registration statement, including a final
prospectus or (B) if the Company has elected to rely upon Rule 430A ("Rule
430A") of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations"), will prepare and file a prospectus, in accordance with
the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act
Regulations, promptly after execution and delivery of this Agreement.
Additionally, if the Company has elected to rely upon Rule 434 ("Rule 434") of
the 1933 Act Regulations, the Company will prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b),
promptly after execution and delivery of this Agreement. The information, if
any, included in such prospectus or in such Term Sheet, that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it becomes effective (a)
pursuant to paragraph (b) of Rule 430A, is referred to herein as the "Rule 430A
Information," or (b) pursuant to paragraph (d) of Rule 434, is referred to
herein as the "Rule 434 Information." Each prospectus used before the time such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information that was used
after effectiveness and prior to the execution and delivery of this Agreement is
herein called a "preliminary prospectus." Such registration statement, including
the exhibits and schedules thereto, at the time it became effective and
including, if applicable, the Rule 430A Information or the Rule 434 Information,
is herein called the "Registration Statement." Any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
Registration Statement shall include the Rule 462(b) Registration Statement. The
final prospectus in the form first furnished to the Underwriters for use in
connection with the offering of the Securities is herein referred to as the
"Prospectus." If Rule 434 is relied upon, the term "Prospectus" shall refer to
the
2
<PAGE> 3
preliminary prospectus last furnished to the Underwriters in connection with the
offering of the Securities, together with the Term Sheet, and all references to
the date of the Prospectus shall mean the date of the Term Sheet.
2. AGREEMENTS TO SELL AND PURCHASE. Upon the basis of the
representations, warranties and agreements contained herein and subject to all
the terms and conditions set forth herein, the Company hereby agrees to issue
and sell to each Underwriter and each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $ per share
(the "purchase price per share"), the number of Initial Securities set forth in
Schedule I opposite the name of such Underwriter under the column "Number of
Initial Securities to be Purchased from the Company" (or such number of Initial
Securities increased as set forth in Section 10 hereof).
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein,
the Company hereby grants an option (the "over-allotment option") to the
Underwriters to purchase from the Company, at the purchase price per share, up
to an aggregate of 255,000 Option Securities. Option Securities may be purchased
solely for the purpose of covering over-allotments made in connection with the
offering of the Securities. Such option shall expire at 5:00 P.M., Chicago time,
on the 30th day after the date of this Agreement (or, if such 30th day shall be
a Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading). Such over-allotment option may be
exercised at any time or from time to time until its expiration. Upon any
exercise of the over-allotment option, each Underwriter, severally and not
jointly, agrees to purchase from the Company that proportion of the total number
of Option Securities as is equal to the percentage of Initial Securities that
such Underwriter is purchasing from the Company (or such number of Initial
Securities increased as set forth in Section 10 hereof), subject to such
adjustments as you may determine to avoid fractional shares.
On the Closing Date, the Company shall issue and sell to the
Representatives, Representatives' Warrants at an aggregate purchase price of
$[______], which warrants shall entitle the holders thereof to purchase, after
the first anniversary date of this Prospectus, an aggregate of 170,000
Representatives' Securities at an exercise price equal to (i) one hundred
twenty-five percent (125%) of the initial public offering price of the Initial
Securities after the first anniversary date of the Prospectus and (ii) one
hundred fifty percent (150%) of the initial public offering price of the Initial
Securities after the third
3
<PAGE> 4
anniversary of the date of the Prospectus. The Representatives' Warrants shall
expire on the fifth anniversary of the date of the Prospectus. The
Representatives' Warrant Agreement shall be substantially in the form filed as
Exhibit ___ to the Registration Statement. Payment for the Representatives'
Warrants shall be made on the Closing Date.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by you
that the Underwriters propose to make a public offering of the Securities as
soon after the Registration Statement and this Agreement have become effective
as in your judgment is advisable and initially to offer the Securities upon the
terms set forth in the Prospectus.
4. DELIVERY OF THE SECURITIES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Initial Securities shall be made at the
office of Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker
Drive, Suite 2100, Chicago, Illinois 60606, at 9:00 A.M., Chicago time, on the
third (fourth, if the pricing occurs after 4:30 P.M. (Eastern Time) on any given
day) business day after the date hereof (unless postponed in accordance with the
provisions of Section 10 hereof) (the "Closing Date"). The place of closing for
the Initial Securities and the Closing Date may be varied by agreement among you
and the Company.
Delivery to the Underwriters of and payment for any Option Securities to
be purchased by the Underwriters shall be made at the aforementioned office of
Skadden, Arps, Slate, Meagher & Flom (Illinois) at such time on such date (an
"Option Closing Date"), which may be the same as the Closing Date but shall in
no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the Underwriters to
the Company of the Underwriters' determination to purchase a number, specified
in such notice, of Option Securities. The place of closing for any Option
Securities and the Option Closing Date for such Option Securities may be varied
by agreement between you and the Company.
Certificates for the Initial Securities and for any Option Securities to
be purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice (it being understood that a
facsimile transmission shall be deemed written notice) prior to 9:30 A.M.,
Chicago time, on the second business day preceding the Closing Date or any
Option Closing Date, as the case may be. Such certificates shall be made
available to you in Chicago, Illinois or New York, New York, as
4
<PAGE> 5
requested by you in the aforesaid notice, for inspection and packaging not later
than 9:30 A.M., Chicago time, on the business day next preceding the Closing
Date or an Option Closing Date, as the case may be. The certificates evidencing
the Initial Securities and any Option Securities to be purchased hereunder shall
be delivered to you on the Closing Date or the Option Closing Date, as the case
may be, against payment of the purchase price therefor by certified or official
bank check or checks payable in New York Clearing House (next day) funds to the
order of the Company. It is understood that each Underwriter has authorized you,
for its account, to accept delivery of, acknowledge receipt of, and make payment
of the purchase price for, the Initial Securities and the Option Securities, if
any, which it has agreed to purchase. EVEREN, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose check has not been
received by the Closing Date or the Option Closing Date, as the case may be, but
such payment shall not relieve such Underwriter from its obligations hereunder.
5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters as follows:
a. The Company will notify the Underwriters immediately,
and confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto, (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the suspension of
qualification of the Securities for offering or sale in any jurisdiction or the
initiation of any proceedings for such purpose and (v) during the period when
the Prospectus is required to be delivered under the 1933 Act or Securities
Exchange Act of 1934, as amended (the "1934 Act"), of any change, or any event
or occurrence which could result in such a change, in the Company's condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company or the happening of any event, including the filing of any
information, documents or reports pursuant to the 1934 Act, that makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
in order to state a material fact required by the 1933 Act or the 1933 Act
Regulations to be stated therein or necessary in order to make
5
<PAGE> 6
the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus to comply with the 1933 Act, the 1933 Act Regulations
or any other law. The Company shall use its best efforts to prevent the issuance
of any stop order or order suspending the qualification or exemption of the
Securities under any state securities or Blue Sky laws, and, if at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption of the
Securities under any state securities or Blue Sky laws, the Company shall use
every reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
b. The Company will give the Underwriters notice of its
intention to prepare or file any amendment to the Registration Statement
(including any post-effective amendment), any Rule 462(b) Registration
Statement, any Term Sheet or any amendment or supplement to the Prospectus
(including any revised prospectus or Term Sheet and preliminary prospectus which
the Company proposes for use by the Underwriters in connection with the offering
of the Securities which differs from the prospectus on file at the Commission at
the time the Registration Statement becomes effective, whether or not such
revised prospectus or Term Sheet and preliminary prospectus is required to be
filed pursuant to Rule 424(b)), whether pursuant to the 1933 Act, the 1934 Act
or otherwise, will furnish the Underwriters with copies of any Rule 462(b)
Registration Statement, Term Sheet, amendment or supplement a reasonable amount
of time prior to such proposed filing or use, as the case may be, and will not
file any such Rule 462(b) Registration Statement, Term Sheet, amendment or
supplement or use any such prospectus to which the Underwriters or counsel for
the Underwriters shall object.
c. The Company has furnished or will deliver to the
Underwriters and their counsel, without charge, as many signed and conformed
copies of the Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by reference
therein) as the Underwriters may reasonably request.
d. The Company will furnish to each Underwriter, without
charge, from time to time during the period when the Prospectus is required to
be delivered under the 1933 Act or the 1934 Act, such number of copies of the
Prospectus (as amended or supplemented) as such Underwriter may reasonably
request for the purposes contemplated by the 1933 Act, the 1934 Act, the 1933
Act
6
<PAGE> 7
Regulations or the rules and regulations of the Commission under the 1934 Act
(the "1934 Act Regulations").
e. The Company will comply with the 1933 Act and the 1933
Act Regulations so as to permit the completion of the distribution of the
Securities as contemplated in this Agreement and in the Prospectus. If at any
time when a prospectus is required by the 1933 Act, the 1934 Act, the 1933 Act
Regulations or the 1934 Act Regulations to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 5(b), such amendment or supplement
as may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements and the
Company will furnish to the Underwriters such number of copies of such amendment
or supplement as the Underwriters may reasonably request.
f. During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission or the Nasdaq
National Market ("NASDAQ"), and (ii) from time to time such other information
concerning the Company as you may request.
g. The Company will use its best efforts, in cooperation
with counsel to the Underwriters, to qualify the Securities for offering and
sale under the applicable securities or Blue Sky laws of such states and other
jurisdictions of the United States as the Underwriters may designate and to
maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which it is
not so qualified. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be required
by the laws of such jurisdiction to continue such
7
<PAGE> 8
qualification in effect for a period of not less than one year from the later of
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
h. The Company will make generally available to its
security holders as soon as practicable, but not later than 45 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the 1933 Act Regulations) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
i. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
j. If, at the time that the Registration Statement becomes
effective, any Rule 430A Information or Rule 434 Information shall have been
omitted therefrom, then immediately following the execution of this Agreement,
the Company will prepare, and file or transmit for filing with the Commission in
accordance with Rule 430A or Rule 434 and Rule 424(b), copies of a Prospectus or
Term Sheet containing such Rule 430A Information and Rule 434 Information,
respectively, or, if required by Rule 430A, a post-effective amendment to the
Registration Statement (including an amended Prospectus), containing such Rule
430A Information.
k. If the Company elects to rely upon Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 of the 1933 Act Regulations by the earlier of (i) 10:00 P.M. Eastern
Time on the date hereof and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
l. The Company, during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, will file all
documents required to be filed with the Commission pursuant to Section 13, 14 or
15 of the 1934 Act within the time periods required by the 1934 Act and the 1934
Act Regulations.
m. During a period of 180 days from the date of the
Prospectus, the Company will not, without the prior written consent of EVEREN,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise
8
<PAGE> 9
transfer or dispose of, directly or indirectly, any Common Shares or any
securities convertible into or exercisable or exchangeable for Common Shares or
file any registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Shares, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Shares or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder, (B) any
Common Shares issued by the Company upon the exercise of an option or warrant or
the conversion of security outstanding on the date hereof and referred to in the
Prospectus, (C) any Common Shares issued or options to purchase Common Shares
granted pursuant to existing employee benefit plans of the Company referred to
in the Prospectus or (D) any Common Shares issued pursuant to any non-employee
director stock plan.
n. The Company has furnished or will furnish to you
"lock-up" letters, in form and substance satisfactory to you, signed by each of
its current officers and directors and each of its stockholders who collectively
hold an aggregate of at least _____ Common Shares.
o. The Company will supply the Underwriters with copies of
all correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Securities under the 1933
Act.
p. Prior to the Closing Date, the Company shall furnish to
the Underwriters, as soon as they have been prepared, copies of any unaudited
interim consolidated financial statements of the Company and Dermion, Inc. (the
"Subsidiary"), for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the Prospectus.
q. Prior to the Closing Date, the Company will issue no
press release or other communications directly or indirectly and hold no press
conference with respect to the Company or the Subsidiary, the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of any of them, or the offering of the Securities, without the prior written
consent of the Representatives unless in the judgment of the Company and its
counsel, and after notification to the Representatives, such press release or
communication is required by law.
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<PAGE> 10
r. The Company has not taken, nor will it take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Shares to facilitate the sale or resale of the Securities.
s. The Company will use its best efforts to have the
Securities approved for listing on NASDAQ.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
a. When the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto becomes
effective, at the date of the Prospectus, if different, and at the Closing Date
and the Option Closing Date, as the case may be, the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements thereto
complied or will comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations and did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The Prospectus and any supplements or amendments thereto will not at the date of
the Prospectus, at the date of any such supplements or amendments, or at the
Closing Date or the Option Closing Date, if any, include an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially different,"
as such term is used in Rule 434, from the Prospectus included in the
Registration Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or omissions from
the Registration Statement or Prospectus relating to any Underwriter made in
reliance upon and in conformity with information furnished to the Company in
writing by any Underwriter, through EVEREN expressly for use in the Registration
Statement or Prospectus. The Company has not distributed any offering materials
in connection with the offering or sale of the Securities other than the
Registration Statement, the preliminary prospectus, the Prospectus, the Term
Sheet, if applicable, or any other materials, if any, permitted by the 1933 Act
or the 1933 Act Regulations.
b. Each preliminary prospectus and the prospectus filed as
part of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424
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<PAGE> 11
under the 1933 Act, complied when so filed in all material respects with the
1933 Act Regulations.
c. The accountants who certified the financial statements
and supporting schedules included in the Registration Statement are independent
public accountants as required by the 1933 Act and the 1933 Act Regulations.
d. The financial statements included in the Registration
Statement and the Prospectus present fairly the consolidated financial position
of the Company and its Subsidiary as of the dates indicated and the results of
their operations for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis; and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. The financial
information and statistical data set forth in the Prospectus are prepared on an
accounting basis consistent with such financial statements.
e. Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and the Subsidiary considered as one enterprise,
whether or not arising in the ordinary course of business, (ii) there have been
no transactions entered into by the Company or the Subsidiary, other than those
in the ordinary course of business, which are material with respect to the
Company, and (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock. The
Company has no material contingent obligations which are not disclosed in the
Registration Statement.
f. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of Utah
with corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and to enter into and
perform its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure to so qualify
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<PAGE> 12
would not, singly or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Company and the Subsidiary considered as one enterprise.
g. The Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not have a material adverse effect
on the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and the Subsidiary considered as one
enterprise; all of the issued and outstanding capital stock of the Subsidiary
has been duly authorized and validly issued, is fully paid and non-assessable
and is owned by the Company, free and clear of any security interest, mortgage,
pledge, lien, charge, encumbrance, claim or equity. There are no outstanding
subscriptions, options, warrants, commitments, convertible or exchangeable
securities or other rights granted by the Company or the Subsidiary to acquire
any shares of capital stock of or ownership interests in the Subsidiary and
there are no commitments, plans or arrangements to do so. Except with respect to
the Subsidiary, the Company does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association or
other entity.
h. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement or pursuant to
reservations, agreements, employee or director benefit plans or the exercise of
convertible securities referred to in the Prospectus); the shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and have not been issued in
violation of or are not otherwise subject to any preemptive or other similar
rights; the Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and the Representatives' Warrant
Agreement, when issued and delivered by the Company pursuant to this Agreement
or the Representatives' Warrant Agreement against payment of the consideration
set forth herein or therein, will be validly issued and fully paid and
non-assessable; the certificates evidencing the
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<PAGE> 13
Securities are in due and proper form under Utah law; the authorized capital
stock of the Company, including the Securities, conforms to all statements
relating thereto contained in the Prospectus; and the issuance of the Securities
is not subject to preemptive or other similar rights. There are no outstanding
subscriptions, options, warrants, convertible or exchangeable securities or
other rights granted to or by the Company to purchase Common Shares or other
securities of the Company and there are no commitments, plans or arrangements to
issue any Common Shares or any security convertible into or exchangeable for
Common Shares, in each case other than as described in the Prospectus.
i. Except as disclosed in the Registration Statement and
except as would not, singly or in the aggregate, reasonably be expected to have
a material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and the
Subsidiary considered as one enterprise, (A) the Company and the Subsidiary are
each in compliance with all applicable Environmental Laws, (B) the Company and
its Subsidiary have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with the requirements
of such permits authorizations and approvals, (C) there are no pending or, to
the best knowledge of the Company, threatened Environmental Claims against the
Company or the Subsidiary and (D) to the best knowledge of the Company, under
applicable law, there are no circumstances with respect to any property or
operations of the Company or the Subsidiary that are reasonably likely to form
the basis of an Environmental Claim against the Company or the Subsidiary.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any United States (or other
applicable jurisdiction's) Federal, state, local or municipal statute, law,
rule, regulation, ordinance, code, policy or rule of common law and any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgement, relating to the environment,
health, safety or any chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority. "Environmental
Claims" means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
j. Neither the Company nor the Subsidiary is in violation
of its charter or in default in the performance or observance of any material
obligation, agreement, covenant or
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<PAGE> 14
condition contained in any contract, indenture, mortgage, loan agreement, deed,
trust, note, lease, sublease, voting agreement, voting trust, or other
instrument or agreement to which the Company or the Subsidiary is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or the Subsidiary is subject; and the execution, delivery and
performance of this Agreement and the Representatives' Warrant Agreement and the
consummation of the transactions contemplated herein and therein and compliance
by the Company with its obligations hereunder and thereunder have been duly
authorized by all necessary corporate action and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or the Subsidiary pursuant to, any contract, indenture, mortgage, loan
agreement, deed, trust, note, lease, sublease, voting agreement, voting trust or
other instrument or agreement to which the Company or the Subsidiary is a party
or by which it or any of them may be bound, or to which any of the property or
assets of the Company or the Subsidiary is subject, nor will such action result
in any violation of the provisions of the charter or bylaws of the Company or
the Subsidiary or any applicable statute, law, rule, regulation, ordinance,
decision, directive or order.
k. No labor dispute with the employees of the Company or
the Subsidiary exists or, to the best knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
might, singly or in the aggregate, be expected to result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and the Subsidiary considered as
one enterprise.
l. There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the Company or
the Subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which, singly or in the aggregate, might
result in any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company and
the Subsidiary considered as one enterprise, or which, singly or in the
aggregate, might materially and adversely affect the properties or assets
thereof or which might materially and adversely affect the consummation of this
Agreement; all pending legal or governmental proceedings to which the Company or
the Subsidiary is a party or of which any of their
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<PAGE> 15
respective property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material; and there are no
contracts or documents of the Company or the Subsidiary which are required to be
filed as exhibits to the Registration Statement by the 1933 Act or by the 1933
Act Regulations which have not been so filed.
m. The Company and the Subsidiary own or are licensed to
use all patents, patent applications, inventions, trademarks, trade names,
applications for registration of trademarks, service marks, service mark
applications, copyrights, know-how, manufacturing processes, formulae, trade
secrets, licenses and rights in any thereof and any other intangible property
and assets (herein called the "Proprietary Rights") which are material to the
businesses of the Company and the Subsidiary as now conducted and as proposed to
be conducted, in each case as described in the Prospectus. The description of
the Proprietary Rights is correct in all material respects and fairly and
correctly describes the Company's and the Subsidiary's rights with respect
thereto. Except as described in the Prospectus, the Company does not have any
knowledge of, and the Company has not given or received any notice of, any
pending conflicts with or infringement of the rights of others with respect to
any Proprietary Rights or with respect to any license of Proprietary Rights. No
action, suit, arbitration, or legal, administrative or other proceeding, or
investigation is pending, or, to the best knowledge of the Company, threatened,
which involves any Proprietary Rights. Neither the Company nor the Subsidiary is
subject to any judgment, order, writ, injunction or decree of any court or any
Federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, or has entered into or is a party to any contract which restricts or
impairs the use of any such Proprietary Rights in a manner which would have a
material adverse effect on the use of any of the Proprietary Rights. To the best
knowledge of the Company, no Proprietary Rights used by the Company or the
Subsidiary, and no services or products sold by the Company or the Subsidiary,
conflict with or infringe upon any proprietary rights available to any third
party. Neither the Company nor the Subsidiary has received written notice of any
pending conflict with or infringement upon such third-party proprietary rights.
Neither the Company nor the Subsidiary has entered into any consent,
indemnification, forbearance to sue or settlement agreement with respect to
Proprietary Rights other than in the ordinary course of business. No claims have
been asserted by any person with respect to the validity of the Company's or the
Subsidiary's ownership or right to use the Proprietary Rights and, to the best
knowledge of
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<PAGE> 16
the Company, there is no reasonable basis for any such claim to be successful.
The Proprietary Rights are valid and enforceable and no registration relating
thereto has lapsed, expired or been abandoned or cancelled or is the subject of
cancellation or other adversarial proceedings, and all applications therefore
are pending and are in good standing. The Company and the Subsidiary have
complied, in all material respects, with their respective contractual
obligations relating to the protection of the Proprietary Rights used pursuant
to licenses. To the best knowledge of the Company, no person is infringing on or
violating the Proprietary Rights owned or used by the Company or the Subsidiary.
n. No registration, authorization, approval, qualification
or consent of any court or governmental authority or agency is necessary in
connection with the offering, issuance or sale of the Securities hereunder or
under the Representatives' Warrant Agreement, except such as may be required
under the 1933 Act or the 1933 Act Regulations or state securities or Blue Sky
laws (or such as may be required by the National Association of Securities
Dealers, Inc. ("NASD")).
o. The Company and the Subsidiary each possess and are
operating in compliance with all licenses, certificates, consents, authorities,
approvals and permits (collectively, "permits") from all state, Federal, foreign
and other regulatory agencies or bodies necessary to conduct the businesses now
operated by them, and neither the Company nor the Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
permit or any circumstance which would lead it to believe that such proceedings
are reasonably likely which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and the Subsidiary considered as one
enterprise.
p. Each of this Agreement and the Representatives' Warrant
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or the public
policy underlying such laws.
q. Except as described in the Prospectus, there are no
persons with registration or other similar rights to have any
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<PAGE> 17
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
r. No order preventing or suspending the use of any
preliminary prospectus has been issued and no proceedings for that purpose are
pending, threatened, or, to the knowledge of the Company, contemplated by the
Commission; and to the best knowledge of the Company, no order suspending the
offering of the Securities in any jurisdiction designated by the Underwriters
pursuant to Section 5(g) of this Agreement has been issued and, to the best
knowledge of the Company, no proceedings for that purpose have been instituted
or threatened or are contemplated.
s. The Company and the Subsidiary each have good and
marketable title to their respective properties, free and clear of all material
security interests, mortgages, pledges, liens, charges, encumbrances, claims and
equities of record. The properties of the Company and the Subsidiary are, in the
aggregate, in good repair (reasonable wear and tear excepted), and suitable for
their respective uses. Any real properties held under lease by the Company and
the Subsidiary are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the conduct
of the business of the Company and the Subsidiary considered as one enterprise.
t. The Company and the Subsidiary maintain a system of
internal accounting controls-sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
u. The Company and the Subsidiary have conducted and are
conducting their respective businesses in compliance with all applicable
Federal, state, local and foreign statutes, laws, rules, regulations,
ordinances, codes, decisions, decrees, directives and orders, except where the
failure to do so would not, singly or in the aggregate, have a material adverse
effect on the condition, financial or otherwise, or on the earnings, business
affairs or business prospects of the Company and the Subsidiary considered as
one enterprise.
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v. To the best of the Company's knowledge, neither the
Company nor the Subsidiary nor any employee or agent of the Company or the
Subsidiary has made any payment of funds of the Company or to Subsidiary or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
w. The Company is not now, and after sale of the Securities
to be sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
x. All offers and sales of capital stock of the Company
prior to the date hereof were at all relevant times duly registered or exempt
from the registration requirements of the 1933 Act and were duly registered or
subject to an available exemption from the registration requirements of the
applicable state securities or Blue Sky laws.
y. The Common Shares are registered pursuant to Section
12(g) of the 1934 Act. The Securities have been duly authorized for quotation on
NASDAQ. The Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Shares under the 1934 Act
or delisting the Common Shares from NASDAQ, nor has the Company received any
notification that the Commission or NASDAQ is contemplating terminating such
registration or listing.
z. Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly, any
action which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of sale or resale of the Securities.
aa. The Company and the Subsidiary maintain insurance of the
types and in amounts adequate for its and its Subsidiary's business and
consistent with insurance coverage maintained by similar companies in similar
business, including but not limited to, insurance covering clinical trial
liability, product liability and real and personal property owned or leased
against theft, damage, destruction, acts of vandalism and all other
18
<PAGE> 19
risks customarily insured against, all of which insurance is in full force and
effect.
ab. The Company and the Subsidiary have filed all material
tax returns required to be filed, which returns are true and correct in all
material respects, and neither the Company nor the Subsidiary is in default in
the payment of any taxes, including penalties and interest, assessments, fees
and other charges, shown thereon due or otherwise assessed, other than those
being contested in good faith and for which adequate reserves have been provided
or those currently payable without interest which were payable pursuant to said
returns or any assessments with respect thereto.
ac. Except as described in the Prospectus, to the best of
the Company's knowledge, there are no rulemaking or similar proceedings before
The United States Food and Drug Administration or comparable Federal, state,
local or foreign government bodies which involve or affect the Company or the
Subsidiary, which, if the subject of an action unfavorable to the Company or the
Subsidiary, could involve a prospective material adverse change in or effect on
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and the Subsidiary considered as one
enterprise.
ad. The Company has not received any communication (whether
written or oral) relating to the termination or threatened termination or
modification or threatened modification of any material, consulting, licensing,
marketing, research and development, cooperative or any similar agreement,
including, without limitation, the collaborative research and license agreements
listed under the section of the Prospectus entitled, "Business-Collaborative
Relationships and Licenses." Each such collaborative and licensing agreement is
in effect substantially as described in such section of the Prospectus.
ae. To the knowledge of the Company, if any full-time
employee identified in the Prospectus has entered into any non-competition,
non-disclosure, confidentiality or other similar agreement with any party other
than the Company or the Subsidiary, such employee is neither in violation
thereof nor is expected to be in violation thereof as a result of the business
conducted or expected to be conducted by the Company or the Subsidiary as
described in the Prospectus or such person's performance of his obligations to
the Company or the Subsidiary; and neither the Company nor the Subsidiary has
received written notice that any consultant or scientific advisor of the Company
or the Subsidiary is in violation of any non-competition, non-disclosure,
confidentiality or similar agreement.
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7. INDEMNIFICATION AND CONTRIBUTION.
a. The Company agrees to indemnify and hold harmless (i)
each Underwriter and (ii) each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1933 Act (any of the persons referred to
in this clause (ii) being hereinafter referred to as a "controlling person") and
(iii) the respective directors, officers, partners and employees of any of the
Underwriters or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Person") to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities and expenses whatsoever (including, without limitation, all
reasonable costs of pursuing, investigating and defending any claim, suit or
action or any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of counsel
to any Indemnified Person), directly or indirectly, caused by, related to, based
upon or arising out of or in connection with any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any amendment thereto, including the Rule 430A Information and Rule 434
Information, if applicable, or 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 caused by, related to, based upon, arising
out of or in connection with any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the information
relating to such Underwriter furnished in writing to the Company by or on behalf
of any Underwriter through you expressly for use in connection therewith;
provided, however, that the indemnification contained in this paragraph a. with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter (or related Indemnified Person) on account of any such loss, claim,
damage, liability or expense arising from the sale of the Securities by such
Underwriter to any person if a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the 1933 Act or the
1933 Act Regulations, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in
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<PAGE> 21
such preliminary prospectus was corrected in the Prospectus (or any amendment or
supplement thereto), provided that the Company has delivered the Prospectus to
the several Underwriters in requisite quantity on a timely basis to permit such
delivery or sending.
b. If any action, suit or proceeding shall be brought
against any Indemnified Person in respect of which indemnity may be sought
against the Company, such Indemnified Person shall promptly notify the parties
against whom indemnification is being sought (the "indemnifying parties"), and
such indemnifying parties shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. Such Indemnified
Person shall have the right to employ separate counsel in any such action, suit
or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the indemnifying parties have agreed in writing to pay such fees and
expenses, (ii) the indemnifying parties have failed to assume the defense and
employ counsel or (iii) the named parties to any such action, suit,
investigation or proceeding (including any impleaded parties) include both such
Indemnified Person and the indemnifying parties and representation of such
Indemnified Person and any indemnifying party by the same counsel would, in the
reasonable judgment of the Indemnified Person, be inappropriate due to actual or
potential differing interests between them (in which case the indemnifying party
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Indemnified Person). It is understood, however,
that the indemnifying parties shall, in connection with any one such action,
suit or proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for all such Indemnified Persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by EVEREN, and that all such fees and expenses shall be reimbursed as
they are incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their written
consent, which consent shall not be unreasonably withheld, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree to indemnify and
hold harmless any Indemnified Person, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
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c. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the 1933 Act, to the same extent as the foregoing
indemnity from the Company to each Indemnified Person, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through EVEREN expressly for use in the Registration Statement,
the Prospectus or any preliminary prospectus, or any amendment or supplement
thereto. If any action, suit, investigation or proceeding shall be brought
against the Company, any of its directors, any such officer or any such
controlling person based on the Registration Statement, the Prospectus or any
preliminary prospectus, or any amendment or supplement thereto, and in respect
of which indemnity may be sought against any Underwriter pursuant to this
paragraph (c), such Underwriter shall have the rights and duties given to the
Company by paragraph (b) above, and the Company, its directors, any such officer
and any such controlling person shall have the rights and duties given to the
Indemnified Persons by paragraph (a) above.
d. If the indemnification provided for in this Section 7 is
unavailable to, or insufficient to hold harmless, an indemnified party under
paragraphs (a) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses 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, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law
or judicial determination, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other hand, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus or, if Rule
434 is used, the corresponding location on the Term Sheet. The relative fault of
the Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact
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<PAGE> 23
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or by the Underwriters on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The indemnity and contribution obligations of the Company set forth herein shall
be in addition to any liability or obligation the Company may otherwise have to
any Indemnified Person.
e. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 7, no
Underwriter (or any of its related Indemnified Persons) shall be required to
contribute (whether pursuant to subsection (a) or (c) or otherwise) any amount
in excess of the underwriting discount applicable to the Securities underwritten
by such Underwriter. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7 are several
in proportion to the respective numbers of Securities set forth opposite their
names in Schedule I hereto (or such numbers of Securities increased as set forth
in Section 10 hereof) and not joint.
f. No indemnifying party shall, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any Indemnified Person
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the
subject matter of such action, suit or proceeding.
g. Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the indemnifying party to the indemnified party
as such losses,
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<PAGE> 24
claims, damages, liabilities or expenses are incurred. The indemnity and
contribution agreements contained in this Section 7 and the representations and
warranties of the Company set forth in this Agreement shall remain operative and
in full force and effect, regardless of (i) any investigation made by or on
behalf of any Indemnified Person, the Company, its directors or officers or any
person controlling the Company, (ii) acceptance of any Securities and payment
therefor hereunder and (iii) any termination of this Agreement.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Initial Securities hereunder are subject to
the following conditions:
a. The Registration Statement, including any Rule 462(b)
Registration Statement, shall have become effective on the date hereof; no stop
order suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule 430A, Rule 430A
Information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) within the prescribed time period and the Company shall
have provided evidence satisfactory to the Underwriters of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A. If the Company has elected to rely upon Rule 434, a Term Sheet shall
have been transmitted to the Commission for filing pursuant to Rule 424(b)
within the prescribed time period.
b. The Underwriters shall have received:
(i) The favorable opinion, dated as of the Closing
Date, of Parsons Behle & Latimer, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
A. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Utah.
B. The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus and to enter
into and perform its obligations under this
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<PAGE> 25
Agreement and the Representatives' Warrant Agreement.
C. To the best of their knowledge and information, the
Company is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification
is required.
D. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under "Capitalization"
(except for subsequent issuances, if any, pursuant to reservations,
agreements, employee benefit plans or the exercise of convertible
securities referred to in the Prospectus), and the shares of issued and
outstanding capital stock of the Company, including the Common Shares,
have been duly authorized and validly issued and are fully paid and
non-assessable and, to their knowledge and information, have not been
issued in violation of or are not otherwise subject to any preemptive
rights or other similar rights.
E. The Securities have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued
and delivered by the Company pursuant to this Agreement against payment
of the consideration set forth herein, will be validly issued and fully
paid and non-assessable; and the issuance of the Securities is not
subject to preemptive or other similar rights.
F. The Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Registration Statement and, to the best of their
knowledge and information, is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required; all of the issued and outstanding
capital stock of the Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and, to the best of their
knowledge and information, is owned by the Company,
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<PAGE> 26
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity, except as described in the Prospectus.
G. To the best of their knowledge and information, except
as described in the Prospectus, there are no outstanding options,
warrants or other rights granted to or by the Company to purchase Common
Shares or other securities of the Company and there are no commitments,
plans or arrangements to issue any Common Shares or other securities.
H. Each of this Agreement and the Representatives' Warrant
Agreement has been duly authorized, executed and delivered by the
Company.
I. At the time the Registration Statement became effective
and at the Closing Date, the Registration Statement (other than the
financial statements and supporting schedules included therein, as to
which no opinion need be rendered) complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
J. The form of certificate used to evidence each of the
Securities is in due and proper form and complies with all applicable
statutory requirements.
K. To the best of their knowledge and information, there
are no legal or governmental proceedings pending or threatened which are
required to be disclosed in the Registration Statement other than those
disclosed therein, and all pending legal or governmental proceedings to
which the Company or the Subsidiary is a party or to which any of their
property is subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material.
L. The information in the Prospectus under
"Business--Government Regulation," "Description of Capital Shares,"
Business--Collaborative Relationships," "Management--Employee Benefit
Plans," "Certain Transactions," and "Shares
26
<PAGE> 27
Eligible for Future Sale" and Item 15 of Part II of the Registration
Statement to the extent that it constitutes matters of law, summaries of
legal matters, documents or proceedings, or legal conclusions, has been
reviewed by them and is correct in all material respects and fairly and
correctly presents the information called for with respect thereto.
M. To the best of their knowledge and information, there
are no contracts, indentures, mortgages, loan agreements, deeds, trusts,
notes, leases, subleases, voting trusts, voting agreements or other
instruments or agreements required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed as exhibits thereto, the
descriptions thereof or references thereto are correct; and to the best
of their knowledge and information, no default exists in the due
performance or observance of any material obligation, agreement,
covenant or condition contained in any material contract, indenture,
mortgage, loan agreement, deed, trust, note, lease, sublease, voting
trust, voting agreement or other instrument or agreement of the Company
or the Subsidiary.
N. No authorization, approval, consent or order of any
court or governmental authority or agency is required in connection with
the offering, issuance or sale of the Securities to the Underwriters,
except such as may be required under the 1933 Act or the 1933 Act
Regulations or state securities or Blue Sky laws or such as may be
required by the NASD; and the execution, delivery and performance of
this Agreement and the Reprsentatives' Warrant Agreement and the
consummation of the transactions contemplated herein and therein and the
compliance by the Company with its obligations hereunder and thereunder
will not conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or the Subsidiary pursuant
to, any contract, indenture, mortgage, loan agreement, note, deed,
trust, lease, sublease, voting trust,
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<PAGE> 28
voting agreement or other instrument or agreement to which the Company
or the Subsidiary is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or the
Subsidiary is subject, nor will such action result in any violation of
the provisions of the charter or bylaws of the Company or the
Subsidiary, or any applicable statute, law, rule, regulation, ordinance,
code, decision, directive or order.
O. Except as described in the Prospectus, to the best of
their knowledge and information, there are no persons with registration
or other similar rights to have any securities registered pursuant to
the Registration Statement or otherwise registered by the Company under
the 1933 Act.
P. The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Q. All sales of the Company's capital stock during the
three years immediately prior to the date hereof were at all relevant
times duly registered or exempt from the registration requirements of
the 1933 Act.
R. To the best of their knowledge and information, the
Company and the Subsidiary are in compliance with, and conduct their
respective businesses in conformity with, all applicable laws and
regulations relating to the operation of its business as described in
the Registration Statement, except to the extent that any failure so to
comply or conform would not have a material adverse effect upon the
business or condition, financial or otherwise, of the Company and the
Subsidiary considered as one enterprise.
S. The Representatives' Warrants are exercisable for Common
Shares in accordance with the terms of the Representatives' Warrant
Agreement and at the prices therein provided; the Common Shares issuable
upon the exercise of the Representatives' Warrants have been duly
authorized and reserved for issuance upon such exercise and such shares,
when issued upon such exercise in
28
<PAGE> 29
accordance with the terms of the Representatives' Warrant Agreement,
will be duly authorized, validly issued, fully paid and nonassessable;
and there are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any Common
Shares issuable upon exercise of the Representatives' Warrants pursuant
to the Company's charter or by-laws or any agreement or other
outstanding instrument.
T. The Registration Statement has become effective under
the 1933 Act; any required filing of the Prospectus, and any supplements
thereto or the Term Sheet, pursuant to Rule 424(b) and if applicable,
Rule 434, has been made in the manner and within the time period
required; and to their best knowledge and information, no stop order
suspending the effectiveness of the Registration Statement or any part
thereof has been issued and no proceedings therefor have been instituted
or are pending or contemplated under the 1933 Act.
(ii) The favorable opinion, dated as of the Closing
Date, of Workman, Nydegger & Seeley, patent counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
A. The information in the Prospectus under "Risk
Factors--Patents and Proprietary Rights" "Business--Collaborative
Relationships and Licenses" and "Business-Patents and Proprietary
Rights" to the extent that it constitutes matters of law, summaries of
legal matters, documents or proceedings, or legal conclusions, has been
reviewed by them and is correct in all material respects and fairly and
correctly presents the information called for with respect thereto.
B. To the best of their knowledge, there are no pending or
threatened legal or governmental proceedings, nor allegations on the
part of any person of infringement, relating to patent rights, trade
secrets, trademarks, service marks, copyrights or other proprietary
information or know-how of the Company and, to the best of their
knowledge, no such proceedings are threatened or contemplated.
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<PAGE> 30
C. To the best of their knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets,
trademarks, service marks, copyrights or other proprietary information
or know-how of any persons, and no person is infringing or otherwise
violating any of the Company's patents, trade secrets, trademarks,
service marks, copyrights or other proprietary information or know-how
of the Company in a way in which could materially affect the use thereof
by the Company.
D. To the best of their knowledge, the Company owns or
possesses sufficient licenses or other rights to use all patents, trade
secrets, trademarks, service marks or other proprietary information or
know-how necessary to conduct the business now being or proposed to be
conducted by the Company as described in the Prospectus.
E. The Company is listed in the records of the United
States Patent and Trademark Office ("PTO") as the sole assignee of
record of each of the patents listed on Schedule I hereto (herein called
the "Patents") and each of the applications listed on Schedule II hereto
(herein called the "Applications"). To the best of their knowledge,
there are no asserted or unasserted claims of any persons relating to
the scope or ownership of the Patents or the Applications, there are no
liens which have been filed against any of the Patents or the
Applications, there are no material defects of form in the preparation
or filing of the Applications, the Applications are being diligently
prosecuted, and none of the Applications has been finally rejected or
abandoned.
F. The Company is listed in the records of the appropriate
foreign patent offices as the sole assignee of record of each of the
foreign patents listed on Schedule III hereto (herein called the
"Foreign Patents") and each of the foreign applications listed on
Schedule IV hereto (herein called the "Foreign Applications"). To the
best of their knowledge, there are no asserted or unasserted claims of
any persons relating to the scope or ownership of the Foreign Patents or
the Foreign Applications, there are no liens which have
30
<PAGE> 31
been filed against any of the Foreign Patents or the Foreign
Applications, there are no material defects of form in the preparation
or filing of the Foreign Applications, the Foreign Applications are
being diligently prosecuted, and none of the Foreign Applications has
been finally rejected or abandoned.
G. Nothing has come to their attention that leads them to
believe that the Applications and the Foreign Applications will not
eventuate in issued patents, or that any patents issued in respect of
any such Applications or Foreign Applications will not be valid or will
not afford the Company reasonable patent protection relative to the
subject matter thereof.
H. The Company is the non-exclusive licensee of the United
States and foreign patents and patent applications listed on Schedule V
and is the exclusive licensee of the United States and foreign patents
and patent applications listed on Schedule VI. All such licenses are
duly executed, validly binding and enforceable in accordance with their
terms and, to the best of their knowledge, the Company is not in default
(declared or undeclared) of any material provision of any such licenses.
I. To the best of their knowledge, all pertinent prior art
references known to the Company or its counsel during the prosecution of
the Patents and the Applications were disclosed to the PTO and, to the
best of their knowledge, neither such counsel nor the Company made any
misrepresentation to, or concealed any material fact from, the PTO
during such prosecution.
J. To the best of their knowledge, the Company takes
security measures adequate to assert trade secret protection in its
non-patented technology.
K. The agreements executed by the Company's employees,
consultants and other advisors respecting trade secrets,
confidentiality, or intellectual property rights are valid, binding and
enforceable in accordance with their express terms.
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<PAGE> 32
L. Nothing has come to their attention that leads them to
believe that, with respect to licenses, patents, trade secrets,
copyrights or other proprietary information or know-how owned or used by
the Company which are the subject of the foregoing opinions, the
Registration Statement, at the time it became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date (unless
the term "Prospectus" refers to a prospectus which has been provided to
the Underwriters by the Company for use in connection with the offering
of the Securities which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective, in
which case at the time it is first provided to the Underwriters for such
use) or at the Closing Date or the Option Closing Date, as the case may
be, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(iii) The favorable opinion, dated as of the Closing
Date, of Hogan & Hartson, regulatory counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
A. The information in the Prospectus under "Risk
Factors--Uncertainties Related to Product Development; Clinical Trails,"
"Risk Factors--Government Regulation," "Risk Factors--Health Care
Reimbursement," and "Business--Government Regulation," (such sections
collectively referred to as the "Regulatory Sections") insofar as such
statements purport to summarize applicable provisions of the Federal
Food, Drug, and Cosmetic Act and the regulations promulgated thereunder,
are accurate summaries in all material respects of the provisions
purported to be summarized under such captions in the Prospectus.
B. No facts have come to their attention which cause them
to believe that the statements in
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<PAGE> 33
the Regulatory Sections insofar as such statements relate to FDA
regulatory matters at the time the Registration Statement became
effective, contain an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or as of the Closing Date
contains an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(iv) The favorable opinion, dated as of the Closing
Date, of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the
Underwriters with respect to the issuance and sale of the Securities, the
Registration Statement and the Prospectus and such other related matters as the
Underwriters shall reasonably request.
(v) In giving their opinions required by subsections
(b)(i) and (b)(iv), respectively, of this Section 8, Parsons Behle & Latimer and
Skadden, Arps, Slate, Meagher & Flom (Illinois) shall each additionally state
that nothing has come to their attention that leads them to believe that the
Registration Statement (except for financial statements and schedules and other
financial information included therein, as to which counsel need make no
statement), at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus (except for financial statements and schedules and other financial
information included therein, as to which counsel need make no statement), as of
its date (unless the term "Prospectus" refers to a prospectus which has been
provided to the Underwriters by the Company for use in connection with the
offering of the Securities which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective, in which
case at the time it is first provided to the Underwriters for such use) or at
the Closing Date or the Option Closing Date, as the case may be, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
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<PAGE> 34
c. (i) There shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and the Subsidiary considered as one enterprise,
whether or not arising in the ordinary course of business, (ii) the
representations and warranties of the Company in Section 6 hereof shall be true
and correct with the same force and effect as though expressly made at and as of
the Closing Date, except to the extent that any such representation or warranty
relates to a specific date, (iii) the Company shall have complied in all
material respects with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Date, (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or threatened by the
Commission and (v) the Representatives shall have received a certificate, dated
the Closing Date and signed by the President or any Vice President and the chief
financial or accounting officer of the Company to the effect set forth in
clauses (i), (ii), (iii) and (iv) above.
d. At the time of the execution of this Agreement, the
Underwriters shall have received from Ernst & Young LLP a letter dated such
date, in form and substance satisfactory to the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
e. The Underwriters shall have received from Ernst & Young
LLP a letter, dated as of the Closing Date, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a date not more
than three business days prior to the Closing Date.
f. The Securities shall have been approved for quotation on
NASDAQ.
g. In the event that the Underwriters exercise their option
provided in Section 2 hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company contained herein
and the statements in
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<PAGE> 35
any certificates furnished by the Company hereunder shall be true and correct as
of the Option Closing Date and, at the relevant Option Closing Date, the
Underwriters shall have received:
(1) A certificate, dated such Option Closing Date,
of the President or any Vice President of the Company and of the chief
financial or accounting officer of the Company confirming that the
certificate delivered at the Closing Date pursuant to Section 8 (c)
hereof remains true and correct as of such Option Closing Date.
(2) The favorable opinion of Parsons Behle &
Latimer, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, dated such Option Closing Date, relating
to the Option Securities to be purchased on such Option Closing Date and
otherwise to the same effect as the opinion required by Sections 8
(b)(i) and 8 (b)(v) hereof.
(3) The favorable opinion of Workman, Nydegger &
Seeley, in form and substance satisfactory to counsel for the
Underwriters, dated such Option Closing Date to the same effect as the
opinion required by Section 8(b)(ii) hereof.
(4) The favorable opinion of Hogan & Hartson, in
form and substance satisfactory to counsel for the Underwriters, dated
such Option Closing Date to the same effect as the opinion required by
Section 8(b)(iii) hereof.
(5) The favorable opinion of Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel for the Underwriters, dated such
Option Closing Date, relating to the Option Securities to be purchased
on such Option Closing Date and otherwise to the same effect as the
opinion required by Sections 8 (b)(iv) and 8 (b)(v) hereof.
(6) A letter from Ernst & Young LLP in form and
substance satisfactory to the Underwriters and dated such Option Closing
Date, substantially the same in form and substance as the letter
furnished to the Underwriters pursuant to Section 8(e) hereof, except
that the "specified date" in the letter furnished pursuant to
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<PAGE> 36
this Section 8(g)(5) shall be a date not more than three business days
prior to such Option Closing Date.
h. At the date of this Agreement, the Underwriters shall
have received lock-up agreements in form and substance satisfactory to the
Underwriters by the persons owning an aggregate of at least ______ Common
Shares.
i. Counsel for the Underwriters shall have been furnished
with such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company in connection with the
issuance and sale of the Securities as herein contemplated shall be satisfactory
in form and substance to the Underwriters and counsel for the Underwriters.
j. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
k. Any certificate or document signed by any officer of the
Company and delivered to you, as Representatives of the Underwriters, or to
counsel for the Underwriters, shall be deemed a representation and warranty by
the Company to each Underwriter as to the statements made therein.
l. on or before the Closing Date, the Company shall have
executed and delivered to the Representatives (i) the Representatives' Warrant
Agreement in final form and substance satisfactory to the Representatives and
(ii) the Representatives' Warrants issued in the names of the Representatives.
m. If any condition specified in this Section 8 shall not
have been fulfilled when and as required to be fulfilled, this Agreement, or, in
the case of any condition to the purchase of Option Securities, on an Option
Closing Date which is after the Closing Date, the obligations of the several
Underwriters to purchase the relevant Option Securities, may be terminated by
the Representatives by notice to the Company at any time at or prior to Closing
Date or such an Option Closing Date as the case may be, and such termination
shall be without liability of any party to any other party except as provided in
Section 9 and except that Sections 6 and 7 shall survive any such termination
and remain in full force and effect.
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9. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each preliminary prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight and charges for
counting and packaging) of such copies of the Registration Statement, each
preliminary prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Securities; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Securities, including any stamp
taxes in connection with the original issuance and sale of the Securities; (iv)
the printing (or reproduction) and delivery of this Agreement, the preliminary
and supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the original issuance
and sale of the Securities; (v) the registration of the Common Shares under the
1934 Act and the quotation of the Securities on NASDAQ; (vi) the registration or
qualification of the Securities for offer and sale under the securities or Blue
Sky laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of one counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the reasonable fees and expenses of
counsel for the Underwriters incident to securing any required review by the
NASD; and (viii) the fees and expenses of the Company's accountants and the fees
and expenses of counsel (including local and special counsel) for the Company.
In addition to, but not in lieu of, the foregoing expenses, at Closing Company
agrees to pay the Representatives $245,000 for other expenses incurred in
connection with the Offering.
If this Agreement shall terminate or shall be terminated after execution
pursuant to any provisions hereof (otherwise than pursuant to the second
paragraph of Section 10 or pursuant to clauses (ii), (iii), (iv) and (v) of
Section 11 hereof) or if this Agreement shall be terminated by the Underwriters
because of any failure or refusal on the part of the Company to comply, in any
material respect, with the terms or fulfill, in any material respect, any of the
conditions of this Agreement, the Company agrees to reimburse the
Representatives for all reasonable out-of-
37
<PAGE> 38
pocket expenses (including reasonable fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by or on behalf of the
parties hereto; or (ii) if, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Securities
may commence, when notification of the effectiveness of the Registration
Statement or such post-effective amendment has been released by the Commission.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying you, or by you, as Representatives of
the several Underwriters, by notifying the Company.
If one or more of the Underwriters shall fail on the Closing Date to
purchase the Initial Securities which it or they are obligated to purchase under
this Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representatives shall not
have completed such arrangements within such 24-hour period, then:
a. if the number of Defaulted Securities does not exceed
10% of the number of Initial Securities, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
b. if the number of Defaulted Securities exceeds 10% of the
number of Initial Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representatives or the Company shall have the
right to postpone the Closing Date for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other
38
<PAGE> 39
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. a. The Underwriters may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Date
or Option Closing Date, as the case may be, (i) if there has been, since the
date of this Agreement or since the respective dates as of which information is
given in the Registration Statement, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and the Subsidiary considered as one
enterprise, whether or not arising in the ordinary course of business, (ii) if
there has occurred any change in the financial markets in the United States or
elsewhere or any outbreak of hostilities or escalation thereof or other calamity
or crisis the effect of which is such as to make it, in your judgement,
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, (iii) if trading in the Common Shares has been
suspended by the Commission, or if trading generally on the American Stock
Exchange, the New York Stock Exchange or in the over-the-counter markets has
been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by such exchange or
markets or by order of the Commission or any other governmental authority, or if
a banking moratorium has been declared by either Federal, New York or Illinois
authorities, (iv) the enactment, publication, decree or other promulgation of
any Federal or state statute, regulation, rule or order of any court or other
governmental authority which in your judgement materially and adversely affects
or may materially or adversely affect the business or operations of the Company
and the Subsidiary or (v) the taking of any action by any Federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your judgement has a material adverse effect on the securities markets in the
United States, and would in your judgement make it impracticable or inadvisable
to market the Securities or to enforce any contract for the sale thereof. Notice
of such termination may be given by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
b. If this Agreement is terminated pursuant to this Section
11, such termination shall be without liability of any
39
<PAGE> 40
party to any other party except as provided in Section 9 and provided further
that Sections 6 and 7 shall survive such termination and remain in full force
and effect.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover page, and the statements under the caption "Underwriting" in
any preliminary prospectus and in the Prospectus constitute the only information
furnished by or on behalf of the Underwriters through you as such information is
referred to in Sections 5(a) and 7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company at the office of the
Company at, 3385 West 1820 South, Salt Lake City, Utah 84104, Attention: James
R. Weersing, Chairman; or (ii) if to you, as Representatives of the several
Underwriters, care of EVEREN Securities, Inc., 77 West Wacker Drive, 31st Floor,
Chicago, Illinois 60601, Attention: Syndicate Department.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois applicable
to contracts made and to be performed within the State of Illinois. This
Agreement may be signed in various counterparts which together constitute one
and the same instrument. If signed in counterparts, this Agreement shall not
become effective unless at least one counterpart hereof shall have been executed
and delivered on behalf of each party hereto.
15. SUCCESSORS. This Agreement has been and is made solely for the
benefit of the several Underwriters, the Company, its directors and officers,
the other persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Securities in his
status as such purchaser.
40
<PAGE> 41
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
IOMED, INC.
By: ___________________________________
President and Chief
Executive Officer
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
EVEREN Securities, Inc.
Hanifen, Imhoff Inc.
Wedbush Morgan Securities
As Representatives of the Several Underwriters
By EVEREN Securities, Inc.
By: ________________________________
Vice President
41
<PAGE> 42
SCHEDULE I
IOMED, INC.
<TABLE>
<CAPTION>
Number of Initial
Securities Purchased
Underwriter from the Company
----------- ----------------
<S> <C>
EVEREN Securities, Inc. .........................
Hanifen, Imhoff Inc. ............................
Wedbush Morgan Securities .......................
----------
Total
</TABLE>
<PAGE> 1
________________________________________________________________________________
DRAFT 12-16-97
IOMED, INC.
AND
EVEREN SECURITIES, INC.
HANIFEN, IMHOFF INC.
WEDBUSH MORGAN SECURITIES
FORM OF REPRESENTATIVES' WARRANT AGREEMENT
Dated as of December , 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2. Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Exercise of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 Method of Exercise . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Exercise by Surrender of Warrants . . . . . . . . . . . . . . . . 6
Section 4. Issuance of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5. [This Section Intentionally Left Blank] . . . . . . . . . . . . . . . . . . . . . 7
Section 6. Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.1 Initial and Adjusted Exercise Price . . . . . . . . . . . . . . . 7
Section 6.2 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.1 Piggyback Registration . . . . . . . . . . . . . . . . . . . . . 7
Section 7.2 Demand Registration . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7.3 Covenants of the Company with
Respect to Registration . . . . . . . . . . . . . . . . . . . . 11
Section 8. Adjustments to Exercise Price and Number
of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.1 Adjustment in Number of Shares . . . . . . . . . . . . . . . . . . 19
Section 8.2 Issuance of Additional Common Shares . . . . . . . . . . . . . . . 20
Section 8.3 Extraordinary Dividends and
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.4 Treatment of Options and Convertible
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.5 Treatment of Share Dividends, Share
Splits, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.6 Computation of Consideration . . . . . . . . . . . . . . . . . . . 24
Section 8.7 Adjustments for Combinations, etc. . . . . . . . . . . . . . . . . 26
Section 8.8 Dilution in Case of Other Securities . . . . . . . . . . . . . . . 26
Section 8.9 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . 26
Section 8.10 Assumption of Obligations . . . . . . . . . . . . . . . . . . . . 28
Section 8.11 Notice of Adjustment Events . . . . . . . . . . . . . . . . . . . 28
Section 8.12 Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.13 Preservation of Rights . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.14 Other Dilutive Events . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 9. Exchange and Replacement of Warrant
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10. Elimination of Fractional Interests . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11. Reservation and Listing of Securities . . . . . . . . . . . . . . . . . . . . . . 30
Section 12. Notices to Warrant Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 14. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 15. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 16. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 17. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 18. Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . 35
Section 19. Entire Agreement; Modification . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 20. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 21. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 22. Benefits of This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 23. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
-ii-
<PAGE> 4
REPRESENTATIVES' WARRANT AGREEMENT, dated as of ____________,
1997, between IOMED, INC., a Utah corporation (the "Company"), and EVEREN
SECURITIES, INC., HANIFEN, IMHOFF INC. and WEDBUSH MORGAN SECURITIES (the
"Representatives").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives
warrants ("Warrants") to purchase up to an aggregate of 170,000 Common Shares
(as defined in Section 15 hereof);
WHEREAS, pursuant to the underwriting agreement (the
"Underwriting Agreement"), dated as of the date hereof, between the
Representatives, as representatives of the several Underwriters (as such term
is defined in the Underwriting Agreement), and the Company, the Representatives
and the other Underwriters have agreed to purchase 1,700,000 common shares of
the Company, at a public offering price of $_____ per share in connection with
the Company's proposed initial public offering (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives' compensation in connection with, the performance
of the Representatives pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment
by the Representatives to the Company of an aggregate of one hundred dollars
($100.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
Section 1. Grant. The Representatives are hereby granted
the right to purchase, at any time from ________, 1997 [the first anniversary
of the effective date of the registration statement] until 5:30 p.m., New York
time, on _________, 2002 [the fifth anniversary of the effective date of the
registration statement] (the "Exercise Period"), up to an aggregate of 170,000
Common Shares
<PAGE> 5
(the "Warrant Shares"), subject to the terms and conditions of this Agreement,
at an initial exercise price (subject to adjustment as provided in Section 8
hereof) of (i) $______ [125% of the initial public offering price per share]
per Common Share until __________, 2000 [the third anniversary of the effective
date of the registration statement] or (ii) $_____ [150% of the initial public
offering price per share] per Common Share after __________, 2000 [the third
anniversary of the effective date of the registration statement].
Section 2. Warrant Certificates. The warrant certificates
(the "Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A, attached hereto and made
a part hereof, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Agreement.
Section 3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price per Common Share set forth
in Section 6 hereof (subject to adjustment as provided in Section 8 hereof)
payable by certified or official bank check in New York Clearing House funds.
Upon surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the applicable exercise price
for the Common Shares purchased at the Company's principal executive offices in
Utah (presently located at 3385 West 1820 South, Salt Lake City, Utah 84104)
the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the Common Shares so
purchased. Subject to the other provisions of this Agreement, the purchase
rights represented by each Warrant Certificate are exercisable at the option of
the Holder thereof, in whole or in part (but not as to fractional Common Shares
underlying the Warrants). In the case of the purchase of less than all the
Common Shares purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute
and deliver a new Warrant Certificate of like tenor for the balance of the
Common Shares purchasable thereunder.
2
<PAGE> 6
Section 3.2 Exercise by Surrender of Warrants. In addition
to the method of payment set forth in Section 3.1 and in lieu of any cash
payment required thereunder, the Holder(s) of the Warrants shall have the right
at any time and from time to time to exercise the Warrants in whole or in part
by surrendering the Warrant Certificate in the manner specified in Section 3.1
in exchange for the number of Common Shares equal to (x) the number of shares
as to which the Warrants are being exercised multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 15) of the Common
Shares less the Exercise Price and the denominator of which is such Market
Price. Solely for the purposes of this paragraph, Market Price shall be
calculated either (i) on the date which the form of election attached hereto is
deemed to have been sent to the Company pursuant to Section 13 hereof ("Notice
Date") or (ii) as the average of the Market Prices for each of the five
consecutive trading days preceding the Notice Date, whichever of (i) or (ii) is
greater.
Section 4. Issuance of Certificates. Upon the exercise of
the Warrants, the issuance of certificates for Common Shares or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event within three (3) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Section 1 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the
Warrant Shares (and/or other securities, property or rights issuable upon the
exercise of the Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then present
3
<PAGE> 7
Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
Section 5. Transfer of Warrants; Warrant Register. Any
Warrants issued upon the transfer or exercise in part of this Warrant shall be
numbered and shall be registered in a warrant register as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other person, and shall not be liable for any registration
or transfer of such Warrants which are registered or to be registered in the
name of a fiduciary or the nominee of a fiduciary. Such Warrants shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the
Company shall deliver a new Warrant or Warrants to the person entitled thereto.
The Warrants may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor, and
representing in the aggregate the right to purchase a like number of Warrant
Shares upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the written
opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
Section 6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be (i) $[____] [125% of the initial public offering price]
4
<PAGE> 8
per Common Share until __________, 2000 [the third anniversary of the effective
date] or (ii) $[_____] after __________, 2000 [the third anniversary of the
effective date.] The adjusted exercise price shall be the exercise price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" as
used herein shall mean the initial exercise price or the adjusted exercise
price, depending upon the context.
Section 7. Registration Rights.
Section 7.1 Piggyback Registration. If, at any time
commencing after the date hereof and expiring seven (7) years thereafter, the
Company proposes to register any of its securities under the Act (other than
pursuant to Form S-4 or Form S-8 or a successor form), either for its own
account or for the account of others, it will give written notice by delivery
in person, registered or certified mail (postage prepaid, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, at least thirty (30) days prior to the filing of each such
registration statement, to the Representatives and to all other Holders of the
Warrants and/or the Warrant Shares of its intention to do so. If any of the
Holders of the Warrants and/or Warrant Shares notify the Company within twenty
(20) days after receipt of any such notice of its or their desire to include
any Registrable Securities (as defined in Section 15) in such proposed
registration statement, the Company shall afford each such Holder the
opportunity to have any such Registrable Securities registered under such
registration statement.
Notwithstanding the foregoing, if, in the case of an
underwritten offering, the managing underwriter of such offering shall advise
the Company in writing that, in its opinion, the distribution of the
Registrable Securities requested to be included in the registration
concurrently with the securities being registered would adversely affect the
market price of such securities, then the offering and sale of such Registrable
Securities shall be delayed for such period, not to exceed ninety (90) days, as
such managing underwriter shall reasonably request. In the event of a delay as
provided in the
5
<PAGE> 9
preceding sentence, the Company shall, with respect to any Registrable
Securities not included in such offering, file such supplements and
post-effective amendments, and take any such other steps as may be necessary,
to permit the proposed offering and sale of such Registrable Securities for a
period of 270 days immediately following the end of such period of delay.
Notwithstanding the provisions of this Section 7.1, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.1 (irrespective of whether a written request
for inclusion of any such Registrable Securities shall have been made) to elect
not to file any such proposed registration statement, or to withdraw the same
after the filing but prior to the effective date thereof.
Section 7.2 Demand Registration.
(a) At any time commencing after the date hereof and
expiring five (5) years thereafter, EVEREN Securities, Inc. ("EVEREN") or
holders of fifty percent (50%) or more of the Registrable Securities issued or
issuable upon exercise of the Warrants issued to EVEREN (collectively, the
"Initiating Holders") shall have the right (which right is in addition to the
registration rights under Section 7.1 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for EVEREN or such
holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Registrable Securities for nine
(9) consecutive months by such holders and any other holders of Registrable
Securities who notify the Company within twenty (20) days after receiving
notice from the Company of such request. Notwithstanding the provisions of
this Section 7.2(a), the Company shall not be obligated to register any
Registrable Securities pursuant to this Section 7.2(a) if the number of Warrant
Shares requested to be registered pursuant to this Section 7.2(a) does not
exceed 10,000 Warrant Shares.
6
<PAGE> 10
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 7.2 by any holder or
holders to all other registered Holders of Registrable Securities within five
(5) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under
Section 7.1 and subsection (a) of this Section 7.2, at any time commencing
after the date hereof and expiring five (5) years thereafter, EVEREN or the
Initiating Holders shall have the right, exercisable by written notice to the
Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both the counsel for the
Company and counsel for EVEREN or such holders, in order to comply with the
provisions of the Act so as to permit a public offering and sale of their
respective Registrable Securities for twelve (12) consecutive months by such
holders and any other holders of Registrable Securities who notify the Company
within twenty (20) days after receiving notice from the Company of such
request; provided, however, that the provisions of Section 7.3(b) hereof shall
not apply to any such registration request and registration and all costs
incident thereto shall be at the expense of the holder or holders making such
request.
(d) No right of the holders under this Section 7.2
shall be deemed to have been exercised if with respect to such right:
(A) the requisite notice given by holders pursuant
to this Section 7.2 is withdrawn prior to the date of filing of a
registration statement or if a registration statement filed by the
Company under the Act pursuant to this Section 7.2 is withdrawn prior
to its effective date, in either case, by written notice to the Company
from EVEREN or the Initiating Holders to be included or which are
included in such registration statement stating that such holders have
elected not to proceed with the offering contemplated by such
registration statement because (i) a development in the Company's
affairs has occurred or has be-
7
<PAGE> 11
come known to such holders subsequent to the date of the notice by the
holders to the Company requesting registration of the Registrable
Securities or the filing of such registration statement which, in the
judgment of such holders or the managing underwriter of the proposed
public offering, materially and adversely affects the market price of
such Registrable Securities or the distribution of such Registrable
Securities or (ii) a registration statement filed by the Company
pursuant to this Section 7.2, in the reasonable opinion of counsel for
such holders or the managing underwriter of the proposed public
offering, contains 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 light of the
circumstances under which made (other than any such statement or
omission relating to such Holders and based on information supplied or
failed to be supplied by such Holders) and the Company has not,
promptly after written notice thereof, corrected such statement or
omission in an amendment filed to such registration statement pursuant
to Section 7.3(p); or
(B) a registration statement pursuant to this Section
7.2 shall have become effective under the Act and (i) the underwriters
shall not purchase any Registrable Securities because of a failure of
a condition contained in the underwriting agreement (other than a
condition to be performed by or within the control of the holders)
relating to the offering covered by such registration statement or
(ii) less than eighty-five percent (85%) of the Registrable Securities
included therein shall have been sold as a result of any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or court, unless such stop order, injunction or
other order or requirement resulted primarily from an action or omis-
sion on the part of any holder.
8
<PAGE> 12
Section 7.3 Covenants of the Company with Respect to
Registration. In connection with any registration under Section 7.1 or 7.2
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement on appropriate form within forty-five (45) days of
receipt of any demand therefor, shall use its best efforts to have any
registration statements declared effective at the earliest possible time, and
shall furnish each Holder desiring to sell Registrable Securities such number
of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (other than
underwriting or selling commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.1 and 7.2(a) hereof
including, without limitation, the Company's legal and accounting fees,
printing expenses, blue sky fees and expenses and the fees and expenses of one
counsel for all of the holders. The holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to
Section 7.2(c). If the Company shall fail to comply with the provisions of
Section 7.3(a), the Company shall, in addition to any other equitable or other
relief available to the holder(s), extend the Exercise Period by such number of
days as shall equal the delay caused by the Company's failure, and be liable
for any or all damages as the holder(s) may be entitled to as a matter of law.
(c) The Company will use its best efforts, in
cooperation with counsel to the underwriters, in qualifying or registering the
Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as the holder(s)
shall designate and to keep such qualifications or registrations in effect for
so long as the registration statement is in effect; provided that the Company
shall not be obligated to qualify to do business in any such jurisdiction or to
file any general consent to service of process in any jurisdiction in any
action other than one arising out of the offering or the sale of the
Registrable Securities.
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(d) The Company shall indemnify each holder of
Registrable Securities to be sold pursuant to any registration statement, each
director and officer of such person and each person, if any, who controls such
holder within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever), joint or several, to which any of them may become subject under
the Act, the Exchange Act or otherwise, arising from such registration
statement or any final prospectus, preliminary prospectus or summary prospectus
contained therein or any amendment or supplement thereto; provided that the
Company shall not be liable in any such case to the extent that such loss,
claim, damage, expense or liability, arises out of information furnished to the
Company by any holder through an instrument duly executed by such holder
specifically stating that it is for use in the preparation thereof.
(e) The holder(s) of the Registrable Securities to
be sold pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by such holder(s) through an instrument duly
executed by such holder for specific inclusion in such registration statement
and any final prospectus, preliminary prospectus or summary prospectus
contained therein or any amendment or supplement thereto. Notwithstanding the
foregoing, no holder of Registrable Securities shall be liable, or required to
indemnify the Company, in the aggregate, for any amount in excess of the net
proceeds received by such holder from the sale of Registrable Securities to
which such loss, claim, damage, liability or expense relates.
(f) Promptly after receipt by any indemnified person
of a notice of a claim or the beginning of
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<PAGE> 14
any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to Section 7(d) or 7(e), such indemnified person
shall promptly notify the indemnifying person in writing of such claim or of
the commencement of such action; provided, however, that the failure to provide
such notice shall not release the indemnifying person of its obligations under
Sections 7(d) and 7(e) hereof unless and then only to the extent that, the
indemnifying person has been materially prejudiced by such failure to provide
such notice. Subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person, the indemnifying person
shall be entitled to participate therein, and, to the extent that it shall
wish, to assume the defense thereof, with counsel reasonably satisfactory to
the indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable judgment of the indemnified person for the same counsel to represent
both the indemnified person and such indemnifying person or any affiliate or
associate thereof, the indemnified person shall be entitled to retain its own
counsel at the expense of such indemnifying person; provided, further, that the
indemnifying person shall not be obligated to assume the expenses of more than
one counsel (in addition to local counsel) to represent all indemnified
persons. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement of any
such action 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. No indemnified party shall
consent to entry of any judgment or enter into any settlement of any such
action the defense of which has been assumed by an indemnifying party without
the consent of such indemnifying party.
(g) If the indemnification provided for in Section
7(d) or 7(e) is unavailable to or insufficient to hold harmless an indemnified
party under subsection
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<PAGE> 15
7(d) or 7(e) above in respect of any loss, claim, damage, expense or liability
(or actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the holders on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or a holder on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holders agree that it would
not be just and equitable if contributions pursuant to this subsection (g) were
determined by pro rata allocation (even if the holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to above in this
subsection (g). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to above in this subsection (g) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (g), no holder of Registrable
Securities shall be required to contribute in the aggregate any amount in
excess of the net proceeds received by such holder from the sale of the
Registrable Securities to which such loss, claim, damage, liability or expense
relates. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The holders
obligations in this subsection (g) to contribute are several in proportion to
their sales of the Registrable Securities to which such loss relates and not
joint.
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(h) The obligations of the Company and the Holders
of Warrants under Sections 7(d), (e) and (g) shall be in addition to any
liability which the Company and the respective holders may otherwise have.
(i) Nothing contained in this Agreement shall be
construed as requiring a Holder to exercise its Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(j) The Company shall not permit the inclusion of
any securities other than the Registrable Securities to be included in any
registration statement filed pursuant to Section 7.2 hereof, or file any
registration statement subsequent to the receipt of any notice pursuant to
Section 7.2 hereof and until ninety (90) days after the effectiveness of a
registration statement filed pursuant to Section 7.2 hereof; provided, however,
that in the event of an underwritten public offering, the Company shall have
the right to permit the inclusion of such other securities if the managing
underwriter of such offering advises the Company or the holders in writing
that, in its opinion, the inclusion of such securities other than the
Registrable Securities in such registration statement will not adversely affect
the distribution or the offering price of such Registrable Securities.
(k) In connection with any registration statement
filed pursuant to Section 7.2 hereof, the Company shall furnish to each holder
participating in any underwritten offering and to each underwriter, a signed
counterpart, addressed to such holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement), signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to
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<PAGE> 17
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered
to underwriters in underwritten public offerings of securities.
(l) The Company shall as soon as practicable after
the effective date of the registration statement, and in any event within
fifteen (15) months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings statement
(which need not be audited) complying with Section 11(a) of the Act and
covering a period of at least twelve (12) consecutive months beginning after
the effective date of the registration statement.
(m) The Company shall deliver promptly to each
holder participating in the offering requesting the correspondence and
memoranda described below, and to the managing underwriters, copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. ("NASD"). Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as often as any
such Holder or underwriter shall reasonably request.
(n) The Company shall enter into an underwriting
agreement with the managing underwriters selected for such underwriting by
EVEREN or Initiating Holders, which may be any of the Underwriters. Such
agreement shall be reasonably satisfactory in form and substance to the
Company, each holder and such managing underwriters, and shall contain such
representations, warranties, covenants and indemnities by the Company and such
other terms as are customarily contained in agreements of that type used by the
managing underwriter. The holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Registrable
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<PAGE> 18
Securities and may, at their option, require that any or all the
representations, warranties, covenants and indemnities of the Company to or for
the benefit of such underwriters shall also be made to and for the benefit of
such holders. Such holders shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters except as
they may relate to such holders and their intended methods of distribution.
(o) [This Section Intentionally Left Blank]
(p) The Company shall promptly 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, upon
the Company's discovery that, or upon 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 any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and at the request of any such holder promptly prepare and furnish to
such holder and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
(q) The Company shall 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 and to comply with the provisions of the Act
with respect to the disposition of all securities covered by such registration
statement until the earlier of such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
holder or holders thereof
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<PAGE> 19
set forth in such registration statement or the expiration of 270 days after
such registration statement becomes effective.
(r) The Company shall furnish to each holder of
Registrable Securities covered by such registration statement and each
underwriter, if any, of the securities being sold by such holder such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Act, in conformity with the requirements of the
Act, and such other documents, as such holder and underwriter, if any, may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such holder.
(s) The Company shall use its best efforts to cause
all Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities.
(t) The Company shall otherwise use its best efforts
to comply with all applicable rules and regulations of the Commission and will
furnish to each holder of Registrable Securities included in any registration
statement at least three (3) business days prior to the filing thereof a copy
of any amendment or supplement to such registration statement or prospectus and
shall not file any ammendment or supplement thereof to which any such holder
shall have reasonably objected on the grounds that such amendment or supplement
does not comply in all material respects with the requirements of the Act or of
the rules or regulations thereunder.
Section 8. Adjustments to Exercise Price and Number of
Shares.
Section 8.1 Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant
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Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
Section 8.2 Issuance of Additional Common Shares. In case
the Company at any time or from time to time after the date hereof shall issue
or sell Additional Common Shares (including Additional Common Shares deemed to
be issued pursuant to Section 8.4 or 8.5 but excluding any outstanding Options
or Convertible Securities or any outstanding stock options awarded by the board
of directors of the Company pursuant to any of the Company's stock option
plans) without consideration or for a consideration per share less than the
Current Market Price immediately prior to such issue or sale, then, and in each
such case, such Exercise Price shall be reduced, concurrently with such issue
or sale, to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Exercise Price by a fraction:
(a) the numerator of which shall be (i) the number
of Common Shares outstanding immediately prior to such issue or sale plus (ii)
the number of Common Shares which the aggregate consideration received by the
Company for the total number of such Additional Common Shares so issued or sold
would purchase at the Current Market Price, and
(b) the denominator of which shall be the number of
Common Shares outstanding immediately after such issue or sale, provided that,
for the purposes of this Section 8.2 (x) immediately after any Additional
Common Shares are deemed to have been issued pursuant to Section 8.4 or 8.5,
such Additional Shares shall be deemed to be outstanding, and (y) treasury
shares shall not be deemed to be outstanding.
Section 8.3 Extraordinary Dividends and Distributions. In
case the Company at any time or from time to time after the date hereof shall
declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of other or additional shares or other
securities or property or Options by way
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<PAGE> 21
of dividend or spin-off, reclassification, recapitalization or similar
corporate rearrangement) on the Common Shares, other than a dividend payable in
Additional Common Shares, then, and in each such case, the Exercise Price in
effect immediately prior to the close of business on the record date fixed for
the determination of holders of any class of securities entitled to receive
such dividend or distribution shall be reduced, effective as of the close of
business on such record date, to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Exercise Price by a fraction:
(a) the numerator of which shall be the Current
Market Price in effect on such record date or, if the Common Shares trade on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the amount of such dividend or distribution (as determined in
good faith by the Board of Directors of the Company) applicable to one Common
Share, and
(b) the denominator of which shall be such Current
Market Price,
provided that, in the event that the amount of such dividend as so determined
is equal to or greater than ten percent (10%) of such Current Market Price or
in the event that such fraction is less than 9/10, in lieu of the foregoing
adjustment, adequate provision shall be made so that the holder of this Warrant
shall receive a pro rata share of such dividend based upon the maximum number
of Common Shares at the time issuable to such holder (determined without regard
to whether the Warrant is exercisable at such time).
Section 8.4 Treatment of Options and Convertible Securities.
In case the Company at any time or from time to time after the date hereof
shall issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities entitled to receive, any
Options or Convertible Securities, then, and in each such case, the maximum
number of Additional Common Shares (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities,
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<PAGE> 22
shall be deemed to be Additional Common Shares issued as of the time of such
issue, sale, grant or assumption or, in case such a record date shall have been
fixed, as of the close of business on such record date (or, if the Common
Shares trade on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), provided that such Additional Common Shares shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 8.6) of such shares would be less than the greater of the
Current Market Price and the Exercise Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Shares trade on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
which Additional Common Shares are deemed to be issued:
(a) no further adjustment of the Exercise Price
shall be made upon the subsequent issue or sale of Convertible Securities or
Common Shares upon the exercise of such Options or the conversion or exchange
of such Convertible Securities;
(b) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, or decrease in the number of
Additional Common Shares issuable, upon the exercise, conversion or exchange
thereof (by change of rate or otherwise), the Exercise Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend trading, as
the case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options, or the rights of conversion or exchange under such Convertible
Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company
and cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under any
such Convertible Securities which (or purchase by the
19
<PAGE> 23
Company and cancellation or retirement of any such Convertible Securities the
rights of conversion or exchange under which) shall not have been exercised,
the Exercise Price computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration (or
such cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common
Shares or Convertible Securities, the only Additional Common Shares
issued or sold were the Additional Common Shares, if any, actually
issued or sold upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration received
therefor was the consideration actually received by the Company for
the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Company
upon such conversion or exchange; and
(ii) in the case of Options for
Convertible Securities, only the Convertible Securities, if any,
actually issued or sold upon the exercise of such Options were issued
at the time of the issue, sale, grant or assumption of such Options,
and the consideration received by the Company for the Additional Common
Shares deemed to have then been issued was the consideration actually
received by the Company for the issue, sale, grant or assumption of all
such Options, whether or not exercised, plus the consideration deemed
to have been received by the Company (pursuant to Section 8.6) upon the
issue or sale of such Convertible Securities with respect to which such
Options were actually exercised;
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<PAGE> 24
(d) no readjustment pursuant to clause (b) or (c)
above shall have the effect of increasing the Exercise Price by an amount in
excess of the amount of the adjustment thereof originally made in respect of
the issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by
their terms not more than thirty (30) days after the date of issue, sale, grant
or assumption thereof, no adjustment of the Exercise Price shall be made until
the expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in clause (c) above.
Section 8.5 Treatment of Share Dividends, Share Splits, etc.
In case the Company at any time or from time to time after the date hereof
shall declare or pay any dividend on the Common Shares payable in Common
Shares, or shall effect a subdivision of the outstanding Common Shares into a
greater number of Common Shares (by reclassification or otherwise than by
payment of a dividend in Common Shares), then, and in each such case,
Additional Common Shares shall be deemed to have been issued (a) in the case of
any such dividend, immediately after the close of business on the record date
for the determination of holders of any class of securities entitled to receive
such dividend, or (b) in the case of any such clause, at the close of business
on the day immediately prior to the day upon which such corporate action
becomes effective.
Section 8.6 Computation of Consideration. For the purposes
of this Section 8:
(a) the consideration for the issue or sale of any
Additional Common Shares shall, irrespective of the accounting treatment of
such consideration,
(i) insofar as it consists of cash, be
computed at the net amount of cash received by the Company, without
deducting any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts allowed
to underwriters, dealers or others performing similar services in
connection with such issue or sale,
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(ii) insofar as it consists of property
(including securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in good faith
by the Board of Directors of the Company, and
(iii) in case Additional Common Shares are
issued or sold together with other shares or securities or other
assets of the Company for a consideration which covers both, be the
portion of such consideration so received, computed as provided in
clauses (i) and (ii) above, allocable to such Additional Common
Shares, all as determined in good faith by the Board of Directors of
the Company.
(b) Additional Common Shares deemed to have been
issued pursuant to Section 8.4, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share determined by
dividing:
(i) the total amount, if any, received and
receivable by the Company as consideration for the issue, sale, grant
or assumption of the Options or Convertible Securities in question,
plus the minimum aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration to protect against dilution) payable to the Company upon
the exercise in full of such Options or the conversion or exchange of
such Convertible Securities or, in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, in each
case computing such consideration as provided in the foregoing clause
(a),
by
(ii) the maximum number of Common Shares
(as set forth in the instruments
22
<PAGE> 26
relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(c) Additional Common Shares deemed to have been
issued pursuant to Section 8.5, relating to share dividends, share splits,
etc., shall be deemed to have been issued for no consideration.
Section 8.7 Adjustments for Combinations, etc. In case the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares, the
Exercise Price in effect immediately prior to such combination or consolidation
shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
Section 8.8 Dilution in Case of Other Securities. In case
any Other Securities shall be issued or sold or shall become subject to issue
or sale upon the conversion or exchange of any shares (or Other Securities) of
the Company (or any issuer of Other Securities or any other person referred to
in Section 8.9) or to subscription, purchase or other acquisition pursuant to
any Options issued or granted by the Company (or any such other issuer or
person) for a consideration such as to dilute, on a basis consistent with the
standards established in the other provisions of this Section 8, the purchase
rights granted by this Warrant, then, and in each such case, the computations,
adjustments and readjustments provided for in this Section 8 with respect to
the Exercise Price shall be made as nearly as possible in the manner so
provided and applied to determine the amount of Other Securities from time to
time receivable upon the exercise of the Warrants, so as to protect the holders
of the Warrants against the effect of such dilution.
Section 8.9 Merger or Consolidation. In case the Company
after the date hereof (i) shall consolidate with or merge into any other person
and shall not be the continuing or surviving corporation of such consolidation
or merger, or (ii) shall permit any other person to consolidate with or merge
into the Company and the Com-
23
<PAGE> 27
pany shall be the continuing or surviving person but, in connection with such
consolidation or merger, the Common Shares or Other Securities shall be changed
into or exchanged for stock or Other Securities of any other person or cash or
any other property, or (iii) shall transfer all or substantially all of its
properties or assets to any other person, or (iv) shall effect a capital
reorganization or reclassification of the Common Shares or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Common Shares for which adjustment in the Exercise Price is
provided in this Section 8), then, and in the case of each such transaction,
proper provision shall be made so that, upon the basis and the terms and in the
manner provided in this Agreement and the Warrants, the Holders of the
Warrants, upon the exercise thereof at any time after the consummation of such
transaction, shall be entitled to receive (at the aggregate Exercise Price in
effect at the time of such consummation for all Common Shares or Other
Securities issuable upon such exercise immediately prior to such consummation),
in lieu of the Common Shares or Other Securities issuable upon such exercise
prior to such consummation, the highest amount of securities, cash or other
property to which such Holder would actually have been entitled as a
shareholder upon such consummation if such Holder had exercised the rights
represented by the Warrants immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in this Section 8; provided that if a purchase, tender
or exchange offer shall have been made to and accepted by the holders of more
than 50% of the outstanding Common Shares, and if a Holder of Warrants so
designates in a notice given to the Company on or before the date immediately
preceding the date of the consummation of such transaction, such Holder of such
Warrants shall be entitled to receive the highest amount of securities, cash or
other property to which such Holder would actually have been entitled as a
shareholder if such Holder of such Warrants had exercised such Warrants prior
to the expiration of such purchase, tender or exchange offer and accepted such
offer, subject to adjustments (from and after the consummation of such
purchase, tender or exchange offer) as nearly equivalent as possible to the
adjustments provided for in this Section 8.
24
<PAGE> 28
Section 8.10 Assumption of Obligations. Notwithstanding
anything contained in the Warrants to the contrary, the Company will not effect
any of the transactions described in clauses (i) through (iv) of Section 8.4
unless, prior to the consummation thereof, each person (other than the Company)
which may be required to deliver any shares, securities, cash or property upon
the exercise of the Warrants as provided herein shall assume, by written
instrument delivered to, and reasonably satisfactory to, the Holders of the
Warrants, (a) the obligations of the Company under this Agreement and the
Warrants (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Agreement
and the Warrants) and (b) the obligation to deliver to such Holders such
shares, securities, cash or property as, in accordance with the provisions of
this Section 8, such Holders may be entitled to receive, and such person shall
have similarly delivered to such Holders an opinion of counsel for such person,
which counsel shall be reasonably satisfactory to such Holders, stating that
this Agreement and the Warrants shall thereafter continue in full force and
effect and the terms hereof (including, without limitation, all of the
provisions of this Section 8) shall be applicable to the shares, securities,
cash or property which such person may be required to deliver upon any exercise
of the Warrants or the exercise of any rights pursuant hereto.
Section 8.11 Notice of Adjustments. Whenever the Exercise
Price or the kind of securities or property issuable upon exercise of the
Warrants, or both, shall be adjusted pursuant to this Section 8, the Company
shall make a certificate signed by its President or a Vice President and by its
Chief Financial Officer, Secretary or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Company made any determination
hereunder), and the Exercise Price and the kind of securities or property
issuable upon exercise of the Warrants after giving effect to such adjustment,
and shall cause copies of such certificate to be mailed (by first class mail
postage prepaid) to each Holder promptly after each adjustment.
25
<PAGE> 29
Section 8.12 Preservation of Rights. The Company will not,
by amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, 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 of this Agreement or the Warrants or the
rights represented thereby, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holders of the
Warrants against dilution or other impairment.
Section 8.13 Other Dilutive Events. In case any event shall
occur as to which the provisions of Section 8 are not strictly applicable but
the failure to make any adjustment would not fairly protect the purchase rights
represented by this Agreement and the Warrants in accordance with the essential
intent and principles of Section 8, then, in each such case, the Company shall
appoint a firm of independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, on a basis consistent
with the essential intent and principles established in Section 8, necessary to
preserve, without dilution, the purchase rights represented by this Agreement
and the Warrants. Upon receipt of such opinion, the Company will promptly mail
a copy thereof to the Holder of the Warrants and shall make the adjustments
described therein.
Section 8.14 Minimum Adjustment of Warrant Price. If the
amount of any adjustment of the Warrant Price required pursuant to this Section
8 would be less than 1% of the Warrant Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at 1% of such Warrant
Price.
Section 9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and
26
<PAGE> 30
date representing in the aggregate the right to purchase the same number of
Warrant Shares in such denominations as shall be designated by the Holder
thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
Section 10. Elimination of Fractional Interests. The
Company shall not be required to issue certificates representing fractions of
Common Shares upon the exercise of the Warrants, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Common Shares or other securities,
properties or rights.
Section 11. Reservation and Listing of Securities. The
Company shall at all times reserve and keep available out of its authorized
Common Shares, solely for the purpose of issuance upon the exercise of the
Warrants, such number of Common Shares or other securities, properties or
rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of the Warrants and payment of the Exercise
Price therefor, all Common Shares and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, nonassessable and not
subject to the preemptive rights of any shareholder. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all
Common Shares issuable upon the exercise of the Warrants to be listed on all
securities exchanges and/or included in the automated quotation system of the
Nasdaq National Market System (subject to official notice of issuance) with
respect to which the Common Shares issued to the public in connection herewith
may then be so listed and/or quoted.
27
<PAGE> 31
Section 12. Notices to Warrant Holders. In the event of
(a) any taking by the Company 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 or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other person or any
transfer of all or substantially all the assets of the Company to any other
person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail to each Holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such time is to be fixed, as of which the holders of record of
Common Shares (or Other Securities) shall be entitled to exchange their shares
of Common Shares (or Other Securities) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 45 days prior to the date therein specified,
subject to the requirement of each holder to keep the information contained in
such notice confidential until such information has been made public by the
Company.
Section 13. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed to have
been duly given or made at the time delivered by hand if personally delivered;
five calendar days after mailing if sent by registered or
28
<PAGE> 32
certified mail; when answered back, if telexed; when receipt is acknowledged,
if telecopied: and the next business day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee):
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3.1 hereof or to such other address as the Company may designate by
notice to the Holders.
Section 14. Supplements and Amendments. The Company and the
Representatives may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates (other than the
Representatives) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representatives may deem
necessary or desirable and which the Company and the Representatives deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
Section 15. Definitions. As used herein, unless the context
otherwise requires, the following terms have the following respective meanings:
Additional Common Shares: All Common Shares (including
treasury shares) issued or sold (or, pursuant to Section 8.4 or 8.5, deemed to
be issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company.
Common Shares: (i) the class of shares designated as Common
Shares in the Certificate of Incorporation of the Company as may be amended as
of the date hereof, or (ii) any other class of shares resulting from successive
changes or reclassifications of such Common Shares. In the event that the
Company shall after the date hereof issue securities with greater or superior
29
<PAGE> 33
voting rights than the Common Shares outstanding as of the date hereof, the
Holder, at its option, may receive upon exercise of any Warrant either Common
Shares or a like number of such securities with greater or superior voting
rights.
Convertible Securities: Any evidence of indebtedness, shares
(other than Common Shares) or other securities directly or indirectly
convertible into or exchangeable for Additional Common Shares.
Current Market Price: On any date specified herein, the
average daily Market Price during the period of the most recent twenty (20)
days, ending on such date, on which the national securities exchanges were open
for trading, except that if no Common Shares is then listed or admitted to
trading on any national securities exchange or quoted in the over-the-counter
market, the Current Market Price shall be the Market Price on such date.
Market Price: On any date specified herein, the amount per
Common Shares, equal to (a) the last sale price of such Common Shares, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Shares are then listed or admitted to trading, or (b) if such Common
Shares are not then listed or admitted to trading on any national securities
exchange but are designated as a national market system security by the NASD,
the last trading price of the Common Shares on such date, or (c) if there shall
have been no trading on such date or if the Common Shares are not so
designated, the average of the closing bid and asked prices of the Common
Shares on such date as shown by the NASD automated quotation system, or (d) if
such Common Shares are not then listed or admitted to trading on any national
exchange or quoted in the over-the-counter market, the higher of (x) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within sixty (60) days preceding the date as of
which the determination is to be made or (y) the fair value thereof determined
in good faith by the Board of Directors of the Company as of a date which is
30
<PAGE> 34
within eighteen (18) days of the date as of which the determination is to be
made.
Options: Rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Common Shares or Convertible
Securities.
Other Securities: Any shares (other than Common Shares) and
other securities of the Company or any other person (corporate or otherwise)
which the Holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Shares, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Shares or Other
Securities pursuant to Section 8 or otherwise.
Registrable Securities: (a) Any Common Shares or Other
Securities issued or issuable upon exercise of the Warrants and (b) any
securities issued or issuable with respect to any securities referred to in the
foregoing clause by way of share dividend or share split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Act and such securities shall have been disposed of
in accordance with such registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Act, or (c) they shall have ceased to be outstanding.
Section 16. Successors. All the covenants and provisions of
this Agreement shall be binding upon and inure to the benefit of the Company,
the Holders and their respective successors and assigns hereunder.
Section 17. Termination. Except as otherwise provided
herein, this Agreement shall terminate at the close of business on
_____________, 2004.
Section 18. Governing Law; Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Utah and for all purposes shall be
31
<PAGE> 35
construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
Any process or summons to be served upon any of the Company,
the Representatives and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 13 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim. The Company, the Representatives
and the Holders agree that the prevailing party(ies) in any such action or
proceeding shall be entitled to recover from the other party(ies) all of
its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
Section 19. Entire Agreement; Modification. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement
of the modification or amendment is sought.
Section 20. Severability. If any provision of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Agreement.
Section 21. Captions. The caption headings of the Sections
of this Agreement are for convenience of reference only and are not intended to
be, nor should they be construed as, part of this Agreement and shall be given
no substantive effect.
Section 22. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give any person or corporation other than the
Company and the Representatives and any other registered Holder(s) of the
Warrant Certificates or Warrant Shares any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of
32
<PAGE> 36
the Company, the Representatives and any other registered Holder(s) of the
Warrant Certificates or Warrant Shares.
Section 23. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and such counterparts shall together constitute
but one and the same instrument.
33
<PAGE> 37
IN WITNESS WHEREOF, the Company and the Representatives have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
IOMED, INC.
By:______________________________
EVEREN SECURITIES, INC.
By:______________________________
34
<PAGE> 38
EXHIBIT A
[Form of Warrant Certificate]
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2002 [the fifth anniversary
of the effective date of the registration statement]
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ,
or registered assigns, is the registered holder of Warrants to purchase
initially at any time from __________, 1997 [the first anniversary of the
effective date of the registration statement] until 5:30 p.m., New York time,
on __________, 2002 [the fifth anniversary of the effective date of the
registration statement] ("Expiration Date"), up to ______ fully paid and
nonassessable Common Shares, no par value per share ("Common Shares") of IOMED,
INC., a Utah corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of (i) $
[125% of the initial public offering price per share] per Common Share until
__________, 2000 [the third anniversary of the effective date of the
registration statement] or (ii) $_____ [150% of the initial public offering
price per share] per common share after __________, 2000 [the third anniversary
of the effective date of the registration statement] upon surrender of this
Warrant Certificate and payment of the Exercise Price at any office or agency
of the Company, but only subject to the conditions set forth herein and in the
Representatives' Warrant Agreement, dated as of __________, 1997, between the
Company, EVEREN Securities, Inc., Hanifen, Imhoff Inc. and Wedbush Morgan
Securities (the "Warrant Agreement"). Payment of the Exercise Price
A-1
<PAGE> 39
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Cer-
A-2
<PAGE> 40
tificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
A-3
<PAGE> 41
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated:
IOMED, INC.
By______________________________________
Name:
Title:
Attest:
_______________________________________
Name:
Secretary
A-4
<PAGE> 42
[FORM OF ELECTION TO PURCHASE
PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____ Common Shares
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House funds to the order of Iomed, Inc.
in the amount of $__________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such securities be registered in
the name of ____________ whose address is ______________________ and that such
Certificate be delivered to ________________ whose address is
__________________.
Dated: Signature_________________________________
(Signature must conform in all respects
to name of holder as specified on
the face of the Warrant
Certificate.)
__________________________________________
(Insert Social Security of Other
Identifying Number of Holder)
A-5
<PAGE> 43
[FORM OF ELECTION TO PURCHASE
PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____ of Common
Shares all in accordance with the terms of Section 3.2 of the Representatives'
Warrant Agreement, dated as of __________, 1997, among Iomed, Inc., EVEREN
Securities, Inc., Hanifen, Imhoff Inc. and Wedbush Morgan Securities. The
undersigned requests that a certificate for such securities be registered in
the name of ______________ whose address is _____________ and that such
Certificate be delivered to ____________ whose address is _________________.
Dated: Signature_________________________________
(Signature must conform in all respects
to name of holder as specified on
the face of the Warrant
Certificate.)
__________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-6
<PAGE> 44
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate)
FOR VALUE RECEIVED ______________________ hereby sells, assigns and transfers
unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________ Attorney, to
transfer the within Warrant Certificate on the books of the within named
Company, with full power of substitution.
Dated:_____________ Signature_________________________________
(Signature must conform in all respects
to name of holder as specified on
the face of the Warrant
Certificate).
__________________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
A-7
<PAGE> 1
EXHIBIT 4.2
IOMED
NUMBER SHARES
A
INCORPORATED UNDER THE LAWS SEE REVERSE FOR DEFINITIONS
OF THE STATE OF UTAH CUSIP 462028 10 3
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
IOMED, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
[SIG] [SIG]
[SEAL]
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1595, Denver, Colorado 80201
BY
TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE
<PAGE> 2
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A STATEMENT OF THE DESIGNATIONS, PREFERENCES AND RELATIVE RIGHTS OF THE
SHARES OF EACH AUTHORIZED CLASS, AND THE VARIATIONS IN THE RELATIVE RIGHTS
BETWEEN THE SHARES OF EACH SERIES OF PREFERRED SHARES, TO THE EXTENT THEY HAVE
BEEN DETERMINED.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - .............. Custodian .............
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ...................................
in common (State)
UNIF TRF MIN ACT - ........ Custodian (until age ........)
(Cust)
............... under Uniform Transfers
(Minor)
to Minors Act .........................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________
X ______________________________________
X ______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signatures(s) Guaranteed
By ___________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17Ad.15.
<PAGE> 1
EXHIBIT 5.1
December 17, 1997
IOMED, Inc.
3383 West 1820 South
Salt Lake City, Utah 84104
RE: IOMED, INC.
REGISTRATION STATEMENT ON FORM S-1
(REGISTRATION NO. 333-37159)
Gentlemen:
We are acting as counsel to IOMED, Inc., a Utah corporation (the
"Company"), in connection with the preparation of the above-referenced
Registration Statement on Form S-2 (the "Registration Statement"), filed by the
Company with the Securities and Exchange Commission (the "Commission") on
October 3, 1997. The Registration Statement relates to the registration under
the Securities Act of 1933, as amended (the "Act"), of up to 1,700,000 common
shares (the "Shares") of no par value, to be issued and sold pursuant to an
underwriting agreement to be entered into among the Company and EVEREN
Securities, Inc., Hanifen, Imhoff Inc. and Wedbush Morgan Securities, on behalf
of themselves and the several other underwriters to be named in Schedule I
thereto (the "Underwriting Agreement"). Capitalization terms used herein and not
otherwise defined have the meanings given to them in the Registration Statement.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K promulgated under the Act.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Amended and Restated Articles of Incorporation of the Company; (ii)
the By-laws of the Company as amended to date;
<PAGE> 2
December 17, 1997
Page Two
(iii) certain resolutions and written consents of the Board of Directors of the
Company relating to the offering of the Shares; (iv) the Registration
Statement, and (v) such other documents as we have deemed necessary or
appropriate as the basis for the opinions set forth below. In such examination,
we have assumed the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such latter documents. As to any facts material to this opinion which we did
not independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Members of our firm are admitted to the practice of law in the State of
Utah, and we express no opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement becomes effective, (ii) the Underwriting
Agreement is duly executed and delivered by the Company and the other parties
thereto and (iii) certificates representing the Shares are duly executed,
countersigned, registered and duly delivered upon payment of the agreed upon
consideration therefor, the Shares will be duly authorized, validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
Parsons Behle & Latimer
<PAGE> 1
EXHIBIT 10.2
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION
This Agreement is made the 14th day of April 1997
BY AND BETWEEN
ELAN CORPORATION plc
An Irish company, of Monksland, Athlone, Co. Westmeath, Ireland
AND
IOMED, Inc.
A Corporation organized and existing under the laws of the State of Utah,
having an office at 3385 West 1820 South, Salt Lake City, UT 84104, United
States of America.
<PAGE> 2
WHEREAS
- -- ELAN is beneficially entitled to the use of various patents, including the
ELAN IONTOPHORETIC PATENT RIGHTS, which have been granted or are pending
under the International Convention in relation to the development and
production of iontophoretic transdermal devices and drug specific dosage
forms for pharmaceutical devices, products and processes, and
- -- ELAN is knowledgeable in the development of iontophoretic transdermal
devices and drug specific dosage forms and has developed a unique range
of device and delivery systems designed to provide improved devices and
formulations of medicaments, and
- -- IOMED is desirous of entering into a licensing agreement with ELAN to,
further develop, manufacture and have manufactured in accordance with the
terms of this Agreement and to market, sell and distribute the PRODUCTS
in the TERRITORY without infringing any of the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY rights held by ELAN, and
- -- ELAN is prepared to license the ELAN IONTOPHORETIC PATENT RIGHTS in the
TERRITORY to IOMED.
NOW IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I: DEFINITIONS
1.1. In the present Agreement and any further agreements based thereon between
the Parties hereto, the following definitions shall prevail:
1. ADDITIONAL TERM shall have the meaning set forth in Article VIII,
Paragraph 2.
2. AFFILIATE shall mean any corporation or entity controlling,
controlled by or under the common control of ELAN or IOMED as the
case may be. For the purpose of this paragraph, "control" shall
mean the direct or indirect ownership of at least fifty percent
(50%) of the outstanding shares or other voting rights of the
subject entity to elect directors, or if not meeting the preceding
criteria, any entity owned or controlled by or owning or controlling
at the maximum control or ownership right permitted in the country
where such entity exists.
<PAGE> 3
3. Agreement shall mean this agreement.
4. ****
5. ****
6. ****
7. ASSETS shall mean those items of tangible property being transferred
by ELAN to IOMED the details of which are set out in Appendix A.
8. cGCP, cGLP and cGMP shall mean current Good Clinical Practices,
current Good Laboratory Practices and current Good Manufacturing
Practices respectively.
9. CONFIDENTIAL INFORMATION shall mean information, material or data
relating to the FIELD not generally known to the public,
CONFIDENTIAL INFORMATION in tangible form disclosed hereunder shall
be marked as "Confidential" at the time it is delivered to the
receiving Party. CONFIDENTIAL INFORMATION disclosed orally shall be
identified as confidential or proprietary when disclosed and such
disclosure of CONFIDENTIAL INFORMATION shall be confirmed in writing
within thirty (30) days by the disclosing Party.
10. DDS shall mean Drug Delivery Systems, Inc.
11. DDS AGREEMENT shall mean the license agreement entered into between
IOMED and DDS on the EFFECTIVE DATE.
12. DDS IONTOPHORETIC PATENT RIGHTS shall have the meaning as defined in
Article I of the agreement being entered into by IOMED and Drug
Delivery Systems, Inc. on the EFFECTIVE DATE.
13. EFFECTIVE DATE shall mean the 14th day of April 1997.
14. ELAN shall mean Elan Corporation plc and any of its AFFILIATES.
<PAGE> 4
15. ELAN EXCLUDED TECHNOLOGY shall mean all intellectual property
including, without limitation any inventions, discoveries, material
and data whether or not protectable by patents, trade secrets,
trademark or copyright in relation *****.
16. ELAN IONTOPHORETIC INTELLECTUAL PROPERTY shall mean the ELAN
IONTOPHORETIC PATENT RIGHTS and/or the ELAN IONTOPHORETIC KNOW-HOW.
17 ELAN IONTOPHORETIC KOW-HOW shall mean all scientific or-technical
knowledge, information or expertise developed, produced, created or
acquired by or on behalf of ELAN which is not generally known to the
public, or to be developed by ELAN during the term of this
Agreement, relating to the FIELD, whether or not covered by any
patent, copyright, design, trademark or other industrial or
intellectual property rights as further set forth in Appendix B.
For the avoidance of doubt ELAN IONTOPHORETIC KNOW-HOW shall exclude
the ELAN EXCLUDED TECHNOLOGY.
18. ELAN IONTOPHORETIC PATENT RIGHTS shall mean all granted patents and
pending patent applications owned by, or licensed by ELAN, the
current status of which is set forth in Appendix C. ELAN
IONTOPHORETIC PATENT RIGHTS shall also include all continuations,
continuations-in-part, divisionals, re-issues and re-examinations of
such patents and patent applications and any patents issuing thereon
and extensions of any patents licensed hereunder and all foreign
counterparts thereto. ELAN IONTOPHORETIC PATENT RIGHTS shall
further include any patents or Patent applications covering any
improved PRODUCTS or methods of making or using the PRODUCTS
invented by ELAN during the term of this Agreement pursuant to such
research and development if any conducted by ELAN pursuant to
Article III Paragraph 1.
19. EX WORKS shall have the meaning as such term is defined in the ICC
Incoterms, 1990, International Rules for the Interpretation of Trade
Terms, ICC Publication No. 460.
20. FDA shall mean the United States Food and Drug Administration or any
other successor agency, whose approval is necessary to market the
PRODUCTS in the United States of America and its foreign equivalents
in such other countries of the TERRITORY where IOMED intends to
obtain regulatory approval.
<PAGE> 5
21. FIELD shall mean ****.
22. IOMED shall mean IOMED, Inc. and any of its AFFILIATES, including
DERMION Inc.
22. IOMED KNOW-HOW shall mean all scientific or technical knowledge,
information or expertise developed, produced, created or acquired by
or on behalf of IOMED which is not generally known to the public, or
developed by or on behalf of IOMED during the term of this
Agreement, relating to the PRODUCTS, excluding ELAN IONTOPHORETIC
KNOW-HOW, whether or not covered by any patent, copyright, design,
trademark or other industrial or intellectual property rights.
23. IOMED PATENT RIGHTS shall mean all granted patents and pending
patent applications owned or licensed by IOMED relating to the
FIELD, excluding ELAN IONTOPHORETIC PATENT RIGHTS and DDS PATENT
RIGHTS. IOMED PATENT RIGHTS shall also include all continuations,
continuations-in-part, divisionals, re-issues and re-examinations of
such patents and patent applications and any patents issuing thereon
and extensions thereof and all foreign counterparts thereto. IOMED
PATENT RIGHTS shall further include any patents or patent
applications covering any improved methods of making or using the
PRODUCTS invented or acquired by IOMED during the term of this
Agreement.
24. IND shall mean one or more investigational new drug applications
filed by ELAN or to be filed by IOMED with the FDA.
26. NET REVENUES shall mean:
26.1. ****:
26.1.1. ****
26.1.2. ****
<PAGE> 6
26.1.3. ****
****; and
26.2. ****;
26.2.1 ****;
26.2.2. ****;
26.2.3. ****;
26.2.4. ****; and
26.2.5. ****.
****.
<PAGE> 7
****.
****.
****.
27. NDA shall mean one or more of the New Drug Applications which IOMED
shall file, including any supplements or amendments thereto and
510(k)s which IOMED may file, for the PRODUCTS with the FDA.
28. OFFERING PARTY shall mean ****.
29. Party shall mean IOMED or ELAN, as the case may be, "Parties" shall
mean IOMED and ELAN.
30. PRODUCT(S) shall mean all devices or any parts thereof developed,
manufactured or sold by or on behalf of IOMED within the FIELD,
****.
31. RESEARCH AND DEVELOPMENT COST shall mean in the case of research
and development being conducted by or on behalf of ELAN for IOMED
pursuant to Article III Paragraph 1, the fully allocated costs
thereof calculated in accordance with generally accepted Irish
accounting principles consistently applied. 32. TERM shall have the
meaning set forth in Article VIII Paragraph 1.
33. TERRITORY means all of the countries of the world.
34. $ shall mean United States Dollars.
<PAGE> 8
1.2 In this Agreement
1.2.1 the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural
persons include corporate bodies, partnerships and vice versa.
1.2.2 any reference to a Article or Appendix shall unless otherwise
specified provided, be to an Article or Appendix of this Agreement.
1.2.3 the headings of this Agreement are for case reference only and shall
not affect its construction or interpretation.
ARTICLE II: THE LICENSE
1.1. ELAN shall remain proprietor of all the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY but hereby grants to IOMED for the term of the Agreement an
exclusive (including as to ELAN) license in the TERRITORY, with the right
to grant sublicenses pursuant to and in accordance with the provisions of
Article II Paragraph 2, to research develop, manufacture, have
manufactured for IOMED (or its permitted sublicenses), use, sell and
otherwise commercialize the ELAN IONTOPHORETIC INTELLECTUAL PROPERTY and
the PRODUCTS in the FIELD under the terms and conditions set out herein.
The exclusive nature of the licenses granted by ELAN are subject to
**** as set out in Appendix C. ELAN's license to IOMED shall specifically
exclude ELAN EXCLUDED TECHNOLOGY.
1.2. Subject to earlier termination of the Agreement pursuant to Article VIII,
at the end of the ADDITIONAL TERM the rights granted by ELAN to IOMED
pursuant to Paragraph 1.1 above shall be exclusive, paid-up and
irrevocable.
2.1. IOMED may sublicense rights which incorporate the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY ****, without the prior written consent of ELAN.
<PAGE> 9
2.2. Any sublicense other than permitted by paragraph 2.1. above, ****, shall
require the prior written consent of ELAN, which may be withheld in the
sole discretion of ELAN.
2.3. No sublicense granted by IOMED pursuant to Article II Paragraph 2 shall
authorize or permit the sublicense to grant further sublicenses ****.
IOMED shall use its reasonable endeavors to ensure that ELAN shall have
the same rights of audit and inspection vis a vis the sublicensee as ELAN
has pursuant to this Agreement concerning IOMED.
2.4. Insofar as the obligations owed by IOMED to ELAN are concerned, IOMED
shall remain responsible for all acts and omissions of any sublicenses as
if such acts and omissions were by IOMED; provided that no such acts or
omissions of such sublicensee will constitute a material breach by IOMED
for the purpose of Article VIII Paragraph 3. In the event that ELAN
terminates the Agreement pursuant to the provisions of Article VIII
Paragraph 3, due to the default of IOMED, then ELAN shall, with IOMED's
consent and assistance, notify each sublicensee appointed pursuant to
Article II Paragraphs 2.1. and 2.2. of its termination. If any
sublicensee elects to notify ELAN that it requires the continuation of the
licenses granted to IOMED pursuant to this Agreement, ELAN shall promptly
enter into good faith negotiations with sublicensee to establish a direct
contractual nexus between ELAN and such sublicensee. Such contractual
nexus shall, subject to ELAN's reasonable discretion, be on commercially
reasonable terms and shall to the extent practicable be on terms no less
favorable to the sublicensee than the terms of such sublicensees'
agreement with IOMED, and shall provide that the sublicensee shall take
over the applicable obligations owed by IOMED to ELAN pursuant to this
Agreement. Sales of PRODUCTS and other consideration payable to such a
sublicensee in relation to the PRODUCTS shall constitute NET REVENUES for
the purpose of calculating the sums payable by the sublicensee to ELAN.
****.
<PAGE> 10
3. It is contemplated that the physical transfer of the ELAN IONTOPHORETIC
KNOW-HOW to be licensed under this Agreement and the furnishing of copies
of relevant patent documentation regarding the ELAN IONTOPHORETIC PATENT
RIGHTS shall be completed within six months of the EFFECTIVE DATE. ELAN
shall, at its expense, provide all reasonable assistance within such
six-month period to IOMED to facilitate such transfer, provided, that in
the event that IOMED's requirements relating to such transfer are in
excess of the Parties' current reasonable, good faith, expectations, the
Parties shall negotiate in good faith reimbursement of ELAN's
out-of-pocket expenses. Any dispute under this Paragraph 3 shall be
resolved by referring such dispute to an arbitrator pursuant to the
provisions of Article IX Paragraph 14.
4. Insofar as the exercise by IOMED and its permitted sublicensees of the
ELAN IONTOPHORETIC INTELLECTUAL PROPERTY rights is concerned, and to the
extent permitted pursuant to its contractual obligations to ****, ELAN
agrees that during the TERM and the ADDITIONAL TERM ELAN shall not cite or
otherwise rely upon the patents licensed by ELAN from **** pursuant to the
**** AGREEMENT, or developed jointly by ELAN and **** pursuant to the ****
AGREEMENT, against IOMED or IOMED's sublicensees and ELAN shall use its
commercially reasonable endeavors to ensure that ELAN's sublicensees of
the **** TECHNOLOGY shall be bound in similar fashion. ELAN shall be
entitled to disclose such CONFIDENTIAL INFORMATION as ELAN considers
reasonably necessary in using such commercially reasonable endeavors to
potential sublicensees under obligations of confidentiality. As of the
date hereof (I) ELAN has no such sublicensees and (II) to the knowledge of
ELAN, there are currently no grounds to cite such patents and there are no
express provisions of the **** AGREEMENT requiring ELAN to cite such
patents,
5. IOMED shall mark or have marked the patent number an all PRODUCTS, or
otherwise reasonably communicate to the trade concerning the existence of
any ELAN IONTOPHORETIC PATENT RIGHTS for the countries within the
TERRITORY in such a manner as to ensure compliance with, and
enforceability under, applicable laws.
Performance by IOMED
6. IOMED shall use commercially reasonable efforts consistent with its
financial resources and capital constraints, to research, develop,
register, market and promote the PRODUCTS and to exploit the ELAN
IONTOPHORETIC INTELLECTUAL PROPERTY in the major markets of the TERRITORY.
<PAGE> 11
7. **** IOMED shall report on the ongoing sales performance of the PRODUCTS,
and the exploitation of the ELAN IONTOPHORETIC INTELLECTUAL PROPERTY in
the TERRITORY, ****. For the avoidance of doubt, the Parties agree that
all information furnished to ELAN pursuant to this Paragraph shall
constitute CONFIDENTIAL INFORMATION for the purposes of this Agreement.
8. ****.
9. ELAN and IOMED shall, if requested by IOMED, for a ninety (90) day period
from and after the EFFECTIVE DATE (the "Negotiation Period"), negotiate in
good faith, as described below, an exclusive world-wide sublicense to
IOMED to the rights to make, research, develop, use, promote, distribute,
market and sell the Device (as defined in the AQI AGREEMENT) pursuant to
and in accordance with the provisions of such agreement and subject to
the provisions of any product-specific sublicense agreements entered into
by ELAN, including the agreement referred to in Article II Paragraph 10.
During the Negotiation Period, the Parties shall negotiate in good faith
the terms of a sublicense. It is agreed that this paragraph creates no
legal obligation upon either Party to conclude the sublicense agreement,
but merely evidences an intention on the part of both Parties to proceed
in good faith and with proper due diligence in the negotiation and
preparation of the sublicense agreement if so requested by the IOMED.
<PAGE> 12
10. ****.
11. In consideration for the sum of ****, ELAN shall transfer title only to
the ASSETS which are relevant to the IONTOPHORETIC INTELLECTUAL PROPERTY
(but for the avoidance of doubt shall not include the time or employment
of any employees), as set forth on Appendix A hereto. ELAN shall deliver
the ASSETS EX WORKS the appropriate ELAN facilities, to IOMED, and/or any
party designated by IOMED, in proper packaging so as to permit safe
storage and transport. It is contemplated that the physical transfer of
the ASSETS shall be completed within **** of the EFFECTIVE DATE. ****.
ELAN shall not transfer title to the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY.
12. Insofar as the obligations of ELAN set out in this Agreement concerning
the **** AGREEMENT is concerned, ELAN hereby confirms that ****, a wholly
owned subsidiary and AFFILIATE of ELAN which is a contracting party to the
**** AGREEMENT, is aware of the terms of this Agreement and consents to
such obligations as ELAN is undertaking in this Agreement as relate to the
**** AGREEMENT being undertaken by ELAN on its behalf, including the
obligations set forth in Article II Paragraphs 9 and 10.
<PAGE> 13
13. IOMED hereby confirms that it intends to manufacture or procure the
manufacture of the PRODUCTS in a manner which fully complies with all
applicable statutes, ordinances and regulations of the United States of
America and other countries with respect to the manufacture of the
PRODUCTS including, but not limited to, the U.S. Federal Food, Drug and
Cosmetic Act and regulations thereunder, eGLP, cGCP and cGMP.
ARTICLE III: DEVELOPMMNT OF THE PRODUCTS
1. IOMED shall be responsible for the cost of the further development,
registration, manufacture and marketing of the PRODUCTS. The Parties
shall each negotiate in good faith the extent to which ELAN shall provide
research and development services to IOMED. In the event that ELAN
provides such services, such services shall be reimbursed by IOMED ****
ARTICLE IV: FINANCIAL PROVISIONS
1. License Royalties
1. In consideration of the rights and license granted to IOMED to the ELAN
IONTOPHORETIC PATENT RIGHTS by virtue of this Agreement, IOMED shall pay
to ELAN, the sum of (****) United States Dollars (****) in cash by wire
transfer due upon execution of this Agreement and payable within two
business days of the EFFECTIVE DATE.
2. Royalty on NET REVENUES
2.1. In consideration of the license of the ELAN IONTOPHORETIC PATENT RIGHTS to
IOMED, and subject to the provisions of Article IV Paragraphs 2.2. and
2.3, the royalty payable by IOMED to ELAN shall be **** percent (****%) on
NET REVENUES generated on or after the EFFECTIVE DATE.
<PAGE> 14
2.2. In further consideration of the license of the ELAN IONTOPHORETIC PATENT
RIGHTS to IOMED, subject to the proviso in this Paragraph 2.2, ELAN shall
not be entitled to a royalty on NET REVENUES, whether generated on or
after 1st July 1997 or otherwise, (a) in connection with PRODUCTS whose
primary purpose is for inducing local anaesthesia and/or (b) in
connection with PRODUCTS for treating local acute inflammatory
conditions, whether or not such products are currently marketed, or in
development and including improvements thereto; provided that on a
country by country basis if the research, development, manufacture or
commercialisation of such PRODUCTS would infringe the ELAN IONTOPHORETIC
PATENT RIGHTS and/or the DDS IONTOPHORETIC PATENT RIGHTS (but for the
granting of the licenses by ELAN pursuant to Article II Paragraph 1.1.
and the licenses granted by DDS pursuant to the DDS AGREEMENT) the
royalty payable by IOMED to ELAN shall be three per cent (3%) of NET
REVENUES generated on or after 1st July 1997. IOMED shall not be required
to pay a royalty to ELAN of NET REVENUES on commercialisation of the
products listed in Appendix D hereto which, the Parties acknowledge, are
presently-marketed products of IOMED. In the event of any dispute
relating to the foregoing provisions of this Paragraph, the Parties shall
cause such dispute to be arbitrated before an experienced patent
attorney. In such event the procedure set forth in Article VIII Paragraph
14 shall to the extent practicable apply to the conduct of such
arbitration.
2.3. In the event that the Parties conclude a sublicense to or for the AQI
TECHNOLOGY as set out in Article II Paragraph 9,then notwithstanding any
other provisions of the terms of such sublicense to be agreed between the
Parties, including the license royalty, IOMED shall pay to Elan
International Services Limited, or such other AFFILIATE as currently
holds the applicable rights pursuant to the AQI AGREEMENT, a royalty of
seven and one half per cent (7.5%) of the NET REVENUES derived by IOMED
from the third party referred to in Article II Paragraph 10 for a term to
be agreed.
2.4. IOMED shall not discriminate in its commercialization strategy and pricing
policy as between the PRODUCTS referred to in Article IV Paragraphs 2.1.
and 2.2.
2.5. The Parties agree that when IOMED provides free samples of PRODUCT to
promote the further sale of PRODUCTS, such provision of free samples
shall not generate any royalty payments to ELAN by IOMED, its and/or
sublicensees; provided however, that such sampling is specifically
designed to promote sales of PRODUCT and is no less favorable to ELAN
than IOMED's standard sampling practice for similar products.
<PAGE> 15
Royalty Payments, Reports and Records
3.1. Within forty five (45) days of the end of each quarter, IOMED shall notify
ELAN of the NET REVENUES of each of the PRODUCTS and arising from the
exploitation of the ELAN IONTOPHORETIC INTELLECTUAL PROPERTY and/or the
IOMED PATENT RIGHTS and/or the IOMED KNOW-HOW, for that preceding quarter.
Payments shown by each calendar quarter report to have accrued shall be
due on the date such report is due. All payments due hereunder shall be
made to the designated bank account of ELAN in accordance with such timely
written instructions as ELAN shall from time to time provide.
3.2. IOMED shall keep and shall cause its AFFILIATES and sublicensees to keep
true and accurate records of sales of PRODUCTS, other transactions giving
rise to NET REVENUS, and the royalties payable to ELAN under Article IV
hereof and shall deliver to ELAN a written statement thereof within forty
five (45) days following the and of each calendar quarter (or any past
thereof in the first or last calendar quarter of this Agreement) for such
calendar quarter. Said written statements shall set forth (I) for each
PRODUCT on ****, the calculation of NET REVENUES from gross revenues
during that calendar quarter, the applicable percentage royalty rates, and
a computation of such royalties due and (II) such details of the
transactions arising from the exploitation of the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY and/or the IOMED PATENT RIGHTS and/or the IOMED
KNOW-HOW as are relevant to the calculation of NET REVENUES (the "Royalty
Statement").
3.3. AU payments due hereunder shall be made in United States Dollars.
Payments due on NET REVENUES received in a currency other than United
States Dollars shall first be calculated in the foreign currency and then
converted to United States Dollars on the basis of the average of the
exchange rates in effect for the purchase of United States Dollars with
such foreign currency quoted in the Wall Street Journal (or comparable
publication if not quoted in the Wall Street Journal) with respect to the
currency of the country or origin of such payment for the last business
day of each month for which the payment is being made.
<PAGE> 16
3.4. ELAN shall have the right to have access, on reasonable notice, to IOMED's
or IOMED's sublicensee's financial documentation and records during
reasonable business hours for the purpose of verifying the royalties
payable as provided in this Agreement for the two preceding years. This
right may not be exercised more than once in any calendar year, and once a
calendar year is audited it may not be reaudited. For the avoidance of
doubt, the Parties agree that all information furnished to ELAN pursuant
to this Paragraph shall constitute CONFIDENTIAL INFORMATION for the
purposes of this Agreement.
Any adjustment required by such inspection shall be made within thirty
(30) days of the agreement of the Parties or, if not agreed, upon the
determination of an arbitrator to whom any dispute under this Paragraph
shall be submitted to arbitration pursuant to Article IX Paragraph 14. If
the adjustment payable to ELAN is greater than ****, then the cost to ELAN
for the inspection and if applicable the arbitration she be paid by IOMED.
In addition, IOMED shall pay interest to ELAN at **** (applicable as of
the date on which payment should have been made pursuant to Article IV
Paragraph 3.3.), from the date on which payment should have been made
pursuant to Article IV paragraph 3.3. until the date of payment.
ARTICLE V: REGISTRATION OF THE PRODUCTS
1. During the TERM and the ADDITIONAL TERM, IOMED shall be responsible for
filing and prosecuting all NDAs and other applications for regulatory
approvals. ELAN shall transfer the INDs held by it in relation to the
PRODUCTS. IOMED or its sublicensees shall file the NDAs with the FDA and
will use its reasonable efforts in prosecuting said NDA to approval.
IOMED shall thereafter maintain at its own cost the NDAs with the FDA for
the term of this Agreement. Subject to IOMED's reasonable discretion
IOMED hereby agrees to provide to ELAN at ELAN's own cost access to such
NDAs as ELAN reasonably requests. ****. For the avoidance of doubt,
the parties agree that all information furnished to ELAN pursuant to this
Paragraph shall Institute CONFIDENTIAL INFORMATION for the purposes of
this Agreement.
<PAGE> 17
2. It is hereby acknowledged that there are inherent uncertainties involved
in the development and registration of pharmaceutical products with the
FDA or any other regulatory body in the TERRITORY insofar as obtaining
approval is concerned and such uncertainties form part of the business
risk involved in undertaking the form of commercial collaboration as set
forth in this Agreement.
ARTICLE VI: REPRESENTATIONS, WARRANTIES
1. ELAN represents to IOMED the following:
1.1 ELAN is duly and validly existing in the jurisdiction of its
incorporation and each other jurisdiction in which the conduct of
its business requires such qualification, and is in compliance with
all applicable laws, rules, regulations or orders relating to its
business and assets;
1.2 ELAN has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered by ELAN and
constitutes the legal and valid obligations of ELAN and is
enforceable against ELAN in accordance with its terms and the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby and will not violate or result in a
default under or creation of lien or encumbrance under ELAN's
memorandum and articles of association or other organic documents,
any material agreement or instrument binding upon or affecting ELAN
or its properties or assets or any applicable laws, rules,
regulations or orders affecting ELAN or its properties or assets;
1.3 ELAN is not in material default of its memorandum and articles of
association or similar organic documents, any applicable material
laws or regulations or any material contract or agreement binding
upon or affecting it or its properties or assets and the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby will not result in any such violation; and
<PAGE> 18
1.4 ****.
2. IOMED represents to ELAN the following:
2.1. IOMED is duly and validly existing in good standing in the
jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification, and
IOMED is in compliance with all applicable laws, rules, regulations
or orders relating to its business and assets;
2.2. IOMED has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered and constitutes
the legal and valid obligations of IOMED and is enforceable against
IOMED in accordance with its terms; and the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby will not violate or result in a default under or creation of
lien or encumbrance under IOMED's certificate of incorporation,
by-laws or other organic documents, any material agreement or
instrument binding upon or affecting IOMED or its properties or
assets or any applicable laws, rules, regulations or orders
affecting IOMED or its properties or assets;
<PAGE> 19
2.3. IOMED is not in default of its charter or by-laws, any applicable
laws or regulations or any material contract or agreement binding
upon or affecting it or its properties or assets and the execution,
delivery and performance of this letter agreement and the
transactions contemplated hereby will not result in any such
violation.
2.4. IOMED represents and warrants that it has not granted any option,
license, right or interest to any third party which would conflict
with the terms of this Agreement.
2.5. In the event that a claim or proceeding is brought against ELAN by a
third party alleging that the manufacture of the PRODUCTS, or the
sale, distribution or use of the PRODUCTS in the TERRITORY
infringes any adversely held patent or any other intellectual
property, ELAN shall promptly advise IOMED of such threat or suit.
IOMED shall indemnify ELAN against such a claim, provided that ELAN
shall not acknowledge to the third party or to any other person the
validity of the patent rights of such a third party and shall not
compromise or settle any claim or proceedings relating thereto
without the written consent of IOMED. At its option, IOMED may
elect to take over the conduct of such proceedings from ELAN with
counsel of IOMED's choice. In such event IOMED shall keep ELAN
advised of all material developments in the said proceedings and
shall not settle or compromise such proceedings without the consent
of ELAN which shall not be unreasonably withheld.
ARTICLE VII PATENTS
1. Title to all inventions and other ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY created or developed solely by employees of ELAN shall be owned
by ELAN. Title to all inventions and other intellectual property created
or developed solely by IOMED employees shall be owned by IOMED. Title to
all inventions and other intellectual property created or developed
jointly by employees of IOMED and ELAN pursuant to research and
development conducted by ELAN and IOMED pursuant to Article III shall be
jointly owned by ELAN and IOMED. The Parties agree that such inventions
invented after the EFFECTIVE DATE shall not result in any additional
royalties being paid by IOMED pursuant to Article IV or extend the TERM
of this Agreement.
2. The Parties agree that the following provisions of Article VII Paragraph
2. shall apply as regards the filing, prosecution and Maintenance of the
ELAN IONTOPHORETIC PATENT RIGHTS:
<PAGE> 20
2.1. IOMED at its expense shall be responsible to secure the grant of the
ELAN IONTOPHORETIC PATENT RIGHTS and to file patent applications
covering any improvements, to prosecute and defend such applications
against independent third party oppositions; and upon grant of any
letters patent covering such invention, to maintain such letters
patent in force. IOMED at its expense shall have the right to control
such filing, prosecution, defence and maintenance; provided however
ELAN shall be provided with copies of all substantive documents
relating to such filing, prosecution and defence in sufficient time to
review such documents and comment thereon prior to any deadline for
filing the same, if desired by ELAN. IOMED shall be entitled to
determine the patent filing strategy. ELAN shall execute all
documents, forms and declarations and otherwise co-operate fully to
enable IOMED to seek and obtain the broadest protection afforded by
the patent laws of the countries within the TERRITORY, whether during
the TERM of this Agreement or thereafter. For the avoidance of doubt,
the Parties agree that all information furnished to ELAN pursuant to
this Paragraph shall constitute CONFIDENTIAL INFORMATION for the
purposes of this Agreement.
2.2. If IOMED does not intend to make an application for patents or
continue prosecution of a pending application in respect of the ELAN
IONTOPHORETIC INTELLECTUAL PROPERTY in any or some (specifying which
countries of the TERRITORY, or fails within six (6) months of
disclosure under Article VII Paragraph 2.1. to make application in
one or more countries of the TERRITORY, ELAN shall have the option
and the right to apply for patents or other intellectual property
protection in respect thereof (in the countries where IOMED has not
applied). If IOMED does not intend to continue prosecution of a
pending application in any country of the TERRITORY, IOMED shall
promptly inform ELAN of such a decision and no later than in
sufficient time for ELAN to continue such prosecution. For the
avoidance of doubt, the Parties agree that such patents as are
obtained by ELAN pursuant to this Paragraph shall constitute ELAN
IONTOPHORETIC PATENT RIGHTS.
2.3 ELAN shall use its commercially reasonable endeavours to ensure that
the inventors of the ELAN IONTOPHORETIC PATENT RIGHTS shall be
reasonably available to IOMED to deal with queries, and complete and
execute documents, relating to the filing, prosecution and defence of
the ELAN IONTOPHORETIC PATENT RIGHTS.
<PAGE> 21
ARTICLE VIII: TERM AND TERMINATION
1. This Agreement is concluded for a period commencing as of the date of this
Agreement and shall expire on a country by country basis fifteen (15) years
starting from the EFFECTIVE DATE, or for the life of the last to expire patent
included in the ELAN IONTOPHORETIC PATENT RIGHTS and the DDS IONTOPHORETIC
PATENT RIGHTS which are used in the exploitation of the PRODUCTS, whichever is
longer ("the TERM"). From and after the tenth year of the TERM, in the event
that IOMED reasonably believes that there are ELAN IONTOPHORETIC PATENT
RIGHT(s) that are not used in connection with the exploitation of the PRODUCTS,
IOMED shall provide written notice thereof to ELAN, setting forth in reasonable
detail its reasons therefor.
Elan and IOMED shall thereupon each in good faith attempt to make a joint
determination of whether IOMED's conclusion is correct or if such ELAN
IONTOPHORETIC PATENT RIGHT(S) are in fact used in connection with such
exploitation; if the Parties are unable to agree upon such joint determination
within 90 days of such notice from IOMED, either party shall have the right to
have such matter arbitrated. Such arbitration shall be conducted before an
independent patent attorney reasonably selected by the Parties, or on such
other basis as shall be mutually reasonably agreeable, pursuant to the
provisions of Article IX Paragraph 14.
2.4. IOMED shall not abandon an ELAN IONTOPHORETIC PATENT RIGHT without the
prior written consent of ELAN, which shall not be unreasonably withheld. In
the event that the Parties agree that IOMED may abandon such an ELAN
IONTOPHORETIC PATENT RIGHT, ELAN shall have the right to take over the
prosecution and maintenance of such ELAN IONTOPHORETIC PATENT RIGHTS, which
rights shall no longer form a part of and be covered by the licenses
granted by ELAN pursuant to this Agreement.
3. IOMED and ELAN shall promptly inform the other in writing of any alleged
infringement of which it shall become aware by a third party of any patents
within the ELAN IONTOPHORETIC PATENT RIGHTS and provide such other with any
available evidence of infringement.
4. During the TERM and the ADDITIONAL TERM, IOMED shall have the right to
pursue at its own expense and for its own benefit any such infringements of
the ELAN IONTOPHORETIC PATENT RIGHTS and/or the IOMED PATENT RIGHTS. ELAN
shall agree to be named as a necessary party in an action brought by and
fully financed by IOMED and will reasonably co-operate with such action.
Any expenses borne by ELAN shall be reimbursed by IOMED. Any recovery
remaining after the deduction by IOMED of the reasonable expenses
(including attorney's fees and expenses) incurred in relation to such an
infringement proceeding shall constitute NET REVENUES for the purpose of
this Agreement. Should IOMED decide not to pursue such infringers of the
ELAN IONTOPHORETIC PATENT RIGHTS, ELAN may do so at its expense and for its
own benefit, and IOMED will reasonably co-operate with such action. Any
expenses borne by IOMED in co-operating with such action shall be
reimbursed by ELAN.
<PAGE> 22
****.
2. In addition, for a period of five years commencing upon the expiration of
the TERM ("the ADDITIONAL TERM"), the licenses granted by ELAN pursuant to
Article II shall continue, provided, that the royalties payable during the
ADDITIONAL TERM to ELAN referred to in Article IV shall be fifty percent
(50%) of the amount otherwise payable during the TERM; thereafter, IOMED
shall have an exclusive paid-up royalty-free license to the ELAN
IONTROPHORETIC KNOW-HOW.
3. In addition to the rights of early or premature termination provided for
elsewhere in this Agreement, in the event that any of the term or
provisions hereof are incurably breached by either Party, the
non-breaching Party may immediately terminate this Agreement by written
notice. An incurable breach shall be committed when either Party is
dissolved, liquidated, discontinued, becomes insolvent or when any
proceeding is filed or commenced by either Party under bankruptcy,
insolvency or debtor relief laws (and not dismissed within ninety (90)
days). Subject to the other provisions of this Agreement in the event of
any other material breach, the non-breaching Party may terminate this
Agreement by the giving of written notice to the breaching Party that this
Agreement will terminate on the ninetieth (90th) day from notice unless
cure is sooner effected. If the breaching Party has proposed a course of
action to rectify the breach and is acting in good faith to rectify same
but has not cured the breach by the ninetieth (90th) day, the said period
shall be extended by such period as is reasonably necessary to permit the
breach to be rectified. In the event that a Party is entitled to
terminate this Agreement, such Party shall also be entitled to terminate
the DDS AGREEMENT. Furthermore in the event that a Party is entitled to
terminate the DDS AGREEMENT, such Party shall also be entitled to
terminate this Agreement. In the event that the breaching Party disputes
the validity of the of the right of the non-breaching Party to terminate
the Agreement pursuant to this Paragraph, either Party may refer the
dispute to an arbitrator pursuant to the provisions of Article IX
Paragraph 14. Pending the determination of the arbitrator, neither Party
may regard the Agreement as having been terminated and in particular shall
not allege or claim to any third party that the Agreement has been
terminated pursuant to this Paragraph.
<PAGE> 23
4. In the event that IOMED elects to proceed against ELAN for damages in
circumstances where IOMED would have been entitled to terminate the
Agreement pursuant to Article IX Paragraph 3 and IOMED obtains a final
order for damages from a court of competent jurisdiction which is not
subject of further appeal, IOMED may offset the said order for damages
against sums otherwise due to ELAN pursuant to Article IV until recovery
of the said judgment.
5. Upon termination of the Agreement:
5.1. any sums that were due from IOMED to ELAN prior to the exercise of
the right to terminate this Agreement shall be paid in full within
sixty (60) days of termination of this Agreement;
5.2. all confidentiality provisions (other than the obligations set out
in Article IX Paragraph 1.1, as they effect ELAN in the event of
termination of this Agreement by ELAN pursuant to Article VIII
Paragraph 3 due to the breach by IOMED) set out in this Agreement
shall remain in full force and effect for a period of five years;
5.3. all responsibilities and warranties shall insofar are appropriate
remain in full force and effect;
5.4. the rights of inspection and audit shall continue in force for the
period referred to in the relevant provisions of this Agreement;
5.5 termination of this Agreement for any reason shall not release any
Party hereto from any liability which, at the time of such
termination has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude
either party from pursuing all rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this
Agreement;
5.6 in the event of termination of this Agreement by ELAN or IOMED
pursuant to Article VIII Paragraph 3, IOMED and ELAN shall promptly
return to the other Party all CONFIDENTIAL INFORMATION received from
the other Party (except one copy of which may be retained for
archival purposes);
<PAGE> 24
5.7 in the event this Agreement is terminated by ELAN or IOMED pursuant
to Article VIII Paragraph 3, IOMED and its sublicensees shall have
the right for a period of **** from termination to sell or
otherwise dispose of the stock of any PRODUCTS then on hand, which
such sale shall be subject to Article IV and the other applicable
terms of this Agreement. The foregoing provisions of this Paragraph
shall be subject to the Provisions of such agreement or agreements
as ELAN and one or more sublicensees conclude pursuant to Article II
Paragraph 2.4;
5.8 in the event this Agreement is terminated by ELAN or IOMED pursuant
to Article VIII Paragraph 3, the licenses granted by ELAN to IOMED
shall terminate and ELAN shall thenceforth be entitled to exploit
the ELAN INTELLECTUAL PROPERTY together with any improvements made
by IOMED to the ELAN INTELLECTUAL PROPERTY; provided that the
foregoing provision shall be subject to the provisions of Article II
Paragraph 2.4. and any agreements entered into pursuant to the said
Paragraph, and
5.9. Articles I, Article II Paragraph 2.4, Article VI, Article VII
Paragraph 1, Article VIII and Article IX (other than Paragraph 3
thereof) shall survive the termination or expiration of this
Agreement for any reason.
ARTICLE IX: SUNDRY CLAUSES
1. Secrecy
1.1. Each of the parties agrees, during the TERM and the ADDITIONAL TERM, to
hold in confidence and not disclose to any third parties, including any of
the OFFERING PARTIES, except to the extent required by applicable law or
administrative or judicial process, the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY or the contents or nature thereof, provided, that the foregoing
covenant shall not be applicable to ELAN in the event that the foregoing
covenant shall not be applicable to ELAN in the event that IOMED (i)
abandons or (ii) ceases to develop or commercialize (and provides notice
thereof to ELAN) any such ELAN IONTOPHORETIC INTELLECTUAL PROPERTY and
ELAN determines subsequently to develop products or technologies based on
such ELAN IONTOPHORETIC INTELLECTUAL PROPERTY, irrespective of whether it
is reduced to patent.
<PAGE> 25
Each Party may make such disclosure to its directors, officers and agents
and, in the case of IOMED, its potential and actual sublicensees and other
parties to whom such disclosure is appropriate to enable IOMED to conduct
its regular business (each of whom shall be bound by IOMED's disclosure
agreements), who shall be informed of such confidentiality obligation and
for whose breach the disclosing party shall be responsible.
1.2. Subject to the provisions of Paragraph 1. 1., any whether written or oral
(oral information shall be reduced to writing within one month by the
Party giving the oral information and the written form shall be furnished
to the other Party) pertaining to the ELAN IONTOPHORETIC INTELLECTUAL
PROPERTY or the PRODUCTS that has been or will be communicated or
delivered by ELAN to IOMED, and any information from time to time
communicated or delivered by IOMED to ELAN, including without limitation,
trade secrets, business methods, and cost, supplier, manufacturing and
customer information, shall be treated by IOMED and ELAN, respectively, as
CONFIDENTIAL INFORMATION, and shall not be disclosed or revealed to any
third Party whatsoever or used in any manner except as expressly provided
for herein; provided, however, that such CONFIDENTIAL INFORMATION shall
not be subject to the restrictions and prohibitions set forth in this
section to the extent that such CONFIDENTIAL INFORMATION:
1.2.1. is available to the public in public literature or otherwise, or
after disclosure by one Party to the other becomes public
knowledge through no default of the Party receiving such
information; or
1.2.2. was known to the Party receiving such information prior to the
receipt of such information by such Party, whether received before
or after the date of this Agreement; or
1.2.3. is obtained by the Party receiving such information from a third
party not subject to a requirement of confidentiality with respect
to such information; or
1.2.4. is required to be disclosed pursuant to: (A) any order of a court
having jurisdiction and power to order such information to be
released or made public; or (B) other requirement of law, provided
that if the receiving Party becomes legally required to disclose
any CONFIDENTIAL INFORMATION, the receiving Party shall give the
disclosing Party prompt notice of such fact so that the disclosing
Party may obtain a protective order or other appropriate remedy
concerning any such disclosure.
<PAGE> 26
The receiving Party shall fully cooperate with the disclosing
Party in connection with the disclosing Party's efforts to obtain
any such order or other remedy. If any such order or other remedy
does not fully preclude disclosure, the receiving Party shall make
such disclosure only to the extent that such disclosure is legally
required; or
1.2.5. is independently developed by or for the Party by persons not
having access to the CONFIDENTIAL INFORMATION of the other Party.
1.3. Each Party shall take all such precautions as it normally takes with its
own CONFIDENTIAL INFORMATION to prevent any improper disclosure of such
CONFIDENTIAL INFORMATION to any third Party, provided however, that such
CONFIDENTIAL INFORMATION may be disclosed within the limits required to
obtain any authorization from the FDA or any other United States of
America or foreign governmental or regulatory agency or, with the prior
written consent of the other Party, which shall not be unreasonably
withheld, or as may otherwise be required in connection with the purposes
of this Agreement.
1.4. IOMED agrees that it will not use, directly or indirectly, any ELAN
IONTOPHORETIC INTELLECTUAL PROPERTY, or other CONFIDENTIAL INFORMATION
disclosed to IOMED or obtained from ELAN pursuant to this Agreement, other
than as expressly provided herein. ELAN agrees that it will not use,
directly or indirectly, any IOMED KNOW-HOW, IOMED PATENT RIGHTS or other
CONFIDENTIAL INFORMATION disclosed to ELAN or obtained from IOMED pursuant
to this Agreement, other than as expressly provided herein.
1.5 IOMED and ELAN will not publicize the existence of this Agreement in any
way without the prior written consent of the other subject to the
disclosure requirements of applicable laws and regulations. In the event
that either Party wishes to make an announcement concerning the Agreement,
that Party will seek the consent of the other Party. The terms of any
such announcement shall be agreed in good faith.
2. Assignments/Subcontracting
IOMED may not assign (other than by operation of law in the event of an
acquisition of IOMED, or a merger or similar transaction, subject to the
provisions as set forth in Article IX Paragraph 3) the rights licensed by
ELAN under Article II without the prior written consent of ELAN, which may
be withheld in ELAN's sole discretion. ELAN shall be entitled to assign
its rights and obligations to an AFFILIATE.
<PAGE> 27
ELAN may not assign to an unaffiliated third party (other than by
operation of law in the event of an acquisition of ELAN, or a merger or
similar transaction) its rights under this Agreement without the prior
written consent of IOMED, which may be withheld in IOMED's sole
discretion.
3. Certain Changes of Control.
In the event that an OFFERING PARTY makes or signifies its intention of
make a bona fide offer which would result in such a party owning,
directly or indirectly, more than fifteen per cent (15%) of IOMED's
voting stock, on a fully-diulted basis, or otherwise controlling the
IOMED's Board of Directors, or otherwise obtains substantial contractual
rights pursuant to an agreement with IOMED to the ELAN IONTOPHORETIC
INTELLECTUAL PROPERTY (as reasonably determined by ELAN) (each, a
"Control Transaction"), IOMED shall (x) not accept such offer until it
shall have complied with the remaining provision of this Paragraph
without ELAN's consent (in its sole discretion) and (y) advise the
appropriate OFFERING PARTY that, in lieu of IOMED accepting such offer,
such OFFERING PARTY should make a separate offer with respect to that
portion of IOMED's business that relates to the FIELD, and not to the
remaining portion of IOMED's business. ELAN shall have a period of thirty
(30) days to conduct appropriate due diligence and to determine whether
it desires to match an offer made by an OFFERING PARTY with respect to
that portion of IOMED's business that relates to the FIELD, (including
the same economic, payment and other terms); it being understood that
IOMED shall make available to ELAN reasonable and sufficient information
to enable ELAN to conduct such due diligence.
In the event that ELAN determines to make such offer, IOMED shall accept
ELAN's offer and expeditiously consummate such transaction with ELAN.
Notwithstanding the foregoing, in the event that an OFFERING PARTY
consummates a Control Transaction without the consent of the IOMED's
Board of Directors (as such Board is comprised at the time such
transaction is first publicly announced or commenced) (including without
limitation, in connection with a tender offer or offers or proxy
solicitation), ELAN shall have the right in its sole discretion, to
terminate the licences granted by ELAN pursuant to this Agreement,
without payment or penalty to IOMED.
4. Parties bound
This Agreement shall be binding upon and enure for the benefit of Parties
hereto, their successors and permitted assigns.
<PAGE> 28
5. Severability
If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto, (i) such provision will be deemed amended
to conform to applicable laws so as to be valid and enforceable or, if it
cannot be so amended without materially altering the intention of the
Parties, it will be deleted, with effect from the date of such agreement
or such earlier date as the Parties may agree, and (ii) the validity,
legality and enforceability of the remaining provisions of this Agreement
shall not be impaired or affected in any way.
6. Force Majeure
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results from
cause beyond its reasonable control, including, without limitation, acts
of God, fires, strikes, acts of war, or intervention of a Government
Authority, non-availability of raw materials, but any such delay or
failure shall be remedied by such Party as soon as practicable.
7. Relationship of the Parties
Nothing contained in this Agreement is intended or is to be construed to
constitute ELAN and IOMED as partners or joint venturers or either Party
as an employee of the other. Neither Party hereto shall have any express
or implied right or authority to assume or create any obligations on
behalf of or in the name of the other Party or to bind the other Party to
any contract, agreement or undertaking with any third party
8. Amendments
No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a duly
authorized representative of both Parties.
9. Waiver
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of any
right arising under this Agreement.
<PAGE> 29
10. Headlines
The section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the Parties.
Save as otherwise provided herein, references to articles, paragraphs,
clauses and appendices are up to those contained in this Agreement.
11. No effect on other agreements
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent
provided, in any such other agreement.
12. Applicable Law
This Agreement (a) shall be governed by and construed in accordance with
the internal laws of the State of New York, without regard to principles
of conflicts of law, and subject to those provisions where the Parties
have conflicts of law expressly agreed to submit a dispute to arbitration,
each party consents to the exclusive jurisdiction of any Federal or state
court sitting in the County, City and State of New York over any dispute
arising from this Agreement.
13. Notice
13.1. Any notice to be given under this Agreement shall be sent in writing
in English by registered airmail or telefaxed to:
ELAN at
Elan Corporation plc.
Monkstand, Athlone,
Co. Westmeath,
Ireland.
Attention: President Elan Pharmaceutical
Technologies, a division of Elan Corporation
plc
Telephone: 353 902 94666
Telefax: 353 902 92427
<PAGE> 30
IOMED at
IOMED, Inc.
3385 West 1820 South,
Salt Lake City, UT 84104,
United States of America
Attention: President and Chief Executive Officer
Telephone: 1-801-975-1191
Telefax: 1-801-972-9072
or to such other addresses) and telefax numbers as may from time to
time be notified by either Party to the other hereunder.
13.2. Any notice sent by mail shall be deemed to have been delivered
within seven (7) working days after dispatch and any notice sent by
telefax shall be deemed to have been delivered within twenty four
(24) hours of the time of the dispatch. Notice of change of address
shall be effective upon receipt provided that such date of receipt
must be a business day for the Party to whom the notice is
delivered.
14. Arbitration
Any dispute under this Agreement which is not settled by mutual consent
and which is the subject of an arbitration clause shall be finally settled
by binding arbitration conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association by an arbitrator
appointed in accordance with said rules. The arbitration shall be held in
New York, New York and the arbitrator shall be to the extent practicable
experienced as to the subject matter of the dispute such as an independent
expert in pharmaceutical product development and marketing (including
clinical development and regulatory affairs) or an independent patent
attorney as the case may be. The arbitrator shall determine what
discovery will be permitted, consistent with the goal of limiting the cost
and time which the Parties must expend for discovery; provided the
arbitrator shall permit such discovery as he deems necessary to permit an
equitable resolution of the dispute. Any written evidence originally in a
language other than English shall be submitted in English translation
accompanied by the original or a true copy thereof. The costs of the
arbitration, including administrative and arbitrator's fees, shall be
shared equally by the Parties and each Party shall bear its own costs and
attorneys' and witness' fees incurred in connection with the arbitration,
provided that the prevailing Party may be awarded the reasonable costs and
fees incurred in connection with the arbitration at the discretion of the
arbitrator.
<PAGE> 31
A disputed performance or suspended performance pending the resolution of
the arbitration must be completed within thirty (30) days following the
final decision of the arbitrators or such other reasonable period as the
arbitrators determine in a written opinion. Any arbitration subject to
this Paragraph 14 shall be completed within one (1) year from the filing
of notice of a request for such arbitration. The arbitration proceedings
and the decision shall not be made public without the joint consent of the
Parties and each Party shall maintain the confidentiality of such
proceedings and decision unless (a) otherwise permitted by the other Party
or (b) otherwise required by the applicable law in which case the
provisions of Article IX Paragraph 1.2.4. shall be applicable. The
Parties agree that the decision shall be the sole, exclusive and binding
remedy between them regarding any and all disputes, controversies, claims
and counterclaims presented to the arbitrators. Application may be made to
any court having jurisdiction over the Party (or its assets) against whom
the decision is rendered for a judicial recognition of the decision and an
order of enforcement.
15. Withholding
Any income or other taxes which IOMED is required by law to pay or
withhold on behalf of ELAN with respect to royalties and any other moneys
payable to ELAN under this Agreement shall be deducted from the amount of
such royalties and moneys due. IOMED shall furnish ELAN with proof of
such payments. Any such tax required to be paid or withheld shall be an
expense of and borne solely by ELAN. IOMED shall promptly provide ELAN
with a certificate or other documentary evidence to enable ELAN to support
a claim for a refund or a foreign tax credit with respect to any such tax
so withheld or deducted by IOMED. Both Parties will reasonably cooperate
in completing and filing documents required under the provisions of any
applicable tax treaty or under any other applicable law, in order to
enable IOMED to make such payments to ELAN without any deduction or
withholding.
16. Indemnity
16.1. ELAN shall indemnify, defend and hold harmless IOMED from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorneys' fees) to which IOMED is or may become subject
insofar as they arise out of or are alleged or claimed to arise out of any
breach by ELAN of any of its obligations under this Agreement or
warranties of ELAN.
<PAGE> 32
16.2. IOMED shall indemnify, defend and hold harmless ELAN from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorneys' fees) to which ELAN is or may become subject
insofar as they arise out of or are alleged or claimed to arise out of
any breach by IOMED of any of its obligations under this Agreement or
warranties of IOMED. IOMED shall assume the sole and entire
responsibility and shall indemnify and save harmless ELAN from any and
all claims, liabilities, expenses, including reasonable attorney's fees,
responsibilities and damages by reason of any claim, proceedings, action,
liability or injury arising out of any defect in the PRODUCTS, including
the manufacture, transport, packaging, storage, handling, distribution,
marketing or sale of the PRODUCTS by IOMED.
16.3. As a condition of obtaining an indemnity in the circumstances set out
above, the Party seeking an indemnity shall:
16.3.1 fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
16.3.2. permit the indemnifying Party to take full care and control of
such claim or proceeding;
16.3.3. assist in the investigation and defence of such claim or
proceeding;
16.3.4. not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which
consent shall not be unreasonably withheld; and
16.3.5. take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
16.4. Notwithstanding anything to the contrary in this Agreement, ELAN and IOMED
shall not be liable to the other by reason of any representation or
warranty, condition or other term or any duty of common law, or under the
express terms of this Agreement for any consequential or incidental loss
or damage (whether for loss of profit or otherwise) and whether occasioned
by the negligence of the respective Parties, their employees or agents or
otherwise.
<PAGE> 33
17. Entire Agreement
This Agreement including its Appendices, together with the DDS AGREEMENT,
the Note Purchase and Warrant Agreement and Registration Right Agreement
being entered into between Elan International Services Limited, Elan
International Management Limited and IOMED the Promissory Note and Secured
Promissory Note being issued by IOMED to Elan International management
Limited and the further documents referred to therein, each of which are
being executed of even date herewith, set forth the entire agreement and
understanding of the Parties with respect to the subject matter hereof,
and supersedes all prior discussions agreements and writings in relating
thereto, including the letter of agreement of 31st March 1997.
18. Counterparts
This Agreement may be executed in two counterparts, each of which shall be
deemed an original and which together shall constitute one instrument.
IN WITNESS THEREOF the Parties hereto have executed this Agreement in duplicate.
Executed by IOMED on ____ April, 1997
By: ______________________________
Name: ____________________________
Title: ___________________________
Executed by ELAN _____ April, 1997
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE> 34
APPENDIX A
ASSETS
****
Summary of Design Assets for mechanical and electronic elements for PANODERM
Clinical Device
Tangible
* Industrial design
* Specifications for components and electronic elements for all other
components for which ELAN has specifications.
* Tooling
* Know how for gluing *******
* Source and supply of connector
Pre-Production Design
Tangible
* Industrial design
* Specifications for components and electronic elements and for all other
components for which ELAN has specifications.
* Plan for miniaturisation of components
* Design for purpose built connector
* Design for full water resistant connector between patch and control housing
* Full exploration of all possible concepts for mass production with
particular emphasis on use of flex circuit and printed electrodes (note:
these designs have been explored fully with supplier and would be suitable
for **** *** ********* *** ********** ******
Materials - stock in hand in Athlone
* Materials for the manufacture of *** ********* ****** including: active
and counters electrodes - ************* ******** and ******, up to four
different suppliers (including ******** electrodes) - several thousands of
pairs
* Pre-formed patches - *************** ** ****
* Batteries - several hundred
* Other materials, e.g., adhesive, sachets, etc.
<PAGE> 35
***** ********** ****** * ******
Product drawing file
Assembled units - 100 (approx.)
Semi assembled - 100 (approx.)
Components except for PCBs for 1,000 units (approx.)
Three test benches exclusive for PANODERM
Assembly tools
<PAGE> 36
APPENDIX B
ELAN IONTOPHORETIC KNOW-HOW
*** ********* ******
Summary of Design Assets for mechanical and electronic elements for PANODERM
Clinical Device
Intangible
* Supplier relationships including quality audits, etc.
* Source of parts
Pre-Production Design
Intangible
* Supplier relationships, including quality audits
* Source of all parts
* Source of potential production suppliers for all parts
*********** ***** ****** * ******
Intangible Assets
* Drug candidate screening, in vitro/animal/human - knowledge of
pre-requisites for iontophoretic delivery
* Clinical experience - full reports, IND filings
* Scientific credibility and recognition
* Publications/presentations and patent
* Regulatory filings
* Component candidate screening (e.g., hydrogels, adhesives, plastics,
conductive elements, drug containment elements, batteries, etc.)
With respect to the foregoing:
Copies of relevant notebooks
Copies of technical, summary and other market reports
<PAGE> 37
APPENDIX C
ELAN IONTOPHORETIC PATENT RIGHTS
<PAGE> 38
DOCKET FAMILY: 1805
[ELAN LOGO] Art = Panoderm
****
****
****
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH AFRICA ELAN CORPORATION,* 90/10260 90/10280
90.1605.ZA PLC DECEMBER 20, 1990 OCTOBER 30, 1991
- ------------------------------------------------------------------------------------------------------
ITALY ELAN CORPORATION,* 22412A/90 1244030
90.1805.IT PLC DECEMBER 16, 1990 JUNE 28, 1994
- ------------------------------------------------------------------------------------------------------
ISRAEL ELAN CORPORATION,* 96735 98735
90.1805.IL PLC DECEMBER 28, 1990 OCTOBER 1, 1995
- ------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION,* 4813/90 63598
90.1805C.IE PLC DECEMBER 20, 1990 APRIL 26, 1995
- ------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION,* 364/90 62025
90.1805.IE PLC JUNE 29, 1990 DECEMBER 2, 1994
- ------------------------------------------------------------------------------------------------------
UNITED KINGDOM ELAN CORPORATION,* 9027883.3 2239803
90.1805.GB PLC DECEMBER 20, 1990 AUGUST 3, 1994
- ---------
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
INTELLECTUAL PROPERTY DEPARTMENT March 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:49:59 PM
<PAGE> 39
DOCKET FAMILY: 1805
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SWITZERLAND ELAN CORPORATION,* 04145/90.9 684725 G 684725
90.1805.CH PLC DECEMBER 20, 1990 DECEMBER 15, 1994 JUNE 15, 1995
- ------------------------------------------------------------------------------------------------------
AUSTRALIA ELAN CORPORATION,* 68330/90 652,135 652135
90.1805.AU PLC DECEMBER 20, 1990 AUGUST 16, 1994 DECEMBER 6, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Subject to the joint ownership interest held by ASULAB S.A. and/or SMH Swiss
Corporation for Microelectronics and Watchmaking Industries Ltd.
PANODERM ISSUED PATENTS
INTELLECTUAL PROPERTY DEPARTMENT March 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:49:59 PM
<PAGE> 40
DOCKET FAMILY: 1807
[ELAN LOGO] ART = PANODERM
DRUG DELIVERY DEVICE
I.E.C.D.
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCET NO. PATENTEE FILING DATE PUBLICATION DATA PATENT ISSUE DATA
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH AFRICA ELAN CORPORATION, 92/8689 92/8689
92.1807.ZA PLC NOVEMBER 11, 1992 JULY 28, 1992
- ----------------------------------------------------------------------------------------------------------
UNITED STATES ELAN CORPORATION, 08/244,094 5,633,995
94.1807.US PLC MAY 13, 1994 JULY 9, 1996
- ----------------------------------------------------------------------------------------------------------
NEW ZEALAND ELAN CORPORATION, 245091 1378 245091
92.1807.NZ PLC NOVEMBER 11, 1992 MARCH 25, 1994 AUGUST 10, 1994
- ----------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION, 2798/92 66757
92.1667.IE PLC NOVEMBER 10, 1992 JUNE 21, 1995
- ----------------------------------------------------------------------------------------------------------
IRELAND ELAN CORPORATION, 3941/91 68767
91.1807.IE PLC NOVEMBER 13, 1991 JUNE 21, 1993
- ----------------------------------------------------------------------------------------------------------
AUSTRALIA ELAN CORPORATION, 29099/92 664214
94.1807.AU PLC MAY 28, 1994 MARCH 19, 1996
- ----------------------------------------------------------------------------------------------------------
INTELLECTUAL PROPERTY DEPARTMENT MARCH 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION PANODERM ISSUED PATENTS 2:51:20 PM
</TABLE>
<PAGE> 41
DOCKET FAMILY: EMT 6
[ELAN LOGO] ART = PANODERM
****
****
****
****
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATA PATENT ISSUE DATA
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH AFRICA EMT 91/9794 91/9794
91.EMT 6.AZ DECEMBER 12, 1991 AUGUST 25, 1992
- ----------------------------------------------------------------------------------------------------------
UNITED STATES EMT 07/627,104 5,158,591
90.EMT 6.US DECEMBER 13, 1900 OCTOBER 20, 1992
- ----------------------------------------------------------------------------------------------------------
TAIWAN EMT 60109555 199,665 60732
91.EMT 8.TI DECEMBER 5, 1991 FEBRUARY 11, 1993 JUNE 1, 1993
- ----------------------------------------------------------------------------------------------------------
NEW ZEALAND EMT 2406875 240675 240875
91.EMT 6.NZ DECEMBER 5, 1991 APRIL 27, 1994 AUGUST 16, 1994
- ----------------------------------------------------------------------------------------------------------
EPO EMT 92901285.6 516,763 516,763
92.EMT 6.EP DECEMBER 13, 1991 DECEMBER 9, 1992
- ----------------------------------------------------------------------------------------------------------
AUSTRALIA EMT 90587191 91/90, 587 642112
94.EMT 6.AU PLC DECEMBER 13, 1991 JULY 8, 1982 FEBRUARY 1, 1994
- ----------------------------------------------------------------------------------------------------------
ER, AUSTRIA, BELGIUM, FRANCE, GERMAN, GREAT BRITAIN, GREECE, ITALY, MARCH 3, 1997
LUXEMBOURG, NETHERLANDS, SPAIN, SWEDEN, SWITZERLAND & LICHTENSTEIN 3:11:21 PM
INTELLECTUAL PROPERTY DEPARTMENT
ELAN PHARMACEUTICAL RESEARCH CORPORATION PANODERM ISSUED PATENTS
</TABLE>
<PAGE> 42
Docket Family: EMT 8
[ELAN LOGO]
Art = Panoderm
****
****
****
<TABLE>
<CAPTION>
Country/ Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Issue Date
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES 07/759,006 5,356,632
91.EMT 8.US EMT September 12, 1991 October 18, 1994
EPO 92630083.1 532,451 532451
92.EMT 8.EP(14) EMT September 10, 1991 March 17, 1993 January 17, 1996
</TABLE>
EP(14) Austria, Belgium, Denmark, France, Germany, Great Britain, Greece,
Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland &
Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 3:14:49PM
<PAGE> 43
Docket Family: EMT 9
[ELAN LOGO]
Art = Panoderm
****
****
****
****
****
<TABLE>
<CAPTION>
Country/ Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Issue Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States EMT 08/077,146 5380272
93.EMT 9C1.US June 16, 1993 January, 16, 1995
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 3:16:23 PM
<PAGE> 44
PROPRIETARY & CONFIDENTIAL INFORMATION
SUMMARY OF ELAN'S PENDING PATENT APPLICATIONS
FOR IONTOPHORETIC TECHNOLOGY
<PAGE> 45
PROPRIETARY & CONFIDENTIAL INFORMATION
****
<PAGE> 46
[ELAN LOGO]
APPENDIX D
IOMED CURRENT PRODUCTS
****
<PAGE> 1
EXHIBIT 10.3
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION
This Agreement is made the 14th day of April 1997
BY AND BETWEEN
DRUG DELIVERY SYSTEMS, INC.
A Corporation organized and existing under the laws of the State of New
York, having an office at 1300 Gould Drive, Gainesville, Georgia 30504,
United States of America
AND
IOMED, Inc.
A Corporation organized and existing under the laws of the State of Utah,
having an office at 3385 West 1820 South Salt Lake City, UT 84104, United
States of America.
<PAGE> 2
WHEREAS:
- -- DDS is beneficially entitled to the use of various patents, including the
DDS IONTOPHORETIC PATENT RIGHTS, which have been granted or are pending
under the International Convention in relation to the development and
production of iontophoretic transdermal devices and drug specific dosage
forms for pharmaceutical devices, products and processes, and
- -- IOMED is desirous of entering into a licensing agreement with DDS to
further develop, manufacture and have manufactured in accordance with the
terms of this Agreement and to market, sell and distribute the PRODUCTS in
the TERRITORY without infringing any of the DDS IONTOPHORETIC PATENT
RIGHTS held by DDS, and
- -- DDS is prepared to license the DDS IONTOPHORETIC PATENT RIGHTS in the
TERRITORY to IOMED, and
NOW IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I. DEFINITIONS
1.1. In the present Agreement and any further agreements based thereon between
the Parties hereto, the following definitions shall prevail:
1. ADDITIONAL TERM shall have the meaning set forth in Article VIII,
Paragraph 2.
2. AFFILIATE shall mean any corporation or entity controlling,
controlled by or under the common control of DDS or IOMED as the
case may be. For the purpose of this paragraph, "control" shall
mean the direct or indirect ownership of at least fifty percent
(50%) of the outstanding shares or other voting rights of the
subject entity to elect directors, or if not meeting the preceding
criterion any entity owned or controlled by or owning or controlling
at the maximum control or ownership right permitted in the country
where such entity exists.
<PAGE> 3
3. Agreement shall mean this agreement.
4. cGCP, cGLP and cGNO shall mean current Good Clinical Practices,
current Good Laboratory Practices and current Good Manufacturing
Practices respectively.
5. CONFIDENTIAL INFORMATION shall mean information, material or data
relating to the FIELD not generally known to the public.
CONFIDENTIAL INFORMATION in tangible form disclosed hereunder shall
be marked as "Confidential" at the time it is delivered to the
receiving Party. CONFIDENTIAL INFORMATION disclosed orally shall be
identified as confidential or proprietary when disclosed and such
disclosure of CONFIDENTIAL INFORMATION shall be confirmed in writing
within thirty (30) days by the disclosing Party.
6. DDS shall mean Drug Delivery Systems, Inc. and any of its
AFFILIATES.
7. DDS IONTOPHORETIC PATENT RIGHTS shall mean all granted patents and
pending patent applications owned by, or licensed by DDS, the
current status of which is set forth in Appendix C. DDS
IONTOPHORETIC PATENT RIGHTS shall also include all conditions,
continuations-in-part, divisionals, re-issues and re-examinations of
such patents and patent applications and any patents issuing thereon
and extensions of any patents licensed hereunder and all foreign
counterparts thereto.
8. EFFECTIVE DATE shall mean the 14th day of April 1997.
9. ELAN shall mean Elan Corporation plc and any of its AFFILIATES.
10. ELAN AGREEMENT shall mean the license agreement entered into between
IOMED and ELAN on the EFFECTIVE DATE.
11. ELAN IONTOPHORETIC KNOW-HOW shall have the meaning as defined in
Article I of the ELAN AGREEMENT.
12. ELAN IONTOPHORETIC PATENT RIGHTS shall have the meaning as defined
in Article I of the ELAN AGREEMENT.
13. FDA shall mean the United States Food and Drug Administration or any
other successor agency, whose approval is necessary to market the
PRODUCTS in the United States of America and its foreign equivalents
in such other countries of the TERRITORY where IOMED intends to
obtain regulatory approval.
<PAGE> 4
14. FIELD shall mean ****.
15. IOMED shall mean IOMED, Inc. and any of its AFFILIATES, including
DERMION Inc.
16. IOMED KNOW-HOW shall mean all scientific or technical knowledge,
information or expertise developed, produced, created or acquired by
or an behalf of IOMED which is not generally known to the public, or
developed by or on behalf of IOMED during the term of this
Agreement, relating to the PRODUCTS, excluding ELAN IONTOPHORETIC
KNOW-HOW, whether or not covered by any patent copyright, design,
trademark or other industrial or intellectual property rights.
17. IOMED PATENT RIGHTS shall mean all granted patents and pending
patent applications owned or licensed by IOMED relating to the
FIELD, excluding ELAN IONTOPHORETIC PATENT RIGHTS and DDS
IONTOPHORETIC PATENT RIGHTS. IOMED PATENT RIGHTS shall also include
all continuations, continuations-in-part, divisionals, re-issues and
re-examinations of such patents and patent applications and any
patents issuing thereon and extensions thereof and all foreign
counterparts thereto. IOMED PATENT RIGHTS shall further include any
patents or patent application covering any improved methods of
making or using the PRODUCTS invented or acquired by IOMED during
the term of this Agreement.
18. IND shall mean one or more investigational new drug applications
filed by ELAN or to be filed by IOMED with the FDA-
19. NET REVENUES shall mean:
19.1. ****:
19.1.1 ****, or
19.1.2. ****, or
<PAGE> 5
19.1.3. ****; and
19.2. ****:
19.2.1. ****;
19.2.2. ****;
19.2.3. ****;
19.2.4. ****; and
19.2.5. ****.
****.
<PAGE> 6
****.
****.
****.
20. NDA shall mean one or more of the New Drug Applications which IOMED
shall file, including any supplements or amendments thereto and
510(k)s which IOMED may file, for the PRODUCTS with the FDA.
21. OFFERING PARTY shall mean ****.
22. Party shall mean IOMED or DDS, as the case may be. "Parties" shall
mean IOMED and DDS.
23. PRODUCT(S) shall mean all devices or any parts thereof developed,
manufactured or sold by or on behalf of IOMED within the FIELD,
****.
24. TERM shall have the meaning set forth in Article VIII Paragraph 1.
25. TERRITORY means all countries of the world.
26. $ shall mean United States Dollars.
<PAGE> 7
1.2 In this Agreement
1.2.1 the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural
persons include corporate bodies, partnerships and vice verse.
1.2.2 any reference to a Article or Appendix shall, unless otherwise
specifically provided, be to an Article or Appendix of this
Agreement.
1.2.3 the headings of this Agreement are for ease of reference only and
shall not affect its construction or interpretation.
ARTICLE II: THE LICENSE
1.1. DDS shall remain Proprietor of all the DDS IONTOPHORETIC PATENT RIGHTS but
hereby grants to IOMED for the term of the Agreement an exclusive
(including as to DDS) license in the TERRITORY, with the right to grant
sublicenses pursuant to and in accordance with the provisions of Article
II Paragraph 2, to research, develop, manufacture, have manufactured for
IOMED (or its permitted sublicensees), use, sell and otherwise
commercialize the DDS IONTOPHORETIC PATENT RIGHTS and the PRODUCTS in the
FIELD under the terms and conditions set out herein.
1.2. Subject to earlier termination of the Agreement pursuant to Article VIII,
at the end of the ADDITIONAL TERM the rights granted by DDS to IOMED
pursuant to Paragraph 1.1 above shall be exclusive, paid-up and
irrevocable.
2.1. IOMED may sublicense rights which incorporate the DDS IONTOPHORETIC PATENT
RIGHTS ****, without the prior written consent of DDS .
2.2. Any sublicense other than permitted by Paragraph 2. 1. above, ****,
shall require the prior written consent of DDS, which may be withheld in
the sole discretion of DDS.
<PAGE> 8
2.3. NO sublicense granted by IOMED pursuant to Article II Paragraph 2 shall
authorize or permit the sublicensee to grant further sublicenses ****,
IOMED shall use its reasonable endeavors to ensure that DDS shall have the
same rights of audit and inspection vis a vis the sublicensee as DDS has
pursuant to this Agreement concerning IOMED.
2.4. Insofar as the obligations owed by IOMED to DDS are concerned, IOMED shall
remain responsible for all acts and omissions of any sublicensee as if
such acts and omissions were by IOMED; provided that no such acts or
omissions of such sublicensee will constitute a material breach by IOMED
for the purposes of Article VIII Paragraph 3. In the event that DDS
terminates the Agreement pursuant to the provisions of Article VIII
Paragraph 3, due to the default of IOMED, then DDS shall, with IOMED's
consent and assistance, notify each sublicensee appointed pursuant to
Article II Paragraphs 2.1 and 2.2 of its termination. If any sublicensee
elects to notify DDS that it requires the continuation of the licenses
granted to IOMED pursuant to this Agreement, DDS shall promptly enter into
good faith negotiations with such sublicensee to establish a direct
contractual nexus between DDS and such sublicensee. Such contractual
nexus shall subject to DDS's reasonable discretion be on commercially
reasonable terms and shall to the extent practicable be on terms no less
favorable to the to the sublicensee than the terms of such sublicensees'
agreement with IOMED, and shall provide that the sublicensee shall take
over the applicable obligations owed by IOMED to DDS pursuant to this
Agreement. Sales of PRODUCTS and other consideration payable to such a
sublicensee in relation to the products shall constitute NET REVENUES for
the purpose of calculating the sums payable by the sublicensee to DDS.
****.
3. It is contemplated that the furnishing of copies of relevant patent
documentation regarding the DDS IONTOPHORETIC PATENT RIGHTS shall be
completed within six months of the EFFECTIVE DATE.
4. LEFT DELIBERATELY BLANK
<PAGE> 9
5. IOMED shall mark or have marked the patent number on all PRODUCTS, or
otherwise reasonably communicate to the trade concerning the existence of
any DDS IONTOPHORETIC PATENT RIGHTS for the countries within the TERRITORY
in such a manner as to ensure compliance with, and enforceability under,
applicable laws.
PERFORMANCE BY IOMED
6. IOMED shall use commercially reasonable efforts consistent with its
financial resources and capital constraints, to research, develop,
register, market and promote the PRODUCTS and to exploit the DDS
IONTOPHORETIC PATENT RIGHTS in the major markets of the TERRITORY.
7. **** IOMED shall report on the ongoing sales performance of the PRODUCTS,
and the exploitation of the DDS IONTOPHORETIC PATENT RIGHTS in the
TERRITORY, ****. For the avoidance of doubt, the Parties agree that all
information furnished to DDS pursuant to this Paragraph shall constitute
CONFIDENTIAL INFORMATION for the purpose of this Agreement.
8. LEFT DELIBERATELY BLANK
9. LEFT DELIBERATELY BLANK
10. LEFT DELIBERATELY BLANK
11. LEFT DELIBERATELY BLANK
12. LEFT DELIBERATELY BLANK
13. IOMED hereby confirms that it intends to manufacture or procure the
manufacture of the PRODUCTS in a manner which fully complies with all
applicable statutes, ordinances, and regulations of the United States of
America and other countries with respect to the manufacture of the
PRODUCTS including, but not limited to, the U.S. Federal Food, Drug and
Cosmetic Act and regulations thereunder, cGLP, cGCP and cGMP.
<PAGE> 10
ARTICLE III: DEVELOPMENT OF THE PRODUCT
1. IOMED shall be responsible for the cost of the further development,
registration, manufacture and marketing of the PRODUCTS.
ARTICLE IV: FINANCIAL PROVISIONS
1. License Royalties
1. In consideration of the rights and license granted to IOMED to the DDS
IONTOPHORETIC PATENT RIGHTS by virtue of this Agreement, IOMED shall pay
to DDS, the sum of **** United States Dollars **** in cash by wire
transfer due upon execution of this Agreement and payable within two
business days of the EFFECTIVE DATE.
2. Royalty on NET REVENUES
2.1. In consideration of the license of the DDS IONTOPHORETIC PATENT RIGHTS to
IOMED, and subject to the provisions of Article IV paragraphs 2.2. and
2.3, the royalty payable by IOMED to DDS shall be **** percent (****%) on
NET REVENUES generated on or after the EFFECTIVE DATE.
2.2. ****.
<PAGE> 11
IOMED shall not be required to pay a royalty to DDS in excess of one
percent (1%) of NET REVENUES on commercialization of the products listed
in Appendix D hereto which, the Parties acknowledge, are
presently-marketed products of IOMED. In the event of any dispute
relating to the foregoing provisions of this Paragraph, the Parties shall
cause such dispute to be arbitrated before an experienced patent attorney.
In such event the procedure set forth in Article VIII Paragraph 14 shall
to the extent practicable apply to the conduct of such arbitration.
2.3. LEFT DELIBERATELY BLANK
2.4. IOMED shall not discriminate in its commercialization strategy and pricing
policy as between the PRODUCTS referred to in Article IV Paragraphs 2. 1.
and 2.2.
2.5. The Parties agree that when IOMED provides free samples of PRODUCT to
promote the further sale of PRODUCTS, such provision of the samples shall
not generate any royalty payments to DDS by IOMED, its and/or
sublicensees; provided however, that such sampling is specifically
designed to promote sales of PRODUCT and is no less favorable to DDS than
IOMED's standard sampling practice for similar products.
ROYALTY PAYMENTS, REPORTS AND RECORDS
3.1. Within forty five (45) days of the end of each quarter, IOMED shall notify
DDS of the NET REVENUES of- each of the PRODUCTS and arising from the
exploitation of the DDS IONTOPHORETIC PATENT RIGHTS and/or the IOMED
PATENT RIGHTS and/or the IOMED KNOW-HOW, for that preceding quarter.
Payments shown by each calendar quarter report to have accrued shall be
due on the date such report is due. All payments due hereunder shall be
made to the designated bank account of DDS in accordance with such timely
written instructions as DDS shall from time to time provide.
3.2. IOMED shall keep and shall cause its AFFILIATES and sublicensees to keep
true and accurate records of sales of PRODUCTS, other transactions giving
rise to NET REVENUES, and the royalties payable to DDS under Article IV
hereof and shall deliver to DDS a written statement thereof within forty
five (45) days following the end of each calendar quarter (or any part
thereof in the first or last calendar quarter of this Agreement) for such
calendar quarter.
<PAGE> 12
Said written statements shall set forth (I) for each PRODUCT ****,
the calculation of NET REVENUES from gross revenues during that calendar
quarter, the applicable percentage royalty rates, and a computation of
such royalties due and (II) such details of the transactions arising from
the exploitation of the DDS IONTOPHORETIC PATENT RIGHTS and/or the IOMED
KNOW-HOW as are relevant to the calculation of NET REVENUES (the "Royalty
Statement").
3.3. All payments due hereunder shall be made in United States Dollars.
Payments due on NET REVENUES received in a currency other than United
States Dollars shall first be calculated in the foreign currency and then
converted to United States Dollars on the basis of the average of the
exchange rates in effect for the purchase of United States Dollars with
such foreign currency quoted in the Wall Street Journal (or comparable
publication if not quoted in the Wall Street Journal) with respect to the
currency of the country or origin of such payment for the last business
day of each mouth for which the payment is being made.
3.4. DDS shall have the right to have access, on reasonable notice, to IOMED's
or IOMED's sublicensees' financial documentation and records during
reasonable business hours for the purpose of verifying the royalties
payable as provided in this Agreement for the two preceding years. This
right may not be exercised more than once in any calendar year, and once a
calendar year is audited it may not be reaudited. For the avoidance of
doubt, the Parties agree that all information furnished to DDS pursuant to
this Paragraph shall constitute CONFIDENTIAL INFORMATION for the purposes
of this Agreement.
Any adjustment required by such inspection shall be made within thirty
(30) days of the agreement of the Parties or, if not agreed, upon the
determination of an arbitrator to whom any dispute under this Paragraph
shall be submitted to arbitration pursuant to Article IX Paragraph 14. If
the adjustment payable to DDS is greater than ****, then the cost to DDS
for the inspection and if applicable the arbitration shall be paid by
IOMED. In addition, IOMED shall pay interest to DDS at **** (applicable
as of the date on which payment should have been made pursuant to Article
IV Paragraph 3.3.), from the date on which payment should have been made
pursuant to Article IV Paragraph 3.3. until the date of payment.
<PAGE> 13
ARTICLE V. REGISTRATION OF THE PRODUCTS
1. During the TERM and the ADDITIONAL TERM, IOMED shall be responsible for
filing and prosecuting all NDAs and other applications for regulatory
approvals. IOMED or its sublicensees shall file the NDAs with the FDA and
will use its reasonable efforts in prosecuting said NDA to approval.
IOMED shall thereafter maintain at its own cost the NDAs with the FDA for
the term-of this Agreement. Subject to IOMED'S reasonable discretion
IOMED hereby agrees to provide to DDS at DDS's own cost access to such
NDAs as DDS reasonably requests. **** For the avoidance of doubt, the
Parties agree that all information furnished to DDS pursuant to this
Paragraph shall constitute CONFIDENTIAL INFORMATION for the purposes of
this Agreement.
2. It is hereby acknowledged that there are inherent uncertainties involved
in the development and registration of pharmaceutical products with the
FDA or any other regulatory body in the TERRITORY insofar as obtaining
approval is concerned and such uncertainties form part of the business
risk involved in undertaking the form of commercial collaboration as set
forth in this Agreement.
ARTICLE VI: REPRESENTATIONS, WARRANTIES
1. DDS represents to IOMED the following:
1.1. DDS is duly and validly existing in good standing in the
jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification, and
is in compliance with all applicable laws, rules, regulations or
orders relating to its business and assets;
<PAGE> 14
1.2. DDS has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered by DDS and
constitutes the legal and valid obligations of DDS and is
enforceable against DDS in accordance with its terms and the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby and will not violate or result in a
default under or creation of lien or encumbrance under DDS's
certificate of incorporation, by-laws or other organic documents,
any material agreement or instrument binding upon or affecting DDS
or its properties or assets or any applicable laws, rules,
regulations or orders affecting DDS or its properties or assets;
1.3. DDS is not in material default of its charter or by-laws, any
applicable material laws or regulations or any material contract or
agreement binding upon or affecting it or its properties or assets
and the execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not result in any such
violation; and
1.4. ****.
2. IOMED represents to DDS the following:
2.1. IOMED is duly and validly existing in good standing in the
jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification, and
IOMED is in compliance with all applicable laws, rules, regulations
or orders relating to its business and assets;
<PAGE> 15
2.2. IOMED has full corporate authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby;
this Agreement has been duly executed and delivered and constitutes
the legal and valid obligations of IOMED and is enforceable against
IOMED in accordance with its terms; and the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby will not violate or result in a default under or creation of
lien or encumbrance under IOMED's certificate of incorporation,
by-laws or other organic documents any material agreement or
instrument binding upon or affecting IOMED or its properties or
assets or any applicable laws, rules, regulations or orders
affecting IOMED or its properties or assets;
2.3. IOMED is not in default of its charter or by-laws, any applicable
laws or regulations or any material contract or agreement binding
upon or affecting it or its properties or assets and the execution,
delivery and performance of this letter agreement and the
transactions contemplated hereby will not result in any such
violation;
2.4. IOMED represents and warrants that it has not granted any option,
license, right or interest to any third party which would conflict
with the terms of this Agreement.
2.5. ****.
<PAGE> 16
ARTICLE VII: PATENTS
1. Title to all inventions and other DDS IONTOPHORETIC PATENT RIGHTS
created or developed solely by employees of DDS shall be owned by DDS.
Title to all inventions and other intellectual property created or
developed solely by IOMED employees shall be owned by IOMED. The Parties
agree that such inventions invented after the EFFECTIVE DATE shall not
result in any additional royalties being paid by IOMED pursuant to
Article IV or extend the TERM of this Agreement.
2. The Parties agree that the following provisions of Article VII Paragraph
2, shall apply as regards the filing, prosecution and maintenance of the
DDS IONTOPHORETIC PATENT RIGHTS:
2.1. IOMED at its expense shall be responsible to secure the grant of the DDS
IONTOPHORETIC PATENT RIGHTS and to file patent applications covering any
improvements, to prosecute and defend such applications against
independent third party oppositions; and upon grant of any letters patent
covering such invention, to maintain such letters patent in force. IOMED
at its expense shall have the right to control such filing, prosecution,
defence and maintenance; provided however DDS shall be provided with
copies of all substantive documents relating to such filing, prosecution
and defence and maintenance; provided however DDS shall be provided with
copies of all substantive documents relating to such filing, prosecution
and defence in sufficient time to review such documents and comment
thereon prior to any deadline for filing the same, if desired by DDS.
IOMED shall be entitled to determine the patent filing strategy. DDS
shall execute all documents, forms and declarations and otherwise
co-operate fully to enable IOMED to seek and obtain the broadest
protection afforded by the patent laws of the countries within the
TERRITORY, whether during the TERM of this Agreement or thereafter. For
the avoidance of doubt, the Parties agree that all information furnished
to DDS pursuant to this Paragraph shall constitute CONFIDENTIAL
INFORMATION for the purposes of this Agreement.
2.2. If IOMED does not intend to make an application for patents or continue
prosecution of a pending application in respect of the DDS IONTOPHORETIC
PATENT RIGHTS in any or some (specifying which) countries of the
TERRITORY, or fails within six (6) months of disclosure under Article
VII Paragraph 2.1, to make application in one or more countries of the
TERRITORY, DDS shall have the option and the right to apply for patents
or other intellectual property protection in respect thereof (in the
countries where IOMED has not applied).
<PAGE> 17
If IOMED does not intend to continue prosecution of a pending application
in any country of the TERRITORY, IOMED shall promptly inform DDS of such
a decision and no later than in sufficient time for DDS to continue such
prosecution. For the avoidance of doubt, the Parties agree that such
patents as are obtained by DDS pursuant to this Paragraph shall
constitute DDS IONTOPHORETIC PATENT RIGHTS.
2.3. DDS shall use its commercially reasonable endeavors to ensure that the
inventors of the DDS IONTOPHORETIC PATENT RIGHTS shall be reasonably
available to IOMED to deal with queries, and complete and execute
documents, relating to the filing, prosecution and defense of the DDS
IONTOPHORETIC PATENT RIGHTS.
2.4. IOMED shall not abandon an DDS IONTOPHORETIC PATENT RIGHT without the
prior written consent of DDS, which shall not be unreasonably withheld.
In the event that the Parties agree that IOMED may abandon such an DDS
IONTOPHORETIC PATENT RIGHT, DDS shall have the right to take over the
prosecution and maintenance of such DDS IONTOPHORETIC PATENT RIGHTS,
which rights shall no longer form a part of and be covered by the
licenses granted by DDS pursuant to this Agreement.
3. IOMED and DDS shall promptly inform the other in writing of any alleged
infringement of which it shall become aware by a third party of any
patents within the DDS IONTOPHORETIC PATENT RIGHTS and provide such other
with any available evidence of infringement.
4. During the TERM and the ADDITIONAL TERM, IOMED shall have the right to
pursue at its own expense and for its own benefit any such infringements
of the DDS IONTOPHORETIC PATENT RIGHTS and/or the IOMED PATENT RIGHTS.
DDS shall agree to be named as a necessary party in an action brought by
and fully financed by IOMED and will reasonably co-operate with such
action. Any expenses borne by DDS shall be reimbursed by IOMED. Any
recovery remaining after the deduction by IOMED of the reasonable expenses
(including attorney's fees and expenses) incurred in relation to such an
infringement proceeding shall constitute NET REVENUES for the purpose of
this Agreement. Should IOMED decide not to pursue such infringers of the
DDS IONTOPHORETIC PATENT RIGHTS, DDS may do so at its expense and for its
own benefit, and IOMED will reasonably co-operate with such action. Any
expenses borne by IOMED in co-operating with such action shall be
reimbursed by DDS.
<PAGE> 18
ARTICLE VIII: TERM AND TERMINATION
1. This Agreement is concluded for a period commencing as of the date of this
Agreement and shall expire on a country by country basis fifteen (15)
years starting from the EFFECTIVE DATE, or for the life of the last to
expire patent included in the ELAN IONTOPHORETIC PATENT RIGHTS and the DDS
IONTOPHORETIC PATENT RIGHTS which are used in the exploitation of the
PRODUCTS, whichever is longer ("the TERM"). From and after the tenth year
of the TERM, in the event that IOMED reasonably believes that there are
DDS IONTOPHORETIC PATENT RIGHT(S) that are not used in connection with the
exploitation of the PRODUCTS, IOMED shall provide written notice thereof
to DDS, setting forth in reasonable detail its reasons therefor. DDS and
IOMED shall thereupon each in good faith attempt to make a joint
determination of whether IOMED's conclusion is correct or if such DDS
IONTOPHORETIC PATENT RIGHT(S) are in fact used in connection with such
exploitation; if the Parties are unable to agree upon such joint
determination within ninety (90) days of such notice from IOMED, either
party shall have the right to have such matter arbitrated. Such
arbitration shall be conducted before an independent experienced patent
attorney reasonably selected by the Parties, or on such other basis as
shall be mutually reasonably agreeable, pursuant to the provisions of
Article IX Paragraph 14.
2. In addition, for a period of **** commencing upon the expiration of
the TERM ("the ADDITIONAL TERM"), the licenses granted by DDS pursuant to
Article II shall continue; provided, that the royalties payable during the
ADDITIONAL TERM to DDS referred to in Article IV shall be fifty per cent
(50% of the amount otherwise payable during the term.
3. In addition to the rights of early or premature termination provided for
elsewhere in this Agreement, in the event that any of the terms or
provisions hereof are incurably breached by either Party, the
non-breaching Party may immediately terminate this Agreement by written
notice. An incurable breach shall be committed when either Party is
dissolved, liquidated, discontinued, becomes insolvent, or when any
proceeding is filed or commenced by either Party under bankruptcy,
insolvency or debtor relief laws (and not dismissed within ninety (90)
days). Subject to the other provisions of this Agreement, in the event of
any other material breach, the non-breaching Party may terminate this
Agreement by the giving of written notice to the breaching Party that this
Agreement will terminate on the ninetieth (90th) day from notice unless
cure is sooner effected.
<PAGE> 19
If the breaching Party has proposed a course of action to rectify the
breach and is acting in good faith to rectify same but has not cured the
breach by the ninetieth (90th) day, the said period shall be extended by
such period as is reasonably necessary to permit the breach to be
rectified. In the event that a Party is entitled to terminate this
Agreement, such Party shall also be entitled to terminate the ELAN
AGREEMENT. Furthermore in the event that a Party is entitled to terminate
the ELAN AGREEMENT, such Party shall also be entitled to terminate this
Agreement. In the event that the breaching Party disputes the validity of
the right of the non-breaching Party to terminate the Agreement pursuant
to this Paragraph, either Party may refer the dispute to an arbitrator
pursuant to the provisions of Article IX Paragraph 14. Pending the
determination of the arbitrator, neither Party may regard the Agreement as
having been terminated an in particular shall not allege or claim to any
third party that the Agreement has been terminated pursuant to this
Paragraph.
4 . In the event that IOMED elects to proceed against DDS for damages in
circumstances where IOMED would have been entitled to terminate the
Agreement pursuant to Article IX Paragraph 3 and IOMED obtains a final
order for damages from a court of competent jurisdiction which is not
subject of further appeal, IOMED may offset the said order for damages
against sums other due to DDS pursuant to Article IV until recovery of the
said judgment.
5. Upon termination of the Agreement:
5.1. any sums that were due from IOMED to DDS prior to the exercise of
the right to terminate this Agreement, shall be paid in full within
sixty (60) days of terminate of this Agreement.
5.2. all confidentiality provisions (other than the obligations set out
in Article IX Paragraph 1.1. as they affect DDS in the event of
termination of this Agreement by DDS pursuant to Article VIII
Paragraph 3 due to the breach by IOMED) set out in this Agreement
shall remain in full force and effect for a period of five (5)
years;
5.3. all responsibilities and warranties shall insofar are appropriate
remain in full force and effect;
5.4. the rights of inspection and audit shall continue in force for the
period referred to in the relevant provisions of this Agreement;
<PAGE> 20
5.5. termination of this Agreement for any reason shall not release any
Party hereto from any liability which, at the time of such
termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude
either Party from pursuing all rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this
Agreement;
5.6. in the event of termination of this Agreement by DDS or IOMED
pursuant to Article VIII Paragraph 3. IOMED and DDS shall promptly
return to the other Party all CONFIDENTIAL INFORMATION received from
the other Party (except one copy of which may be retained for
archival purposes);
5.7. in the event this Agreement is terminated by DDS or IOMED pursuant
to Article VIII Paragraph 3, IOMED and its sublicensees shall have
the right for a period of **** from termination to sell or otherwise
dispose of the stock of any PRODUCTS then on hand, which such sale
shall be subject to Article IV and the other applicable terms of
this Agreement. The foregoing provisions of this Paragraph shall be
subject to the provisions of such agreement or agreements as DDS and
one or more sublicensees conclude pursuant to Article II Paragraph
2.4;
5.8 In the event this Agreement is terminated by DDS or IOMED pursuant
to Article VIII Paragraph 3, the licenses granted by DDS to IOMED
shall terminate and DDS shall thenceforth be entitled to exploit the
DDS IONTOPHORETIC PATENT RIGHTS together with any improvements made
by IOMED to the DDS IONTOPHORETIC PATENT RIGHTS; provided that the
foregoing provision shall be subject to the provisions of Article II
Paragraph 2.4 and any agreements entered into pursuant to the said
Paragraph; and
5.9. Article I, Article II Paragraph 2.4, Article VI, Article VII
Paragraph 1, Article VIII and Article IX (other than Paragraph 3
thereof) shall survive the termination or expiration of this
Agreement for any reason.
<PAGE> 21
ARTICLE IX: SUNDRY CLAUSES
1. Secrecy
1.1. Each of the Parties agrees, during the TERM and the ADDITIONAL TERM to
hold in confidence and not disclose to any third parties, including any of
the OFFERING PARTIES, except to the extent required by applicable law or
administrative or judicial process, the DDS IONTOPHORETIC PATENT RIGHTS or
the contents or nature. thereof provided that the foregoing covenant shall
not be applicable to DDS in the event that IOMED (i) abandons or (ii)
ceases to develop or commercialize (and provides notice thereof to DDS)
any such DDS IONTOPHORETIC PATENT RIGHTS and DDS determines subsequently
to develop products or technologies based an such DDS IONTOPHORETIC PATENT
RIGHTS, irrespective of whether it is reduced to patent. Each law may
make such disclosure to its directors, officers and agents and, in the
case of IOMED, its potential and actual sublicensees and other parties to
whom such disclosure is appropriate to enable IOMED to conduct its regular
business (each of whom shall be bound by IOMED's customary confidential
disclosure agreements), who shall be informed of such confidentiality
obligation and for whose breach the disclosing party shall be responsible.
1.2. Subject to the provisions of Paragraph 1.1., any information, whether
written or oral (oral information shall be reduced to writing within one
month by the Party giving the oral information and the written form shall
be furnished to the other Party) pertaining to the DDS IONTOPHORETIC
PATENT RIGHTS or the PRODUCTS that has been or will be communicated or
delivered by DDS to IOMED, and any information from time to time
communicated or delivered by IOMED to DDS, including, without limitation,
trade secrets, business methods, and cost, supplier, manufacturing and
customer information, shall be treated by IOMED and DDS, respectively, as
CONFIDENTIAL INFORMATION, and shall not be disclosed or revealed to any
third party whatsoever or used in any manner except as expressly provided
for herein; provided, however, that such CONFIDENTIAL, INFORMATION shall
not be subject to the restrictions and prohibitions set forth in this
section to the extent that such CONFIDENTIAL INFORMATION:
1.2.1. is available to the public in public literature or otherwise, or
after disclosure by one Party to the other becomes public
knowledge through no default of the Party receiving such
information; or
<PAGE> 22
1.2.2. was known to the Party receiving such information prior to the
receipt of such information by such Party, whether received before
or after the date of this Agreement; or
1.2.3. is obtained by the Party receiving such information from a third
party not subject to a requirement of confidentiality with respect
to such information; or
1.2.4. is required to be disclosed pursuant to: (A) any order of a court
having jurisdiction and power to order such information to be
released or made public; or (B) other requirement of law, provided
that if the receiving Party becomes legally required to disclose
any CONFIDENTIAL INFORMATION, the receiving Party shall give the
disclosing Party prompt notice of such fact so that the disclosing
Party may obtain a protective order or other appropriate remedy
concerning any such disclosure. The receiving Party shall fully
cooperate with the disclosing Party in connection with the
disclosing Party's efforts to obtain any such order or other
remedy. If any such order or other remedy does not fully preclude
disclosure, the receiving Party shall make such disclosure only to
the extent that such disclosure is legally required; or
1.2.5. is independently developed by or for the Party by persons not
having access to the CONFIDENTIAL INFORMATION of the other Party.
1.3. Each Party shall take all such precautions as it normally takes with its
own CONFIDENTIAL INFORMATION to prevent any improper disclosure of such
CONFIDENTIAL INFORMATION to any third party, provided, however, that such
CONFIDENTIAL INFORMATION may be disclosed within the limits required to
obtain any authorization from the FDA or any other United States of
America or foreign governmental or regulatory agency or, with the prior
written consent of the other Party, which shall not be unreasonably
withheld, or as may otherwise be required in connection with the purposes
of this Agreement.
1.4. IOMED agrees that it will not use, directly or indirectly, any DDS
IONTOPHORETIC PATENT RIGHTS, or other CONFIDENTIAL INFORMATION disclosed
to IOMED or obtained from DDS pursuant to this Agreement, other than as
expressly provided herein. DDS agrees that it will not use, directly or
indirectly, any IOMED KNOW-HOW, IOMED PATENT RIGHTS or other CONFIDENTIAL
INFORMATION disclosed to DDS or obtained from IOMED pursuant to this
Agreement, other than as expressly provided herein.
<PAGE> 23
1.5. IOMED and DDS will not publicize the existence of this Agreement in any
way without the prior written consent of the other subject to the
disclosure requirements of applicable laws and regulations. In the went
that either Party wishes to make an announcement concerning the Agreement,
that Party will seek the consent of the other Party, The terms of any such
announcement be agreed in good faith.
2. Assignments/Subcontracting
IOMED may not assign (other than by operation of law in the event of an
acquisition of IOMED. or a merger or similar transaction subject to the
provisions as set forth in Article IX Paragraph 3) the rights licensed by
DDS under Article II without the prior written consent of DDS , which may
be withheld in DDS's sole discretion. DDS shall be entitled to assign its
rights and obligations to an AFFILIATE. DDS may not assign to an
unaffiliated third party (other than by operation of law in the event of
an acquisition of DDS, or a merger or similar transaction) its rights
under this Agreement without the prior written consent of IOMED, which may
be withheld in IOMED's sole discretion.
3. Certain Changes of Control.
In the event that an OFFERING PARTY makes or signifies its intention of
make a bona fide offer which would result in such a party owning, directly
or indirectly, more than fifteen per cent (15%) of IOMED's voting stock,
on a fully-diluted basis, or otherwise controlling the IOMED's Board of
Directors, or otherwise obtains substantial contractual rights pursuant to
an agreement with IOMED to the DDS IONTOPHORETIC PATENT RIGHTS (as
reasonably determined by DDS) (each, a "Control Transaction"), IOMED shall
(x) not accept such offer until it shall have complied with the remaining
provisions of this Paragraph without DDS's consent (in its sole
discretion) and (y) advise the appropriate OFFERING PARTY that, in lieu of
IOMED accepting such offer, such OFFERING PARTY should make a separate
offer with respect to that portion of IOMED"s business that relates to the
FIELD, and not to the remaining potion of IOMED's business. DDS and/or
ELAN shall have a period of thirty (30) days to conduct appropriate due
diligence and to determine whether it desires to match an offer made by an
OFFERING PARTY with respect to that portion of IOMED's business that
relates to the FIELD, (including the same economic, payment and other
terms); it being understood that IOMED shall make available to DDS and/or
ELAN reasonable and sufficient information to enable DDS and/or ELAN to
conduct such due diligence.
In the event that DDS and/or ELAN determines to make such offer, IOMED
shall accept such offer and expeditiously consummate such transaction with
DDS and/or ELAN. Notwithstanding the foregoing, in the event that an
OFFERING PARTY consummates a Control Transaction without the consent of
the IOMED's Board of Directors (as such Board is comprised at the time
such transaction is first publicly announced or commenced)(including
without limitation, in connection with a tender offer or offers or proxy
solicitation), DDS shall have the right in its sole discretion, to
terminate the licences granted by DDS pursuant to this Agreement, without
payment or penalty to IOMED.
<PAGE> 24
****.
4. Parties bound
This Agreement shall be binding upon and enure for the benefit of Parties
hereto, their successors and permitted assigns.
5. Severability
If any provision in this Agreement is agreed by the Parties to be, or is
deemed to be, or becomes invalid, illegal, void or unenforceable under any
law that is applicable hereto, (i) such provision will be deemed amended
to conform to applicable laws so as to be valid and enforceable or, if it
cannot be so amended without materially altering the intention of the
Parties, it will be deleted, with effect from the date of such agreement
or such earlier date as the Parties may agree, and (ii) the validity,
legality and enforceability of the remaining provisions of this Agreement
shall not be impaired or affected in any way.
6. Force Majeure
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results from
causes beyond its reasonable control, including, without limitation, acts
of God, fires, strikes, acts of war, or intervention of a Government
Authority, non availability of raw materials, but any such delay or
failure shall be remedied by such Party as soon as practicable.
7. Relationship of the Parties
Nothing contained in this Agreement is intended or is to be construed to
constitute DDS and IOMED as partners or joint venturers or either Party as
an employee of the other. Neither Party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf
of or in the name of the other Party or to bind the other Party to any
contact, agreement or undertaking with any third party.
<PAGE> 25
8. Amendments
No amendment, modification or addition hereto shall be effective or
binding an either Party unless set forth in writing and executed by a duly
authorized representative of both Parties.
9. Waiver
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of any
other right arising under this Agreement.
10. Headings
The section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the Parties.
Save as otherwise provided herein, references to articles, paragraphs,
clauses and appendices are to those contained in this Agreement.
11. No effect on other agreements
No provision of this Agreement shall be construed so as to negate, modify
or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent
provided, in any such other agreement.
12. Applicable Law
This Agreement (a) shall be governed by and construed in accordance with
the internal laws of the State of New York, without regard to principles
of conflicts of laws, and subject to those provisions where the Parties
have expressly earned to submit a dispute to arbitration, each party
consents to the exclusive jurisdiction of any Federal or state court
sitting in the County, City and State of New York over any dispute arising
from this Agreement.
<PAGE> 26
13. Notice
13.1. Any notice to be given under this Agreement shall be sent in writing
in English by registered airmail or telefaxed to:
DDS at
Drug Delivery Systems, Inc.
1300 Gould Drive,
Gainesville,
Georgia 30504
United States of America
Attention: President
Telephone: 770 534 8239
Telefax: 770 534 8247
IOMED at
IOMED, Inc.
3385 West 1820 South,
Salt Lake City, UT 84104,
United States of America
Attention: President and Chief Executive Officer
Telephone: 801 975 1191
Telefax: 801 972 9072
or to such other address(es) and telefax numbers as may from time
-to time be notified by either Party to the other hereunder.
13.2. Any notice sent by mail shall be deemed to have been delivered
within seven (7) working days after dispatch and any notice sent by
telefax shall be deemed to have been delivered within twenty four
(24) hours of the time of the dispatch. Notice of change of address
shall be effective upon receipt; provided that such date of receipt
must be a business day for the Party to whom the notice is
delivered.
<PAGE> 27
14. Arbitration
Any dispute under this Agreement which is not settled by mutual consent
and which is the subject of an arbitration clause shall be finally settled
by binding arbitration, conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association by an arbitrator
appointed in accordance with said rules. The arbitration shall be held in
New York, New York and the arbitrator shall be to the extent practicable
experienced as to the subject matter of the dispute such as an independent
expert in pharmaceutical product development and marketing (including
clinical development and regulatory affairs) or an independent patent
attorney as the case may be. The arbitrator shall determine what
discovery will be permitted, consistent with the goal of limiting the cost
and time which the Parties must expend for discovery, provided the
arbitrator shall permit such discovery as he deems necessary to permit an
equitable resolution of the dispute. Any written evidence originally in a
language other than English shall be submitted in English translation
accompanied by the original or a true copy thereof. The costs of the
arbitration, including administrative and arbitrator's fees, shall be
shared equally by the Parties and each Party shall bear its own costs and
attorney's and witness' fees incurred in connection with the arbitration;
provided that the prevailing party may be awarded the reasonable costs and
fees incurred in connection with the arbitration at the discretion of the
arbitrator. A disputed performance or suspended performances pending the
resolution of the arbitration must be completed within thirty (30) days
following the final decision of the arbitrators or such other reasonable
period as the arbitrators determine in a written opinion. Any arbitration
subject to this Paragraph 14 shall be completed within one (1) year from
the filing of notice of a request for such arbitration. The arbitration
proceedings and the decision shall not be made public without the joint
consent of the Parties and each Party shall maintain the confidentiality
of such proceedings and decision unless (a) otherwise permitted by the
other Party or (b) otherwise required by the applicable law in which case
the Provisions of Article IX Paragraph 1.2.4. shall be applicable. The
Parties agree that the decision shall be the sole, exclusive and binding
remedy between them regarding any and all disputes, controversies, claims
and counterclaims presented to the arbitrators. Application may be made to
any court having jurisdiction over the Party (or its assets) against whom
the decision is rendered for a judicial recognition of the decision and an
order of enforcement.
<PAGE> 28
15. Withholding
Any income or other taxes which IOMED is required by law to pay or
withhold on behalf of DDS with respect to royalties and any other moneys
payable to DDS under this Agreement shall be deducted from the amount of
such royalties and moneys due. IOMED shall furnish DDS with proof of such
payments. Any such tax required to be paid or withheld shall be an
expense of and borne solely by DDS. IOMED shall promptly provide DDS with
a certificate or other documentary evidence to enable DDS to support a
claim for a refund or a foreign tax credit with respect to any such tax so
withheld or deducted by IOMED. Both Parties will reasonably cooperate in
completing and filing documents required under the provisions of any
applicable tax treaty or under any other applicable law, in order to
enable IOMED to make such payments to DDS without any deduction or
withholding.
16. Indemnity
16.1. DDS shall indemnify, defend and hold harmless IOMED from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorneys' fees) to which IOMED is or may become subject
insofar as they arise out of or are alleged or claimed to arise out of any
breach by DDS of any of its obligations under this Agreement or warranties
of DDS.
16.2. IOMED shall indemnify, defend and hold harmless DDS from all actions,
losses, claims, demands, damages, costs and liabilities (including
reasonable attorney's fees) to which DDS is or may become subject insofar
as they arise out of or are alleged or claimed to arise out of any
breach by IOMED of any of its obligations under this Agreement or
warranties of IOMED. IOMED shall assume the sole and entire
responsibility and shall indemnify and save harmless DDS from any and all
claims, liabilities, expenses, including reasonable attorney's fees,
responsibilities and damages by reason of any claim, proceedings, action,
liability or injury arising out of any defect in the PRODUCTS, including
the manufacture, transport, packaging, storage, handling, distribution,
marketing or sale of the PRODUCTS by IOMED.
16.3. As a condition of obtaining an indemnity in the circumstances set out
above, the Party seeking an indemnity shall.
16.3.1. fully and promptly notify the other Party of any claim or
proceeding, or threatened claim or proceeding;
16.3.2. permit the indemnifying Party to take full care and control of
such claim or proceeding;
16.3.3. assist in the investigation and defence of such claim or
proceeding;
16.3.4. not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which
consent shall not be unreasonably withheld; and
16.3.5. take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
<PAGE> 29
16.4. Notwithstanding anything to the contrary in this Agreement, DDS and IOMED
shall not be liable to the other by reason of any representation or
warranty, condition or other term or any duty of common law, or under the
express terms of this Agreement, for any consequential or incidental loss
or damage (whether for loss of profit or otherwise) and whether occasioned
by the negligence of the respective Parties, their employees or agents or
otherwise.
17. Entire Agreement
17.1. This Agreement including its Appendices, together with the ELAN
AGREEMENT, the Note Purchase and Warrant Agreement and Registration Rights
Agreement being entered into between Elan International Services Limited,
Elan International Management Limited and IOMED, the Promissory Note and
Secured Promissory Note being issued by IOMED to Elan International
Management Limited and the further documents referred to therein, each of
which are being executed of even date herewith, set forth the entire
agreement and understanding of the Parties with respect to the subject
matter hereof, and supersedes all prior discussions, agreements and
writings in relating thereto, including the letter of agreement of 31st
March 1997.
17.2. The Parties agree that the obligations of IOMED to provide access to the
NDAs pursuant to Article V Paragraph 1 to DDS shall be discharged if such
access is provided to ELAN pursuant to the equivalent provisions of the
ELAN AGREEMENT.
17.3. The Parties agree that the obligations of IOMED to furnish the
documentation and information to DDS pursuant to the provisions of Article
II Paragraph 7, shall be discharged by furnishing such documentation to
ELAN pursuant to the equivalent provisions of the ELAN AGREEMENT.
<PAGE> 30
17.4. The Parties agree that the obligations of IOMED to obtain the prior
written consent of IOMED pursuant to Article II Paragraphs 2.1. or 2.2.
shall be satisfied by obtaining the consent of ELAN pursuant to the
equivalent provisions of the ELAN AGREEMENT.
17.5. The Parties agree that DDS's right of access and audit in any particular
calendar year pursuant to Article IV Paragraph 3.4. shall be exhausted if
such rights are exercised by ELAN pursuant to the equivalent provisions of
the ELAN AGREEMENT; provided that nothing in this Paragraph shall limit or
restrict DDS's rights to seek an adjustment to the royalties payable,
whether by agreement between the Parties or pursuant to arbitration.
17.6. The Parties agree that the obligations of IOMED to obtain the prior
written consent of DDS pursuant to Article IX Paragraph 3 shall be
satisfied by obtaining the consent of ELAN pursuant to the equivalent
provisions of the ELAN AGREEMENT. In addition the Parties agree that the
right of DDS to exercise its rights to conduct appropriate due diligence
and to make an offer as envisaged by Article IX Paragraph 3 shall be
discharged by the exercise of such rights by ELAN pursuant to the
equivalent provisions of the ELAN AGREEMENT. In the event that an
OFFERING PARTY consummates a Control Transaction (as defined in Article IX
Paragraph 3) without the consent of the IOMED's Board of Directors (as
such Board is comprised at the time such transaction is first publicly
announced or commenced) (including without limitation, in connection with
a tender offer or offers or proxy solicitation), and in the event that
ELAN determines at its sole discretion that it shall not terminate the
licenses granted by ELAN pursuant to the ELAN AGREEMENT, DDS shall be
deemed to have elected not to have terminated the licenses granted by DDS
pursuant to this Agreement.
18. Counterparts
This Agreement may be executed in two counterparts, each of which shall be
deemed an original and which together shall constitute one instrument.
<PAGE> 31
IN WITNESS WHEREOF the Parties hereto have executed this Agreement in duplicate.
Signed by IOMED on _____ April, 1997.
By: ________________________________
Name: ______________________________
Title: _____________________________
Executed by DDS ______ April, 1997.
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE> 32
[ELAN LOGO]
APPENDIX A
DDS IONTOPHORETIC PATENT RIGHTS
<PAGE> 33
PROPRIETARY & CONFIDENTIAL INFORMATION
SUMMARY OF DDS'S PENDING PATENT APPLICATIONS
FOR IONTOPHORETIC TECHNOLOGY
****
<PAGE> 34
PROPRIETARY & CONFIDENTIAL INFORMATION
****
*indicates claims have been allowed
Europe(4) indicates the designation of the following countries: Germany,
France, Great Britain and Italy
Europe(10) = Europe(4) + Austria, Belgium, Switzerland/Liechtenstein,
Luxembourg, Netherlands & Sweden
Europe(12) = Europe(10) + Greece & Spain
Europe(13) = Europe(12) + Denmark, Portugal & Monaco
Europe(15) = Europe(13) + Ireland
<> This file is the subject of an opposition proceeding in the Japanese Patent
Office. The opposer is Hiroyuki Shigero, and individual. We filed our answer
and supporting documents to the opposition in November 1995 and await further
action from the Japanese Patent Office.
<PAGE> 35
DOCKET FAMILY: P1
[ELAN LOGO] ART = PANODERM
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 31850/84 563137
64.P-1.AU August 13, 1994 October 2, 1987
- ----------------------------------------------------------------------------------------------------------
CANADA DDS 461304 1224993
84.P-1.CA August 17, 1984 August 4, 1987
- ----------------------------------------------------------------------------------------------------------
EPO DDS 84109840.3 147524
84.P-1.EP(10) August 17, 1984 July 10, 1985 August 8, 1989
- ----------------------------------------------------------------------------------------------------------
JAPAN DDS 171396/1984 1764538
84.P-1.JP August 17, 1984 June 9, 1992 May 20, 1993
- ----------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 4970/84 67091
84.P-1.KR August 17, 1984 June 15, 1993 June 15, 1993
- ----------------------------------------------------------------------------------------------------------
MEXICO DDS 202435 158181
84.P-1.MX August 17, 1984 January 13, 1989
- ----------------------------------------------------------------------------------------------------------
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation PANODERM ISSUED PATENTS 3:39:06 PM
</TABLE>
<PAGE> 36
DOCKET FAMILY: P-1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAIWAN DDS 73113316 30312
84.P-1.71 August 10, 1984 September 11, 1988 September 11, 1988
- ----------------------------------------------------------------------------------------------------------
UNITED STATES DDS 524,252 4,557,723
83.P-1.US August 18, 1983 December 10, 1985
- ----------------------------------------------------------------------------------------------------------
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Lichtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation PANODERM ISSUED PATENTS 2:39:08 PM
</TABLE>
<PAGE> 37
DOCKET FAMILY: P-2
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 660,192 4,862,031
84.P-2.US October 12, 1984 November 11, 1986
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 822,518 4,713,050
86.P-2 C.US October 24, 1986 December 15, 1987
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 38
DOCKET FAMILY: P-3
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 38352/85 580585
65.P-3.AU January 17, 1985 July 17, 1986 January 17, 1985
- ------------------------------------------------------------------------------------------------------
CANADA DDS 474498 1226777
85.P-3.CA February 15, 1985 September 15, 1985
- ------------------------------------------------------------------------------------------------------
EPO DDS 85112811.4 178,601 178601
65.P-3.EP(10) October 17, 1986 April 23, 1986 August 11, 1983
- ------------------------------------------------------------------------------------------------------
ITALY DDS 47885A/85 1186798
85.P-3.IT February 14, 1985
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 219971/1985 1825721
85.P-3.JP October 2, 1985 June 4, 1983 March 16, 1994
- ------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 7418/85 73321
65.P-3.KR October 5, 1985 January 5, 1994 May 3, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
PANODERM ISSUED PATENTS
<PAGE> 39
DOCKET FAMILY: P-3
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEXICO DDS 204285 161423
85.P-3.MX February 11, 1985 September 24, 1990
- -------------------------------------------------------------------------------------------------------
TAIWAN DDS 75201891 33845
85.P-3.TI February 12, 1985 November 18, 1988 November 18, 1988
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 778,183 4,708,716
85.P-3.US August 16, 1985 November 24, 1987
- -------------------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Lichtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 40
DOCKET FAMILY: P-4
[ELAN LOGO]
ART = PANODERM
*
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER OF
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
AUSTRALIA DDS 60222/86 597890
86.P-4.AU July 16, 1988 June 14, 1990 July 16, 1988
- --------------------------------------------------------------------------------------------
CANADA DDS 614514 1287665
86.P-4.CA July 23, 1986 August 13, 1991
- --------------------------------------------------------------------------------------------
EPO DDS 86110164.0 240593
86.P-4.EP(10) July 24, 1998 October 14, 1987 May 10, 1993
- --------------------------------------------------------------------------------------------
SPAIN DDS 8801519 6801519
86.P-4.ES May 18, 1983 June 5, 1989
- --------------------------------------------------------------------------------------------
JAPAN DDS 186,721/1988 1921999
86.P-4.JP August 8, 1986 April 7, 1995
- --------------------------------------------------------------------------------------------
SOUTH KOREA DDS 6303/86 100,195
86.P-4.KR July 31, 1986 December 27, 1995 June 3, 1996
- --------------------------------------------------------------------------------------------
</TABLE>
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 41
DOCKET FAMILY: P-4
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
MEXICO DDS 3577 172928
86.P-4.MX August 20, 1996 January 24, 1994
- --------------------------------------------------------------------------------------------
TAIWAN DDS 79203115 58937
80.P-4.TI July 16,1985 August 21, 1990 August 21, 1990
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 839,050 4,840,669
86.P-4C.US March 12, 1988 February 3, 1987
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 196,663 4,919,649
86.P-4C2.US May 20, 1988 April 24, 1990
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 196,664 4,921,475
86.P-4C3.US May 20, 19$$ May 1, 1990
- --------------------------------------------------------------------------------------------
UNITED STATES DDS 426,476 5,087,240
86.P-4C5.US October 30, 1989 February 11, 1992
- --------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Lischtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 42
DOCKET FAMILY: P-5
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 44943/85 591672
85.P-5.AU June 10, 1985 June 10, 1985
- ------------------------------------------------------------------------------------------------------
CANADA DDS 509791 1279542
86.P-5.CA May 22, 1984 January 29, 1991
- ------------------------------------------------------------------------------------------------------
EPO DDS 85903470.4 225672
85.P-5.EP(10) June 10, 1985 September 2, 1992
- ------------------------------------------------------------------------------------------------------
SPAIN DDS 8801520 8801520
88.P-5.ES May 16, 1985 May 3, 1989
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 502839/1985(S60) 2016549
85.P-5.JP June 10, 1985 February 19, 1995
- ------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 700091/87 27793
87.P-5.KR February 2, 1987 November 28, 1985 April 20, 1989
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 43
DOCKET FAMILY: P-5
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEXICO DDS 2747 169673
86.P-5.MX June 5, 1989 July 19, 1993
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 79202103 58100
87 P-5.TI January 12, 1987 October 11, 1990 October 11, 1990
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 711,589 5,135,479
91.P-5 C3.US June 5, 1991 August 4, 1992
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 711,590 5,224,928
91.P-5 C4.US June 5, 1991 July 5, 1993
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 08/381,141 5,591,123
91.P-5 C6.US January 10, 1995 January 7, 1997
P-1
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 44
Docket Family: P-6
Art = Pandoderm
[ELAN LOGO]
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 44944/85 582764
85.P-6 .AU June 10, 1985 June 10, 1985
- -------------------------------------------------------------------------------------------------------
CANADA DDS 509801 1277882
86.P-6 .CA May 23, 1986 December 10, 1990
- -------------------------------------------------------------------------------------------------------
EPO DDS 85903469.6 225,871 225871
85.P-6 .EP(10) June 10, 1985 June 24, 1987 March 14, 1990
- -------------------------------------------------------------------------------------------------------
JAPAN DDS 502861/1985 1802335
85.P-8 .JP June 10, 1985 October 13, 1982 November 26, 1993
- -------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 87700089 26954
88.P-6 .KR September 12, 1988 September 12, 1988
- -------------------------------------------------------------------------------------------------------
MEXICO DDS 2748 168830
86.P-6 .MX June 9, 1986 June 2, 1993
- -------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 45
Docket Family: P-6
<TABLE>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTS FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAIWAN DDS 76100076 30926
87.P-6 .TI January 12, 1987 December 11, 1988
UNITED STATES DDS 000,554 4,808,152
87.P-6 .US DDS January 6, 1987 February 28, 1989
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy
Luxembourg, Netherlands, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 46
Docket Family: P-7
[ELAN LOGO]
Art=Panoderm
****
<TABLE>
<CAPTION>
Control Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Census Date
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 66193/88 591738
86.P-7 .AU December 8, 1988 December 8, 1986
- -------------------------------------------------------------------------------------------------------
AUSTRALIA DDS 16550/88 618734
88.P-7 DIV.AU May 24, 1988 May 24, 1988
- -------------------------------------------------------------------------------------------------------
AUSTRALIA DDS 65713/81 533228
91.P-7 DIV2.AU October 10, 1991 November 25, 1992
- -------------------------------------------------------------------------------------------------------
CANADA DDS 524873 1267340
85.P-7 .CA December 10, 1985 April 3, 1990
- -------------------------------------------------------------------------------------------------------
CANADA DDS 568748 1322921
88.P-7 DIV.CA June 8, 1988 October 12, 1993
- -------------------------------------------------------------------------------------------------------
COLUMBIA DDS 263611 22484
86.P-7 .CO December 5, 1989 April 27, 1990
- -------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 47
Docket Family: P-7
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLUMBIA DDS 287287 24152
88.P-7 .CO June 5, 1988 September 8, 1989 July 6, 1993
- -----------------------------------------------------------------------------
EPO DDS 86116547.0 225556
86.P-7 .EP November 28, 1988 June 16, 1987 January 23, 1992
- -----------------------------------------------------------------------------
SPAIN DDS 6861521 8801521
88.P-7 .ES May 18, 1986 May 18, 1996
- -----------------------------------------------------------------------------
JAPAN DDS 293319/1986 1964597
86.P-7 .JP December 9, 1986 December 7, 1984 August 25, 1996
- -----------------------------------------------------------------------------
SOUTH KOREA DDS 10126/86 3/25/94 76691
86.P-7 .KR November 28, 1984 April 21, 1994
- -----------------------------------------------------------------------------
SOUTH KOREA DDS 6772/88 107098
88.P-7 DIV.KR June 4, 1986 August 17, 1994
- -----------------------------------------------------------------------------
MEXICO DDS 4602 171173
86.P-7 .MX December 9, 1986 October 8, 1993
- -----------------------------------------------------------------------------
MEXICO DDS 11766 175067
88.P-7 DIV.MX June 3, 1988 July 4, 1994
- -----------------------------------------------------------------------------
TAIWAN DDS 75105482 30365
86.P-7 .TI November 18, 1986 October 1, 1990
- -----------------------------------------------------------------------------
UNITED STATES DDS 807,234 4,731,926
85,P-7 .US December 10, 1985 March 22, 1988
- -----------------------------------------------------------------------------
UNITED STATES DDS 58,527 4,083,457
87.P-7 C.US June 6, 1987 November 28, 1989
- -----------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:08 PM
<PAGE> 48
DOCKET FAMILY: P-7
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
UNITED STATES 105,869 4,856,188
87.P-7 C1.US DDS OCTOBER 7, 1997 AUGUST 15, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES 169,385 4,665,582
88.P-7 C2.US DDS MARCH 17, 1998 SEPTEMBER 12, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES 380,196 5,167,617
89.P-7 C3.US DDS JULY 14, 1992 DECEMBER 1, 1992
- ------------------------------------------------------------------------------------------------------
UNITED STATES 949,721 5,358,483
92.P-7 C4.US DDS SEPTEMBER 23, 1992 OCTOBER 25, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(8) FRANCE, GERMANY, GREAT BRITAIN, ITALY, SWEDEN, SWITZERLAND & LIECHTENSTEIN
PANODERM ISSUED PATENTS
INTELLECTUAL PROPERTY DEPARTMENT MARCH 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:39:06 P.M.
<PAGE> 49
DOCKET FAMILY: P-9
[ELAN LOGO]
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA 75633/87 586382
87.P-9 .AU DDS JULY 14, 1987 JULY 14, 1987
- ----------------------------------------------------------------------------------------------------------------------------------
CANADA 540624-2 1274738
87.P-9 .CA DDS JUNE 25, 1987 OCTOBER 2, 1990
- ----------------------------------------------------------------------------------------------------------------------------------
EPO 87110049.1 254,166 254166
87.P-9 .EP (10) DDS JULY 11, 1987 MARCH 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
JAPAN 176935/1987 1922042
87.P-9 .JP DDS JULY 15, 1987 APRIL 7, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
MEXICO 7418 166018
87.P-9 .MX DDS JULY 17, 1987 DECEMBER 16, 1992
- ----------------------------------------------------------------------------------------------------------------------------------
TAIWAN 78103514 38185
87.P-9 .TI DDS JUNE 18, 1987 APRIL 1, 1990
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTELLECTUAL PROPERTY DEPARTMENT MARCH 3, 1997
ELAN PHARMACEUTICAL RESEARCH CORPORATION 2:39:08 PM
PANODERM ISSUED PATENTS
<PAGE> 50
DOCKET FAMILY: P-9
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
UNITED STATES 886,151 4,734,090
86.P-9.US DDS July 18, 1986 March 29, 19$$
- --------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Liechtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 51
DOCKET FAMILY: P-10
[ELAN LOGO]
ART-PANODERM
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 10986/88 6097699
86.P-10.AU January 30, 1988 January 29, 1988
- ------------------------------------------------------------------------------------------------------
CANADA DDS 558559 1319608
86.P-10.CA February 10, 1993 JUNE 29, 1993
- ------------------------------------------------------------------------------------------------------
EPO DDS 88101856.8 278473 278473
88.P-10.3P(11) February 9, 1993 August 17, 1992 August 5, 1992
- ------------------------------------------------------------------------------------------------------
MEXICO DDS 10386 168981
86.P-10.MX February 10, 1993 June 16, 1993
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 77100550 32711
88.P-10.TI January 2, 1993 June 1, 1993
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 279,315 4,940,456
88.P-10 C.US December 1, 1990 July 10, 1990
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(11) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Spain, Sweden, Switzerland & Liechtenstein
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 52
DOCKET FAMILY: P-11
[ELAN LOGO]
ART-PANODERM
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 10984/88 10,984 608278
88.P-11.AU January 20, 1988 August 11, 1988 January 28, 1988
- ------------------------------------------------------------------------------------------------------
CANADA DDS 558559 1317679
88.P-11.CA February 10, 1993 May 18, 1993
- ------------------------------------------------------------------------------------------------------
EPO DDS 88101857.6 278,474 278474
88.P-11.3P(10) February 9, 1988 August 17, 1988 March 27, 1996
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 26618/1988 1922056
88.P-11.JP February 9, 1988 April 7, 1995
- ------------------------------------------------------------------------------------------------------
MEXICO DDS 10367 165338
88.P-11.MX February 10, 1988 November 8, 1997
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 77100544 32616
88.P-11.TI February 10, 1987 October 7,1989
- ------------------------------------------------------------------------------------------------------
</TABLE>
Intellectual Property Department March 3, 1997
Elan Pharmaceutical Research Corporation 2:39:06 PM
PANODERM ISSUED PATENTS
<PAGE> 53
DOCKET FAMILY: P-11
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 12,889 4,678,892
87.P-11.US February 10, 1987 November 7, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 430,067 5,032,109
89.P-11 C1.US November 1, 1989 July 16, 1991
- ------------------------------------------------------------------------------------------------------
</TABLE>
EP(10) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:30:08 PM
<PAGE> 54
DOCKET FAMILY: P-12
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 12667/88 510133
88.P-12.AU March 7, 1988 May 16, 1991 March 7, 1991
- ------------------------------------------------------------------------------------------------------
CANADA DDS 560596 1317522
88.P-12.CA March 4, 1988 May 11, 1993
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 63041/1988 1907603
88.P-12.JP March 16, 1988 December 1, 1993 February 24, 1995
- ------------------------------------------------------------------------------------------------------
MEXICO DDS 10835 173932
88.P-12.MX March 10, 1988 April 11, 1994
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 77101547 35925
88.P-12.TI March 10, 1988 November 3, 1989 December 21, 1989
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 453,045 5,163,899
89.P-12 C1.US December 12, 1989 November 17, 1992
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 55
DOCKET FAMILY: P-13
[ELAN LOGO] Art = Panoderm
****
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRALIA DDS 18125/88 615188
88.P-13.AU May 13, 1988 May 13, 1988
- ------------------------------------------------------------------------------------------------------
CANADA DDS 587175 1299457
88.P-13.CA May 10, 1989 April 28, 1992
- ------------------------------------------------------------------------------------------------------
EPO DDS 86108314.1 292,930 292930
88.P-13.EP(12) May 25, 1988 November 30, 1988 November 2, 1995
- ------------------------------------------------------------------------------------------------------
JAPAN DDS 128136/1988 1922069
88.P-13.JP May 25, 1989 April 7, 1995
- ------------------------------------------------------------------------------------------------------
SOUTH KOREA DDS 6294/88 107097
88.P-13.KR May 27, 1988 August 17, 1996
- ------------------------------------------------------------------------------------------------------
TAIWAN DDS 79202278 81218
88.P-13.TI May 16, 1989 February 11, 1991 February 11, 1991
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 56
DOCKET FAMILY: P-13
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 438,118 5,013,293
89.P-13 C2.US NOVEMBER 13, 1988 MAY 7, 1991
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 598,803 5,312,325
90.P-13 C3.US OCTOBER 4, 1990 MAY 17, 1994
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 864,544 5,326,454
92.P-13 C5.US APRIL 7, 1992 JULY 12, 1994
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 864,645 5,336,168
92.P-13 C4.US April 7, 1992 AUGUST 9, 1994
- -------------------------------------------------------------------------------------------------------
UNITED STATES DDS 08/204,784 5,372,168
94.P-13 C6.US MARCH 2, 1994 DECEMBER 13, 1994
- -------------------------------------------------------------------------------------------------------
</TABLE>
EP(12) Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
Netherlands, Spain, Sweden, Switzerland & Liechtenstein
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 57
DOCKET FAMILY: P-15
[ELAN LOGO] ART = OTHER
*
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 234,258 4,900,414
88.P-15.US AUGUST 19, 1988 FEBRUARY 13, 1990
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 58
DOCKET FAMILY: P-16
[ELAN LOGO] Art = Panoderm
*
<TABLE>
<CAPTION>
COUNTRY/ ASSIGNEE/ APPLICATION NO./ PUBLICATION NUMBER/ PATENT NUMBER/
DOCKET NO. PATENTEE FILING DATE PUBLICATION DATE PATENT ISSUE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISRAEL DDS 100794 100794
92.P-18.IL JANUARY 28, 1992 MAY 1, 1996
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 287,348 5,088,977
88.P-18.US DECEMBER 27, 1989 FEBRUARY 16, 1992
- ------------------------------------------------------------------------------------------------------
UNITED STATES DDS 823,686 5,328,453
92.P-16.US FEBRUARY 12, 1992 JULY 12, 1994
- ------------------------------------------------------------------------------------------------------
</TABLE>
PANODERM ISSUED PATENTS
Intellectual Property Department
Elan Pharmaceutical Research Corporation
March 3, 1997
2:39:08 PM
<PAGE> 59
Docket Family: P-17
[ELAN LOGO]
ART=PANODERM
****
<TABLE>
<CAPTION>
Country/ Assignee/ Application No./ Publication Number/ Patent Number/
Docket No. Patentee Filing Date Publication Date Patent Issue Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES DDS 349,996 5,135,478
89.P-17 .US May 10, 1989 August 4, 1992
UNITED STATES DDS 08/023,463 5,328,452
93.P-17 C1.US February 25, 1993 July 12, 1994
</TABLE>
<PAGE> 60
[ELAN LOGO]
APPENDIX D
IOMED CURRENT PRODUCT
<PAGE> 1
EXHIBIT 10.10
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION.
LICENSE AGREEMENT
THIS AGREEMENT is made upon the 27th day of December, 1996 and shall be
effective as of January 1, 1997, by and between IOMED, INC., a Utah corporation
("Iomed"), and FILLAUER, INC., a Delaware corporation (the "Licensee"). Iomed
and the Licensee are referred to herein individually as a "Party," and
collectively as the "Parties".
RECITALS:
A. On the effective date of that certain Asset Acquisition Agreement
between the Parties, of even date herewith (the "Purchase Agreement"), the
Licensee has purchased from Iomed certain assets of Iomed's Motion Control
Division ("Motion Control").
B. Iomed is the exclusive licensee or the owner of certain patented and
unpatented technology, trade secrets, trademarks and trade names which are
utilized by Motion Control in connection with its business of the manufacture
and sale of certain prosthetic devices (the "Business").
C. The Purchase Agreement contemplates that Iomed will grant to the
Licensee an exclusive license to such technology, trademarks and trade names,
in order to permit the Licensee to continue to operate the Business.
D. The Parties desire to enter into this Agreement in order to fulfill the
requirements of the Purchase Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals 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:
160812.1
<PAGE> 2
1. LICENSES.
(a) On the effective date of this Agreement, Iomed herewith grants to the
Licensee an exclusive world-wide, royalty bearing sublicense in and to the
rights of Iomed to utilize the United States Letters Patent identified on
Exhibit "A" hereto (which is incorporated herein by reference), for the use,
manufacture and sale of those prosthetic devices described on Exhibit "B"
hereto (which is incorporated herein by reference), as granted to Iomed by that
certain License Agreement, dated October 1, 1992 (the "University License"),
between Iomed and the University of Utah Research Foundation. The United
States Letters Patent described on Exhibit "A" hereto are referred to herein as
the "University Patents," the products described on Exhibit "B" hereto,
together with any improvements or additions thereto developed by the Licensee
or its "Sublicensees" (as hereinafter defined) after the effective date of this
Agreement, are referred to herein as the "University Products," and the
sublicense granted by this paragraph 1(a) is referred to herein as the
"Sublicense." The Sublicense shall be exclusive even as to Iomed; provided,
however, that the Licensee acknowledges that the University License reserves to
the University of Utah Research Foundation the right to utilize the University
Patents for educational and research purposes at the University of Utah. In no
event shall any use of the University Patents by the University of Utah
Research Foundation be deemed or construed to constitute a breach of this
Agreement by Iomed.
(b) On the effective date of this Agreement, Iomed grants to the Licensee
an exclusive, world-wide, fee-bearing license (the "License") in and to all
patented and unpatented technology, trademarks, tradenames, know-how and trade
secrets owned or licensed by Iomed and which have been employed by Motion
Control in its conduct of the
2
160812.1
<PAGE> 3
Business, for the purpose of enabling the Licensee to develop, manufacture,
market and sell those products described on Exhibit "C" hereto (which is
incorporated herein by reference), together with any improvements or additions
thereto developed by the Licensee or its Sublicensees after the date of this
Agreement (collectively the "Iomed Products"). Such Iomed technology (the
"Iomed Technology") is more particularly described on Exhibit "D" hereto, which
is incorporated herein by reference. The License shall be exclusive even as to
Iomed.
(c) Pursuant to the Sublicense and the License, the Licensee shall have
the right to grant further sublicenses in and to the University Patents and the
Iomed Technology to persons or entities owned by, or under common control with,
the Licensee (collectively "Sublicensees"). Otherwise, the Licensee may not
sublicense, sell, assign or transfer the Sublicense or the License without the
prior written consent of Iomed. No Sublicensee shall have the right to further
sublicense its rights under either the University Patents or the Iomed
Technology.
2. ROYALTY AND LICENSE FEE.
(a) In consideration of the grant of the Sublicense, the Licensee shall
pay to Iomed an earned royalty of one and one-half percent (1.5%) (the
"Royalty") of all "Net Sales Proceeds (as hereinafter defined) received by the
Licensee or its Sublicensees from all sales of the University Products which
are made between the effective date of this Agreement and ******************
(the "Royalty Period"). Following the Royalty Period, no royalties, fees or
other payments shall be due Iomed as the result of or in connection with the
sale by the Licensee or any of its Sublicensees, of the University Products or
any
3
160812.1
<PAGE> 4
other products which incorporate or utilize any of the technology which is the
subject of the University Patents or which is otherwise covered by the
Sublicense.
(b) As consideration for the License, the Licensee shall pay to Iomed, in
lieu of any royalty or other payment, a license fee (the "License Fee") *****
************************************************************* received by the
Licensor, or its Sublicensees, from all sales of Iomed Products which are made
between the effective date of this Agreement and January 1, 2004 (the "Fee
Period"). Following the Fee Period, no license fee or other payment (other
than the Royalty specified in paragraph 2(a) hereof to the extent applicable)
shall be due or payable to Iomed by the Licensee or any of its Sublicensees as
a result of or in connection with the manufacture or sale of the Iomed Products
or any other product which incorporates any of the Iomed Technology.
(c) As used in this Agreement, the term "Net Sales Proceeds" shall mean
***********************************************************************
****************************************************************************
***********************************************************************
****************************************************************************
************************************************************************
*********************************************************************
********************************************************
(d) In the event that a University Product or an Iomed Product is sold by
the Licensee or by one of its Sublicensees to a person, firm or entity which is
owned or controlled by or is under common control with the Licensee or such
Sublicensee, then the Royalty or the License Fee, as appropriate, which shall
be due and payable to Iomed as the result of such sale shall be calculated on
4
160812.1
<PAGE> 5
***************************************************************************
****************************, or (ii) **************************************
*************************************************************************
***************************************************************.
3. PAYMENT OF ROYALTY AND LICENSE FEE.
(a) The Royalty and the License Fee shall be paid to Iomed by the Licensee
*********. Payment of the Royalty and License Fee shall be made within *******
of the final day of each **************** during the Royalty Period or the
License Fee Period, as appropriate. Each such payment shall be accompanied by
a report, certified by the Chief Financial Officer of the Licensee setting
forth the total number of each of the University Products and the Iomed
Products sold by the Licensee or its Sublicensees during the ****************
in question, together with a statement as to the manner in which the Net Sales
Proceeds from such sales was calculated.
(b) All Royalty and License Fee payments shall be made in United States
Dollars. Any currency exchange adjustments required by reason of the sale of
the University Products or the Iomed Products outside the United States shall
be made as of the last business day of the **************** during which the
Royalty or License Fee was earned, and shall be based upon the exchange rate
for the currency in question quoted by The Wall Street Journal on the last
business day of such calendar quarter.
(c) Notwithstanding any provision of this Agreement to the contrary, in
the event that, on any of the first five anniversary dates of the effective
date of this Agreement, Iomed shall not have received, during the immediately
proceeding twelve-month period, License Fees in the amount of at least ****
********, the Licensee shall pay to Iomed,
5
160812.1
<PAGE> 6
within 30 days of such anniversary date, the difference between *************
and the amount of the License Fees actually received by Iomed during such
twelve-month period.
4. RECORDS AND AUDIT RIGHTS.
(a) The Licensee shall keep and maintain, and shall cause and require each
of its Sublicensees to keep and maintain, accurate books and records concerning
the manufacture and sale of the University Products and the Iomed Products,
including purchase orders, shipping invoices, records of returned goods, and
records detailing the costs incurred by the Licensee or its Sublicensees in
making such sales and all payments received by the Licensee and the
Sublicensees as a result of such sales. Such books and records shall be
sufficiently detailed to enable to Licensee to calculate, in accordance with
generally accepted accounting principles, the Net Sales Proceeds received by
the Licensee and the Sublicensees from their sale of the University Products
and the Iomed Products, and to determine the amount of the required Royalty and
License Fee payments. Iomed shall have access to and the right, upon
reasonable notice, to inspect and audit such books and records in order to
verify the correctness of the Royalty and License Fees paid by the Licensee.
Any such audit shall be conducted by an accounting firm selected by Iomed.
(b) If Iomed causes the books and records of the Licensee or of any of the
Sublicensees to be audited, and such audit establishes that the Licensee did
not pay to Iomed the full amount of the Royalty or License Fee actually due for
the period covered by such audit, the Licensee shall immediately pay to Iomed
all additional amounts due, plus interest thereon at the rate of *******
**********************************************************. If such audit
establishes that the Licensee has underpaid the Royalty or License
6
160812.1
<PAGE> 7
Fee by ***************** or more during the period covered by the audit, the
Licensee shall reimburse Iomed, upon demand, for all costs and expenses of such
audit.
5. PRODUCT LIABILITY INDEMNIFICATION. Iomed does not make or give, and
hereby specifically disclaims, any warranty, express or implied, concerning the
University Products or the Iomed Products, including but not limited to the
warranties of merchantability or fitness for a particular purpose. As to all
University Products and Iomed Products that are sold or distributed on or after
the effective date of this Agreement, the Licensee hereby agrees to indemnify
and hold Iomed harmless from and against, and hereby assumes liability for the
payment of, any loss, liability or damage and for all costs and expenses,
(including reasonable costs of investigation and reasonable attorneys,
accountants and expert witness fees) of whatever kind and type that may be
imposed upon, suffered or incurred by or asserted against Iomed as a
consequence of or in connection with any liability from or relating to the use
of the University Products or the Iomed Products by customers of the Licensee
or its Sublicensees, or by the ultimate end-users of such University Products
and Iomed Products.
6. PATENT AND TRADEMARK MATTERS.
(a) The Licensee shall diligently prosecute and maintain all of the
patents, trademarks and tradenames specified on Exhibits "A" and "D" hereto
(collectively, the "Patents and Marks") using counsel of its choice and at its
sole cost and expense. If, for any reason, the Licensee elects to abandon the
prosecution, maintenance or reinstatement of any of the Patents and Marks, it
will promptly notify Iomed of such election and, in any event, shall provide
such notice in sufficient time to allow Iomed to comply with its obligations
under Article 9 of the University License.
7
160812.1
<PAGE> 8
(b) If either Party learns that any claim or suit (an "Action") has been
made or brought for patent, trademark or other infringement as the result of
the manufacture or sale of the University Products or the Iomed Products, such
Party shall promptly notify the other Party of such action. The Licensee shall
have the first right, but not the obligation, to defend and to control the
defense of such Action, at its expense. Iomed will assist the Licensee,
without cost to the Licensee, in the defense of such Action by providing
information and fact witnesses to the extent reasonably available. Iomed shall
have the right to be represented in such Action by its own legal counsel, at
its own expense, provided that such legal counsel will act only in an advisory
capacity. If Licensee elects not to defend such claim, it shall so notify
Iomed, in writing, and Iomed shall, thereafter, have the right and option, but
not the obligation, to defend and control the defense of such Action or the
settlement thereof.
(c) If either Party learns of any infringement of the Patents and Marks by
a third party, or of another improper or illegal use of the technology covered
by the Sublicense or the License, such Party shall promptly notify the other of
the alleged infringement, in writing. The Licensee shall have the first right
to settle with or institute legal action against the alleged infringer. Any
monies or other benefits which are recovered through such settlement or legal
action shall be retained by the Licensee. If the Licensee does not initiate
settlement or legal action within 60 days after its receipt of notice of the
alleged infringement, then Iomed shall have the right to settle with or
institute legal action against the alleged infringer and to retain all monies
or other benefits which are recovered through such action.
8
160812.1
<PAGE> 9
7. REPRESENTATIONS AND WARRANTIES OF IOMED. Iomed represents and warrants
to the Licensee as follows:
(a) Iomed is a corporation duly organized, validly existing and in good
standing under the laws of the State of Utah, and has the full legal right and
corporate power and authority to enter into this Agreement and to perform all
of its obligations under this Agreement.
(b) Iomed has taken all corporate action which is necessary, required or
appropriate to authorize and enable it to enter into and perform this
Agreement.
(c) This Agreement, when executed and delivered by both of the Parties,
will constitute a valid and binding legal obligation of Iomed.
(d) The University License is in full force and effect upon the effective
date of this Agreement and, to the knowledge of Iomed, neither the grant of the
Sublicense nor the utilization of the Sublicense by the Licensee in the manner
contemplated herein will result in any breach or violation of the University
License.
(e) No person or entity has made any claims or threatened that Iomed's use
and application of the University Patents or the Iomed Technology in connection
with the Business is in violation or infringement of any patent, patent
license, trade name, trademark, servicemark, know-how, formula or other
proprietary or trade rights of such third party.
(f) To the best knowledge of Iomed, neither the University Patents nor the
Iomed Technology infringe any patent rights, copyrights, trade secret rights or
other proprietary rights of any third party.
9
160812.1
<PAGE> 10
8. REPRESENTATIONS AND WARRANTIES OF THE LICENSEE. The Licensee
represents and warrants to Iomed as follows:
(a) The Licensee is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the full legal
right and corporate power and authority to enter into this Agreement and to
perform all of its obligations under this Agreement.
(b) The Licensee has taken all corporate action which is necessary,
required or appropriate to authorize or enable it to enter into and perform
this Agreement.
(c) This Agreement, when executed and delivered by both of the Parties,
will constitute a valid and binding legal obligation of the Licensee.
(d) Prior to its execution and delivery of this Agreement, the Licensee
received from Iomed, and has had the opportunity to review, a copy of the
University License.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Iomed, as set forth in paragraph 7 hereof, and the
representations and warranties of the Licensee, as set forth in paragraph 8
hereof, are true, correct and accurate as of the effective date of this
Agreement, and shall survive the execution of this Agreement for a period of
one year.
10. ADDITIONAL COVENANTS OF IOMED.
(a) During the entirety of the Royalty Period, Iomed will carry out all of
its obligations under the University License in a timely fashion and shall
otherwise take such commercially reasonable actions as may be necessary to
maintain the University License in full force and effect.
10
160812.1
<PAGE> 11
(b) Iomed shall hold the Licensee and its Sublicensees harmless from and
against any and all claims of or liabilities to the University of Utah Research
Foundation for amounts due under the University License as a result of or in
connection with the manufacture and sale of the University Products by the
Licensee in accordance with the terms of this Agreement.
11. ADDITIONAL COVENANTS OF THE LICENSEE.
(a) Within five days of the effective date of the grant of any sublicense
under the Sublicense or the License, the Licensee shall provide Iomed with
written notice of such grant. Such written notice shall include a complete
copy of the sublicense in question, and a statement as to the nature of the
relationship between the Licensee and the Sublicensee. Each such sublicense
shall require the Sublicensee to maintain the books and records called for by
paragraph 4 hereof, shall authorize Iomed to inspect and audit such books and
records in the manner set forth in paragraph 4 hereof, and shall obligate the
Sublicensee to maintain the confidentiality of the Iomed Technology.
(b) The Licensee shall not take any action under the Sublicense or the
License, or otherwise take or omit to take any action, which could reasonably
be expected to result in the breach or violation of the University License.
(c) Prior to the end of the Fee Period, the Licensee shall not merge or
consolidate with any other person or sell all or substantially all of its
assets to any person if (i) the resulting, surviving transferee entity fails to
assume all obligations of Licensee under this Agreement by operation of law or
pursuant to an agreement reasonably satisfactory to Iomed and (ii) the
creditworthiness of the resulting, surviving or transferee
11
160812.1
<PAGE> 12
entity (determined by Iomed in a commercially reasonable manner) is materially
weaker than that of the Licensee immediately prior to such transaction.
(d) Until the expiration of the Fee Period, the Licensee shall not declare
or pay any dividend on any of its issued or outstanding equity securities
unless, prior to such declaration or payment, it shall have either (i) paid to
Iomed, since the immediately prior anniversary of the effective date of this
Agreement, License Fees equal to at least *************, or (ii) created and
set aside a reserve fund sufficient to enable the Licensee to pay to Iomed all
amounts required by paragraph 3(c) hereof for the ****** period during which
such dividend is declared or paid.
(e) The Licensee shall use reasonable efforts to manufacture and sell
University Products and Iomed Products, and to otherwise commercially develop
and exploit the technology covered by the Sublicense and the License.
12. TERMINATION.
(a) Licensee may, at its option, terminate this Agreement if any
representation or warranty of Iomed contained in this Agreement shall prove to
be false or inaccurate and a claim therefore is asserted within the survival
period provided by paragraph 9 hereof, or if Iomed shall be in material breach
of any of the other provisions of this Agreement, which breach shall continue
uncured for a period of 30 days after written notice thereof by the Licensee.
(b) Iomed may, at its option, terminate this Agreement for any of the
following reasons:
(i) If any of the representations or warranties of the Licensee contained
in this Agreement shall prove to be inaccurate or false and a claim therefore
is
12
160812.1
<PAGE> 13
asserted within the survival period provided in paragraph 9 hereof, or if the
Licensee shall be in material breach of any of the other provisions of this
Agreement, including but not limited to its obligations to pay the Royalty and
the Licensee Fee in accordance with the provisions of paragraphs 2 and 3
hereof, which breach shall continue uncured for a period of 30 days after
written notice thereof by Iomed.
(ii) If the Licensee shall be adjudicated bankrupt or insolvent by any
court of competent jurisdiction or shall be voluntarily or involuntarily placed
in reorganization under any bankruptcy law or shall make an assignment for the
benefit of creditors or shall consent to the appointment of a receiver,
liquidator or trustee for itself in any court whatsoever, seeking to take
advantage of any bankruptcy or insolvency act, or shall admit in writing its
inability to pay its debts as they mature.
13. EFFECT OF TERMINATION.
(a) Upon the termination of this Agreement, by either Party, pursuant to
the provisions of paragraph 12 hereof, any obligation which accrued prior to
the effective date of such termination shall continue in full force and effect
and shall not be terminated, reduced or otherwise altered as the result of or
in connection with such termination. Additionally, the rights and obligations
of the Parties set forth in paragraphs 5, 10(b) and 14 hereof shall survive the
termination of this Agreement.
(b) Upon the termination of this Agreement, by either Party, pursuant to
paragraph 12 hereof, the right of the Licensee and of its Sublicensees to
manufacture or sell the University Products, the Iomed Products or any other
products which incorporate or are based upon any of the technology covered by
the Sublicense or the License shall completely terminate. Following such
termination the Licensee shall, upon the written request of
13
160812.1
<PAGE> 14
Iomed, assign (and cause each Sublicensee to similarly assign) to Iomed all
improvements to the University Products and to the Iomed Products which are
developed by the Licensee and its Sublicensees after the effective date of this
Agreement.
14. CONFIDENTIALITY.
(a) The Licensee acknowledges that the Iomed Technology (the "Confidential
Information") constitutes the valuable, unique and proprietary asset of Iomed;
provided, however, that the term "Confidential Information", as used herein,
shall not include any information or data which (i) is in or becomes a part of
the public domain by any means other than the Licensee's breach of its
obligations hereunder or (ii) is rightfully known to the Licensee at the time
of disclosure by Iomed, as demonstrated by the contemporaneous written records
of the Licensee, or (iii) is, at any time, disclosed to the Licensee by a third
party who has received and disclosed such information without the breach of any
obligation of confidentiality to Iomed or to any third party. For purposes of
this paragraph 14, information shall not be deemed to be part of the public
domain or within the Licensee's knowledge merely because it may be embraced in
a more general disclosure, or because it may be derived from combinations of
information generally available to the public or otherwise within the
Licensee's knowledge.
(b) The Licensee shall maintain all of the Confidential Information in
confidence and shall not, except as specifically permitted herein, disclose the
same to any third party (including without limitation affiliates of the
Licensee who are not Sublicensees) unless required to do so by court order or
by law, in which case the Licensee shall notify Iomed, in writing, prior to
making such disclosure and shall cooperate with Iomed to preserve and protect
the confidentiality of the Confidential Information to the fullest extent
14
160812.1
<PAGE> 15
possible. The Confidential Information may be disclosed by the Licensee to
those of its employees who need to know the same in order to enable the
Licensee to utilize the Sublicense and the License, and to its permitted
Sublicensees; provided that each such person and entity is advised of the
obligations of confidentiality contained herein. Any breach of the provisions
of this Paragraph 14(b) by such employees or Sublicensees shall be deemed, for
all purposes, to constitute a breach hereof by the Licensee.
15. RELATIONSHIP OF THE PARTIES. This Agreement shall not be deemed or
construed to create between Iomed and the Licensee the relationship of
principal and agent, joint venturers, co-partners, employer or employee, master
or servant, or any other similar relationship. Neither Party shall have the
right or authority to bind or to act for or on behalf of the other Party.
Additionally, neither Party shall be liable to any third party, in any way, for
any engagement, obligation, contract, representation or transaction, or for any
negligent act or omission to act of the other Party, except as otherwise
specifically provided in this Agreement.
16. NOTICES. All notices, requests, consents, approvals and other
communications given pursuant to this Agreement shall be deemed given only if
reduced to writing and delivered personally, by United States mail with postage
prepaid and return receipt requested, by overnight delivery service, or by
telecopier (FAX) transmission, to the appropriate Party as set forth below:
Iomed: Iomed, Inc.
3385 West 1820 South
Salt Lake City, Utah 84104
Attn: President
FAX: (801) 972-9072
15
160812.1
<PAGE> 16
The Licensee: Fillauer, Inc.
2710 Amnicola Highway
Chattanooga, Tennessee 37406-0189
Attn: President
FAX: (423) 624-1402
Either Party may change its address by giving notice of such change in the
manner set forth herein. Any notice given to either Party by mail or by
overnight courier shall be deemed delivered two business days after such notice
is deposited in the United States mail or placed in the possession of a
nationally recognized overnight courier service, as appropriate, and any notice
given by FAX transmission shall be deemed delivered when sent by confirmed
transmission prior to 6 p.m. Eastern time on a business day.
17. REMEDIES. Should default occur in the performance of any obligation
set forth in this Agreement, the non-defaulting Party shall be entitled to
obtain an injunction compelling the specific performance of the obligations of
this Agreement, in addition to any action for damages or for other relief as
may be available to the non-defaulting Party at law or in equity. The
defaulting Party shall, in addition to any damages which may result from such
default, pay to the non-defaulting Party the costs, including reasonable
attorneys' fees, incurred by the non-defaulting Party in causing the cure of
such default or in otherwise enforcing its rights under this Agreement.
18. WAIVER. Any waiver by either Party of a breach of any term or
condition of this Agreement shall not constitute a waiver of any subsequent
breach of the same or any other term or condition of this Agreement.
19. ENTIRE AGREEMENT. With the exception of the Purchase Agreement and
the agreements contemplated thereby, this Agreement constitutes the entire
agreement and understanding between the Parties in regard to the subject matter
hereof and supersedes
16
160812.1
<PAGE> 17
any other understanding between the Parties, whether written or oral, as to
such subject matter. This Agreement may not be modified or amended orally, but
only by an agreement, in writing, executed by both of the Parties.
20. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Utah, without giving effect to the
choice of law rules thereof.
21. RECORDATION. The Licensee may record the grant of the License and the
Sublicense, as provided in this Agreement, with the United States Patent
Office, and Iomed shall execute and deliver such documents as may be reasonably
necessary to effect such recordation.
22. 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.
IN WITNESS WHEREOF, the Parties have caused this License Agreement to be
executed by their duly authorized representatives as of the date first herein
written.
IOMED:
IOMED, INC.
By:
Its:
THE LICENSEE:
FILLAUER, INC.
By:
Its:
17
160812.1
<PAGE> 18
EXHIBIT "A"
University Patents
<PAGE> 19
EXHIBIT A
MOTION CONTROL
Division of Iomed, Inc.
UNITED STATES LETTERS PATENT
(UNIVERSITY PATENTS)
****
<PAGE> 20
EXHIBIT "B"
UNIVERSITY PRODUCTS
<PAGE> 21
EXHIBIT B
MOTION CONTROL
Division of Iomed, Inc.
UNIVERSITY PRODUCTS
****
<PAGE> 1
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION.
EXHIBIT 10.13
Manufacturing Agreement
Annual Renewal
The following constitutes the first annual renewal agreement between IOMED
Clinical Systems, the purchaser, and KWM Electronics Corporation (hereafter
called "KWM"), the supplier, for the manufacture and repair of IOMED Clinical
System's Phoresor system - ***. This renewal agreement is based upon the
initial manufacturing agreement in effect since November 1, 1995, for the
manufacture and repair of IOMED Clinical System's Phoresor system - ***.
This renewal agreement is based upon the initial manufacturing agreement in
effect since November 1, 1995 for the *** Phoresor system.
This renewal agreement will be effective starting November 1, 1996, and shall
remain in force with annual renewals for succeeding years with the agreement of
both parties until canceled. Addendum's may be added for future Phoresor system
manufacturing with the agreement of both KWM and IOMED Clinical Systems. This
manufacturing agreement may be terminated by either party with a written notice
of six months.
I. Quantities and Delivery Schedule
1. IOMED Clinical Systems will review its demand at the beginning of each
month, staring November 1, 1996 and will provide to KWM a six month
rolling forecast with the first two months being a frozen firm
commitment and the last four months being a best estimate forecast.
II. Equipment
1. All equipment provided by IOMED Clinical Systems will be returned to
IOMED Clinical Systems at the termination of this agreement. Costs to
dismantle, crate, and ship the equipment to IOMED Clinical Systems will
be the responsibility of IOMED Clinical Systems.
2. Unless otherwise agreed to, any modification to IOMED Clinical System's
equipment being used by KWM to manufacture the Phoresor system will be
the responsibility of KWM with notification to IOMED Clinical Systems
of such modifications.
III. Raw Materials
1. IOMED Clinical Systems will plan, purchase, receive, inspect, pay for,
and transfer to KWM the following items custom to the Phoresor systems
in accordance with the IOMED Clinical Systems forecast:
***
<PAGE> 2
Continued...
***
2. The custom inventory, outlined in III.1 above, will be warehoused at
KWM. KWM will provide IOMED Clinical Systems with a monthly report at
each month end by part number outlining quantities on-hand and
quantities scrapped.
3. All raw materials and purchasing beyond that outlined in III.1 will be
the responsibility of KWM.
IV. Pricing
1. *** pricing for the year starting November 1, 1996 will be ***.
2. Phoresor system pricing for subsequent years will be agreed to
separately, in one year periods, *** . All price increases must be
documented and agreed to by IOMED Clinical Systems as reasonable and
justified.
3. KWM will give IOMED Clinical Systems a minimum of 120 days notice of
any anticipated price increases associated with manufacturing. Any
significant increases in the cost of raw materials will be brought to
the attention of IOMED Clinical Systems as soon as KWM is aware of the
increase. KWM and IOMED Clinical Systems will negotiate in good faith
to determine if a change to the Phoresor system price needs to be made
based on changes in raw materials.
2
<PAGE> 3
V. Documentation Specifications and Procedures
1. IOMED Clinical Systems will be responsible for maintaining all original
GMP controlled documentation except the device history record for the
devices manufactured by KWM.
2. KWM will be responsible for insuring that all units are manufactured
according to current applicable FDA GMP requirements using KWM'S
workmanship standards and ECO controlled processes.
3. KWM will provide a certificate of compliance with each Phoresor shipment
and test data certifying that the units have been manufactured per the
current applicable procedures and that they have been tested per the
current applicable performance criteria. The certificate will also state
the units meet all specifications as outlined by IOMED Clinical Systems.
All manufacturing rework to devices must be documented and made a part of
the device history record.
4. With reasonable advance notice, KWM shall have at any time allow IOMED
Clinical Systems or their representative to audit KWM's documents,
records, and manufacturing to review all aspects for FDA GMP compliance
and/or ISO 9001 international standards.
5. KWM acknowledges the *** Phoresor is a serialized medical device and
will maintain original device history records for a period of time
equivalent to the design and expected life of the device.
6. A copy of all manufacturing procedures , component specifications, and
design changes will be available to IOMED Clinical Systems for signature
approval before release to production at KWM.
7. IOMED Clinical Systems will specify individual component parts for lot
tracking by KWM during Phoresor system manufacture. The designated
component lot numbers will be tracked from receipt by KWM, through
manufacturing and test, and recorded on the device history records for
each individual serial number unit prior to shipment to IOMED Clinical
Systems. Specifically, For the ***, the following components require lot
tracking by KWM:
***
3
<PAGE> 4
Continued...
***
IOMED Clinical Systems reserves the right to add or delete component
parts or subassemblies to those listed above.
8. No specification changes may be made without the prior written consent
of IOMED Clinical Systems. Manufacturing process changes may be made
under KWM's GMP controls, with IOMED Clinical System's notification
and acceptance prior to implementation. Written notification of all
changes will be made at or prior to shipment of the lot of Phoresors
which has the changes incorporated in it.
VI. Other Terms and Conditions.
1. FOB is West Jordan, Utah, USA. Payment for finished product will be
net 30 days from date of shipment. Shipments by KWM may be delayed
based upon non-payment of previous lots shipped. A finance charge of
1.5% per month may be charged for amounts that are past due.
2. All Phoresor products must pass IOMED Clinical Systems QC/QA
inspection, in a timely manner, prior to acceptance and payment. (See
section 1, Payment, above.)
3. All information, documentation, tooling, drawings, schematics, and
assembly procedures that are disclosed to KWM by IOMED Clinical
Systems are to be considered proprietary and confidential and must not
be divulged to any third party without the prior written consent of
IOMED Clinical Systems. In the event of termination of this agreement,
all information must be surrendered to IOMED Clinical Systems, upon
request, within 30 days. KWM may not use any of IOMED Clinical
System's products for display, advertising, or promotion without IOMED
Clinical Systems prior written consent.
4. KWM may not disclose this OEM arrangement without IOMED Clinical
Systems prior written consent.
5. Acceptance of all purchase orders from IOMED Clinical Systems will be
either written confirmation or acceptance of payment.
4
<PAGE> 5
6. The cost of process changes, due to IOMED Clinical Systems product
changes, will be reimbursed to KWM at the nominal labor rate of ***
per hour plus the actual cost of any required tooling. All such
process changes must be approved by IOMED Clinical Systems in writing
and with a separate purchase order issued to confirm approval and to
enable payment.
7. IOMED Clinical Systems may request KWM to perform repairs of used
devices at a fixed labor rate of *** per hour, up to a maximum of
two hours per Phoresor unit being repaired, plus the actual costs of
parts as required. IOMED Clinical Systems will advise KWM of specific
documentation requirements for FDA GMP and ISO 9000 compliance. Any
further details and conditions regarding KWM's repair of Phoresors
will be subject of a separate agreement or purchase order.
8. With the exception of product failure caused by design or user
excessive abuse, KWM warrants the IOMED Clinical Systems Phoresors
against defects in workmanship or materials supplied by KWM for a
period of 18 months from the date if shipment to IOMED Clinical
Systems or one year from shipment to end user, whichever is less.
IOMED Clinical Systems sole remedy, at no cost to IOMED Clinical
Systems, shall be to return the unit to KWM for repair or replacement
at KWM's option. No other warranties, express or implied, are hereby
granted.
9. IOMED Clinical Systems will indemnify KWM against any harm resulting
from the use or misuse of the IOMED Clinical Systems Phoresors and
IOMED Clinical Systems will supply proof of liability insurance to
this effect prior to any pre-production or production shipments.
10. Any controversy or claim arising out of or relating to the contract,
or any breach thereof, shall be settled by arbitration in Salt Lake
City, Utah, in accordance with the Commercial Association Rules of the
American Arbitration Association, and the judgment upon the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
5
<PAGE> 6
Approved by IOMED Clinical Systems Approved by KWM Electronics
/s/ W. Tim Miller /s/ Clark T. Mabey
- ------------------------------ ------------------------------
W. Tim Miller Clark T. Mabey
Executive VP & General Manager Controller
/s/ Robert J. Lollini /s/ Kent W. Mabey
- ------------------------------ ------------------------------
Robert J. Lollini Kent W. Mabey
Vice President and CFO President
/s/ Ned W. Weinshenker, Ph.D.
- ------------------------------
Ned W. Weinshenker, Ph.D.
President and CEO
6
<PAGE> 1
EXHIBIT 10.14
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement"), dated as of March 29,
1996, is made by and between IOMED, Inc., a Utah corporation ("IOMED"), and
Dermion, Inc., a Delaware corporation ("Dermion").
A. Dermion is a newly formed corporation, with no assets or liabilities as
of the date hereof.
B. IOMED desires to contribute certain assets to Dermion (the
"Contribution") in exchange for all of the issued and outstanding capital stock
of Dermion, all on their terms and subject to the conditions set forth in this
Agreement.
C. IOMED intends that the Contribution qualify as a nontaxable transfer
under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the parties hereto agree as follows:
1. Contribution of Assets. Upon execution of this Agreement:
(a) IOMED shall contribute to Dermion (i) the equipment set forth on
Exhibit A attached hereto (the "Equipment"), (ii) cash in the amount of
approximately one million three hundred forty thousand dollars ($1,340,000) (the
"Cash"), (iii) all rights to receive royalties payable by any person or entity
with respect to the IOMED Technology (as defined below) to the extent such
royalties are payable in connection with the conduct by Dermion of the Business
(as defined below), and (iv) all books, records and software necessary for the
conduct by Dermion of the business of conducting research with respect to or
developing iontophoretic transdermal drug delivery systems on its own behalf
and/or on behalf of third parties, as such business (the "Business") has
previously been conducted by IOMED (the "Other Assets"). As used herein, "IOMED
Technology" means all right and interest of IOMED to and in the following
patents (including all substitutions, continuations, continuations-in-part,
divisions and renewals thereof, all letters patent granted thereon, and all
reissues, reexaminations and extensions thereof); **** all of which have been
licensed to IOMED pursuant to a **** Agreement, ****, by and between IOMED and
****.
(b) IOMED shall contribute to Dermion certain intellectual property rights
by entering into a Patent License Agreement in the form of Exhibit B attached
hereto (the "License Agreement").
2. Issuance of Stock. In consideration for the assets contributed pursuant
to Section 1 above, upon execution of this Agreement Dermion will issue and
deliver Eight
1
<PAGE> 2
Hundred Thousand (800,000) shares of its validly issued, fully paid and
nonassessable Common Stock, $.001 par value per share, to IOMED (the "Shares").
3. DELIVERIES. Upon execution of this Agreement, the parties shall make the
respective deliveries set forth below:
(a) IOMED shall deliver to Dermion (i) possession of the Equipment, the
Cash and the Other Assets, (ii) a duly executed Bill of Sale in the form
attached hereto as EXHIBIT C (the "Bill of Sale") and (iii) a duly executed
License Agreement.
(b) Dermion shall deliver to IOMED (i) a duly executed certificate
representing the Shares, and (ii) a duly executed License Agreement.
4. REPRESENTATIONS AND WARRANTIES OF DERMION. Dermion hereby represents and
warrants to IOMED as follows:
(a) Dermion is a corporation duly organized, validly existing and in good
standing under the law of the State of Delaware.
(b) Dermion has full corporate power and authority to enter into this
Agreement and the License Agreement, and to carry out the transactions
contemplated hereby and thereby. The Board of Directors of Dermion has taken all
action required to authorize the execution, delivery and performance of this
Agreement and the License Agreement and the consummation of the transactions
contemplated hereby and thereby. This Agreement and the License Agreement each
has been duly and validly authorized, executed and delivered by Dermion, and
each constitutes a valid and binding obligation of Dermion enforceable against
it in accordance with its terms.
(c) The execution, delivery and performance by Dermion of this Agreement
and the License Agreement do not and will not (i) violate or breach the
certificate of incorporation or bylaws of Dermion, (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 Dermion 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 Dermion.
(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 Dermion's execution and delivery of this Agreement
or the License Agreement or with the performance by Dermion of its obligations
hereunder of 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.
2
<PAGE> 3
(e) The authorized capital stock of Dermion consists of Four Million
(4,000,000) shares of Common Stock, $.001 par value per share, none 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. 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 that
certain Stockholders' Agreement, dated of even date herewith, by and between
Dermion, IOMED, and Ciba-Geigy Corporation, a New York corporation acting
through its Pharmaceuticals Division, Dermion 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 Dermion
of, any of its capital stock or securities convertible into or exchangeable for
its capital stock.
5. Representations and Warranties of IOMED:
(a) IOMED is a corporation duly organized, validly existing and in good
standing under the law of the State of Utah.
(b) IOMED has full corporate power and authority to enter into this
Agreement, the License Agreement and the Bill of Sale, and to carry out the
transactions contemplated hereby and thereby. The Board of Directors of IOMED
has taken all action required to authorize the execution, delivery and
performance of this Agreement, the License Agreement and the Bill of Sale, and
the consummation of the transactions contemplated hereby and thereby. This
Agreement, the License Agreement and the Bill of Sale each has been duly and
validly authorized, executed and delivered by IOMED, and constitutes a valid and
binding obligation of IOMED enforceable against it in accordance with its terms.
(c) The execution, delivery and performance by IOMED of this Agreement and
the License Agreement do not and will not (i) violate or breach 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 IOMED 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 IOMED.
(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 IOMED's execution and delivery of this Agreement
or the License Agreement or with the performance by IOMED 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) IOMED 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 such stock has not been registered under the Securities Act
of 1933, as amended (the "Securities
3
<PAGE> 4
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.
6. Employees. Promptly following the execution hereof, Dermion agrees to
employ each of the IOMED employees named on Exhibit D attached hereto, at which
time such employees will cease being employees of IOMED. Such employment shall
be on such terms and conditions, and for such duration, as Dermion shall
determine in its absolute discretion.
7. Legends. Each certificate representing the Shares shall bear a legend
in substantially the following form:
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THE CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.
THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR TRANSFERRED ONLY PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
Dermion shall reissue promptly certificates without such legend upon being
provided with an opinion of counsel or other evidence reasonably satisfactory to
Dermion to the effect that the securities proposed to be disposed of may
lawfully be so disposed without registration, qualification or legend.
8. Amendment. This Agreement may only be amended or supplemented by
written agreement of each party hereto.
9. Governing Law. The validity, interpretation, enforceability, and
performance of this Agreement shall be governed by and construed in accordance
with the law of the State of Delaware.
4
<PAGE> 5
10. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
The parties have caused this Agreement to be duly executed as of the
date first above written.
IOMED, INC., a Utah corporation
By: /s/ Robert J. Lollini
------------------------------
Name: Robert J. Lollini
----------------------------
Title: Secretary
---------------------------
DERMION, INC., a Delaware corporation
By: /s/ Ned M. Weinshenker
------------------------------
Name: Ned M. Weinshenker, Ph.D.
----------------------------
Title: President and CEO
---------------------------
5
<PAGE> 6
EXHIBIT A
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
<TABLE>
<CAPTION>
Qty Location Item Description
<S> <C> <C>
OWNED EQUIPMENT PRIOR TO AGREEMENT
1 B. Hause office HP Laser Jet 4M printer, s/n JPBH027487
1 B. Leaf office Cal Comp drawing board
1 B. Leaf office Cal Comp plotter
1 B. Leaf office portable tape backup system
1 B. Leaf office PWC pc, Arche monitor, keyboard
1 Electronics Lab 15 drawer Lista storage unit, gray
2 Electronics Lab 386 PC Systems
1 Electronics Lab 486 Computer system 18082
2 Electronics Lab 486 Computer system 18961
1 Electronics Lab 486 Computer system 19064
1 Electronics Lab 486 Computer system 19270
1 Electronics Lab 486 Computer system 19503
1 Electronics Lab 5 drawer Lista storage unit & bench with top & light
1 Electronics Lab 6 drawer Kennedy mechanics tool chest
3 Electronics Lab Blue stools
1 Electronics Lab brown folding table
1 Electronics Lab ClearView Stereo Microscope
1 Electronics Lab Conductive element test fixture
1 Electronics Lab Current Density meter
1 Electronics Lab Fluke 45 Digital Multimeter s/n 5535049
1 Electronics Lab Fluke 45 Digital Multimeter s/n 5650100
1 Electronics Lab gray stack chair
1 Electronics Lab gray storage cabinet
1 Electronics Lab IOMEGA Tape 250 tape backup
1 Electronics Lab lt. gray metal bookcase
1 Electronics Lab Metcal Soldering system s/n 6E 10610
1 Electronics Lab Mod Tap SLT3 Continuity Checker
1 Electronics Lab National Instruments GPIB 1284CT s/n 05404
1 Electronics Lab Oscilloscope Tektronix 2246 s/n B044878
1 Electronics Lab wood bench
1 extra office Mac IIsi, Radius 0277 monitor, keyboard
1 Lab Blue M OV-610A-3 oven
1 Lab Brookfield digital viscometer DV-I
1 Lab Brookfield EX-100 constant temp. water bath
1 Lab Callahan RF welder
1 Lab Electrode welder/assembler
1 Lab Film wet casting doctor blade
1 Lab Lab Scale drying machine
5 Lab Misc welding fixtures, dies
asst Lab Misc. pneumatic nozzles, chucks, hoses
1 Lab Parastaltic pump & disp. processor
1 Lab Simco static APMB eliminator
2 Lab storage racks, 4' x 2' x 12'
40 Lab Ubbelohde viscometers
1 Large office Mac II computer, MO400 monitor, keyboard
1 Large office Mac IIcx, M0400 monitor, keyboard
1 Large office Max IIcx, Radius monitor, keyboard
1 Large office Mac IIsi, Radius monitor, keyboard
1 Lunch room Magic Chef refrigerator
1 Lunch room Sharp Carousel II microwave oven
1 Lunch room water dispenser
1 L. Lloyd office Mac IIci, RGB monitor, keyboard
1 L. Lloyd office Samsung refrigerator
1 Machine shop 12" TEW impulse welder #TIFS-300
1 Machine shop 16" paper cutter
1 Machine shop 2 door adjustible shelf storage cabinet
1 Machine shop 20" paper cutter
1 Machine shop 30" paper cutter
1 Machine shop 5 gallon pressure vessel
1 Machine shop 5 shelf storage rack
</TABLE>
<PAGE> 7
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
<TABLE>
<CAPTION>
Qty Location Item Description
OWNED EQUIPMENT PRIOR TO AGREEMENT
<S> <C> <C>
1 B. Hause office HP Laser Jet 4M printer, s/n JPBH027487
1 B. Leaf office Cal Comp drawing board
1 B. Leaf office Cal Comp plotter
1 B. Leaf office portable tape backup system
1 B. Leaf office PWC pc, Arche monitor, keyboard
1 Electronics Lab 15 drawer Lista storage unit, gray
2 Electronics Lab 386 PC Systems
1 Electronics Lab 486 Computer system 18082
2 Electronics Lab 486 Computer system 18961
1 Electronics Lab 486 Computer system 19064
1 Electronics Lab 486 Computer system 19270
1 Electronics Lab 486 Computer system 19503
1 Electronics Lab 5 drawer Lista storage unit & bench with top & light
1 Electronics Lab 6 drawer Kennedy mechanics tool chest
3 Electronics Lab Blue stools
1 Electronics Lab brown folding table
1 Electronics Lab ClearView Stereo Microscrope
1 Electronics Lab Conductive element test fixture
1 Electronics Lab Current Density meter
1 Electronics Lab Fluke 45 Digital Multimeter s/n 5535049
1 Electronics Lab Fluke 45 Digital Multimeter s/n 5650100
1 Electronics Lab gray stack chair
1 Electronics Lab gray storage cabinet
1 Electronics Lab IOMEGA Tape 250 tape backup
1 Electronics Lab lt. gray metal bookcase
1 Electronics Lab Metcal Soldering system s/n 6E 10610
1 Electronics Lab Mod Tap SLT3 Continuity Checker
1 Electronics Lab National Instruments GPIB 1284CT s/n 05404
1 Electronics Lab Oscilloscope Tektronix 2246 s/n BO44878
1 Electronics Lab wood bench
1 extra office Mac IIsi, Radius 0277 monitor, keyboard
1 Lab Blue M OV-610A-3 oven
1 Lab Brookfield digital viscometer DV-1
1 Lab Brookfield EX-100 constant temp. water bath
1 Lab Callahan RF welder
1 Lab Electrode welder/assembler
1 Lab Film wet casting doctor blade
1 Lab Lab Scale drying machine
5 Lab Misc welding fixtures, dies
asst Lab Misc. pneumatic nozzles, chucks, hoses
1 Lab Parastaltic pump & disp. processor
1 Lab Simco static APMB eliminator
2 Lab storage racks, 4' x 2' x 12'
40 Lab Ubbelohde viscometers
1 Large office Mac II computer, MO400 monitor, keyboard
1 Large office Mac IIcx, MO400 monitor, keyboard
1 Large office Mac IIcx, Radius monitor, keyboard
1 Large office Mac IIsi, Radius monitor, keyboard
1 Lunch room Magic Chef refrigerator
1 Lunch room Sharp Carousel II microwave oven
1 Lunch room water dispenser
1 L. Lloyd office Mac IIci, RGB monitor, keyboard
1 L. Lloyd office Samsung refrigerator
1 Machine shop 12" TEW impulse welder #TIFS-300
1 Machine shop 16" paper cutter
1 Machine shop 2 door adjustable shelf storage cabinet
1 Machine shop 20" paper cutter
1 Machine shop 30" paper cutter
1 Machine shop 5 gallon pressure vessel
1 Machine shop 5 shelf storage rack
</TABLE>
<PAGE> 8
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
<TABLE>
<CAPTION>
Qty Location Item Description
<S> <C> <C>
1 Machine shop Alltrade hot melt glue gun
1 Machine shop AND Compact printer #AD-8117
1 Machine shop Arbor press
1 Machine shop Baldor sieve shaker
1 Machine shop Branson 125 Ultrasonic cleaner, s/n B-125-R
1 Machine shop Brown & Sharpe micrometer #599-10-1
1 Machine shop Centurian overhead projector
1 Machine shop combination wrench set
1 Machine shop Craftsman 5 1/2" bench vise #51871
1 Machine shop Craftsman steel punch set
1 Machine shop crescent wrench set
1 Machine shop Cres-cor rolling storage rack #2001841
1 Machine shop Crown DC 300 Amp #DC300A
1 Machine shop CRP exhaust hood
1 Machine shop Delta belt/disc sander combo #31-340
1 Machine shop Delta Scroll saw #40-601
1 Machine shop Drill bit set, 1-60
1 Machine shop Drill bit set, 1/16" thru 1/2"
1 Machine shop Drill bit set, A-Z
1 Machine shop Emerson servo motor controller
49 Machine shop End mill cutters, various sizes
1 Machine shop Eureka 8 gallon wet/dry vacuum
1 Machine shop Filamatic vial filler #AB-8
1 Machine shop Filter Queen vacuum
1 Machine shop Foredom metal deburring bits
1 Machine shop Foredom metal grinding bits
1 Machine shop Foredom model #5B
1 Machine shop Holesaw set
1 Machine shop Hopkins screen printing station
1 Machine shop Jet bench top drill press #JDP-11HS
1 Machine shop Kennedy 16 drawer tool chest
2 Machine shop Kitchen-Aide mixers
2 Machine shop lab stools
16 Machine shop laser cut steel rule dies
1 Machine shop Makita cordless drill, #6070D
1 Machine shop Master heat gun #HG-501A
1 Machine shop Mead pneumatic air press
1 Machine shop Merlin express label maker
1 Machine shop Micro bench top lathe
2 Machine shop Milling machine drill chucks
1 Machine shop Milling machine parallel set 1/2" thru 1 5/8"
1 Machine shop Milling machine table clamp set
1 Machine shop Milling machine collet set RS 1/8" thru 7/8"
1 Machine shop Milwaukee 5650 router
1 Machine shop Mitutoyo calipers
1 Machine shop Mitutoyo dial test indicator #513-242
1 Machine shop Mitutoyo Digital micrometer #293-761
1 Machine shop Mitutoyo Digital spindle axis read-out
1 Machine shop Morgan press injection molder
1 Machine shop Okidata 9 pin printer
3 Machine shop Omega microprocessor temperature controller #CN9121A
1 Machine shop Omega microprocessor thermometer switchbox #HH-20-SW
1 Machine shop Omega Microprocessor thermometer #HH21
1 Machine shop Orbit bench top vacuum former
1 Machine shop Precision square
1 Machine shop Rockwell 28-20C 14" band saw
1 Machine shop SA 2 pen strip chart recorder
1 Machine shop Scherr-Tumico dial test indicator
1 Machine shop screwdriver set
1 Machine shop Sears 6 gallon wet/dry vacuum
1 Machine shop Shimpo digital rpm meter #DT-107
</TABLE>
<PAGE> 9
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
<TABLE>
<CAPTION>
Qty Location Item Description
<S> <C> <C>
4 Machine shop Shop benches
3 Machine shop shop benches with risers
1 Machine shop Skil
1 Machine shop Skil 763 3/8" variable speed drill
7 Machine shop Small parts storage cabinets
1 Machine shop socket set
1 Machine shop Speedaire reserve storage tank
2 Machine shop Staco energy products variable auto transformer
40 Machine shop Steel punch set, 1/16" to 2 1/2"
68 Machine shop steel rule cutting dies
1 Machine shop Stimpson #479 manual rivet machine
1 Machine shop Sunex bench grinder #9605
1 Machine shop swing arm shop light
1 Machine shop TEW 18" impulse welder #TISF-450
10 Machine shop TEW 8" impulse sealers
24 Machine shop Thread taps, various thread sizes
1 Machine shop Toshia SR Teach Pendant
1 Machine shop Toshiba robot system, #VSB001005YSA
1 Machine shop Toshiba SR controller
1 Machine shop Toshiba TSR program loader
1 Machine shop Trivac vacuum pump
1 Machine shop Vaco nut driver set
1 Machine shop Vacuum oven
19 Machine shop Various hand tools
1 Machine shop vise grip set
1 Machine shop Wood boring bit set #920864
1 Machine shop Yellow Jack #512 12 ton shop press
2 Machine shop "T" handle allen wrench sets
1 Main lab 2001 Keyboard, Iomed 00350
1 Main lab Accumet 950, PH/ion meter, s/n 2819
3 Main lab Acid & solvent storage cabinets
1 Main lab All American 25X Electric pressure steam sterilizer
2 Main lab Animal cage racks
asst Main lab animal cages (shoeboxes)
1 Main lab Animal room humidifier
1 Main lab Balance table (granite)
8 Main lab Blue lab stools
1 Main lab Buchler mini Rotovaporizer
1 Main lab Cafranco stirring motor
20 sets Main lab Calibrating weights
1 Main lab CM-10 flourescence analysis cabinet, s/n 262937
1 Main lab Cole Parmer hygrothermograph
1 Main lab Cryotome
7 Main lab Eppendorf pipetters
1 Main lab Epson equity II+, pc computer
6 Main lab faucet sets
1 Main lab fiberglass sink
1 Main lab Fisher Scientific acid trap
2 Main lab Fisher Scientific XF-300 balances
2 Main lab flammable storage cabinets
4 Main lab Fluke 73 multimeters
6 Main lab gas regulators
asst Main lab glassware
25 Main lab Hamilton syringes
asst Main lab Hardware clamps in ring stands
1 Main lab IEC Centra - 4B centrifuge, s/n 23731318
1 Main lab Kitchen aid food mixer
1 Main lab Konica 35mm camera
3 Main lab Lab carts
3 Main lab Lab Glassware drying racks
1 Main lab Labconco 4' fume hood
</TABLE>
<PAGE> 10
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
Qty Location Item Description
2 Main lab Labconco 4' fume hoods
2 Main lab Labconco 6' fume hood
1 Main lab LanGarde 400, UPS
1 Main lab LanGarde 900
1 Main lab Loop monitor & keyboard
1 Main lab Melting point apparatus
3 Main lab Metal storage cabinets, 4 shelves
1 Main lab Mettler AE 240 analytical balance, s/n
609/448-3000
2 Main lab Microwave ovens
1 Main lab Nikon N6006 camera
1 Main lab PH Meter
1 Main lab Phoresor Scope w/bartly 286 computer
1 Main lab Pipette washer/soaking bath
1 Main lab Precision penetrometer
1 Main lab Remington Rand locking file safe
1 Main lab Safety shower
1 Main lab Samsung refrigerator, small
1 Main lab Shaker bath
1 Main lab Solvent recycler
1 Main lab SSI Monitor
4 Main lab stainless steel sinks
1 set Main lab standard testing sieves
4 Main lab stirrer/heating plate
asst Main lab surgical instruments
1 Main lab Thermodyne Maxi Mix III
1 Main lab Trash compactor
1 Main lab Unison 1500, 1200
1 Main lab Unison DP 1000 unipower
1 Main lab vacuum pump assembly
2 Main lab Vortex mixers, Cat. S8225-1
1 Main lab YSI conductance meter, model 35
1 Network stuff Black Box Cable Scanner s/n 910611875
1 Network stuff Cayman Gator box CS s/n 105090
1 Network stuff Cayman Gator box CS s/n 105099
1 Network stuff Macintosh II Iomed # 00081
1 Network stuff Network server 486-50
4 Network stuff NetWorth Micro Hub
2 Network stuff Star Controller Phone Net Series 300
1 Shipping area Pelouze 70 lb. scale
1 Shipping area shipping table
1 Shipping area shipping tape dispenser
1 spare stuff extension ladder, orange
1 spare stuff green refrigerator
1 spare stuff ladder, wooden
1 spare stuff set heavy duty metal shelving
1 spare stuff Sharp carousel microwave
1 spare stuff shipping table (6 ft x 3 ft)
1 spare stuff storage cabinet, dk. gray
1 T. Parkinson office Practical Peripherals PM04385 hard drive
1 B. Hause office 486 DCPX-66 Clone CPU, Sony CPD-1430 monitor,
Alps keyboard
1 B. Hause office circuit analysis software
1 B. Leaf office Mac Quadra 605 computer, Radius 0361 monitor,
keyboard
1 B. Leaf office NEC portable CD-rom reader
1 Electronics Lab American Reliance Programmable Power Supply s/n
23220025
1 Electronics Lab American Reliance Programmable Power Supply s/n
23220097
1 Electronics Lab Keithley 2001/2001 Scan Digital Multimeter s/n
0584779
1 Electronics Lab Oscilloscope Fluke Pm 3394 s/n DM 554033
1 Electronics Lab QMS Laser Printer Iomed #00088
1 Electronics Lab Wavetek 395 Arbitrary Waveform Generator s/n
F94073939
1 J. Beck office Mac Quadra 650, Radius monitor, keyboard
1 Machine shop Air dimensions vacuum pump
<PAGE> 11
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
<TABLE>
<CAPTION>
Qty Location Item Description
<S> <C> <C>
1 Machine shop American ultraviolet UV curing system
1 Machine shop Boulden laminating machine
1 Machine shop Bridgeport Mill
1 Machine shop Dennison PSTT stapler
1 Machine shop Mitutoyo digital read out #ALC-3705W
1 Machine shop Omega digital force meter, #DFG51-50
6 Machine shop Screen printing screens
1 Machine shop Servo x-axis power feed #140
1 Main lab Admiral frost free refrigerator, Iomed #00073
1 Main lab Alltech 345 solvent recycler for HPLC
1 Main lab A.C. Power Backup system (UPS)
1 Main lab Beckman High Performance Liquid Chromatograph system
1 Main lab Cole Parmer hygrothermograph
1 Main lab Cole Parmer hygrothermograph
Main lab Cornometer
1 Main lab Denver Inst. FX-3100 Balance
1 Main lab dishwasher
1 Main lab Distilled water system
3 Main lab Extended quenched standards
1 Main lab Fisher BioTech FB 1001 electrophoresis system
1 Main lab Fisher Scientific 2008 multi-electronic stirrer
1 Main lab Fisher Scientific Q005 cooling/heating bath s/n 313584
1 Main lab Forma Scientific 3028 C02 incubator
1 Main lab Foxy 200 Fraction Collector s/n 62213002-793319
1 Main lab Hanson autosampling system
1 Main lab High performance liquid chromatograph - Hot lab
1 Main lab Hitachi U-2000 Spectrophotometer, s/n 9005-030
1 Main lab HP 1200 c/pc Color Printer
1 Main lab HP 5890 Gas Chromatograph
1 Main lab Lipshaw electric model 1500, cryotome, s/n L-038
1 Main lab MIIII Q water system
1 Main lab Olympus stereo microscrope
1 Main lab Packard Instruments Tri-Carb 1500 LCS, includes dot-matrix printer
1 Main lab Premier Innovations lap-top PC, 6000
1 Reception area HP LaserJet 4Plus printer
1 Reception area Mac IIsi, 12" Monochrome monitor, keyboard
1 T. Parkinson office Mac Performa 575 w/keyboard, s/n L04228H925Y
<CAPTION>
EQUIPMENT PURCHASED AFTER 6/30/95
<S> <C> <C>
1 back dock Adix phone system & VSR voice mail
1 Main lab Swipe card access system
1 Reception area Murata Muratec F-73 fax
1 Electronics Lab Keithley 2000/2000 Scan Digital Multimeter s/n 0595951
1 Morgan press & stand
1 High density switch system
1 507 Auto sampler
1 Ultralow temp freezer
</TABLE>
<PAGE> 12
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
Qty Location
Item Description
FURNITURE & FIXTURES
1 B. Felman office 29" round table, oak veneer
1 B. Felman office 3 ft x 2 ft bulletin board
1 B. Felman office 4 ft x 3 ft white board
1 B. Felman office 5 ft bookcase, oak veneer, 5 shelf
1 B. Felman office 6 ft bookcase, oak veneer, 5 shelf
1 B. Felman office executive chair, rolling, gray
1 B. Felman office Filex filing cabinet, 4 drawer
1 B. Felman office secretarial chair, rolling, dk. blue
2 B. Felman office secretarial desk, 5 drawer
1 B. Hause office Anderson Hickey lateral file cabinet, 2 drawer
1 B. Hause office Anderson Hickey metal bookcase, 5 shelf
2 B. Hause office chairs, stationary, blue
1 B. Hause office Cole lateral file cabinet, 4 drawer
1 B. Hause office credenza, oak
1 B. House office executive chair, rolling, blue
1 B. Hause office executive desk, oak
1 B. Hause office oak veneer printer stand, 2 shelves
2 B. Hause office wood bookcase, 6 shelf
1 B. Leaf office Anderson Hickey file cabinet, 4 drawer
1 B. Leaf office bookcase, 3 shelf
1 B. Leaf office bookcase, 5 shelf
1 B. Leaf office computer table
1 B. Leaf office executive desk, rolling, dk. blue
1 B. Leaf office secretarial chair, gray
1 B. Leaf office secretarial chair, gray & black
2 B. Leaf office secretarial desk
9 Cubicles - R&D 18" dk. blue multi panel
2 Cubicles - R&D 18" gray panel
2 Cubicles - R&D 24" gray panel
2 Cubicles - R&D 30" dk. blue multi panel
8 Cubicles - R&D 30" light gray panel
4 Cubicles - R&D 35" x 23 1/2" x 26 1/2" gray desk tables
4 Cubicles - R&D 35" x 23 1/2" x 30" gray desk tables
4 Cubicles - R&D 50" x 23 1/2" x 30" gray corner desk tables
2 Cubicles - R&D brown covered book shelves
8 Cubicles - R&D gray book shelves with lights
4 Cubicles - R&D gray covered book shelves
4 Cubicles - R&D rolling two drawer file cabinets
1 Electronics Lab 4 drawer Anderson Hickey file cabinet
1 extra office 4 ft cubicle worktop
1 extra office 4 ft uncovered bookshelf
1 extra office 5 ft covered bookshelf, med. gray
1 extra office 5 ft cubicle worktop
2 extra office 5 ft x 2 ft cubicle panels
2 extra office 5 ft x 5 ft cubicle panels
1 extra office Anderson Hickey file cabinet, 4 drawer
1 extra office Anderson Hickey metal bookcase, 6 shelf
1 extra office bulletin board
1 extra office drawing cabinet
1 extra office Hon file cabinet, 4 drawer
1 extra office secretarial chair, gray
1 J. Beck office 44" x 34" white board
1 J. Beck office computer table, oak veneer
2 J. Beck office secretarial chair, blue
1 J. Beck office secretarial desk
1 J. Beck office wooden bookcase, 6 shelf
2 Large office Anderson Hickey filing cabinet, 4 drawer
1 Large office Anderson Hickey storage cabinet
1 Large office APS external hard drive
2 Large office catalog shelving units
<PAGE> 13
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
Qty Location Item Description
- ----------------- ---------------------------------------------------
1 Large office end table
3 Large office executive chair, rolling, blue
1 Large office Hon filing cabinet, 4 drawer
1 Large office rolling 2 drawer cubicle type filing cabinet
1 Large office secretarial chair
1 Large office secretarial desk
1 Large office secretarial desk
1 Large office secretarial desk
1 Large office stationary chair
2 Large office white boards
1 Large office Wooden bookcase, oak veneer, 4 shelf
1 Large office Wooden storage unit, 2 doors, 3 shelf
1 Library 3M overhead projector
1 Library Audio visual equipment cart
1 Library Audio visual screen
1 Library conference table
6 Library executive chair, blue
1 Library Kodak slide projector
2 Library secretarial chair, blue
2 Library stationary chair, blue
1 Library white board
4 Library wooden bookcase, 6 shelf
2 Library wooden bookcase, 7 shelf
2 Lunch room round lunch tables
5 Lunch room stationary chairs, blue
2 L. Lloyd office Anderson Hickey filing cabinet, 4 drawer
1 L. Lloyd office bulletin board
1 L. Lloyd office computer desk
1 L. Lloyd office executive chair, rolling, blue
1 L. Lloyd office executive desk
1 L. Lloyd office Hon filing cabinet, 2 drawer
2 L. Lloyd office stationary chair, blue
2 L. Lloyd office white board
1 L. Lloyd office wooden bookcase, 3 shelf
1 L. Lloyd office wooden bookcase, 5 shelf
1 Reception area brown storage cabinet, 2 drawers, 2 shelves
2 Reception area Cole lateral file, 4 drawer
1 Reception area Cubicle sections, 2 short pieces
1 Reception area file cabinet, 2 drawer
1 Reception area folding table, brown
1 Reception area Mita DC 4086 copier
1 Reception area reception desk w/right hand return
1 Reception area recycle bin
1 Reception area Ricoh 4000FL paper shredder
1 Reception area Secretarial chair
1 Reception area Secretarial desk, right hand return
1 Reception area Sharp Compet CS-2164F calculator
1 Reception area short supply cabinet
1 Reception area Smith Corona XD4700 typewriter
1 Reception area tall supply cabinet
8 Shipping area chair, blue plastic, stacking
1 Shipping area Wesco filing cabinet, 4 drawer
1 spare stuff 10 ft x 4 ft wood table
1 spare stuff 3 ft x 2 ft bulletin board
1 spare stuff 30" round plastic table
3 spare stuff 4 ft x 3 ft white board, metal trim
1 spare stuff 5 ft x 4 ft white board, oak trim
1 spare stuff 6 drawer brown locker
1 spare stuff 6 ft x 4 ft white board, oak trim
1 spare stuff arm chair, gray
1 spare stuff black executive chair, rolling
<PAGE> 14
R&D EQUIPMENT
FIXED ASSET INVENTORY
RECORD SHEET
Qty Location
Item Description
1 spare stuff blue love seat
1 spare stuff blue stool
1 spare stuff Canon A-1 board copier
3 spare stuff gray storage cabinets
1 spare stuff Hon file cabinet, 4 drawer
1 spare stuff Hon lateral file, 2 drawer
1 spare stuff lateral file cabinet, 4 drawer
1 spare stuff plastic gray stack chair
1 spare stuff secretarial chair, brown
1 spare stuff secretarial chair, brown
1 spare stuff secretarial desk, 5 drawer, oak veneer
1 T. Parkinson office Bookcase, 4 shelf, oak veneer
2 T. Parkinson office chairs, stationary, blue
1 T. Parkinson office Computer stand, oak veneer
1 T. Parkinson office Executive desk, oak veneer
1 T. Parkinson office Hon lateral file, 2 drawer
LEASEHOLD IMPROVEMENTS
1 Main lab Cabinets & countertops, 176' floor, 75' overhead
1 Electronics Lab wall mounted storage cabinets & countertops
<PAGE> 15
EXHIBIT D
CONTRIBUTION AGREEMENT
BETWEEN IOMED, INC. AND DERMION, INC.
IOMED EMPLOYEES TO BE TRANSFERRED TO DERMION
*
<PAGE> 1
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST
FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED
WITH THE COMMISSION
EXHIBIT 10.16
RESEARCH AND DEVELOPMENT AGREEMENT
among
IOMED, INC.,
DERMION, INC.
and
CIBA-GEIGY CORPORATION
Dated as of March 29, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS................................................................................. 1
1.1 Definitions........................................................................ 1
1.2 General Definition Provisions...................................................... 9
ARTICLE 2 THE PROGRAM................................................................................. 9
2.1 Basic Provisions of the Program.................................................... 9
2.2 Staffing and Resources............................................................. 10
2.3 Annual Plans....................................................................... 11
2.4 The Committee...................................................................... 11
2.5 Research Records; Reports.......................................................... 14
2.6 Access to Facilities............................................................... 15
2.7 Clinical Trials.................................................................... 15
2.8 Clinical Manufacturing of Products................................................. 15
2.9 Liability Insurance................................................................ 15
ARTICLE 3 EXCLUSIVITY................................................................................. 16
3.1 Ciba Fields; Ciba Proprietary Drugs............................................. 16
3.2 Dermion Exclusivity................................................................ 17
3.3 Development of Systems for or by Dermion Outside the Program....................... 17
3.4 Development by Dermion of Abandoned Products....................................... 19
3.5 Development of Systems for or by Ciba.............................................. 19
ARTICLE 4 OWNERSHIP OF TECHNOLOGY; PATENTS............................................................ 21
4.1 Licensed Technology; No Other Rights............................................... 21
4.2 Improvements....................................................................... 22
4.3 Ownership and Use of Jointly Developed Technology.................................. 22
4.4 Transfer of Jointly Developed Technology........................................... 23
4.5 Patents and Patent Applications.................................................... 24
4.6 Infringement of Patent Rights...................................................... 26
4.7 Infringement of Third Party Rights................................................. 27
ARTICLE 5 LICENSES 28
5.1 Licenses to Ciba................................................................... 28
5.2 License from Ciba.................................................................. 29
5.3 Sublicensing....................................................................... 29
5.4 Transfers of Second Generation Technology by Dermion............................... 30
5.5 Future IOMED Licenses.............................................................. 30
ARTICLE 6 EQUITY AND FUNDING.......................................................................... 31
6.1 Related Transactions; License Fee.................................................. 31
6.2 Program Funding.................................................................... 31
6.3 Milestone Payments................................................................. 32
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
6.4 Royalties Payable by Ciba.......................................................... 34
6.5 General Provisions Regarding Royalties............................................. 35
6.6 Incorporation of Technology........................................................ 37
ARTICLE 7 REPRESENTATIONS AND WARRANTIES.............................................................. 37
7.1 Representations and Warranties of IOMED and Dermion......................................... 37
7.2 Representations and Warranties of Ciba............................................. 39
7.3 DISCLAIMERS........................................................................ 40
7.4 LIMITED LIABILITY.................................................................. 40
ARTICLE 8 OTHER COVENANTS AND AGREEMENTS.............................................................. 41
8.1 Confidentiality.................................................................... 41
8.2 IOMED Covenant Not to Compete...................................................... 42
8.3 Change of Control of Dermion....................................................... 43
8.4 Right of First Offer............................................................... 44
ARTICLE 9 TERM AND TERMINATION........................................................................ 45
9.1 Term............................................................................... 45
9.2 Termination........................................................................ 45
9.3 Survival Upon Termination Continuing Liability..................................... 46
9.5 Partial Termination................................................................ 47
9.6 Rejection in Bankruptcy............................................................ 47
9.7 Program Records.................................................................... 47
9.8 Certain Actions Following Termination.............................................. 48
ARTICLE 10 INDEMNIFICATION............................................................................. 48
10.1 Indemnification by Dermion and IOMED............................................... 48
10.2 Indemnification by Ciba............................................................ 48
ARTICLE 11 MISCELLANEOUS............................................................................... 48
11.1 Arbitration........................................................................ 48
11.2 Publicity.......................................................................... 49
11.3 Assignment......................................................................... 49
11.4 Amendment.......................................................................... 50
11.5 Waiver............................................................................. 50
11.6 Notices............................................................................ 50
11.7 Force Majeure...................................................................... 51
11.8 Disclaimer of Agency............................................................... 51
11.9 Further Assurances................................................................. 51
11.10 Expenses........................................................................... 52
11.11 Governing Law...................................................................... 52
11.12 Entire Agreement................................................................... 52
11.13 Severability....................................................................... 52
11.14 Broker's Fees...................................................................... 52
11.15 Article and Section Headings....................................................... 52
11.16 Counterparts....................................................................... 53
</TABLE>
ii
<PAGE> 4
Schedules
<TABLE>
<CAPTION>
Schedule Description
-------- -----------
<S> <C>
Schedule 1.1(a) Ciba Technology
Schedule 1.1(b) Dermion Technology
Schedule 3.1 Ciba Fields
</TABLE>
iii
<PAGE> 5
RESEARCH AND DEVELOPMENT AGREEMENT
RESEARCH AND DEVELOPMENT AGREEMENT (this "Agreement"), dated
as of March 29, 1996, among CIBA-GEIGY CORPORATION, a New York corporation
("Ciba"), acting through its Pharmaceuticals Division, IOMED, INC., a Utah
corporation ("IOMED"), and Dermion, Inc., a Delaware corporation ("Dermion").
WITNESSETH:
WHEREAS, as part of its business, IOMED has been engaged in
the business of conducting research with respect to and developing Systems on
its own behalf and/or on behalf of third parties (the "Business");
WHEREAS, prior to entering into this Agreement, IOMED formed
Dermion, a wholly-owned subsidiary of IOMED, contributed certain assets and
assigned certain rights to Dermion (including the right to receive any royalties
payable by any Person with respect to the IOMED Technology to the extent such
royalties are payable in connection with the conduct of the Business by Dermion)
and entered into certain agreements with Dermion, such that Dermion has all
assets, rights and properties necessary to conduct the Business as previously
conducted by IOMED other than the IOMED Technology;
WHEREAS, each of Dermion and Ciba have certain expertise in
the development of Systems, and Ciba owns or is licensed under Patent Rights and
Know-How with respect to and manufactures certain drugs;
WHEREAS, the parties desire to collaborate in the research and
development of Systems for the delivery of drugs owned by, licensed to, or
manufactured by Ciba, all on the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and of the
covenants and obligations set forth herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
<PAGE> 6
"1984 Act" shall mean the United States Drug Price Competition
and Patent Term Restoration Act of 1984 (as amended), including 21 USC 355, 35
USC 155-156, 35 USC 271 and applicable regulations promulgated thereunder.
"Abandoned Product" shall mean any Product with respect to
which Program activities have been terminated by the Committee.
"Affiliate" shall mean, with respect to any Person, any Person
which, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meaning, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
**********************************************************
*********
"ANDA" shall mean an Abbreviated New Drug Application, as
defined in the FDA Act.
"Annual Plan" shall mean the written plan describing the
activities to be conducted by the parties during each year of the Program, as
prepared and approved, and as may be amended from time to time, by the Committee
in accordance with Section 2.3.
"Applicable Law" shall mean, with respect to a Person, any
domestic or foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement of any Governmental Authority applicable
to such Person or its properties, business or assets.
"Background Technology" shall mean the Patent-Rights and
Know-How of Ciba or Dermion, or their respective Affiliates, as the case may be,
existing as of the date hereof. Patent Rights shall be deemed to exist as of the
date hereof if such Patent Rights are based on a patent application first filed
in the country of issuance or elsewhere prior to the date hereof, or if such
Patent Rights cover an invention first reduced to practice prior to the date
hereof as evidenced by documents prepared by, on behalf of or in cooperation
with, or in the possession of Ciba or Dermion, or their respective Affiliates,
as the case may be. Know-How shall be deemed to exist as of the date hereof to
the extent described in documents prepared by, on
2
<PAGE> 7
behalf of or in cooperation with, or in the possession of Ciba or Dermion, or
their respective Affiliates, as the case may be, prior to the date hereof.
"Bankruptcy Event" with respect to any Person shall mean any
of the following events: such Person makes an assignment for the benefit of its
creditors, files a voluntary petition under federal or state bankruptcy or
insolvency laws, a receiver or custodian is appointed for such Person's
business, proceedings are instituted against such Person under federal or state
bankruptcy or insolvency laws that have not been stayed within 30 days, all or
substantially all of such Person's business or assets become subject to
attachment, garnishment or other process, or a court or other Governmental
Authority of competent jurisdiction determines that such Person is insolvent.
"Business" shall have the meaning set forth in the recitals to
this Agreement.
"Business Day" shall mean any day which is not a Saturday,
Sunday or other day on which banks in the State of New York are legally required
or permitted to be closed.
"Change of Control" with respect to any Person shall mean (i)
any transaction or series of related transactions, other than a registered
public offering, as a result of which Persons owning the outstanding Voting
Securities (as defined below) of such Person immediately prior to such
transaction or series of related transactions cease to own a majority of the
outstanding Voting Securities of such Person thereafter, (ii) the consolidation
or merger of such Person with or into another Person, whether or not such Person
is the surviving entity of such transaction, unless immediately after such
consolidation or merger Persons owning the outstanding Voting Securities of such
Person prior to the transaction own a majority of the outstanding Voting
Securities 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 such
Person to a third party in a single transaction or series of related
transactions. As used herein, the term "Voting Securities" of any Person shall
mean shares of capital stock, partnership interests or other equity interests of
such Person entitling the holder thereof to vote in the election of directors or
other applicable governing body of such Person.
"Ciba Fields" shall have the meaning set forth in Section 3.1.
"Ciba Technology" shall mean (i) the Patent Rights and
Know-How set forth on Schedule 1.1(a) , as such schedule may be
3
<PAGE> 8
updated by Ciba from time to time, (ii) all intellectual property rights
(including all Patent Rights and Know-How) of Ciba with respect to drugs to be
evaluated or tested under the Program or for which Systems will be developed
pursuant to the Program, and (iii) all Improvements thereto.
"Committee" shall have the meaning set forth in Section
2.4(a).
"Contribution Agreement" shall have the meaning set forth in
Section 6.1.
"Dermion Technology" shall mean the Patent Rights set forth on
Schedule 1.1(b)(i), as such schedule may be updated by Dermion from time to
time, and shall include all Improvements thereto.
"Drug" shall mean any drug or medicament possessing physical
and chemical properties that render it potentially deliverable by iontophoresis
in therapeutic quantities.
"Exclusivity Period" shall mean the term of this Agreement,
provided, that in the event that this Agreement is terminated by Dermion other
than pursuant to Section 9.2(iii), the Exclusivity Period shall mean the term of
this Agreement plus a period of two (2) years from the effective date of such
termination.
"FDA" shall mean the United States Food and Drug
Administration.
"FDA Act" shall mean the United States Food, Drug and Cosmetic
Act and applicable regulations promulgated thereunder.
"Final Marketing Image" shall mean, with respect to any
System, the physical and chemical form in which such System (including all
components thereof) shall ultimately be manufactured and marketed commercially.
"First Commercial Sale" shall mean, with respect to any
System, the date of the first sale of such System in the ordinary course of
business in any country. Neither transfer of a System for use in a clinical
trial nor a transfer to any Affiliate, licensee or sublicensee of Ciba for
resale will be deemed a "First Commercial Sale" whether or not the transferor
thereof is paid for such System.
"Fiscal Year" shall mean Ciba's fiscal year, which is a
fifty-two to fifty-three (52-53) week year based on 4-4-5 week quarters, ending
on the last Friday of the calendar year.
4
<PAGE> 9
"full-time equivalent employee" shall mean an individual or
individuals assigned to work on the Program with time and effort equivalent to
that which would be expended by one individual working on the Program on a
full-time basis consistent with normal business and scientific practice.
"Governmental Authority" shall mean any foreign, domestic,
federal, territorial, state or local governmental authority, court, government
or self-regulatory organization, commission, tribunal, organization or any
regulatory, administrative or other agency, or any political or other
subdivision, department, instrumentality, or branch of any of the foregoing.
"IDE" shall mean an Investigational Drug Exemption as defined
in the FDA Act.
"Improvements" shall mean all improvements, extensions,
enhancements, and modifications of or to Ciba Technology, Dermion Technology or
IOMED Technology, as the case may be.
"IND" shall mean an Investigational New Drug Application, as
defined in the FDA Act.
"Infringement Action" shall mean any action or suit, or threat
of action or suit, by a third party alleging that the manufacture, use or sale
of any Product or other System incorporating (or developed or manufactured
through processes incorporating) Dermion Technology, IOMED Technology or Jointly
Developed Technology, as the case may be, infringes a patent or violates any
other proprietary rights of any third party (which infringement or violation is
alleged to result from the incorporation of, or development or manufacture
through processes incorporating, such Dermion Technology, IOMED Technology or
Jointly Developed Technology in such Product or other System).
"Intercompany Patent License" shall have the meaning set forth
in Section 6.1.
"Interim Agreement" shall mean the Research Agreement, dated
as of July 17, 1995, between IOMED and Ciba, as extended prior to the date
hereof.
"IOMED Technology" shall mean the Patent Rights set forth on
Schedule 1.1(b)(ii), as such schedule may be updated by IOMED from time to time,
and shall include all Improvements thereto.
"Jointly Developed Technology" shall mean any and all
technology (including Patent Rights and Know-How) developed
5
<PAGE> 10
pursuant to the Program relating to Systems, provided, that in no event shall
Jointly Developed Technology include Ciba Technology, Dermion Technology or
IOMED Technology.
"Key Employees" shall mean those individuals identified as
such in a letter dated February 27, 1996 from Ciba to IOMED.
"Know-How" shall mean technology, formulae, trade secrets,
technical data, preclinical and clinical data, and any other information or
experience other than Patent Rights.
"Licensed Technology" shall mean Ciba Technology, Dermion
Technology and IOMED Technology.
"Lien" shall have the meaning set forth in Section 7.1(c).
"NDA" shall mean a New Drug Application, as defined in the FDA
Act.
"Net Sales" shall mean the amount billed by a party, its
Affiliates, licensees and sublicensees to third parties for the sale of Products
or other Systems, as the case may be, less allowances for all discounts and/or
rebates, reimbursements or other similar payments which reduce the revenue
actually received by Ciba for Products or Systems sold, as the case may be,
****************************************************************************
****************************************************************************
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***********************************************************************; all
as determined in accordance with Ciba's standard accounting practices.
"parties" shall mean IOMED, Dermion and Ciba.
"Patent Rights" shall mean the rights and interests in and to
issued patents and pending patent applications, whether domestic or foreign,
claiming patentable inventions, including all substitutions, continuations,
continuations-in-part, divisions, and renewals, all letters patent granted
thereon, and all reissues, reexaminations and extensions thereof, whether owned
or licensed in by a party with the right to sublicense.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or Governmental Authority.
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"Product" shall mean a System developed by Dermion and Ciba
pursuant to this Agreement for delivery of any Drug specified by the parties.
"Program" shall mean those activities conducted pursuant to
this Agreement to research, develop, manufacture and commercialize Products.
"Program Costs" shall mean (i) all costs and expenses directly
related to Program activities incurred by Dermion in accordance with the Annual
Plans and Quarterly Budgets, plus (ii) a general and administrative overhead
*****************************************************************************
****************************************************************************
***************************************************************************
**********************************************************.
"Program Employee" shall have the meaning set forth in Section
2.2.
"Program Records" shall have the meaning set forth in Section
2.5.
"Prohibited Transfer" shall mean any Transfer other than (i)
to the partners, shareholders or other holders of any equity interest in the
transferor, or (ii) pursuant to an effective registration statement under the
Securities Act of 1933, as amended.
"Prohibited Transferee" shall mean **********************
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***************************************************************************
***************************************************************************
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***************************************************************************
***************************************************************************
***************************************************************************
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************************************************************************
"Prosecution Costs" shall mean all direct and indirect fully
absorbed costs, fees and expenses, including reasonable attorneys' fees incurred
in connection with the filing, maintenance and prosecution of patent
applications and patents with respect to Jointly Developed Technology,
including, without limitation, costs and charges reasonably incurred in
defending any interferences and oppositions with respect thereto.
"Quarterly Reports" shall have the meaning set forth in
Section 6.2(a).
"Research Funding Payments" shall have the meaning set forth
in Section 6.2(a).
"Royalty Period" shall mean that period beginning on the First
Commercial Sale of a System and ending upon expiration of all patents
constituting Dermion Technology, IOMED Technology or Jointly Developed
Technology, as the case may be, incorporated in such System (or in any
processes through which such System is developed or manufactured).
"Settlement Costs" shall mean, with respect to any
Infringement Action, all damages paid or payable to a third party in connection
with such Infringement Action, all costs and expenses (including reasonable
attorneys' fees) incurred in connection with such Infringement Action, and all
fees, royalties or other amounts paid or payable to a third party pursuant to
any Third Party License obtained in connection with such Infringement Action.
"Specified Indication" shall have the meaning set forth in
Section 3.1(b).
"System" shall mean an iontophoretic transdermal drug delivery
system, incorporating a current source, current controller, drug containment
device/electrode, dispersive electrode and method for attachment.
"Technology Transfer Restriction Period" shall have the
meaning set forth in Section 4.4.
"term of this Agreement" shall mean the initial term of this
Agreement and any extensions thereof in accordance with Section 9.1.
"Territory" shall mean **************************.
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<PAGE> 13
"Third Party License" shall mean, with respect to any
Infringement Action, any license which either Dermion or Ciba, as the case may
be, is required to obtain from a third party under the terms of any settlement
or any judgment, decree or decision of a court, tribunal or other authority of
competent jurisdiction in order to make, have made, use or sell Products or
other Systems incorporating (or developed or manufactured through processes
incorporating) Dermion Technology, IOMED Technology or Jointly Developed
Technology, as the case may be.
"Transfer" shall mean (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.
1.2 General Definition Provisions. For purposes of this
Agreement, except as otherwise expressly provided herein,
(a) the terms defined in Section 1.1 include the plural as
well as the singular;
(b) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
(c) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Section, Paragraph or other subdivision; and
(d) the words "include", "including" and other words of
similar import mean "include, without limitation" or "including, without
limitation," regardless of whether any reference to "without limitation" or
words of similar import is made.
ARTICLE 2
THE PROGRAM
2.1 Basic Provisions of the Program. The Program shall be
conducted by Dermion, subject to oversight by the Committee. Under the Program,
Dermion will use commercially reasonable efforts to conduct research with
respect to and develop Products in accordance with this Agreement. In
furtherance thereof, Dermion shall use commercially reasonable efforts to
perform such tasks and to comply with the time schedules therefor as are set by
the Committee in the Annual Plans or otherwise; provided, that Dermion shall
have no
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<PAGE> 14
obligation to incur costs or expenses to purchase assets or obtain services for
use exclusively in connection with the Program which are materially in excess of
the aggregate amount of Research Funding Payments paid by Ciba. Program
activities shall be conducted at facilities provided by Dermion and/or Ciba and
shall use such personnel, methods and resources as shall be determined by
Dermion, subject to the approval of the Committee; provided, however, that any
such facilities provided by Ciba shall be provided at no charge to Dermion. Such
personnel, methods and resources shall be sufficient to fulfill the objectives
of the Program. Dermion covenants to Ciba that all Program activities conducted
by Dermion or its Affiliates shall be conducted in a professional and competent
manner, in compliance with all Applicable Laws and in accordance with this
Agreement.
2.2 Staffing and Resources.
(a) Dermion. Dermion shall make available for use exclusively
in the Program ****************************** equivalent employees ("Program
Employees") at all times during the term of this Agreement, unless at any time
the Committee determines that the objectives of the Program can be fulfilled
with fewer Program Employees. Each Program Employee shall have such technical
credentials, education and experience as is appropriate for such Program
Employee's position in the Program. It is understood and agreed that the Program
Employees may be consultants or independent contractors of, and need not be
employees of, Dermion. All compensation (including salary, bonus and other
benefits), and all travel, lodging and other business expenses of Program
Employees shall be paid by Dermion. In the event of a Program Employee vacancy
for any reason, prompt notice thereof shall be given to the Committee. Unless
otherwise determined by the Committee, any such vacancy shall be filled by
Dermion with an individual or individuals with comparable qualifications as the
departed Program Employee and acceptable to Ciba, in its reasonable discretion.
Subject to Section 2.2(c) below, Dermion shall provide such other scientific
resources (consultants, facilities, equipment and materials) as are reasonably
necessary to conduct the Program.
(b) Ciba. Ciba shall have the right to designate from time to
time Ciba personnel to participate in the Program ("Ciba Personnel"). Ciba
Personnel shall remain employed or otherwise engaged by Ciba during their
participation in the Program. Ciba shall remain responsible for all compensation
(including salary, bonus and other benefits) payable to, and all travel, lodging
and other business expenses of such Ciba Personnel.
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<PAGE> 15
(c) Equipment. Except as set forth in the next sentence, all
equipment necessary for conducting the Program shall be provided by Dermion at
its cost (which cost, if incurred in compliance with this Agreement, shall be
depreciated in accordance with generally accepted accounting principles as a
Program Cost) and, to the extent purchased by Dermion, title thereto shall be
retained by Dermion. To the extent any item of equipment is required to be
purchased in connection with conducting the Program for a purchase price in
excess of *******, Dermion shall notify the Committee. Subject to Section
2.4(a)(viii), Ciba shall purchase such equipment and make it available for use
in the Program. Ciba shall retain title to any such equipment and such equipment
shall be returned to Ciba upon termination of this Agreement.
2.3 Annual Plans. For each calendar year of the Program, an
Annual Plan shall be approved by the Committee no later than ninety (90) days
before the end of the prior calendar year. The Annual Plan for 1996 shall be
prepared and approved by the Committee no later than thirty (30)days after the
date hereof. Each Annual Plan shall be in writing and shall set forth with
reasonable specificity research objectives, milestones, budgets and personnel
requirements for Program activities to be conducted during the year covered by
such Annual Plan. The Committee may make amendments to the Annual Plan as it may
determine are necessary or desirable from time to time.
2.4 The Committee.
(a) Establishment and Functions. Dermion and Ciba shall
establish a research and development steering Committee (the "Committee"), which
shall be responsible for overseeing all aspects of the Program. The Committee
shall plan, administer, and monitor the Program and shall keep the parties
reasonably informed as to the status of all Program activities. Without limiting
the foregoing, the approval of the Committee shall be required for the following
actions with respect to the Program:
(i) The adoption, amendment or repeal of any material plan or
policy, including Annual Plans, with respect to the Program;
(ii) The determination as to whether to pursue research concerning
or the development of any particular Product;
(iii) The determination as to whether to make any material changes
or material adjustments with respect to the research
concerning or development of any particular Product or the
Program generally;
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<PAGE> 16
(iv) The termination of Program activities with respect to any
Product;
(v) The organization of, or the acquisition or disposition of any
interest in, any other Person by Dermion in connection with
the Program;
(vi) The execution, material amendment or termination by Dermion of
any agreement for the acquisition from a third Person of
Patent Rights or Know-How (or a license thereof) in connection
with Program activities;
(vii) Subject to the provisions of Section 4.5, the filing of any
patent application with respect to any Jointly Developed
Technology;
(viii) Except as contemplated in the then-current Annual Plan, any
capital expenditure or series of related capital expenditures
in connection with the Program aggregating in excess of Five
Thousand Dollars ($5,000);
(ix) Except as contemplated in the then-current Annual Plan, any
agreement for the performance of any Program activities by a
third party subcontractor involving payments in excess of Five
Thousand Dollars ($5,000);
(x) The determination as to whether to pursue an IND, IDE or NDA
with respect to any Product;
(xi) The determination as to whether any technology developed
pursuant to the Program constitutes Improvements to Ciba
Technology, Improvements to Dermion Technology, Improvements
to IOMED Technology or Jointly Developed Technology;
(xii) The establishment and approval of the Final Marketing Image of
any System; and
(xiii) The amendment or appeal of any prior resolutions of the
Committee.
(b) Size and Membership. The Committee shall consist of six
(6) members. Each Committee member shall have appropriate technical credentials,
knowledge and on-going familiarity with this Agreement, and the Committee
members of each party shall have authority to bind such party. Dermion and Ciba
each shall appoint, in its sole discretion, three members to the Committee.
Substitutes may be appointed at any time by notice in writing to the other
party. Vacancies 0 shall be filled by the party who appointed the departing
member.
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The initial members of the Committee shall be as set forth
below:
Dermion Appointees:
Ned Weinshenker
Tom Parkinson
Lindsay Lloyd
Ciba Appointees:
Harald Rettig
Glen Van Buskirk
Robert Andriola
(c) Meetings. The Committee shall meet at least semiannually,
with such semi-annual meeting to be held, alternatively, in Salt Lake City, Utah
and Summit, New Jersey, unless the parties agree otherwise. Any additional
meetings shall be held at such places and on such dates selected by the parties.
Employees of each party or its Affiliates, in addition to the members of the
Committee, may attend such meetings at the invitation of either party.
(d) Minutes. The Committee shall keep accurate minutes of its
deliberations which record all proposed decisions and all actions recommended or
taken. Drafts of the minutes shall be delivered to all Committee members within
fifteen (15) days after each meeting. The party hosting the meeting shall be
responsible for the preparation and circulation of the draft minutes. Draft
minutes shall be edited by the parties and shall be issued in final form only
with their approval and agreement as evidenced by their signatures on the
minutes.
(e) Quorum; Voting, Decisions. At each Committee meeting, the
presence of at least two representatives of each party shall constitute a
quorum. Each party's Committee representatives shall have in the aggregate one
vote on-all matters before the Committee, regardless of the number of
representatives present. All decisions of the Committee shall be made by
unanimous vote. In the event that the Committee is unable to resolve any matter
before it after substantial good faith negotiation (a "Disputed Matter"), and if
such Disputed Matter is a Ciba Matter (as defined below), Ciba shall cast the
deciding vote on the matter. Any Disputed Matter that is not a Ciba Matter shall
be referred at the request of either party to the Chairman of Dermion and the
Senior Vice President, Research, of the Pharmaceuticals Division of Ciba (or
such other individuals) not on the Committee designated from time to time in
writing by one party to the other) for resolution. Such
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<PAGE> 18
officers shall endeavor in good faith to resolve the matter in dispute. If the
matter has not been resolved within forty-five (45) days of such referral, it
shall be resolved in accordance with Section 11.1. As used in this Agreement,
"Ciba Matter" shall mean any matter described in clauses (i), (ii), (iii), (iv),
(viii), (ix), (x) or (xiii) of Section 2.4(a) (in the case of (xiii), only to
the extent that the resolution being amended or repealed constitutes a Ciba
Matter), and any other matter expressly designated as such in this Agreement.
(f) Expenses. Dermion and Ciba shall each bear all expenses of
their respective Committee members related to their participation on the
Committee and attendance at Committee meetings.
2.5 Research Records; Reports.
(a) Research Records. Dermion shall maintain complete and
accurate records, in good scientific manner and in appropriate detail for patent
purposes, fully and properly reflecting all Program activities performed by it,
costs and expenses incurred in connection therewith and the results thereof,
including, without limitation, such data and materials as are required to be
maintained pursuant to Applicable Laws ("Program Records"). Program Records
shall be maintained on a Product-by-Product basis.
(b) Reports. Within fifteen (15) days after the end of each
calendar quarter (and otherwise at the written request of the Committee),
Dermion shall prepare and provide to the Committee a written summary describing,
in reasonable detail, the status of the Program, including all discoveries and
technical developments, and the status of compliance with research objectives
and milestones as set forth in the Annual Plan. In addition, Dermion shall
provide Quarterly Reports to the Committee pursuant to and in accordance with
Section 6.2. Dermion shall provide such other research, financial or other
reports to the Committee as the Committee may from time to time reasonably
request.
(c) Interim Agreement Report. IOMED has prepared and provided
to Ciba a written report setting forth an accounting of all funds paid by Ciba
to IOMED pursuant to the Interim Agreement.
(d) Review. Subject to Section 8.1, Ciba shall have the right,
during normal business hours and upon reasonable notice, to inspect and copy the
records of Dermion relating to the Program.
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(e) Hazards. Each of Dermion and Ciba shall report to the
other as soon as practicable, and no later than five (5) days following such
party's own notification thereof, any findings associated with the use of any
System that may suggest significant hazards, significant contraindications,
significant side effects or significant precautions pertinent to the safety of
such System, in each case (i) at any time, insofar as it relates to Dermion
Technology, IOMED Technology or Jointly Developed Technology, or (ii) during the
term of this Agreement, insofar as it relates to Ciba Technology.
2.6 Access to Facilities. Subject to Section 8.1,
representatives of Ciba may, upon reasonable notice during normal business
hours, (a) visit any facilities where Program activities are being conducted,
and (b) consult informally, during such visits and by telephone, with
representatives of Dermion concerning the Program. On such visits, a
representative of Dermion may accompany the representatives of Ciba.
2.7 Clinical Trials. Unless otherwise determined by the
Committee with respect to any Product (which determination shall not be a Ciba
Matter), all clinical trials of Products shall be conducted by or under the
supervision of, and at the sole cost and expense of, Ciba, utilizing such
facilities, personnel, methods and other resources as shall be determined by
Ciba, subject to the review and approval of the Committee (which approval shall
be a Ciba Matter), provided, that Ciba shall not be required to pay any
additional compensation to Dermion in the event that any such facilities,
personnel, methods or other resources are provided by Dermion pursuant to this
Agreement. Dermion shall be given the opportunity to assist in the preparation
of any protocol proposed by Ciba for clinical trials of a Product.
2.8 Clinical Manufacturing of Products. Unless otherwise
determined by the Committee with respect to any Product, Dermion shall supply
Products for purposes of conducting clinical trials thereof. Dermion shall use
such facilities, personnel, methods and other resources as shall be determined
by Dermion, subject to the review and approval of the Committee. Ciba shall
reimburse Dermion for all direct out-of-pocket costs and expenses incurred by
Dermion in supplying Products pursuant to this Section 2.8. To the extent that
Dermion obtains products from IOMED, IOMED covenants and agrees to charge
Dermion only IOMED's direct fully absorbed costs and expenses incurred in
supplying such Products to Dermion.
2.9 Liability Insurance. During the term of this Agreement,
each party shall maintain comprehensive general liability insurance with respect
to claims for damages arising
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from bodily injury (including death) caused by, or arising out of, the
development, manufacture and sale of its products in such amounts, with such
deductibles and covering such risks as are customary for comparable companies in
its industry. Prior to the commencement of clinical trials with respect to any
Product, the Committee shall meet to discuss whether the parties should obtain
additional liability insurance with respect to claims caused by, or arising out
of, the development of the Products, including any clinical trials associated
therewith, and the amounts and deductibles of any such insurance.
ARTICLE 3
EXCLUSIVITY
3.1 Ciba Fields; Ciba Proprietary Drugs.
(a) Ciba Fields. Schedule 3.1(a) attached hereto sets forth as
of the date hereof those therapeutic fields in which Ciba or any of its
Affiliates ****************************************************************
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***************************************************************************
Ciba may update Schedule 3.1(a) from time to time in its discretion during the
Exclusivity Period, subject to Section 3.1(c). The therapeutic fields set forth
on Schedule 3.1(a), as so updated from time to time, shall be referred to herein
as the "Ciba Fields."
(b) Ciba Proprietary Drugs. Schedule 3.1(b) attached hereto
sets forth as of the date hereof certain Drugs with respect ********************
*****************************************, and which Ciba believes are
potentially therapeutic if delivered pursuant to a System in the treatment of
the indication (the "Specified Indication") set forth in Schedule 3.1(b) with
respect to such Drug. Ciba may update Schedule 3.1(b) from time to time during
the term of this Agreement, subject to Section 3.1(c), ***********************
***************************************************************************
**********************************. The Drugs set forth on Schedule 3.1(b), as
so updated from time to time, shall be referred to herein as the "Ciba
Proprietary Drugs."
(c) Updates. If Ciba desires at any time during the
Exclusivity Period to update Schedule 3.1(a) in order to include a new
therapeutic field (the "Proposed Ciba Field"), or at any time during the term of
this Agreement to update Schedule 3.1(b) to include a new Ciba Proprietary Drug
(such Drug, together with the associated Specified Indication, the "Proposed
Ciba
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<PAGE> 21
Proprietary Drug"), it shall notify Dermion in writing, which notice shall
contain (i) in the case of a Proposed Ciba Field, a certification that such
Proposed Ciba Field satisfies the condition set forth in either clause (i) or
clause (ii) of Section 3.1(a) hereof, or (ii) in the case of a Proposed Ciba
Proprietary Drug, a certification that such Proposed Ciba Proprietary Drug
satisfies the condition set forth in Section 3.1(b) hereof. Such Proposed Ciba
Field or Proposed Ciba Proprietary Drug shall automatically and without further
action by any party hereto become a Ciba Field or a Ciba Proprietary Drug, as
the case may be, and be treated as such for all purposes of this Agreement
immediately upon receipt by Dermion of such written notice; provided, however,
that if Dermion has, prior to its receipt of such notice and in compliance with
the terms of this Agreement (including without limitation Section 3.3 hereof)
entered into an agreement with any other Person (a "Third Party Agreement") with
respect to the research, development, manufacture, distribution or sale of any
System to deliver a Drug in the Proposed Ciba Field or the Proposed Ciba
Proprietary Drug for treatment of the Specified Indication, such Third Party
Agreement shall not be subject to this Article 3.
(d) Removal of Ciba Field or Ciba Proprietary Drug. If, at any
time during the Exclusivity Period, any Ciba Field or, during the term of this
Agreement, any Ciba Proprietary Drug ceases to qualify as such, Ciba shall
within ninety (90) days notify Dermion in writing of such fact. Such Ciba Field
or Ciba Proprietary Drug, as the case may be, shall thereafter automatically and
without further action of the parties cease to be a Ciba Field or a Ciba
Proprietary Drug, as the case may be, for purposes of this Agreement.
3.2 Dermion Exclusivity. Dermion shall not conduct, have
conducted or fund any research or development activity with respect to, or
manufacture, distribute or sell (whether independently or on behalf of a third
party) any System for delivery of any Drug in a Ciba Field during the
Exclusivity Period or any Ciba Proprietary Drug for treatment of the Specified
Indication during the term of this Agreement, except (i) pursuant to the Program
in accordance with this Agreement, or (ii) outside the scope of the Program,
subject to compliance with Section 3.3.
3.3 Development of Systems for or by Dermion Outside the
Program.
(a) Notice of Dermion Proposed Systems. In the event that
during the Exclusivity Period Dermion determines to develop a System (including
any Abandoned Product) outside the scope of the Program, either pursuant to a
third party offer (a "Third
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<PAGE> 22
Party Offer") to develop a System, or otherwise (a "Dermion Proposed System"),
Dermion shall give notice of the Dermion Proposed System to the Committee (the
"Notice"). The Notice shall include at least the therapeutic field of the drug
to be delivered pursuant to the Dermion Proposed System (the "Proposed Field"),
as well as such other information as is relevant to the Dermion Proposed System,
provided, that if the Dermion Proposed System is to be developed pursuant to a
Third Party Offer, Dermion shall not be required to disclose to the Committee
the name of such third party, the specific drug for which the System is to be
developed (unless such drug is a Ciba Proprietary Drug, in which case such drug,
as well as whether the indication proposed to be treated thereby is the
Specified Indication with respect to such drug, shall be disclosed) or any other
information that Dermion determines, in its good faith judgment, should not be
disclosed to Ciba because of confidentiality or competitive concerns (other than
the therapeutic field, which must in any event be disclosed).
(b) Dermion Proposed Systems in a Ciba Field. If the Proposed
Field is in whole or in part a Ciba Field, Dermion shall be prohibited from
pursuing the development of the Dermion Proposed System during the Exclusivity
Period without the prior written consent of Ciba, which may be given or withheld
in Ciba's sole discretion.
(c) Dermion Proposed Systems for Ciba Proprietary Drugs. If
the Dermion Proposed System relates to the delivery of a Ciba Proprietary Drug
for treatment of the Specified Indication, Ciba shall have the right during the
term of this Agreement to elect to have Dermion develop a Product for such Ciba
Proprietary Drug for treatment of the Specified Indication for it pursuant to
the Program instead of the Proposed Dermion System. If Ciba so elects, it shall
give notice thereof to the Committee within fifteen (15) Business Days of
receipt by the Committee of the Notice, in which case Dermion shall be
prohibited during the term of this Agreement from developing the Dermion
Proposed System for treatment of the Specified Indication, subject to the last
sentence of this Section 3.3 (c) The development of any such Product for a Ciba
Proprietary Drug for treatment of the Specified Indication pursuant to the
Program shall be pursuant to this Agreement or an amendment to this Agreement
(provided, that, other than providing for incremental costs to be paid by Ciba
and incremental personnel, facilities and resources to be provided by Dermion,
such amendment shall be on the same terms and conditions as this Agreement). If
Ciba fails to give such notice within such fifteen (15) Business Day period, or
if activities with respect to developing a Product for the Ciba Proprietary Drug
for treatment of the Specified Indication pursuant to the Program have not
commenced within
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ninety (90) days of receipt by the Committee of the Notice (other than as a
result of any acts or omissions of Dermion), Dermion shall be free to pursue the
development of the Dermion Proposed System for treatment of the Specified
Indication outside the scope of the Program, provided, that if activities with
respect to developing such Dermion Proposed System for treatment of the
Specified Indication outside the scope of the Program have not commenced within
ninety (90) days after expiration of such fifteen (15) Business Day period or
such ninety (90) day period, as the case may be, any activities by Dermion with
respect to such Dermion Proposed System shall thereafter be subject to
compliance with this Section 3.3.
(d) Other Dermion Proposed Systems. If the Proposed Field is
not a Ciba Field and if the Drug proposed to be delivered pursuant to the
Dermion Proposed System is not a Ciba Proprietary Drug for treatment of the
Specified Indication, Dermion may freely develop the Dermion Proposed System for
a third party (which development may be pursuant to an agreement under which
Dermion grants exclusive licenses to such third party).
3.4 Development by Dermion of Abandoned Products. Dermion
shall be entitled to pursue research concerning and development of Abandoned
Products outside the scope of the Program, provided, that (i) any such activity
shall be subject to compliance with Section 3.3, (ii) Patent Rights covering the
Drug for which such Abandoned Product was being developed or such drug's
manufacture or use shall have expired, and (iii) Dermion shall reimburse Ciba in
accordance with the next sentence for all costs and expenses previously incurred
in conducting Program activities with respect to such Abandoned Product. In
reimbursement of such costs and expenses incurred with respect to any Abandoned
Product, Dermion shall pay to Ciba (i) within thirty (30) days after giving
Notice pursuant to Section 3.3(a) with respect to the proposed development by
Dermion of such Abandoned Product, all such costs and expenses up to a maximum
amount OF $250,000, and (ii) within thirty (30) days of receipt thereof, fifty
percent (50%) of all revenues received by Dermion with respect to such
Abandoned Product (including revenue from sales of and fees and/or royalties
received with respect to such Abandoned Product) up to the amount of such costs
and expenses not reimbursed pursuant to clause (i).
3.5 Development of Systems for or by Ciba.
(a) Systems for the Delivery of Ciba Proprietary Drugs. In the
event that during the term of this Agreement Ciba determines to develop a System
for a Ciba Proprietary Drug for treatment of the Specified Indication, it shall
give notice
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thereof to the Committee (a "Ciba Proposed Proprietary System"). Dermion shall
have the right to elect to develop such Ciba Proposed Proprietary System for
treatment of the Specified Indication as a Product pursuant to the Program. If
Dermion so elects, it shall give notice thereof to the Committee within fifteen
(15) Business Days of receipt by the Committee of such notice, in which case
Ciba shall be prohibited during the term of this Agreement from developing the
Ciba Proposed Proprietary System for treatment of the Specified Indication
outside the scope of the Program, subject to the last sentence of this Section
3.5(a). The development of a Ciba Proposed Proprietary System for treatment of
the Specified Indication as a Product pursuant to the Program shall be pursuant
to this Agreement or an amendment to this Agreement (provided, that, other than
providing for incremental costs to be paid by Ciba and incremental personnel,
facilities and resources to be provided by Dermion, such amendment shall be on
the same terms and conditions as this Agreement). If Dermion fails to give such
notice within such fifteen (15) Business Day period, or if activities with
respect to developing a Product for the Ciba Proprietary Drug for treatment of
the Specified Indication have not commenced within ninety (90) days of receipt
by the Committee of such notice (other than as a result of any acts or omissions
of Ciba), Ciba shall be free to pursue the development of the Ciba Proposed
Proprietary System for treatment of the Specified Indication outside the scope
of the Program, provided, that if activities with respect to developing such
Ciba Proposed Proprietary System for treatment of the Specified Indication
outside the scope of the Program have not commenced within ninety (90) days
after the expiration of such fifteen (15) Business Day period or such ninety
(90) day period, as the case may be, any activities by Ciba with respect to such
Ciba Proposed Proprietary System shall thereafter be subject to compliance with
this Section 3.5(a).
(b) Other Systems. If during the term of this Agreement Ciba
makes the determination to engage a third party (other than Dermion) to develop
a System for a Drug owned, licensed or manufactured by Ciba (other than a Ciba
Proprietary Drug for treatment of the Specified Indication, which shall be
covered by Section 3.5(a) above) (a "Ciba Proposed System"), prior to initiating
discussions with such third party, Ciba shall notify Dermion in writing. Ciba
agrees for a period of thirty (30) days from such notice (the "Ciba Standstill
Period"), (i) to negotiate in good faith with Dermion to reach an agreement
under which Dermion would develop the Ciba Proposed System for Ciba either
pursuant to this Agreement or an amendment to this Agreement (provided, that,
other than providing for incremental costs to be paid by Ciba and incremental
personnel, facilities and resources to be provided by Dermion, such amendment
shall be on the same terms and conditions as this Agreement), and
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(ii) Ciba shall not negotiate with or enter into a binding agreement with any
third party for the development of such Ciba Proposed System. If, upon
expiration of the Ciba Standstill Period, Ciba and Dermion have not reached an
agreement with regard to the development of the Ciba Proposed System, Ciba shall
be free to negotiate with and to enter into an agreement with a third party to
develop the Ciba Proposed System. Notwithstanding the foregoing, this Section
3.5(b) shall not apply to any Ciba Proposed System to the extent that
discussions regarding the development of such Ciba Proposed System are initiated
by a third party.
(c) No Other Restrictions. Notwithstanding any other provision
of this Agreement, Ciba shall be free to pursue the development of any System
(including any Ciba Proposed System) independently without the assistance of a
third party at any time without complying with Section 3.5(b) or any other
provision of this Agreement (other than Section 3.5(a) which shall apply only in
the case of a Ciba Proposed Proprietary System), and without any other
restriction or limitation of any kind.
ARTICLE 4
OWNERSHIP OF TECHNOLOGY; PATENTS
4.1 Licensed Technology; No Other Rights. It is understood and
agreed that Dermion owns the Dermion Technology, that IOMED owns the IOMED
Technology and that Ciba owns the Ciba Technology. It is further understood and
agreed that Dermion or its Affiliates owns Dermion Background Technology and
Ciba or its Affiliates owns Ciba Background Technology. Except as expressly set
forth in Section 5.2, neither IOMED nor Dermion shall, by virtue of entering
into this Agreement or the conduct of the Program, acquire any right, title or
interest in or to any technology (including Patent Rights and Know-How) or
products of Ciba, including the Ciba Technology and Ciba Background Technology.
Except as expressly set forth in Section 5.1, Ciba shall not, by virtue of
entering into this Agreement or the conduct of the Program, acquire any right,
title or interest in or to any technology (including Patent Rights and Know-How)
or products of IOMED or Dermion, including the Dermion Technology, the IOMED
Technology and Dermion Background Technology. Except as expressly provided
herein, nothing in this Agreement shall be deemed to grant (directly, by
implication or estoppel, or otherwise) any license under any such technology. It
is understood and agreed by the parties that this Agreement does not grant to
any party any license or other right to use in advertising, publicity or
otherwise, any trademark, service mark,
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trade name or their equivalent, or any contraction, abbreviation or simulation
thereof, of any other party.
4.2 Improvements. Without limiting the generality of the
foregoing, any Improvements of or to Dermion Technology, IOMED Technology or
Ciba Technology made in the course of conducting the Program shall remain the
sole and exclusive property of Dermion, IOMED or Ciba, as the case may be. In
furtherance thereof, as between Dermion and IOMED and Persons claiming through
either of them, on the one hand, and Ciba and Persons claiming through Ciba, on
the other hand, (i) any Improvements made in the course of conducting the
Program, or any results of the Program, in each case that are specific to the
Dermion Technology or the IOMED Technology shall be the sole and exclusive
property of Dermion or IOMED, as the case may be, and all records and data
relating thereto shall be retained by Dermion or IOMED, as the case may be, and
(ii) any Improvements made in the course of conducting the Program, or any
results of the Program, in each case that are specific to the Ciba Technology
shall be the sole and exclusive property of Ciba, and all records and data
relating thereto shall be delivered to Ciba. Each of IOMED and Dermion hereby
assigns to Ciba all intellectual property rights that it may now have or
hereafter acquire in any Improvements that are made in the course of conducting
the Program, or any results of the Program, in each case that are specific to
the Ciba Technology. Ciba hereby assigns to Dermion all intellectual property
rights that it may now have or hereafter acquire in any Improvements that are
made in the course of conducting the Program, or any results of the Program, in
each case that are specific to the Dermion Technology. Ciba hereby assigns to
IOMED all intellectual property rights that it may now have or hereafter acquire
in any Improvements that are made in the course of conducting the Program, or
any results of the Program, in each case that are specific to the IOMED
Technology.
4.3 Ownership and Use of Jointly Developed Technology.
(a) Ownership of Jointly Developed Technology. Subject to
Section 4.3(b) , Dermion and Ciba shall jointly hold all right, title and
interest in and to all Jointly Developed Technology. Except as otherwise
provided in this Agreement, both Ciba and Dermion may freely practice and
otherwise exploit any and all Jointly Developed Technology without the consent
of, and without any obligation (including without limitation any obligation to
pay royalties or other amounts, or to render an accounting) to, the other party.
Each of Dermion and Ciba shall cause its employees and others performing Program
activities on its behalf (including, in the case of Dermion, Program Employees,
and in the case of Ciba, Ciba Personnel) (its "Scientists") to execute
agreements (i) assigning world-wide rights to all Jointly
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Developed Technology made or developed by such Scientists to Dermion and Ciba,
jointly, and (ii) agreeing to cooperate with Dermion and Ciba in obtaining
patent protection with respect thereto (including by executing such documents as
may be required by any patent office in connection with a related patent
application or patent). Each of Dermion and Ciba shall cause its Scientists
promptly to disclose to such party, and shall thereafter promptly disclose to
the other party and the Committee, the conception or reduction to practice of
any Jointly Developed Technology that it believes has a reasonable likelihood of
receiving patent protection.
(b) Limitations on Use of Jointly Developed Technology by
Dermion. Notwithstanding the rights of Dermion and Ciba as joint owners of
Jointly Developed Technology pursuant to Section 4.3(a), any use of Jointly
Developed Technology by Dermion and Ciba shall be subject to Article 3 hereof.
4.4 Transfer of Jointly Developed Technology. During the term
of this Agreement, and for a period of three (3) years after the effective date
of termination thereof (such term and period, the "Technology Transfer
Restriction Period"), neither Dermion nor Ciba shall sell, assign, transfer or
convey (for purposes of this Section 4.4, "Assign") all right, title and
interest in or to any item of Jointly Developed Technology without the prior
written consent of the other party, except (i) to a successor to substantially
all of the business of Dermion or the Pharmaceuticals Division of Ciba, as the
case may be, whether by merger, consolidation, stock sale, asset sale or
otherwise, (ii) in the case of Ciba, to any Person other than a Prohibited
Transferee, or (iii) in the case of Dermion, to any Person other than for use in
connection with the research, development, manufacture, distribution or sale of
Systems for delivery of drugs in any of the Ciba Fields (as defined from time to
time in accordance with Section 3.1(a)), it being a condition precedent to any
Assignment of Jointly Developed Technology pursuant to this clause (iii) that
Dermion obtain the agreement of such Person not to so use during the Technology
Transfer Restriction Period the Jointly Developed Technology to be Assigned;
provided, however, that notwithstanding any other provision of this Section 4.4,
in the event that Dermion Assigns any Jointly Developed Technology to a
Prohibited Transferee (which Assignment by its terms shall require the Assignee
to give notice to Dermion of subsequent Assignments by such Prohibited
Transferee), and such Prohibited Transferee subsequently Assigns such Jointly
Developed Technology to another Prohibited Transferee, Dermion shall promptly
give Ciba notice of such subsequent Assignment, in which case the restriction
set forth in clause (ii) above shall, as of the date of such subsequent
Assignment, terminate and thereafter be of no further force or effect.
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4.5 Patents and Patent Applications.
(a) Initial Filings. Each party shall promptly disclose to the
Committee the conception or reduction to practice of any Jointly Developed
Technology that the disclosing party believes has a reasonable likelihood of
receiving patent protection. Promptly after such disclosure, the Committee shall
meet (in person or by teleconference) to discuss such Jointly Developed
Technology, including (i) whether to proceed with a patent application with
respect thereto and (ii) the jurisdictions in which such patent application
should be filed. In the event that the Committee elects to file a patent
application with respect to any Jointly Developed Technology, Ciba shall be
responsible therefor (unless the Committee determines that Dermion should file
such patent application (which determination shall not be a Ciba Matter)) (the
party filing such patent application being referred to in this Section 4.5 as
the "Responsible Party"). The Responsible Party shall (i) give the other party
an opportunity to review the text of any such application promptly (with
consideration of all applicable filing deadlines) before filing and (ii)
promptly supply the other party with a copy of the application as filed,
together with notice of its filing date and serial number. Unless otherwise
agreed by the parties, the Responsible Party shall be responsible for the
initial filing of any such patent application and the subsequent prosecution and
maintenance of the application and any resulting patents.
(b) Foreign Filings. Within a reasonable period of time (which
the parties shall use reasonable efforts to ensure is no more than nine (9)
months) following the filing date of a patent application pursuant to Section
4.4(a), the Committee shall determine whether to abandon such application
without replacement, abandon and refile such application, proceed with such
application only in the country of filing, or use such application (e.g. as the
basis for a claim of priority under the Paris Convention) for corresponding
applications in other countries. Dermion and Ciba shall consult together to
ensure that, so far as practicable, the texts of applications filed in different
jurisdictions contain the same information and claim the same scope of
protection.
(c) Patent Prosecution and Maintenance. The Responsible Party
shall diligently prosecute and maintain, using commercially reasonable
practices, patent applications and patents with respect to Jointly Developed
Technology for which it is responsible, and promptly provide the other party
with copies of all relevant documentation with respect thereto. The Responsible
Party shall use patent counsel and other professional
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<PAGE> 29
advisors of its own selection, reasonably acceptable to the other party. The
Committee shall periodically review the status of patents and patent
applications constituting Jointly Developed Technology, including whether the
prosecution and/or maintenance of each such patent or patent application should
be continued.
(d) Authority. The Responsible Party shall have the sole and
exclusive authority to prosecute and maintain the patent application and patent
for which it is responsible, including the right to amend and cancel claimed
subject matter, as may be reasonably appropriate or desirable in the view of the
Responsible Party, but shall consult in good faith with the other party
regarding such prosecution and maintenance with respect to Jointly Developed
Technology for which it is responsible, and will promptly provide the other
party with a copy of all relevant documentation with respect thereto. The other
party shall cooperate with the Responsible Party, including providing the
Responsible Party with access to such information as may be reasonably necessary
to permit such prosecution and maintenance, and signing, or causing to have
signed, such documents as may be necessary or appropriate in connection
therewith. Prior to abandoning any such patent application or patent, the
Responsible Party shall offer the same to the other party for prosecution or
maintenance, as the case may be. The costs, if any, of such cooperation shall be
Prosecution Costs subject to Section 4.4(e).
(e) Prosecution Costs. Dermion and Ciba shall bear all
Prosecution Costs equally, provided, that Dermion's share of such Prosecution
Costs shall not exceed $50,000 per patent application (not including any
Premium payable pursuant to Section 4.5(f)).
(f) Independent Filing. In the event that after consideration
thereof the Committee elects not to file a patent application in any
Jurisdiction with respect to any Jointly Developed Technology, either Dermion or
Ciba shall be entitled to file a patent application in such jurisdiction with
respect to such Jointly Developed Technology (an "Independent Filing"). In such
event, the party making the Independent Filing shall bear all Prosecution Costs
with respect to such patent application and shall own all right, title and
interest in and to any Patent Rights arising or resulting from such Independent
Filing. Notwithstanding the foregoing, the other party may within one (1) year
of the filing date elect to join the filing party in such Independent Filing, in
which case (i) such other party shall pay to the filing party such other party's
share of Prosecution Costs incurred by the filing party to date in connection
with such Independent Filing plus an amount equal to ******************** (a
"Premium") of all such Prosecution Costs, (ii) all Patent Rights arising or
resulting from such filing shall be deemed
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Jointly Developed Technology for all purposes under this Agreement, and (iii)
thereafter all of the other provisions of this Section 4.5 shall apply to such
patent application (with the filing party serving as the Responsible Party).
4.6 Infringement of Patent Rights.
(a) Notice. If any party shall become aware of any
infringement or threatened infringement of any Patent Rights constituting
Jointly Developed Technology or Licensed Technology, including that contained in
a notice provided under the 1984 Act by a party filing an ANDA or an NDA for a
System, or an equivalent action in any other country of the world (an
"Infringement"), then the party having such knowledge shall give notice
"Infringement Notice") to the other parties promptly upon becoming aware of such
Infringement.
(b) Jointly Developed Technology. Promptly upon receipt of any
Infringement Notice relating to Infringement of Jointly Developed Technology,
the Committee shall meet to determine appropriate action to take with respect to
such Infringement (the "Committee's Determination"), including (i) whether the
parties should prosecute such Infringement jointly, whether either party should
prosecute such Infringement independently, or whether no action should be taken
by the parties with respect to such Infringement, (ii) in the event that the
Committee determines to prosecute such Infringement jointly, the party or
parties to have primary responsibility therefor (the "Responsible Party(ies)"),
(iii) allocation between the parties of expenses to be incurred with respect to
the prosecution of such Infringement, (iv) allocation between the parties of any
damages recovered in respect of such Infringement, and (v) any other matter
deemed relevant by the Committee in respect of such Infringement. With respect
to any joint prosecution, the Responsible Party(ies) shall take such action, as
deemed appropriate, whether by action, suit, proceeding or otherwise, in
accordance with the Committee's Determination to prevent or eliminate the
Infringement and to collect damages with respect thereto. Except as set forth
below, all costs and expenses incurred by any party in connection with the
Infringement shall be borne by the parties in accordance with the Committee's
Determination. Except as set forth below, damages recovered by any party in such
action, suit or proceeding in connection with such Infringement shall be
apportioned between the parties in accordance with the Committee's
Determination. In the event that the Committee is unable to make a determination
mutually acceptable to the parties as to how to proceed with respect to such
Infringement, either party shall be entitled to prosecute such Infringement in
its own name and on its own behalf, in which case such party shall bear all
costs and expenses incurred by it
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in connection with prosecuting such Infringement and shall retain all damages
recovered in respect thereof.
(c) Licensed Technology. Each party shall be responsible to
take such action as it deems appropriate, whether by action, suit, proceeding or
otherwise, at its own expense to prevent or eliminate an Infringement of such
party's Licensed Technology and to collect damages, provided, that, with respect
to Patent Rights constituting Dermion Technology or IOMED Technology
incorporated in any Product (or in any process used in developing or
manufacturing any Product), Ciba shall have the right to prosecute such
infringement in the same manner and under the same terms and conditions as set
forth in Section 4.6(b).
4.7 Infringement of Third Party Rights.
(a) Notice. If either Dermion or Ciba shall become aware of
any Infringement Action with regard to the manufacture, use or sale of any
System incorporating (or developed or manufactured through processes
incorporating) Jointly Developed Technology, the party aware shall promptly
notify the other party of the same and fully disclose, to its knowledge, the
basis therefor.
(b) Infringement Actions with respect to Products. If the
Infringement Action relates to a Product incorporating (or developed or
manufactured through processes incorporating) Jointly Developed Technology, the
parties shall jointly compromise or defend the Infringement Action on such basis
and on such terms as the parties shall mutually agree. In such event the parties
shall cooperate fully with respect to the compromise or defense of such
Infringement Action, and each party shall keep the other fully informed as to
the status of such Infringement Action. If, in connection with such Infringement
Action, either Dermion or Ciba is required to obtain a Third Party License in
order to make, have made, use or sell Products incorporating (or developed or
manufactured through processes incorporating) Jointly Developed Technology, such
Third Party License shall be obtained for the benefit of both Dermion and Ciba,
and all rights under such Third Party License shall be held jointly by the
parties. All Settlement Costs incurred by the parties with respect to such
Infringement Action shall be borne eighty percent (80%) by Ciba and twenty
percent (20%) by Dermion.
(c) Infringement Actions with respect to Other Systems. If the
Infringement Action relates to a System incorporating (or developed or
manufactured through processes incorporating) Jointly Developed Technology,
which System is not a Product developed pursuant to the Program, the Committee
shall meet to determine appropriate action to take with respect to such
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Infringement Action, including (i) whether the parties should compromise or
defend such Infringement jointly or whether either party should compromise or
defend such Infringement independently, (ii) in the event that the Committee
determines to compromise or defend such Infringement Action jointly, the party
or parties to have primary responsibility therefor, (iii) allocation between the
parties of expenses to be incurred with respect to the compromise or defense of
such prosecution, (iv) allocation between the parties of rights under any Third
Party License obtained in connection with such Infringement Action, and (v) any
other matter deemed relevant by the Committee in respect of such Infringement
Action. In the event that the Committee is unable to make a determination
mutually acceptable to the parties as to how to proceed with respect to such
Infringement Action, either party shall be entitled to compromise or defend such
Infringement Action in its own name and on its own behalf, in which case such
party shall bear all Settlement Costs incurred by it in connection with
compromising or defending such Infringement Action and shall retain sole
ownership of all rights under any Third Party License obtained by it in
connection with such Infringement Action.
ARTICLE 5
LICENSES
5.1 Licenses to Ciba. (a) Dermion hereby grants to Ciba during
the term of this Agreement a non-exclusive license under the Dermion Technology,
with the right to sublicense (subject to Section 5.3), to make, have made, use
and sell Systems in the Territory. At the end of the term of this Agreement,
Ciba shall have a perpetual, worldwide, paid-up, royalty-free (subject to
Section 6.4), non-exclusive license under the Dermion Technology, with the right
to sublicense (subject to Section 5.3), to further make, have made, use and sell
Systems. All rights granted under this Section 5.1(a) are subject to Section
5.1(c) below.
(b) IOMED hereby grants to Ciba during the term of this
Agreement a non-exclusive license under the IOMED Technology, with the right to
sublicense (subject to Section 5.3), to make, have made, use and sell Systems in
the Territory. At the end of the term of this Agreement, Ciba shall have a
perpetual, worldwide, paid-up, royalty-free (subject to Section 6.4),
non-exclusive license under the IOMED Technology, with the right to sublicense
(subject to Section 5.3), to further make, have made, use and sell Systems. All
rights granted under this Section 5.1(b) are subject to Section 5.1(c) below.
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(c) ******************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
(d) IOMED and Dermion agree to abide by and not breach the
***********************************************, and shall not terminate, agree
to any amendment or modification of or waive any rights under such licenses
without the prior written consent of Ciba (not to be unreasonably withheld).
(e) Notwithstanding the foregoing, with respect to
Improvements to Dermion Technology and IOMED Technology, respectively, the
licenses granted under this Section 5.1 shall only include such Improvements
made during the term of this Agreement.
5.2 License from Ciba. Ciba hereby grants to Dermion during
the term of this Agreement a non-exclusive, royalty-free, license under the
Patent Rights included in the Ciba Technology to make, have made, use and sell
Products in the Territory pursuant to the Program. In addition to the foregoing,
Ciba hereby grants to Dermion during the term of this Agreement a nonexclusive
license to practice the Know-How included in the Ciba Technology in the
Territory pursuant to the Program. All rights to Ciba Technology (including
Patent Rights and Know-How) granted to Dermion pursuant to this Agreement shall
terminate upon the effective date of termination of this Agreement, and Dermion
shall have no right, title or interest in such Ciba Technology thereafter.
5.3 Sublicensing.
(a) Dermion. Notwithstanding any other provision of this
Agreement, Dermion shall not sublicense the rights granted to it under Section
5.2 without the prior written consent of Ciba, which Ciba may give or withhold
in its sole discretion.
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(b) Ciba. Subject to Section 5.1(c), Ciba shall be permitted
to sublicense the rights granted to it under Sections 5.1(a) and 5.1(b) to any
Person in connection with the research concerning, development, manufacture,
distribution or sale by such Person of Systems for drugs owned, licensed or
manufactured by Ciba; provided, however, that such license may not permit such
Person to grant lower level licenses. Any other sublicense by Ciba of its rights
under Sections 5.1(a) and 5.1(b) may be made only with the prior written consent
of Dermion, which Dermion may give or withhold in its sole discretion.
5.4 Transfers of Second Generation Technology by Dermion. If
at any time during the term of this Agreement and for a period of five (5) years
after the effective date of termination thereof, Dermion obtains any Patent
Rights covering Second Generation Technology (as defined below), Dermion shall
notify Ciba in writing of such event. Dermion agrees that for a period of thirty
(30) days from such notice (the "Dermion Standstill Period"), (i) it will
negotiate in good faith with Ciba to reach an agreement to license the Second
Generation Technology to Ciba on terms and conditions acceptable to the parties,
and (ii) Dermion shall not negotiate or enter into a binding agreement with any
third party to Transfer the Second Generation Technology, provided, that clause
(ii) of this sentence shall only apply during the term of this Agreement. If,
upon expiration of the Dermion Standstill Period, Ciba and Dermion have not
reached an agreement for the license of such Second Generation Technology to
Ciba, Dermion shall be free to Transfer such Second Generation Technology to any
third party. In addition, if Ciba and Dermion have reached an agreement for a
license, Dermion shall also be free to Transfer such Second Generation
Technology to any third party to the extent permitted under the terms of the
license from Dermion to Ciba. Notwithstanding the foregoing, Dermion shall not
be required to enter into a license with Ciba if and to the extent that the
terms of such license would, in the good faith judgment of Dermion on advice of
counsel, violate the terms of any agreement between Dermion and any third party
then in effect. As used in this Section 5.4, "Second Generation Technology"
shall mean any technology (including Patent Rights and Know-How), other than
Improvements to Dermion Technology or IOMED Technology, developed by Dermion
that is applicable or potentially applicable to the development of Systems. If
any transaction is covered by both this Section 5.4 and Section 8.4 below, the
terms of Section 8.4 shall exclusively govern such transaction.
5.5 Future IOMED Licenses. Subject to Section 5.1(c), upon the
request of Dermion, IOMED shall grant a non-exclusive license of the IOMED
Technology to such licensee and on such terms and conditions as may be requested
by Dermion in connection
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with the conduct of the Business by Dermion. IOMED acknowledges that all rights
to royalties payable in connection with any such license have been assigned to
Dermion pursuant to the Contribution Agreement.
ARTICLE 6
EQUITY AND FUNDING
6.1 Related Transactions; License Fee. (a) Simultaneously with
the execution and delivery of this Agreement (i) Ciba and Dermion shall enter
into a Stock Purchase Agreement pursuant to which Ciba shall purchase shares of
Dermion's Common Stock for a purchase price of One Million Dollars ($l,000,000)
(the "Stock Purchase Agreement"); (ii) IOMED and Dermion shall enter into a
Contribution Agreement (the "Contribution Agreement") in the form attached as
Exhibit F to the Stock Purchase Agreement; (iii) Ciba, Dermion and IOMED shall
enter into a Stockholders' Agreement in the form attached as Exhibit E to the
Stock Purchase Agreement; (iv) IOMED and Dermion shall enter into a Patent
License Agreement in the form attached as Exhibit B to the Stock Purchase
Agreement (the "Intercompany Patent License"); (v) IOMED and Dermion shall enter
into an Agreement of Sublease in the form attached as Exhibit D to the Stock
Purchase Agreement (the "Sublease"); and (vi) IOMED and Dermion shall enter into
a Support Services Agreement in the form attached as Exhibit C to the Stock
Purchase Agreement (the "Support Services Agreement").
(b) In consideration of the rights granted to Ciba in Section
5.1, Ciba shall pay IOMED the sum of One Million Dollars ($1,000,000) upon
execution of this Agreement.
6.2 Program Funding
(a) Research Funding Payments. In order to fund activities to
be conducted under the Program, Ciba shall reimburse Dermion for all Program
Costs up to a maximum aggregate amount per annum equal to *****************
*************************************. Such amounts are referred to in this
Agreement as "Research Funding Payments." Research Funding Payments shall be
payable quarterly as follows:
(i) Within thirty (30) days after the end of each calendar
quarter, Dermion shall prepare and provide to the Committee a
financial report with respect to the Program (the "Quarterly
Report"), which shall include (x) a statement setting forth in
comparative form Program Costs actually paid or
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incurred by Dermion during the previous calendar quarter
("Actual Costs") and Program Costs previously budgeted with
respect to such calendar quarter ("Budgeted Costs"), together
with the amount by which Actual Costs exceeded or were less
than Budgeted Costs, and (y) a budget (the "Quarterly Budget")
of Program Costs for the current calendar quarter. ********
*********************************************************
********.
(ii) Subject to subparagraph (iii) below, within fifteen (15) days
after receipt by the Committee of the Quarterly Report, Ciba
shall pay Dermion the amount of Program Costs for the current
quarter as set forth in the Quarterly Budget plus or minus the
amount by which Actual Costs exceeded or were less than
Budgeted Costs for the previous quarter.
(iii) To the extent that Ciba disagrees with any item or amount set
forth in the Quarterly Report, including any Actual or
Budgeted Cost for the previous quarter or the budgeted Program
Costs for the current quarter set forth in the Quarterly
Budget, any such disagreement shall be submitted to the
Committee for resolution in accordance with Section 2.4(e) and
Ciba shall be entitled to withhold from any amounts to be paid
under subparagraph (ii) above the amount in dispute until such
disagreement shall be resolved.
(iv) Upon execution of this Agreement, Ciba shall pay Dermion
******** representing the remaining Research Funding Payment
for the calendar quarter ended March 31, 1996.
(b) Use of Proceeds. All Research Funding Payments shall be
used by Dermion solely to pay for Program Costs. All Program activities, as
described in the Annual Plans, shall be paid for by Dermion out of Research
Funding Payments or otherwise, subject to Section 2.1.
6.3 Milestone Payments.
(a) Payments. For each Product, Ciba shall make the following
payments (each, a "Milestone Payment") to Dermion upon achievement of the
milestone events set forth below with respect to such Product:
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(i) ***********************************************************
*********************************************************
*********************************************************
*********************************************************
*********************************************************
*********************************************************
(ii) ********************************************************
**********************************************
(iii) *********************************************************
*********************************************************
For purposes of this Section 6.3(a), (i) to the extent that multiple Systems are
developed pursuant to the Program in order to deliver multiple dosage regimens
of the same Drug for treatment of the same indication, or (ii) to the extent
that any System developed pursuant to the Program can be used, without material
modification, in order to deliver any Drug for treatment of multiple
indications, then, in either case, such Systems or System shall be considered
one Product. Upon termination of the development of any Product (whether
pursuant to a termination of this Agreement or otherwise), Dermion shall
thereafter be entitled to any Milestone Payment with respect to such Product
only if the Milestone Trigger for such Milestone Payment is achieved within ***
********** after the effective date of termination of such Product. For purposes
of this Section 6.3, "Milestone Trigger" with respect to a Milestone Payment
shall mean (x) in the case of a Milestone Payment referred to in Section
6.3(a)(i), ****************************************, as the case may be, with
respect to such Product and (y) in the case of a Milestone Payment referred to
in Section 6.3(a)(ii) or (iii), the establishment and approval by the Committee
of ************************* with respect to such Product, provided, that the
effectiveness of such establishment and approval of ************************* as
a Milestone Trigger shall be conditioned upon Dermion's continued cooperation
and provision of assistance to Ciba (to the extent reasonably requested by Ciba)
in connection with the ********************************************* with
respect to such Product.
(b) Milestone Credits. ******************* of Milestone
Payments paid with respect to a Product pursuant to Sections 6.3(a)(ii) and
(iii) above ("Milestone Credits") shall be credited against royalties on Net
Sales of such Product pursuant to Section 6.4(a), or, pursuant to Section
6.4(e), against other amounts payable under this Article 6. In payment of
Milestone Credits, Dermion shall receive no royalties with respect to a Product
pursuant to Section 6.4(a) until aggregate royalties payable with respect to
such Product are in excess of the amount of such credit.
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6.4 Royalties Payable by Ciba.
(a) Royalties on Net Sales of Products. With respect to each
Product incorporating, or developed or manufactured through processes
incorporating, patents constituting Dermion Technology or IOMED Technology
licensed to Ciba hereunder or Jointly Developed Technology, Ciba shall pay to
Dermion for each Fiscal Year during the Royalty Period, royalties equal to ****
*************************************************.
(b) Royalties on Net Sales of Other Systems. With respect to
each System incorporating, or developed or manufactured through processes
incorporating, patents constituting Dermion Technology or IOMED Technology
licensed to Ciba hereunder but which System is not a Product developed pursuant
to the Program, Ciba shall pay to Dermion for each Fiscal Year during the
Royalty Period royalties equal to **********************************************
*******.
(c) Termination. Upon termination of this Agreement, a System
being developed pursuant to the Program and incorporating or developed or
manufactured through processes incorporating Jointly Developed Technology (and
not Dermion Technology or IOMED Technology) shall be deemed to be a Product
giving rise to royalties payable pursuant to Section 6.4 (a) only if the Final
Marketing Image of such System shall have been established and approved by the
Committee within six (6) months after the effective date of termination of such
Product. In the event that this Agreement is terminated by Ciba pursuant to
Section 9.2(iii), Ciba shall be entitled to set off against any royalties
payable under this Section 6.4 any liability, damage, loss or expense (including
reasonable attorney's fees and expenses) arising from or in connection with the
breach by Dermion giving rise to the right of termination by Ciba.
(d) Invalidity of Dermion Technology or IOMED Technology. In
the event that one or more claims of patents constituting Dermion Technology or
IOMED Technology are declared invalid or unenforceable by a judgement, decree or
decision of a court, tribunal or other authority of competent jurisdiction
("Invalid Claims") , Ciba shall be relieved of its obligations to pay royalties
to Dermion pursuant to this Section 6.4 on any Products or Systems incorporating
(or developed or manufactured through processes incorporating) such Dermion
Technology or IOMED Technology, but only to the extent that any such Products or
Systems do not incorporate, and were not developed or manufactured through
processes incorporating either (i) any Dermion Technology or IOMED Technology
other than Invalid Claims, or (ii) in the case of Products only, any Jointly
Developed Technology, provided, however, that such royalty obligation shall
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revive effective immediately as of the date, if ever, that any such judgment,
decree or decision is overturned or otherwise modified such that any claim at
issue therein once again becomes valid and enforceable.
(e) Infringement of Third Party Rights. If, in connection with
any Infringement Action with regard to the manufacture, use or sale (either in
the United States (a "US Infringement Action") or outside the United States (a
"Non-US Infringement Action")) of any System incorporating (or developed or
manufactured through processes incorporating) Dermion Technology or IOMED
Technology, Ciba is required to obtain a Third Party License in order to make,
have made, use or sell any System, and/or to pay Settlement Costs in connection
with such Infringement Action, then, if and to the extent that that any such
consequence results from the incorporation of Dermion Technology or IOMED
Technology in such System, or from the development or manufacture of such System
through processes incorporating Dermion Technology or IOMED Technology, in
either case in compliance with the terms of this Agreement, any royalties
payable under this Section 6.4 with respect to such System shall be reduced by
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
*******************. In such event, to the extent that Ciba is unable to recoup
Milestone Credits as a result of such reduction in royalties, Ciba shall be
entitled to reduce any amount payable under this Article 6 by the amount of such
unpaid Milestone Credits.
(f) No Waiver. Nothing in Section 6.4(d) or (e) shall be
construed as a waiver or cure of any breach of any warranties set forth in
Section 7, or any release of any claim by Ciba as may be appropriate relating
thereto.
6.5 General Provisions Regarding Royalties.
(a) Payments. For purposes of determining the applicable
royalty amounts to be paid pursuant to Section 6.4, Net Sales shall be converted
from the currency used in each country of sale to Swiss Francs and then to
United States Dollars, all in accordance with Ciba's standard method of currency
conversion. All royalty payments shall be made in United States Dollars.
(b) Intra-Company Sales. Sales of any System between or among
Ciba and its Affiliates, licensees and sublicensees shall not be subject to any
royalty hereunder, and in such cases
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<PAGE> 40
royalties shall be calculated in accordance with this Agreement upon Net Sales
to an independent third party by Ciba or its Affiliates, licensees and
sublicensees. Ciba shall be responsible for payment of any royalty accrued on
Net Sales of such System to such independent third party through its Affiliates,
licensees or sublicensees. Royalties shall accrue hereunder only once in respect
of the same unit of System.
(c) Timing of Royalty Payments; Records.
(i) within ninety (90) days after the end of each half-year of the
Fiscal Year, Ciba shall pay to Dermion the royalty payment due
for that half year, provided, that royalties with respect to
the first half-year in which any Product or other System is
sold shall not be payable with respect to such Product or
System until the royalty payment date for the next succeeding
half-year.
(ii) Together with each royalty payment, Ciba shall submit to the
Dermion a written accounting showing its computation of
royalties due under this Agreement for such half-year of the
Fiscal Year. Said accounting shall (A) set forth gross sales,
Net Sales, the specific deductions used in arriving at Net
Sales, and the total royalties due for the half-year in
question and (B) be in accordance with Ciba's standard
accounting practices.
(iii) Ciba shall keep full and accurate books and records setting
forth gross sales, Net Sales, the specific deductions used in
arriving at Net Sales and the amount of royalties payable to
Dermion hereunder for no less than two (2) years after the end
of each half-year of the Fiscal Year. Ciba shall permit
Dermion, at Dermion's expense, to have such books and records
examined by independent certified public accountants retained
by Dermion and reasonably acceptable to Ciba, during regular
business hours upon reasonable advance notice, but not later
than two (2) years following the rendering of any such
reports, accounting and payments, and no more often than one
(1) time per year. Such independent accountants shall keep
confidential any information obtained during such examination
and shall report to Dermion only the amounts of royalties
which the independent accountant believes to be due and
payable hereunder.
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6.6 Incorporation of Technology. For purposes of this
Agreement, a System shall be deemed to incorporate, or to be developed or
manufactured through processes incorporating Dermion Technology, IOMED
Technology, or Jointly Developed Technology to the extent that the manufacture,
use or sale of such System would, if not for the rights granted herein,
constitute an act of infringement of such Dermion Technology, IOMED Technology
or Jointly Developed Technology.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of IOMED and Dermion. IOMED
and Dermion hereby jointly and severally represent and warrant to Ciba that, as
of the date of this Agreement, the following statements are true and correct in
all material respects:
(a) Organization and Good Standing. Such party is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the corporate power and
authority to engage in the business such party is presently engaged in and to
enter into this Agreement and to perform its obligations hereunder.
(b) Authorization; Binding Effect. All corporate action on the
part of such party and such party's officers and directors necessary for the
authorization, execution and delivery of this Agreement and for the performance
of all of such party's obligations hereunder has been taken and this Agreement,
when executed and delivered, shall constitute a valid, legally binding
obligation of such party, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency and other
similar laws affecting creditors' rights generally or general equitable
principles.
(c) Noncontravention. The execution, delivery and performance
by such party of this Agreement do not and will not (i) violate or breach the
certificate of incorporation or bylaws of such party, (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 it 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 ("Lien") upon any assets
of such party.
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(d) Government and Other Consents. 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 such
party's execution and delivery of this Agreement or with the performance by it
of its obligations hereunder; provided, however, that no representation is made
with respect to any consent, authorization, license, permit, registration or
approval that may be required from Governmental Authorities as a pre-condition
to the First Commercial Sale of any Product in any jurisdiction.
(e) Dermion Technology. Dermion is the owner or licensee of
the Dermion Technology and has the right to license said Dermion Technology free
of any Lien **************************************************************
*************************** in the manner set forth in this Agreement. IOMED is
the licensee of the IOMED Technology and has the right to license said IOMED
Technology free of any Lien **********************************************
**************************** (in the manner set forth in this Agreement. There
are no existing defaults under the ******************************************
(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 Ciba. Neither IOMED nor Dermion has assigned or conveyed any interest in the
Dermion Technology or the IOMED Technology which conflicts with the rights
granted hereunder; to the best of its knowledge, the practice of the Dermion
Technology and the IOMED Technology by IOMED or Dermion in connection with its
business activities does not infringe any rights of third parties; such party is
not 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 Dermion 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 such party's knowledge, after reasonable inquiry,
Schedules 1.1(b)(i) and 1.1(b)(ii) set forth all Patent Rights and identifiable
Know-How owned or licensed by IOMED or Dermion or their respective Affiliates
applicable to the development of Systems.
(f) The Business. IOMED has contributed to Dermion assets,
properties and rights that are sufficient, when taken together with the
facilities to be made available to Dermion pursuant to the Sublease and the
services to be made available to Dermion pursuant to the Support Services
Agreement, for the conduct of the Business as previously conducted by IOMED,
other
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than the IOMED Technology. Dermion currently owns or has full right to use
all assets, rights and properties (including all authorizations, approvals and
consents of Governmental Authorities) necessary (i) to conduct the Business as
previously conducted by IOMED and (ii) to perform the transactions contemplated
by this Agreement except, in each case, for the IOMED Technology.
(g) Interim Agreement. All amounts paid by Ciba to IOMED prior
to the date hereof pursuant to the Interim Agreement and not previously spent in
accordance therewith have been contributed to Dermion by IOMED pursuant to the
Contribution Agreement.
7.2 Representations and Warranties of Ciba. Ciba hereby
represents and warrants to IOMED and Dermion that, as of the date of this
Agreement, the following statements are true and correct in all material
respects:
(a) Organization and Good Standing. Ciba is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has the corporate power and authority to engage in the business
Ciba is presently engaged in and to enter into this Agreement and to perform its
obligations hereunder.
(b) Authorization; Binding Effect. All corporate action on the
party of Ciba and Ciba's officers and directors necessary for the authorization,
execution and delivery of this Agreement and for the performance of all of
Ciba's obligations hereunder has been taken and this Agreement, when executed
and delivered, will constitute a valid, legally binding obligation of Ciba
enforceable against Ciba in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally or by general equitable principles.
(c) Noncontravention. The execution, delivery and performance
by Ciba of this Agreement do not and will not (i) violate or breach the
certificate of incorporation or bylaws of Ciba, (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 Ciba is a party or by which any of
its assets is bound, or (iv) result in the creation or imposition of any Lien
upon any assets of Ciba.
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(d) Government and Other Consents. 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 Ciba's
execution and delivery of this Agreement or with the performance by Ciba of its
obligations hereunder; provided, however, that no representation is made with
respect to any consent, authorization, license, permit, registration or approval
that may be required from Governmental Authorities as a precondition to the
First Commercial Sale of any Product in any jurisdiction.
(e) Ciba Technology. Ciba is the owner of the Ciba Technology
and has the right to license said Ciba Technology free of any Lien in the manner
set forth in this Agreement; it has not assigned or conveyed any interest in the
Ciba Technology which may be inconsistent with the rights granted hereunder; to
the best of its knowledge, the practice of the Ciba Technology by Ciba in
connection with its business activities does not infringe any rights of third
parties; Ciba is not aware that any third party is infringing the Ciba
Technology; and Ciba has prosecuted all patent applications within the Ciba
Technology in good faith and has no reason to believe that any patent included
within the Ciba Technology would be invalid or would be held to be unenforceable
by a court of competent jurisdiction. To the best of Ciba's knowledge, after
reasonable inquiry, Schedule 1.1(a) sets forth all Patent Rights and
identifiable Know-How owned or licensed by Ciba or its Affiliates applicable to
the development of Systems.
7.3 DISCLAIMERS. EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN
THIS AGREEMENT, THE PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING (A) ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, AND (2) THAT ANY PATENT WILL ISSUE BASED UPON ANY PENDING
PATENT APPLICATION INCLUDED WITHIN LICENSED TECHNOLOGY.
7.4 LIMITED LIABILITY. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT OR OTHERWISE, NO PARTY TO THIS AGREEMENT SHALL BE LIABLE WITH
RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (A) ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS OR (B) COST OF PROCUREMENT OF SUBSTITUTE
GOODS, TECHNOLOGY OR SERVICES.
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ARTICLE 8
OTHER COVENANTS AND AGREEMENTS
8.1 Confidentiality.
(a) Confidential Information. "Confidential Information" of
Dermion, IOMED or Ciba shall mean (1) all written information disclosed by such
party hereunder (i) bearing a legend indicating that such information is
confidential and (ii) that does not constitute Confidential Information of any
non-disclosing party pursuant to clause (2), (3) or (4) below, (2) all
intellectual property of such party that is disclosed or furnished by such party
hereunder (including, without limitation, in the case of Ciba, all Ciba
Technology, in the case of Dermion, all Dermion Technology, and, in the case of
IOMED, all IOMED Technology), (3) Improvements specific to the Licensed
Technology of such party made in the course of the Program and (4) any results
of the Program that are specific to the Licensed Technology of such party.
(b) Nondisclosure. During the term of this Agreement and for a
period of ten (10) years thereafter, except as expressly authorized by the other
party in writing, each of Dermion, IOMED and Ciba agrees to use diligent
efforts, and at least the same degree of care that it uses to protect its own
confidential information of like importance, to prevent unauthorized use,
dissemination and disclosure of any other party's Confidential Information. In
furtherance, and not in limitation of the foregoing, each of Dermion, IOMED and
Ciba agrees that, except as otherwise permitted hereunder, it shall (1) use such
confidential Information exclusively for the purpose of exercising its rights
and fulfilling its obligations under this Agreement, (2) restrict disclosure of
such Confidential Information to those of its employees, agents, collaborative
partners and Affiliates who have a "need to know" such information, and refrain
from disclosing such Confidential Information to anyone other than such
employees, agents, collaborative partners and Affiliates, and (3) cause each of
its Scientists to agree in writing to, and instruct all other such employees,
agents, collaborative partners and Affiliates, to maintain the confidentiality
of such information and not to use such Confidential Information except as
expressly permitted herein.
(c) Exceptions. The provisions contained in Section 8 (b)
above shall not apply to any portion of the Confidential Information of any
party which: (1) becomes a matter of public knowledge through no fault of the
party receiving the Confidential Information, (2) is rightfully
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received by the receiving party from a third party, (3) was known to the
receiving party before its first receipt from the disclosing party, as shown by
files existing at the time of initial disclosure, or (4) is independently
developed by the receiving party without use of another party's Confidential
Information.
(d) Return of Information. After any termination of this
Agreement, upon written request, each party shall promptly discontinue the use
of, and return all originals and copies of, any requested Confidential
Information that has been fixed in any tangible means of expression within
thirty (30) days of such request; provided, however, that if a party's license
rights pursuant to Article 5 shall remain in effect notwithstanding such
termination, such party shall be permitted to retain such information concerning
Licensed Technology as is necessary, in its reasonable judgment, in connection
with the continued exercise of its license rights hereunder. In the event that
information concerning Licensed Technology is retained after termination
pursuant to the preceding sentence, the retaining party shall, upon the request
of the party to which such information relates or belongs (as used in this
paragraph (d), the "other party"), within ninety (90) days after termination,
provide the other party with a written description, in reasonable detail, of the
information concerning the other party's Licensed Technology that has been
retained.
(e) Court or Administrative Order. In the event that Dermion,
IOMED or Ciba is requested or required pursuant to Applicable Law by any
Governmental Authority to disclose any Confidential Information, such party
shall provide the party whose Confidential Information is the subject of the
request or requirement (as used in this paragraph (e), the "other party") with
prompt written notice of such request or requirement so that the other party may
seek a protective order or other appropriate remedy or waive compliance with the
provisions of this Agreement. If, in the absence of a protective order or other
remedy or the receipt of a waiver by the other party, the party being requested
or required to disclose any Confidential Information is nonetheless legally
compelled to disclose such Confidential Information, it may, without liability
hereunder, disclose only that portion of the Confidential Information which it
is legally compelled to disclose.
8.2 IOMED Covenant Not to Compete.
(a) Covenant. IOMED agrees that during the term of this
Agreement neither it nor any of its subsidiaries, other than Dermion, shall
engage, directly or indirectly, in the Restricted Business. For purposes of this
Section 8.2 the term "Restricted
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Business" shall mean the business of conducting research with respect to or
developing Systems on its own behalf and/or on behalf of third parties (other
than such research or development by IOMED on its own behalf and not for a third
party with respect to Systems for Drugs used in the treatment of acute
inflammation or for inducement of local anesthesia).
(b) Blue Penciling. The parties agree and acknowledge that the
duration, scope and geographic area of the covenant not to compete described in
this Agreement are fair, reasonable and necessary in order to protect the
legitimate interests of Ciba, and that adequate consideration has been received
by IOMED for such obligations. If, however, for any reason any court determines
that the restrictions in this Agreement are not reasonable or that such
consideration is inadequate, such restrictions shall be interpreted, modified or
rewritten to include as much of the duration, scope and geographic area
identified in this Agreement as will render such restrictions valid and
enforceable.
(c) Injunctive Relief. The parties acknowledge that any breach
of the provisions contained in this Section 8.2 will result in serious and
irreparable injury to Ciba. Therefore, IOMED acknowledges and agrees that in the
event of a breach of such provisions, Ciba shall be entitled, in addition to any
other remedy at law or in equity to which Ciba may be entitled, to equitable
relief against IOMED, including, without limitation, an injunction to restrain
IOMED from such breach and to compel compliance with this Section 8.2 in
protecting or enforcing the rights and remedies of Ciba hereunder.
(d) No Other Limitation. Except only as provided in Section
8.2(a) above, nothing contained in this Agreement or any other document executed
in connection herewith shall be construed as limiting in any manner the free and
unrestricted ability of IOMED to carry on its business activities in any manner
that it chooses in its sole and absolute discretion.
8.3 Change of Control of Dermion.
(a) Covenant Against a Change of Control of Dermion. For a
period of two (2) years from the date of this Agreement, Dermion covenants and
agrees that, without the prior written consent of Ciba, it shall not cause or
approve a Change of Control of Dermion.
(b) Injunctive Relief. The parties acknowledge that any breach
of the provisions contained in this Section 8.3 will result in serious and
irreparable injury to Ciba. Therefore, Dermion acknowledges and agrees that in
the event of a breach of
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this Agreement, Ciba shall be entitled, in addition to any other remedy at law
or in equity to which Ciba may be entitled, to equitable relief against Dermion,
including, without limitation, an injunction to restrain Dermion from such
breach and to compel compliance with this Agreement in protecting or enforcing
the rights and remedies of Ciba hereunder.
8.4 Right of First Offer.
(a) Offer. If at any time the Board of Directors of Dermion
proposes to enter into or approve a transaction or series of related
transactions which, if consummated, would result in a Change of Control of
Dermion (a "Transaction"), then it shall promptly forward to Ciba a written
notice (an "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 Dermion of its acceptance of the offer.
(b) 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), Dermion 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 8.4.
(c) Survival. The offer rights of Ciba described in this
Section 8.4 shall survive any termination of this Agreement
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for a period of twelve (12) months from the effective date of such termination.
ARTICLE 9
TERM AND TERMINATION
9.1 Term. Unless terminated sooner pursuant to Section 9.2,
this Agreement shall continue in full force and effect from the date hereof
through and including December 31, 1997, and shall automatically be renewed for
subsequent one (1) year periods indefinitely.
9.2 Termination. This Agreement may be terminated by the
parties as follows:
(i) by either Dermion or Ciba, effective as of the
expiration of the initial term or any extension
thereof, for any reason or no reason by written
notice to the other given at least six (6) months
prior to the expiration of the initial term or any
extension thereof;
(ii) by mutual agreement in writing signed by Dermion and
Ciba, effective at the time specified in such
writing;
(iii) by Dermion upon thirty (30) days, prior written
notice to Ciba in the event of a material breach of
this Agreement by Ciba which remains unremedied at
the end of such thirty (30) day period, or by Ciba
upon thirty (30) days, prior written notice to
Dermion in the event of a material breach of this
Agreement by Dermion or IOMED which remains
unremedied at the end of such thirty (30) day period,
effective, in either case, at the end of such thirty
(30) day period;
(iv) by Dermion in the event of a Bankruptcy Event of
Ciba, or by Ciba in the event of a Bankruptcy Event
of Dermion, in either case, effective immediately;
(v) subject to Section 8.3, by Ciba in the event of a
Change of Control of Dermion (other than a Change of
Control resulting from a Transfer that is not a
Prohibited Transfer) upon
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thirty (30) days' prior written notice to Dermion,
effective at the end of such thirty (30) day period,
provided, that Ciba must exercise such right not
later than ninety (90) days after receiving written
notice from Dermion of such transaction; and
(vi) by Ciba, effective immediately, in the event that for
any reason any Key Employee is terminated or resigns
as a Program Employee (or is otherwise unable for a
period of three (3) months to perform his obligations
as a Program Employee in substantially the same
manner as previously performed (a "Disability")) and
such Key Employee is not replaced with an individual
with comparable qualifications and acceptable to Ciba
in its reasonable discretion within three (3) months
of such termination, resignation or Disability.
Any termination of this Agreement effected pursuant to this Section 9.2 shall be
effective with respect to and binding on all parties to this Agreement.
9.3 Survival Upon Termination. The parties agree that their
respective rights and obligations pursuant to Sections 2.4(f), 2.5(e), 3.1-3.3
(to the extent of the Exclusivity Period), 4.1-4.4, 4.6, 4.7, 5.1, 5.3(b), 5.4,
5.5, 6.3-6.6, 7.4, 8.1, 8.3, 8.4, 9.3-9.5, 9.6, 9.7, 9.8, 10.1, 10.2, 11.1 and
11.10 shall survive termination of this Agreement for any reason, and a
non-breaching party shall have the right to seek monetary or injunctive relief
upon any material breach by the other party of such provisions, provided that
such rights and obligations shall in any event terminate on the tenth (l0th)
anniversary of the effective date of termination of this Agreement.
9.4 Continuing Liability. Termination of this Agreement for
any reason shall not release any party from any liability, obligation or
agreement which has already accrued nor affect the survival of any provision
hereof which is expressly stated to survive such termination. Termination of
this Agreement for any reason shall not constitute a waiver or release of, or
otherwise be deemed to prejudice or adversely affect, any rights, remedies or
claims, whether for damages or otherwise, which a party may have hereunder or
which may arise out of or in connection with such termination.
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9.5 Partial Termination. Ciba shall have the right to
terminate this Agreement in part and thereafter continue the Agreement based on
a reduced number of full-time equivalent employees serving as Program Employees
(a "Partial Termination") any such Partial Termination to be effective no
earlier than December 31, 1997 or, if this Agreement is extended in accordance
with Section 9.1, the last day of such extension. In order to exercise such
right, Ciba shall give Dermion notice of such Partial Termination at least three
(3) months prior to the expiration of the initial term or any extension thereof,
such notice to indicate the number and function of the full-time equivalent
employees with respect to which Ciba intends to continue the Agreement. In such
event, this Agreement shall continue in full force and effect in all respects,
with the only modifications as a result of such Partial Termination being the
reduction in full-time equivalent employees serving as Program Employees and
reductions in Research Funding Payments payable by Ciba, and facilities and
other resources to be provided by Dermion. A Partial Termination shall not
constitute a termination of this Agreement for any other purpose.
9.6 Rejection in Bankruptcy. In receipt of good and valuable
consideration, which is hereby acknowledged, Dermion hereby grants to Ciba a
security interest in and to the Dermion Technology to secure performance of any
and all obligations of Dermion set out in this Agreement and agrees to execute
and assist Ciba in filing such Form UCC-l's and other documents as may be needed
from time to time to perfect such security interest. A rejection of this
Agreement by a trustee in bankruptcy or debtor in possession shall be a default
under this Agreement, whereupon Ciba shall have all rights and remedies of a
secured party under the Uniform Commercial Code.
9.7 Program Records.
(a) Retention of Program Records. All Program Records shall be
retained by any party in possession thereof for a period of seven (7) years
following termination of this Agreement (the "Document Retention Period").
During the Document Retention Period, neither Dermion nor Ciba (or their
respective Affiliates) shall destroy or give up possession of any Program
Records without first offering to the other the opportunity to obtain the same.
In such event, such other party shall be responsible for costs of delivery, if
any. Thereafter, the party wishing to dispose of such Program Records shall be
free to do so as it deems fit.
(b) Access to Program Records. During the Document Retention
Period all Program Records that are retained by any party shall be open for
inspection by representatives of the
47
<PAGE> 52
other party at any time upon reasonable notice during regular business hours
until such time as such documents are disposed of in accordance with Section
9.7(a), and during such period a party may at its expense make such copies
thereof as it may reasonably request.
9.8 Certain Actions Following Termination. If, following the
effective date of any termination of this Agreement, any action or decision is
required to be taken or made by the Committee under the terms hereof, any such
action or decision shall be taken or made by mutual agreement of Ciba and
Dermion provided, that Ciba will continue to have a veto over Ciba Matters.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification by Dermion and IOMED. Dermion and IOMED
shall jointly and severally indemnify and hold harmless Ciba and its directors,
officers, employees and agents and their respective successors, heirs and
assigns, against any liability, damage, loss or expense (including reasonable
attorneys' fees and expenses) arising from or in connection with (i) any
inaccuracy in or breach of any of the representations and warranties of Dermion
or IOMED in this Agreement, (ii) any failure by Dermion or IOMED to perform or
comply with any covenant or agreement in this Agreement, and (iii) the acts or
omissions of Dermion or IOMED in performing its obligations under this
Agreement.
10.2 Indemnification by Ciba. Ciba shall indemnify and hold
harmless Dermion and IOMED and their respective directors, officers, employees
and agents and such Persons, respective successors, heirs and assigns, against
any liability, damage, loss or expense (including reasonable attorneys' fees and
expenses) arising from or in connection with (i) any inaccuracy in or breach of
any of the representations and warranties of Ciba in this Agreement, (ii) any
failure by Ciba to perform or comply with any covenant or agreement in this
Agreement, and (iii) the acts or omissions of Ciba in performing its obligations
under this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 Arbitration. Any controversy, claim or dispute between
the parties, directly or indirectly, concerning this
48
<PAGE> 53
Agreement or the breach hereof or the subject matter hereof, including questions
concerning the scope and applicability of this arbitration clause, shall be
finally settled by three (3) arbitrators knowledgeable in the subject matter
involved in such controversy or claim appointed and acting in accordance with
the then-prevailing commercial arbitration rules of the American Arbitration
Association. One (1) arbitrator shall be selected by each of Ciba and Dermion,
and the third arbitrator shall be selected by mutual agreement of the first two.
The arbitration shall be conducted in New York, NY. The arbitrators shall be
informed that time is of the essence in deciding the matters subject to their
review. The decision in writing of any two of the arbitrators shall be final,
binding and conclusive on each party to this Agreement; judgment upon such
decision or award may be entered in any court of competent jurisdiction; and the
application may be made to such court for confirmation of such decision or
award, for an order of enforcement and for any other legal remedies that may be
necessary to effectuate such decision or award. The arbitrators shall have the
right and authority to assess the costs of the arbitration proceedings.
11.2 Publicity. Except after consultation with the other
parties, no party shall publicize, advertise, announce or publicly 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. In the event that
Dermion or IOMED on the one hand or Ciba on the other is requested or required
pursuant to Applicable Law by any Governmental Authority to disclose to any
Governmental Authority or other Person any terms of this Agreement, the party
subject to such request or requirement shall provide the other with prompt
written notice of such request or requirement so that the other party may seek a
protective order or other appropriate remedy or waive compliance with the
provisions of this Agreement. If, in the absence of a protective order or other
remedy or the receipt of a waiver by the other party, the party being requested
or required to disclose such terms of this Agreement is nonetheless legally
compelled to disclose such terms, it may, without liability hereunder, disclose
only that portion of this Agreement which it is legally compelled to disclose.
11.3 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 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 (including, without limitation, by
operation of law), (ii) in the
49
<PAGE> 54
case of Ciba, to a successor to Ciba's Pharmaceuticals Division, whether by
merger, consolidation, stock sale, asset sale or otherwise, or (iii) as
expressly permitted herein.
11.4 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.
11.5 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 affect 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.
11.6 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 number set forth below:
If to IOMED or Dermion:
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
50
<PAGE> 55
If to Ciba:
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.
11.7 Force Majeure. If the performance of this Agreement or
any obligations hereunder is prevented, restricted or interfered with by reason
of fire or other casualty or due to strikes, riot, storms, explosions, acts of
God, war, or a similar occurrence or condition beyond the reasonable control of
the parties, the party so affected shall, upon giving prompt notice to the other
parties, be excused from such performance during such prevention, restriction or
interference, and any failure or delay resulting therefrom shall not be
considered a breach of this Agreement.
11.8 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 purpose whatsoever.
11.9 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 transactions
contemplated in this Agreement.
51
<PAGE> 56
11.10 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, provided, however,
that all such costs and expenses incurred by IOMED and Dermion shall be borne by
Dermion.
11.11 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.
11.12 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.
11.13 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.
11.14 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.
11.15 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.
52
<PAGE> 57
11.16 Counterparts. This Agreement may be executed in any
number of counterparts each of which shall constitute an original instrument but
all of which, taken together, shall constitute one and the same instrument.
53
<PAGE> 58
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IOMED, INC.
By:/s/ Ned M. Weinshenker
-----------------------------------
Name: Ned M. Weinshenker
--------------------------------
Title: President & CEO
--------------------------------
DERMIION, INC.
By:/s/ Robert J. Lollini
-----------------------------------
Name: Robert J. Lollini
--------------------------------
Title: Secretary
--------------------------------
CIBA-GEIGY CORPORATION
Pharmaceuticals Division
By: /s/ James M. Callahan
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
54
<PAGE> 59
Schedule 1.1(a)
---------------
(Ciba Technology)
****
<PAGE> 60
Schedule 1.1(b)
---------------
See Attached.
<PAGE> 61
Schedule 1.1(b)(i)
(Dermion Technology)
****
<PAGE> 62
Schedule 1.1(b)(ii)
(IOMED Technology)
****
<PAGE> 63
Schedule 3.1
------------
(a) Ciba Fields
****
(b) Ciba Proprietary Drugs
****
<PAGE> 1
EXHIBIT 10.19
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION.
AGREEMENT
BY AND BETWEEN
IOMED, INC.
AND
LABORATOIRES FOURNIER S.C.A.
DATED AS OF FEBRUARY 20, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS........................................................................... 1
ARTICLE II. REPRESENTATIONS AND WARRANTIES........................................................ 6
2.01. WARRANTIES OF IOMED............................................................. 6
2.02. WARRANTIES OF FOURNIER.......................................................... 7
ARTICLE III. CONVERSION OF THE NOTE................................................................ 8
3.01. CONVERSION...................................................................... 8
3.02. EFFECT OF CONVERSION............................................................ 8
3.03. RESERVATION OF CONVERSION SHARES................................................ 9
3.04. ADJUSTMENTS..................................................................... 9
ARTICLE IV. RESEARCH AND DEVELOPMENT AGREEMENT.................................................... 9
4.01. TERMINATION..................................................................... 9
4.02. RESEARCH COSTS.................................................................. 9
4.03. WAIVER OF CLAIMS................................................................ 9
4.04. RETURN OF INFORMATION........................................................... 10
4.05. FENTANYL BLOOD LEVEL STUDY...................................................... 10
4.06. ELECTRODES...................................................................... 10
ARTICLE ' V. MEETINGS OF IOMED'S BOARD OF DIRECTORS................................................ 10
5.01. MEETINGS........................................................................ 10
5.02. LIMITATION...................................................................... 11
5.03. DEFINITION...................................................................... 11
ARTICLE VI. LICENSES AND SUBLICENSES.............................................................. 11
6.01. OWNERSHIP....................................................................... 11
6.02. IOMED LICENSE TO FOURNIER....................................................... 12
6.03. FOURNIER LICENSE TO IOMED....................................................... 13
6.04. SUBLICENSES..................................................................... 13
6.05. RESTRICTIONS.................................................................... 14
6.06. ROYALTIES....................................................................... 15
ARTICLE VII. SALE OF TECHNOLOGY.................................................................... 15
7.01. RESTRICTION..................................................................... 15
7.02. RIGHT OF FIRST OFFER............................................................ 15
ARTICLE VIII. TERMINATION........................................................................... 17
8.01. TERM............................................................................ 17
8.02. EFFECT OF TERMINATION........................................................... 18
8.03. CONTINUING LIABILITY............................................................ 18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IX. GENERAL PROVISIONS.................................................................... 18
9.01. AMENDMENTS...................................................................... 18
9.02. SEVERABILITY OF PROVISIONS...................................................... 18
9.03. GOVERNING LAW................................................................... 19
9.04. HEADINGS........................................................................ 19
9.05. COUNTERPARTS.................................................................... 19
9.06. NOTICES......................................................................... 19
9.07. SPECIFIC PERFORMANCE............................................................ 20
9.08. SUCCESSORS AND ASSIGNS.......................................................... 20
9.09. FURTHER ASSURANCES.............................................................. 20
9.10. EXPENSES........................................................................ 20
9.11. ASSIGNMENT...................................................................... 20
9.12. CONFIDENTIAL INFORMATION........................................................ 21
9.13. PUBLICITY....................................................................... 23
9.14. ENTIRE AGREEMENT................................................................ 23
EXHIBITS......................................................................................................... 25
A FOURNIER INVENTIONS.......................................................... 25
B FOURNIER TECHNOLOGY.......................................................... 26
C IOMED INVENTIONS............................................................. 28
D IOMED TECHNOLOGY............................................................. 29
</TABLE>
ii
<PAGE> 4
AGREEMENT
This Agreement ("Agreement"), dated as of February 20, 1996, is by
and between Iomed, Inc., a Utah corporation having its principal place of
business at 3385 West 1820 South, Salt Lake City, Utah 84104 ("Iomed"), and
Laboratoires Fournier S.C.A., a French corporation having its principal place of
business at 9 rue Petitot, 21000 Dijon, France ("Fournier").
RECITALS
A. Iomed and Fournier entered into a Research and Development Agreement
dated June 29, 1993 (the "Research and Development Agreement"), for the joint
development and commercialization of certain systems for iontophoretic
transdermal delivery.
B. Simultaneously with the execution and delivery of the Research and
Development Agreement, Fournier loaned to Iomed, and Iomed borrowed from
Fournier, an amount equal to Three Million Dollars ($3,000,000 U.S.), such loan
evidenced by a nonnegotiable subordinated convertible promissory note dated June
29, 1993 (the "Note").
C. Iomed and Fournier desire to terminate the Research and Development
Agreement, except as hereinafter provided, and to enter into this Agreement.
Accordingly, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Iomed and Fournier agree as follows:
ARTICLE I. DEFINITIONS
For purposes of this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
1.01. "Additional Conversion Shares" shall mean the
additional shares of Common Stock and/or the different class or classes of
shares, if any, to be issued to Fournier pursuant to Section 3.04 hereof. In the
case of an adjustment to the Conversion Price, the Additional Conversion Shares
to be issued to Fournier shall represent the difference between the number of
such shares Fournier (a) would receive by dividing the Principal Amount by the
Conversion Price as adjusted in accordance with Section 3.04 hereof and (b)
received pursuant to Section 3.01 hereof. In the case of a change in the class
or classes of stock, Fournier shall
<PAGE> 5
be entitled to receive, in lieu of the Additional Conversion Shares which it is
entitled to receive but for such change, the equivalent of the shares of such
other class or classes of stock that reflects what Fournier would have received
if it had been entitled to receive such Additional Conversion Shares immediately
prior to such change.
1.02. "Affiliate" shall mean, with respect to any Person, (a)
each other Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person or any Affiliate of such Person and (b) each of such Person's
officers, directors, joint venturers and partners.
1.03. "Alza License" shall have the meaning set forth in
Section 6.02 hereof.
1.04. "Applicable Law" shall mean any federal, state or local
statute, law, ordinance, rule, administrative interpretation, regulation, order,
writ, injunction, directive, judgment, decree or other requirement, whether
foreign or domestic, of any Governmental Authority applicable to a Person or its
properties, business or assets.
1.05. "Ciba" shall mean Ciba-Geigy Corporation and any
Affiliate thereof.
1.06. "Common Stock" shall mean fully paid and nonassessable
shares of common stock of Iomed.
1.07. "Confidential Information" shall mean, subject to the
limitations set forth in Section 9.12 hereof, any technical and business
information relating to a Party's research, development, inventions, products,
production, manufacturing, finances, marketing, customers, or future business
plans, including, without limitation, trade secrets, know-how, data, formulas,
processes, or other intellectual property, that is or has been disclosed to or
otherwise received or obtained by a Receiving Party, whether or not in
connection with or pursuant to this Agreement or the Research and Development
Agreement.
1.08. "Conversion Period" shall mean the period commencing
on June 29, 1995 and ending at the close of business on June 29, 1998.
1.09. "Conversion Price" shall mean $1.85, or as such price
may be adjusted in accordance with Section 3.04 hereof.
1.10. "Conversion Shares" shall mean the shares of Common
Stock into which the Note is converted pursuant to Section 3.01 hereof.
1.11. "Disclosing Party" shall mean the Party (a) who
discloses, and owns or otherwise possesses the rights and interests to and in,
the Confidential Information or (b) whose Confidential Information is the
subject of any process, subpoena or demand.
1.12. "Drug Delivery Company" shall mean: (a)**** (b) any
Affiliate of successor in interest to, or any other Person formed or otherwise
created by, any one or more of the Persons set forth in subsection (a) of this
section; and (c) any other Person that derives at least twenty-five percent
(25%) of its incomes from, or is otherwise primarily engaged in, the
development, licensing, and/or sale of drug delivery systems to other
pharmaceutical companies.
2
<PAGE> 6
****
1.13. "Escrow Agent" shall mean an independent third party,
mutually acceptable to and designated by both Parties pursuant to Section 7.02
hereof.
1.14. "Floor Price" shall mean the average of the Fournier
Sealed Bid and the Iomed Sealed Bid rounded to the nearest whole dollar, as
determined by the Escrow Agent, where (a) the numerator is the sum of the
Fournier Sealed Bid and the Iomed Sealed Bid and (b) the denominator is 2.
1.15. "Fournier" shall have the meaning set forth in the
opening paragraph of this Agreement and shall include any Affiliate of Fournier.
1.16. "Fournier Inventions" shall mean the technology,
patents, patent applications, and non-patentable technological information as
ascribed to Fournier on Exhibit A hereto, and any improvements) thereto.
1.17. "Fournier Sealed Bid" shall mean a sealed bid
submitted by Fournier pursuant to Section 7.02 hereof, which bid shall set forth
the cash purchase price (in U.S. dollars) that Fournier offers to pay in order
to purchase all of the Offered Assets.
1.18. "Fournier Technology" shall mean the technology,
patents, patent applications, and non-patentable technological information as
ascribed to Fournier on Exhibit B hereto, and any improvements) thereto that do
not constitute Fournier Inventions.
1.19. "GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect as of the date of the
Offer Notice, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board.
1.20. "Governmental Authority" shall mean any federal,
state or local governmental authority, court, government or self-regulatory
organization, commission, tribunal, organization, regulatory, administrative or
other
3
<PAGE> 7
agency, political or other subdivision, department, or instrumentality, or
branch of any of the foregoing, whether foreign or domestic.
1.21. "Iomed" shall have the meaning set forth in the
opening paragraph of this Agreement and shall include any Affiliate of Iomed.
1.22. "Iomed Assets" shall mean any asset of Iomed,
including, without limitation, Iomed Inventions and Iomed Technology, or any
portion thereof; provided, however, that the defined term "Iomed Assets" shall
not include (a) for the purpose of Section 7.01 hereof, Iomed assets typically
sold by Iomed in the ordinary course of business, such as electrodes and
iontophoretic power supply units or (b) for the purpose of Section 7.02 hereof,
(i) Iomed assets typically sold by Iomed in the ordinary course of business,
such as electrodes and iontophoretic power supply units or (ii) Iomed laboratory
equipment.
1.23. "Iomed Inventions" shall mean the technology,
patents, patent applications, and non-patentable technological information as
ascribed to Iomed on Exhibit C hereto, and any improvement(s) thereto.
1.24. "Iomed Sealed Bid" shall mean a sealed bid submitted
by Iomed pursuant to Section 7.02 hereof, which bid shall set forth the cash
purchase price (in U.S. dollars) that Iomed is willing to accept for the sale of
the Offered Assets.
1.25. "Iomed Technology" shall mean the technology, patents,
patent applications, and non-patentable technological information as ascribed to
Iomed on Exhibit D hereto, and any improvement(s) thereto that do not constitute
Iomed Inventions.
1.26. "Mandated Research" shall mean the research and
development obligations assigned to a Party pursuant to the Research and
Development Agreement.
1.27. "Mini-Integrated System" shall mean any
mini-integrated wearable system, consisting of a current source, a controller, a
drug containment device, and dispersive electrodes (whether or not the foregoing
components are all present at the treatment site), intended to permit
iontophoretic transdermal delivery of medicaments.
1.28. "Note" shall have the meaning set forth in the recitals
of this Agreement.
1.29. "Offer Notice" shall mean a written notice by Iomed
to Fournier, indicating that a sale of Iomed Assets is under consideration and
specifying the Iomed Assets subject to such sale.
1.30. "Offer Period" shall mean the sixty (60)-day period
commencing upon the later of Fournier's (a) receipt of the Offer Notice, (b)
receipt of Iomed's financial statements, and (c) access to Iomed's facilities,
books, and records pursuant to Section 7.02(a) hereof; provided, however, that,
in the event the Offered Assets identified in the Offer Notice do not include
any Iomed Inventions or Iomed Technology, or any portion thereof, then the
4
<PAGE> 8
defined term "Offer Period" shall mean the ten (10)-day period commencing upon
Fournier's receipt of such Offer Notice, in which case Iomed shall grant to
Fournier access to Iomed's facilities, books, and records relating to such
Offered Assets within seven (7) days of Fournier's receipt of such Offer Notice.
1.31. "Offered Assets" shall mean the Iomed Assets
specified in each Offer Notice.
1.32. "Parties" shall mean Iomed and Fournier, and "Party"
shall mean Iomed or Fournier.
1.33. "Person" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity, Affiliate, or Governmental Authority.
1.34. "Principal Amount" shall mean the principal sum of
Three Million Dollars ($3,000,000 U.S.), as evidenced by the Note.
1.35. "Qualifying Affiliate" shall mean any Affiliate of
Iomed as to which: (a) Iomed owns or controls fifty percent (50%) or more of the
issued and outstanding capital stock (or other corresponding equity interests)
of such Affiliate and (b) none of the issued and outstanding capital stock (or
other corresponding equity interests) of such Affiliate is owned by any Person
with whom Iomed or such Affiliate has entered into an agreement regarding the
research, development, and/or commercialization of any product, which research,
development, and/or commercialization is being conducted, in whole or in part,
by such Affiliate.
1.36. "Receiving Party" shall mean the Party who (a)
receives or otherwise obtains Confidential Information of the Disclosing Party
or (b) is served with any process, subpoena or demand.
1.37. "Research and Development Agreement" shall have
the meaning set forth in the recitals of this Agreement.
1.38. "Research Costs" shall mean the costs incurred by a
Party in connection with Mandated Research.
1.39. "University of Utah License" shall have the meaning
set forth in Section 6.02 hereof.
5
<PAGE> 9
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.01. Warranties of Iomed. Iomed hereby represents and
warrants to Fournier that, as of the date of this Agreement, the following
statements are and shall be true and correct in all material respects:
(a) Organization and Good Standing. Iomed is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah, has the corporate power and authority to conduct the
business in which it presently is engaged, to enter into this Agreement, and to
perform its obligations hereunder, 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 upon its business or
financial condition.
(b) Authorization and Binding Effect. All corporate
action on the part of Iomed and its officers and directors necessary for the
authorization, execution, and delivery of this Agreement and for the performance
of all of Iomed's obligations hereunder has been taken, and this Agreement, when
executed and delivered, shall constitute a valid and legally binding obligation
of Iomed enforceable against Iomed in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency and other laws affecting
creditors' rights generally or by general equitable principles.
(c) Execution, Delivery and Performance. The
execution, delivery, and performance by Iomed of this Agreement do not (i)
violate or breach the certificate 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 agreement, contract or instrument to which Iomed is a
party or by which any of its assets are bound, or (iv) result in the creation or
imposition of any lien, pledge, mortgage, claim, charge, or encumbrance upon any
assets of Iomed.
(d) Governmental and Other Consents. No consent,
authorization, license, permit, registration or approval of, or exemption or
other action by, any Governmental Authority or any other Person is required in
connection with Iomed's execution and delivery of this Agreement or with the
performance or grant by Iomed of its obligations or any license or sublicense
hereunder.
(e) Non-Infringement. Except as specifically
disclosed in writing by Iomed to Fournier on or before the date of this
Agreement, Iomed is not aware of any active patents that would be infringed by
the license or use of Iomed Inventions or Iomed Technology contemplated hereby.
(f) Common Stock. The authorized capital stock of
Iomed consists of 40,000,000 shares of Common Stock, having a par value per
share of $0.001, of which 12,229,409 shares are presently outstanding, and
4,215,618 shares of preferred stock, having a par value per share of $0.001, of
which 981,363 shares are presently outstanding.
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(g) Outstanding Rights. There are no outstanding
rights (preemptive or otherwise) or options to subscribe for or purchase, or
warrants or other agreements providing for or requiring the issuance by Iomed
of, capital stock or securities convertible into capital stock, except as
follows: (i) the Note; (ii) the Common Stock issuable upon conversion of the
981,363 outstanding shares of preferred stock of Iomed; (iii) a total of
1,475,829 shares of Common Stock issuable upon exercise of options outstanding
under Iomed's 1988 Stock Option Plan as of December 31, 1995; and (iv) a warrant
to purchase 10,000 shares of Common Stock.
(h) Conversion Price. No event has occurred since the
date of the execution of the Note that would require or otherwise result in any
adjustment(s) in the Conversion Price (as defined in, and in accordance with
Section 3.2 of; the Note) that would result in lowering the amount of such
price.
(i) Conversion Shares. The Conversion Shares, when
issued and delivered in accordance with the terms of this Agreement, shall be
duly and validly issued, fully paid and nonassessable, and, assuming that
Fournier acquires such shares for investment and not with a view to or for
resale in connection with a distribution, shall be issued in compliance with
Applicable Law, including, without limitation, federal and state securities
laws.
2.02. Warranties of Fournier. Fournier hereby represents
and warrants to Iomed that, as of the date of this Agreement, the following
statements are and shall be true and correct in all material respects:
(a) Organization and Good Standing. Fournier is a
corporation duly organized, validly existing and in good standing under the laws
of France and has the corporate power and authority to conduct the business in
which it presently is engaged, to enter into this Agreement, and to perform its
obligations hereunder.
(b) Authorization and Binding Effect. All corporate
action on the part of Fournier and its officers and directors necessary for the
authorization, execution, and delivery of this Agreement and for the performance
of all of Fournier's obligations hereunder has been taken, and this Agreement,
when executed and delivered, shall constitute a valid and legally binding
obligation of Fournier enforceable against Fournier in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting creditors' rights generally or by general equitable
principles.
(c) Execution, Delivery and Performance. The
execution, delivery, and performance by Fournier of this Agreement do not (i)
violate or breach the certificate of incorporation or bylaws of Fournier, (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 agreement, contract or instrument to which Fournier is a
party or by which any
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<PAGE> 11
of its assets are bound, or (iv) result in the creation or imposition of any
lien, pledge, mortgage, claim, charge, or encumbrance upon any assets of
Fournier.
(d) Governmental and Other Consents. No consent,
authorization, license, permit, registration or approval of, or exemption or
other action by, any Governmental Authority or any other Person is required in
connection with Fournier's execution and delivery of this Agreement or with the
performance or grant by Fournier of its obligations or any license or sublicense
hereunder.
(e) Non-Infringement. Except as specifically
disclosed in writing by Fournier to Iomed on or before the date of this
Agreement, Fournier is not aware of any active parents that would be infringed
by the license or use of Fournier Inventions contemplated hereby.
(f) Non-Affiliation. Fournier is not an Affiliate of,
or a successor in interest to, any of the following entities: **** Fournier does
not derive more than fifty percent (50%) of its income from, and is not an
Affiliate of, or successor in interest to, any entity that derives more than
fifty percent (50%) of its income from, the development, licensing, and/or sale
of drug delivery systems to other pharmaceutical companies.
ARTICLE III. CONVERSION OF THE NOTE
3.01. Conversion. Simultaneously with the execution and
delivery of this Agreement, (a) Fournier shall convert the Principal Amount into
Common Stock, by surrendering, or causing to be surrendered, the Note, duly
endorsed, to Iomed, and (b) Iomed shall issue the Conversion Shares and shall
deliver, or cause to be delivered, to Fournier a certificate for the number of
Conversion Shares. The number of Conversion Shares shall be 1,621,622, or as
otherwise adjusted in accordance with Section 3.04 hereof. Such conversion shall
be deemed to have been made simultaneously with the execution of this Agreement,
and Fournier shall be treated for all purposes as the holder of record of the
shares of Common Stock issued upon conversion from and as of such time. Except
as provided in Sections 3.03 and 3.04 hereof, from and after the time of such
conversion, Fournier shall have no further rights, and Iomed shall have no
further obligations, pursuant to the Note.
3.02. Effect of Conversion. Conversion of the Note shall
not constitute a waiver or release of, or otherwise be deemed to prejudice or
affect in any way, a breach by Iomed of any representation or warranty made
pursuant to Section 2.01 hereof. In the event of such breach by Iomed, Fournier
shall have the right to seek monetary and/or injunctive relief.
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3.03. Reservation of Conversion Shares. Iomed shall, at all
times during the Conversion Period, reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the issuance of Additional Conversion Shares, such number of its
shares of Common Stock as shall be sufficient to effect the issuance of such
Additional Conversion Shares. If, at any time, the number of authorized but
unissued shares of Common Stock is not sufficient to effect the issuance of
Additional Conversion Shares, then Iomed shall immediately take such corporate
action as is necessary to increase its authorized but unissued shares of Common
Stock to such number of shares of Common Stock as shall be sufficient for such
purpose. In the event that Iomed fails to take such corporate action in order to
permit Fournier to receive the Additional Conversion Shares in accordance with
Section 3.04 hereof, (a) such failure shall not affect or otherwise prejudice
Fournier's to such Additional Conversion Shares, and (b) Fournier shall have the
right to (i) receive such Additional Conversion Shares as soon as practicable
after Iomed takes such corporate action and/or (ii) seek other monetary or
injunctive relief.
3.04. Adjustments. Anything herein to the contrary
notwithstanding, during the Conversion Period the substantive effect of the
adjustment provisions set forth in Section 3.2 et seq. of the Note shall
survive, shall be made a part of this Agreement, and shall apply in all respects
as if set forth in full herein so as to effect an adjustment of the number of
Conversion Shares and/or of the Conversion Price in the same manner and to the
same extent, but to no greater extent, as if the Note had not been converted on
the date hereof; provided, however, that the initial Conversion Price shall be
$1.85. It is the intention of the Parties that during the Conversion Period the
adjustment provisions of the Note shall continue to inure to the benefit of
Fournier, subject to the foregoing proviso. If Iomed takes any action during the
Conversion Period that would have the effect of reducing the Conversion Price,
then Fournier shall be entitled to receive Additional Conversion Shares from
Iomed, and Iomed shall deliver to Fournier a certificate for the applicable
number of Additional Conversion Shares.
ARTICLE IV. RESEARCH AND DEVELOPMENT AGREEMENT
4.01. Termination. Simultaneously with the execution and
delivery of this Agreement, the Parties agree that the Research and Development
Agreement is hereby terminated.
4.02. Research Costs. The Parties agree that, by virtue of
the termination of the Research and Development Agreement, neither Party shall
be required to equalize its Research Costs (or to make any payment whatsoever to
the other Party with respect to such Research Costs), as provided under the
terms of that agreement.
4.03. Waiver of Claims. Each of Iomed and Fournier waives
any and all claims it has and may have against the other under the terms of the
Research and Development Agreement.
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4.04. Return of Information. Except as otherwise herein
provided, each Party shall (a) simultaneously with the execution and delivery of
this Agreement, discontinue the use of Confidential Information of the other
Party and (b) upon the written request of the other Party, return to such Party,
within thirty (30) days of such request, all items of Confidential Information
of such Party that are identified specifically in such written request;
provided, however, that, if and to the extent that any license or sublicense
granted pursuant to Section 6.02, 6.03, or 6.04 hereof shall relate to such
Confidential Information, a Receiving Party shall be permitted to retain only
such Confidential Information as is reasonably necessary for the continued
exercise of its license or sublicense rights and to use such Confidential
Information within the scope of such license or sublicense.
4.05. Fentanyl Blood Level Study. Fournier shall, within
forty-five (45) days of the date of this Agreement, deliver to Iomed the results
of the human fentanyl blood level study that was conducted pursuant to Mandated
Research for the period ended June 30, 1995, and a complete copy of the final
written report with respect thereto, all without charge to Iomed.
4.06. Electrodes. Iomed shall, within forty-five (45) days of
the date of this Agreement, deliver to Fournier **** electrodes identical to the
electrodes used to perform the human fentanyl blood level study referenced in
Section 4.05 hereof, together with the control analysis data and the batch
manufacturing report with respect thereto. It is understood and agreed by the
Parties that Fournier shall pay to Iomed, and Iomed shall accept from Fournier,
for such electrodes a sum equal to ****, which sum represents ****, and that,
except for such sum, Fournier shall not be required to make any other payment
whatsoever for or in connection with such electrodes, data or report.
ARTICLE V. MEETINGS OF IOMED'S BOARD OF DIRECTORS
5.01. Meetings.
(a) Simultaneously with the execution and delivery of
this Agreement, Iomed shall deliver to Fournier a schedule of the date(s) of
each previously scheduled meeting of Iomed's board of directors. In addition,
Iomed shall (1) with respect to each meeting of Iomed's board of directors,
provide to Fournier timely notice of the date, time, place, and purpose of each
such meeting and any change in such date, time, place, or purpose thereof, (ii)
timely provide to Fournier (subject to Section 5.02 hereof) such other
information and documents that are given to members of Iomed's board of
directors (including, without limitation, minutes of board meetings), and (iii)
permit (subject to Section 5.02 hereof) a representative of Fournier to attend
each such meeting. Any written or other information obtained by Fournier
pursuant to this Section 5.01 shall constitute Confidential Information of
Iomed. All costs and expenses associated with the attendance by Fournier's
representative at such meetings shall be borne by Fournier.
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(b) Fournier may elect not to exercise its right to
have its representative attend any such meeting of Iomed's board of directors,
but any such election shall not prejudice or otherwise preclude Fournier's right
to have its representative attend any other meeting (subject to Section 5.02
hereof) nor cause Iomed to fail to provide the notice and other information and
documents required to be furnished to Fournier pursuant to Section 5.01(a)
hereof.
5.02. Limitation. The rights of Fournier pursuant to
Section 5.01 hereof shall terminate automatically upon the earlier of (a) the
date on which Iomed becomes subject to the reporting requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or (b) the
date on which Fournier ceases to own, in the aggregate, less than 692,551 shares
of Common Stock or such other stock or securities of Iomed (as adjusted for
stock. splits, combinations and the like). Fournier's right to have its
representative attend meetings of Iomed's board of directors and to receive
information and documents pursuant to Section 5.01 hereof shall not apply if and
to the extent that Fournier is a competitor as of such time with respect to a
business venture in which Iomed, either by itself or in conjunction with any
Person, is engaged or proposes to engage, and such business venture is a subject
of such meeting, in which case Iomed may, acting in good faith and upon written
notice to Fournier, exclude Fournier's representative from that portion of the
meeting and not provide such information and documents related to such portion
of the meeting. It is understood and agreed by the Parties that, if Iomed
intends to exercise its right to exclude Fournier's representative from any
portion of a meeting pursuant to this Section 5.02, Iomed shall notify Fournier
of such intent at the same time it delivers the written notice of such meeting
pursuant to Section 5.01 hereof (or, if the decision to exclude Fournier's
representative is made after the written notice of the meeting is delivered,
then immediately upon becoming aware that any such matter will be discussed at
such meeting, so long as the notice of such intent is received by Fournier not
less than three (3) days prior to the date of such meeting). Iomed shall provide
sufficient information, consistent with the purpose of this Section 5.02 that
competitively sensitive information not be disclosed, to establish that Fournier
is a competitor as of such time with respect to a business venture in which
Iomed, either by itself or in conjunction with any Person, is engaged or
proposes to engage. Fournier shall have the right to challenge the basis for any
exclusion from a meeting.
5.03. Definition. As used in this Article V, the defined
term "Iomed" shall include any Qualifying Affiliate, but not any other Affiliate
of Iomed.
ARTICLE VI. LICENSES AND SUBLICENSES
6.01. Ownership.
(a) As between Iomed and Fournier, Iomed shall have
all right, title and interest to and in Iomed Technology and Iomed Inventions,
subject to the licenses and sublicenses granted pursuant to this Article VI. As
between Iomed and Fournier, Fournier
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shall have all right, title and interest to and in Fournier Technology and
Fournier Inventions, subject to the licenses and sublicenses granted pursuant to
this Article VI.
(b) Except as otherwise expressly provided in this
Agreement, neither Party, as a result of this Agreement or any license or
sublicense granted hereunder, shall obtain any ownership, interest or other
right in or to any patents, pending patent applications, inventions, know-how,
formulas, processes, trade secrets, or other technology or products of the other
Party. It is understood and agreed by the Parties that this Agreement does not
grant to either Party any license or other right to use in advertising,
publicity or otherwise any trademark, service mark, trade name or their
equivalent, or any contraction, abbreviation or simulation thereof, of the other
Party.
6.02. Iomed License to Fournier.
(a) Iomed hereby grants to Fournier, and Fournier
hereby accepts, a worldwide, perpetual license to (i) Iomed Technology to make,
have made, manufacture, use, disclose, distribute, market, have marketed or
distributed, sell or have sold Mini-Integrated Systems based upon or
incorporating, or developed or manufactured through processes based upon or
incorporating, Iomed Technology and (ii) Iomed Inventions to make, have made,
manufacture, use, disclose, distribute, market, have marketed or distributed,
sell or have sold any products, including, without limitation, Mini-Integrated
Systems, based upon or incorporating, or developed or manufactured through
processes based upon or incorporating, Iomed Inventions.
(b) It is understood and agreed by the Parties that
(i) the license granted pursuant to Section 6.02(a) hereof shall not be
exclusive and (ii) subject to Article VII hereof, there shall be no other
restriction or limitation on Iomed's right to sell, convey, transfer, pledge,
encumber, license, sublicense, or otherwise dispose of, Iomed Technology or
Iomed Inventions.
(c) It is understood by the Parties that there is (i)
an agreement dated July 28, 1993 by and between Iomed and Alza Corporation
involving the acquisition of certain rights under their respective patents and
patent applications (the "Alza License"), and (ii) an agreement dated December
1, 1992 by and between Iomed and the University of Utah Research Foundation
involving the development and utilization of certain inventions (the "University
of Utah License"), and that the license granted to Fournier pursuant to this
Section 6.02, insofar as it relates to the subject of the Alza License or the
University of Utah License, is subject to all of the conditions and limitations
set forth in those Licenses.
(d) Fournier shall not assign to any Person all or
any portion of the Iomed Technology or the Iomed Inventions licensed to it
pursuant to Section 6.02(a) hereof, except in connection with a sale of all or
substantially all of its business or pursuant to Section 9.11 hereof.
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6.03. Fournier License to Iomed.
(a) Fournier hereby grants to Iomed, and Iomed hereby
accepts, a **** license to Fournier Inventions to make, have made, manufacture,
use, disclose, distribute, market, have marketed or distributed, sell or have
sold any products, including, without limitation, Mini-Integrated Systems, based
upon or incorporating, or developed or manufactured through processes based upon
or incorporating, Fournier Inventions.
(b) It is understood and agreed by the Parties that
(i) the license granted pursuant to Section 6.03(a) hereof shall not be
exclusive and (ii) there shall be no restriction or limitation on Fournier's
right to sell, convey, transfer, pledge,-encumber, license, sublicense, or
otherwise dispose of, Fournier Technology or Fournier Inventions.
(c) Iomed shall not assign to any Person all or any
portion of the Fournier Inventions licensed to it pursuant to Section 6.03(a)
hereof, except in connection with a sale of all or substantially all of its
business or pursuant to Section 9.11 hereof.
6.04. Sublicenses.
(a) Fournier shall be free to grant sublicenses
(which may include the right of any sublicensee to grant lower level licenses),
freely and without restriction of any type, and on any terms Fournier, in its
sole discretion, deems desirable, covering all or any portion of the Iomed
Inventions licensed to it pursuant to Section 6.02(a)(ii) hereof;, provided,
however, that any such sublicense shall (i) not be granted to **** for a period
of two (2) years from the date of this Agreement and (ii) be entered into in
conjunction with an agreement, joint venture or other collaboration by and
between Fournier and the recipient of such sublicense involving the research,
development, manufacture, production, commercialization, distribution, sale,
and/or marketing by Fournier and such recipient of any products, including,
without limitation, a Mini-Integrated System.
(b) Iomed shall be free to grant sublicenses (which
may include the right of any sublicensee to grant lower level licenses), freely
and without restriction of any type, and on any terms Iomed, in its sole
discretion, deems desirable, covering all or any portion of the Fournier
Inventions licensed to it pursuant to Section 6.03(a) hereof; provided, however,
that any such sublicense shall (i) not be granted to **** for a period of two
(2) years from the date of this Agreement and (ii) be entered into in
conjunction with an agreement, joint venture or other collaboration by and
between Iomed and the recipient of such sublicense involving the research,
development, manufacture, production, commercialization, distribution, sale,
and/or marketing by Iomed and such recipient of any products, including, without
limitation, a Mini-Integrated System.
(c) Fournier may (subject to Section 6.02(c) hereof),
without the prior consent of Iomed, grant to any Person (including, without
limitation, ****) a sublicense covering all or any portion of the Iomed
Technology licensed to Fournier pursuant to Section 6.02(a)(i) hereof; provided,
however, that any such sublicense (i)
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may not be granted to **** for a period of two (2) years from the date of this
Agreement, (ii) shall be entered into in conjunction with an agreement, joint
venture or other collaboration by and between Fournier and any such Person
involving the research, development, manufacture, production, commercialization,
distribution, sale, and/or marketing by Fournier and any such Person of any
Mini-Integrated System, and (111) may include the right to grant lower level
licenses within the scope of such agreement, joint venture or other
collaboration.
(d) It is understood and agreed by the Parties that
this Section 6.04 shall not apply to any assignment by a Party of all or any
portion of its respective rights hereunder, whether by operation of law or
otherwise, and that assignments are the subject matter of Sections 6-02(d),
6.03(c) and 9.11 hereof; provided, however, that the provisions of this Section
6.04 shall remain binding on any permitted assignee of either Party.
6.05. Restrictions.
(a) Iomed, by itself or in conjunction with any
Person, shall not:
(i) have any right, license, sublicense,
interest or access to or in, or employ, implement, insert, duplicate, utilize,
use or otherwise make use of, any Fournier Technology;
(ii) knowingly employ, implement, insert,
duplicate, utilize, use or otherwise make use of DDU3.as described in Exhibit B
hereto, or any portion or component thereof, or any prior model, version,
configuration, prototype or other form of DDU3, for any purpose, including,
without limitation, any research, development, inventions, products, production,
manufacturing or other processes or activities;
(iii) employ, implement, insert, duplicate,
utilize, use or otherwise make use of (A) ASIC as described in Exhibit B hereto,
including, without limitation, the software and algorithms relating thereto,
developed by Fournier and **** or (B) the external design and user interface
developed with ****, for, in each case, any purpose, including, without
limitation, any research, development, inventions, products, production,
manufacturing or other processes or activities; or
(iv) enter into any joint venture, contract,
agreement, understanding or other arrangement with (A) **** for the invention,
creation, development, production, manufacturing, commercialization or marketing
of ASIC for iontophoretic systems or (B) **** for iontophoretic delivery system
design.
(b) For a period of two (2) years from the date of
this Agreement, Iomed shall not develop, pursue or otherwise engage in, by
itself or in conjunction with any **** or other Person, research, development,
production, manufacture, commercialization or marketing of a Mini-Integrated
System or any other iontophoretic system
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for delivery of (i) fentanyl, (II) other natural or synthetic opiate/opioid
medicaments and/or (ill) medicaments that (A) are used or prescribed for severe
pain management in lieu of fentanyl or other natural or synthetic opiate/opioid
medicaments and (B) act specifically by blocking the pain sensation but not by
treating the underlying causative disease or other medical condition). After the
expiration of that two (2)-year period, Iomed shall be permitted to develop,
pursue or otherwise engage in any such system, subject to the restrictions and
limitations set forth in this Article VI. It is understood and agreed by the
Parties that, as used in this Section 6.05, the term "opiate" shall mean any
remedy containing or derived from opium, and the term "opioid" shall mean (x)
any synthetic narcotic that has opiate activities and is not derived from opium
and (y) any naturally occurring peptide (for example, enkephalins) that exerts
opiate-like effects by interacting with opiate receptors on cell membranes.
6.06. Royalties. Neither Party shall be required to pay to
the other Party a royalty or any other payment in consideration of any licenses
or sublicenses granted pursuant to this Article VI, except for any royalty
payment that may be required to be made to **** under an agreement dated ****,
between **** and Iomed for the Webster U.S. **** issued to ****, which royalty
payment, if any, shall be paid by Fournier to Iomed.
ARTICLE VII. SALE OF TECHNOLOGY
7.01. Restriction. For a period of two (2) years from the
date of this Agreement, Iomed shall not: (a) sell, convey, or otherwise transfer
any Iomed Assets to Ciba; (b) merge or consolidate with Ciba; or (c) issue any
securities to Ciba if and to the extent that the result of any such issuance
would be to make Ciba the beneficial owner of fifty percent (50%) or more of the
then outstanding voting securities of Iomed. Notwithstanding the foregoing,
Iomed and Ciba may, at any time, participate in the joint development and
commercialization of any products (including, without limitation, a
Mini-Integrated System, but subject to the limitations set forth in Sections
6.05(a) and 6.05(b) hereof) based upon or incorporating, or developed or
manufactured through processes based upon or incorporating, Iomed Technology,
Iomed Inventions, and Fournier Inventions, which joint development and
commercialization may contain, among other provisions not inconsistent with the
terms of this Agreement, licenses and sublicenses of Iomed Technology, Iomed
Inventions, and Fournier Inventions to Ciba and an investment by Ciba in Iomed.
7.02. Right of First Offer.
(a) Notice. If, at each and any time within five (5)
years from the date of this Agreement, Iomed decides to sell, convey or
otherwise transfer Iomed Assets, then Iomed shall, within seven (7) days after
such decision, forward to Fournier an Offer Notice; provided, however, that, in
the event of any sale, conveyance or other transfer of Iomed Assets to Ciba
(subject to Section 7.01 hereof), this Section 7.02 shall not apply. It is
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understood and agreed by the Parties that, during the Offer Period and pending
consummation of the transaction pursuant to Section 7.02(c) hereof, Iomed shall
not (i) sell, convey, or otherwise transfer, or offer to sell, convey, or
otherwise transfer, the Offered Assets to any Person other than Fournier or (ii)
permit any Person other than Fournier to purchase such Offered Assets. Iomed
shall, within ten (10) days of submission of the Offer Notice, submit to
Fournier true and correct copies of Iomed's most recent financial statements
prepared in accordance with GAAP and grant to Fournier reasonable access to
Iomed's facilities, books, and records relating to the Offered Assets.
(b) Sealed Bids. Fournier shall have the right to
purchase all, but not less than all, of the Offered Assets, which right shall be
exercisable by Fournier's delivery of a Fournier Sealed Bid to the Escrow
Agent-during the Offer Period. The Escrow Agent shall treat the Fournier Sealed
Bid as Confidential Information of Fournier within the meaning of this
Agreement, and shall not disclose to Iomed, except in accordance with this
Section 7.02(b), the contents of the Fournier Sealed Bid; provided, however,
that the Escrow Agent shall notify Iomed of the receipt of such Fournier Sealed
Bid. If Fournier submits a Fournier Sealed Bid during the Offer Period, then
Iomed shall, no later than fourteen (14) days of receipt by the Escrow Agent of
the Fournier Sealed Bid, deliver to the Escrow Agent an Iomed Sealed Bid. Upon
receipt of the Iomed Sealed Bid, the Escrow Agent shall open each of the sealed
bids submitted by the Parties and shall notify, in writing, the Parties of the
respective amounts of the Fournier Sealed Bid and the Iomed Sealed Bid and of
the Floor Price.
(c) Consummation of Transaction. If the Fournier
Sealed Bid is greater than, or not more than One Hundred Fifty Thousand Dollars
($150,000 U.S.) less than, the Iomed Sealed Bid, then Iomed shall be obligated
to sell the Offered Assets to Fournier, and Fournier shall be obligated to
purchase the Offered Assets from Iomed, at the Floor Price within sixty (60)
days of notification by the Escrow Agent of the Floor Price, subject to (i)
negotiation of a definitive agreement and (ii) conditions customary for a
transaction of the type contemplated, including, without limitation, (A)
representations and warranties by Iomed comparable to those set forth in Section
2.01 hereof, (B) Iomed's good and marketable title to the Offered Assets at the
time of the sale, with full power to sell, transfer and assign the same, free
and clear of any security interest, lien, mortgage, encumbrance or restriction
of any kind, (C) the absence of any litigation or other obligation that may
affect the value of such Offered Assets, (D) the absence of any material adverse
change in such Offered Assets after submission of the Offer Notice and prior to
closing, and (E) Iomed's ownership of the Offered Assets, including, without
limitation, the Iomed Inventions, Iomed Technology, patents, trademarks, and
copyrights and exclusive right to use the same (except as therein disclosed).
(d) Failure to Submit Sealed Bid. Iomed shall, for a
period of one (1) year from the expiration of the respective Offer Period, be
free to sell the Offered Assets (i) at a price not less than the Floor Price
determined by the Escrow Agent in accordance with this Section 7.02, in the
event that the Fournier Sealed Bid is less than the Iomed Sealed Bid by more
than One Hundred Fifty Thousand Dollars ($150,000 U.S.) or (ii) at any price, in
the
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<PAGE> 20
event that Fournier fails to submit a Fournier Sealed Bid prior to the
expiration of the Offer Period. Any prospective sale, conveyance or other
transfer of the Offered Assets which has not been consummated within such one
(1)-year period shall become subject again to this Section 7.02.
(e) Limitations.
(i) The provisions of this Section 7.02
shall not apply to any sale, conveyance or other transfer of any Iomed Assets
(A) to any Affiliate of Iomed (other than an Affiliate formed or otherwise
created by Iomed and Ciba) or (B) that occurs at a time when Iomed is subject to
the reporting requirements of Sections 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended. It is understood and agreed by the Parties treat it
shall be a condition precedent to any sale, conveyance or other transfer
pursuant to clause (A) above that the transferee Affiliate agree in writing to
be bound by a right of first offer in favor of Fournier identical to this
Section 7.02 with respect to any subsequent sale, conveyance or other transfer
by such transferee Affiliate of the Iomed Assets transferred to it pursuant to
such clause (A).
(ii) If Iomed or any of its Affiliates
enters into an agreement, joint venture or other collaboration with Ciba for the
research, development, manufacture, marketing, distribution or sale of any
Mini-Integrated System or other product, and such agreement, joint venture or
other collaboration continues in force and effect for a term of not less than
one (1) year, then the provisions of this Section 7.02 shall terminate
automatically upon the expiration of the first year of such agreement, joint
venture or other collaboration, and without any further action by either Party.
It is understood and agreed by the Parties that any such agreement, joint
venture or other collaboration with Ciba shall be subject to the same
restrictions and other limitations imposed upon Iomed pursuant to Articles VI
and VII hereof.
(iii) The rights described in this Section
7.02 shall survive termination of this Agreement.
(f) Definitions. As used in this Section 7.02, (i)
the phrase "sell, convey or otherwise transfer," as used in relation to the
specified Iomed Assets, shall mean a sale, conveyance or other transfer of all
of the transferring Party's right, title and interest in and to such Iomed
Assets, and (ii) the defined term "Iomed" shall not include any Affiliate of
Iomed.
ARTICLE VIII. TERMINATION
8.01. Term. This Agreement shall become effective on the
day and year written in the opening paragraph of this Agreement and shall
continue in full force and effect for an indefinite term, unless sooner
terminated by mutual written agreement of the Parties and except as otherwise
expressly provided herein.
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<PAGE> 21
8.02. Effect of Termination. It is understood and agreed by
the Parties that the following shall survive termination of this Agreement:
(a) the respective representations and warranties of
Iomed and Fournier pursuant to Article II hereof;
(b) the respective rights and obligations of Iomed
and Fournier pursuant to Articles III, IV and V hereof;
(c) the respective rights and obligations of Iomed
and Fournier pursuant to Article VI hereof, including, without limitation,
Iomed's continued ownership of Iomed Technology and Iomed Inventions, Fournier's
continued ownership of Fournier Technology and Fournier Inventions, the
respective licenses and sublicenses granted by Iomed and Fournier pursuant to
Sections 6.02, 6.03, and 6.04 hereof, the restrictions imposed pursuant to
Sections 6.04 and 6.05 hereof, and the royalty obligations pursuant to Section
6.06 hereof;
(d) the respective rights and obligations of Iomed
and Fournier pursuant to Article VII hereof;
(e) Sections 8.02, 8.03, 9.06, 9.07, 9.08, 9.09,
9.10, and 9.12 of this Agreement; and
(f) any right, remedy, claim, action or cause of
action a Party has or may have against the other Party for breach of a material
obligation under this Agreement.
8.03. Continuing Liability. Termination of this Agreement
for any reason shall not release a Party from any liability, obligation,
agreement or other responsibility under this Agreement that already has accrued
or arisen, nor shall any termination constitute a waiver or release of, or
otherwise be deemed to prejudice or affect, any rights, remedies, claims,
actions or causes of action, whether for damages or otherwise, that a Party may
have hereunder or which may arise out of or in connection with such termination.
ARTICLE IX. GENERAL PROVISIONS
9.01. Amendments. Neither this Agreement nor any of the
terms hereof may be amended, supplemented, waived or modified except by an
instrument in writing signed by the Party against whom enforcement of such
change is sought.
9.02. Severability of Provisions. Any provision of this
Agreement that may be finally determined by a Governmental Authority to be
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability, without
invalidating or rendering unenforceable any remaining provisions hereof, and any
such invalidity or unenforceability in any jurisdiction shall not invalidate or
18
<PAGE> 22
render unenforceable such provision in any other jurisdiction. The Parties shall
negotiate in good faith to replace any such provision with an appropriate, legal
provision and, to the extent permitted by law, hereby waive any provision of law
that renders any provision hereof invalid or unenforceable in any respect.
9.03. Governing Law. This Agreement and all issues arising
under or relating to this Agreement, including, without limitation, its
construction, interpretation, breach, and damages for breach, shall be governed
by the laws of the State of New York (without regard to its conflict of laws
principles). Any action, cause of action or dispute arising under or relating to
this Agreement shall be brought only in the courts of the State of New York or
the federal court of the United States, located in the Borough of Manhattan,
County of New York, the State of New York, and each of the Parties expressly
consents-to personal jurisdiction in the State of New York with respect to such
action, cause of action or dispute.
9.04. Headings. The division of this Agreement into
sections, the provision of a table of contents, and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
9.05. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument.
9.06. Notices. All communications and notices provided for
under this Agreement shall be in writing and be given in person, by courier or
by means of telex, telecopy or other wire transmission (with provision for
assurance of receipt in a manner typical with respect to communications of that
type), or be mailed by registered or certified first class mail, return receipt
requested, at the address set forth below (or to such other person, address or
telecopy (FAX) number as a Party may, from time to time, designate by written
notice):
(a) If to Iomed-
Iomed, Inc.
3385 West 1820 South
Salt Lake City, Utah 84104 U.S.A.
Att'n: Mr. Ned M. Weinshenker
FAX: (801) 972-9072
With a copy to-
Morrison & Foerster LLP
345 California Street
San Francisco, California 94104-2675
Att'n: C. Patrick Machado, Esq.
FAX: (415) 677-7522;
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<PAGE> 23
(b) If to Fournier-
Laboratoires Fournier S.C.A.
42, rue de Longvic
21300 Chenove, France
Att'n: Mr. Bernard Majoie
FAX: (33) 80-44-70-04
With a copy to-
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Att'n: Peter G. Bergmann, Esq.
FAX: (212) 504-6666
All such communications and notices given in such manner shall be deemed given
when received by (or when proffered to, if receipt is refused) the Party or
Person to whom it is addressed.
9.07. Specific Performance. Each Party hereto acknowledges
that the payment of monetary damages may be an inadequate remedy for the breach
of its obligations under this Agreement, and agrees that the other Party shall
be entitled to specific performance of such obligations.
9.08. Successors and Assigns. This Agreement, including the
terms and provisions hereof, shall be binding upon, and inure to the benefit of,
each of Iomed and Fournier and their respective successors and permitted
assigns.
9.09. Further Assurances. Each of the Parties shall perform
such acts, execute and deliver such instruments and documents, and do all such
other things as may be reasonably necessary to accomplish the transactions
contemplated under this Agreement.
9.10. Expenses. Each of the Parties shall bear its
respective costs and expenses (including attorneys' fees and expenses) incurred
in connection with the negotiation and preparation of this Agreement and
consummation of the transactions contemplated hereby. In any action, cause of
action or dispute arising under or relating to this Agreement, a court shall
have the right and authority to assess the costs of the proceedings.
9.11. Assignment. Except as expressly provided to the
contrary in this Agreement, neither Party may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
Party, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, it is understood and agreed by the Parties that each Party may assign
its rights and obligations under this Agreement in conjunction with the
incorporation of any unit of such Party as a wholly owned Affiliate and, in the
case of Fournier, the disposition of any of its units, including, without
limitation, Tilderm Systems;
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<PAGE> 24
provided, however, that Fournier shall not be permitted to assign its rights
under Article V or Section 7.02 hereof to any Person other than an Affiliate of
Fournier.
9.12. Confidential Information.
(a) Confidentiality. A Receiving Party agrees that it
shall, and that it shall use diligent efforts to ensure that each of its
officers, directors, employees and agents shall, protect and hold in confidence
all Confidential Information of the Disclosing Party and shall not disclose, or
cause to be disclosed, such information to third parties, except as expressly
provided to the contrary in this Agreement. In furtherance, and not in
limitation, of the foregoing, each Party agrees that it shall (i) leave in place
any proprietary or confidential legends or markings placed upon any Confidential
Information by the Disclosing Party, (ii) restrict disclosure of Confidential
Information to those of its officers, directors, employees and agents who have a
"need to know" in respect to such information, and (iii) instruct and require
such officers, directors, employees and agents to maintain the confidentiality
of Confidential Information and not to use such information except as expressly
permitted herein. Such obligations shall apply with respect to Confidential
Information for the term of this Agreement and for a period of ten (10) years
after any termination of this Agreement.
(b) Rights to Confidential Information. All
Confidential Information shall remain the sole property of the Disclosing Party,
and the Receiving Party shall have no rights or interests (except as hereinafter
provided) to or in such information.
(c) Return of Confidential Information. Immediately
upon any termination of this Agreement, each Party shall discontinue the use of
Confidential Information of the other Party, and the Receiving Party shall, upon
the written request of the Disclosing Party, return to such Party, within thirty
(30) days of such request, all items of Confidential Information of such Party,
including, without limitation, all copies and originals of such items of
Confidential Information, that are identified specifically in such written
request; provided, however, that, if and to the extent that any license or
sublicense granted pursuant to Section 6.02, 6.03 or 6.04 hereof shall remain in
effect notwithstanding such termination, a Receiving Party shall be permitted to
retain only such Confidential Information as is reasonably necessary for the
continued exercise of its license or sublicense rights hereunder and to use such
Confidential Information within the scope of such license or sublicense.
(d) Exceptions. Notwithstanding any other provisions
of this Agreement, nothing obtained by a Receiving Party shall be deemed
Confidential Information of the Disclosing Party if such information: (i) is not
marked or otherwise designated in writing as confidential and is provided for a
purpose that reasonably contemplates disclosure to or use by any other Person,
(ii) becomes a matter of public knowledge through no action or inaction of the
Receiving Party, (iii) is disclosed by the Disclosing Party to a third party
without a duty of confidentiality, (iv) is rightfully received by the Receiving
Party from a third party without a duty of confidentiality, or (v) was known to
the Receiving Party before it first was received from the Disclosing Party, as
shown by files and records of the Receiving Party
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<PAGE> 25
existing at the time of initial disclosure. Information shall not be deemed to
be a matter of public knowledge, for the purpose of the exclusion (ii) above
with respect to each Party, merely because it (x) is embraced by more general
information in the prior possession of a Party or any other Person or (y) is
expressed in public literature in general terms not specifically in accordance
with the Confidential Information.
(e) Disclosure.
(i) A Receiving Party shall immediately
notify a Disclosing Party of receipt of any process, subpoena or demand by any
Governmental Authority or any other Person, requiring production of Confidential
Information of the Disclosing Party, and shall, within one (1) day after such
receipt, furnish to the Disclosing Party a copy of such process, subpoena or
demand and of all materials and facts relating thereto. The Disclosing Party
shall have the right to take any legal action to prevent disclosure of its
Confidential Information, including, without limitation, the right to appear on
behalf of the Receiving Party, to represent the Receiving Party, and to employ
counsel of its choice for these purposes, all at its expense.
(ii) The Disclosing Party shall have the
right to make any legal arguments and to take any legal action, including,
without limitation, trials and appeals on behalf of itself and the Receiving
Party, to prevent disclosure of its Confidential Information. If a Disclosing
Party elects to exercise its rights under this Section 9.12(e), it shall do so
at its expense and shall protect, hold harmless, defend, and indemnify the
Receiving Party from and against any and all legal responsibility or liability
from the exercise of these rights. If a Disclosing Party elects not to exercise
any such rights or if, in the absence of a protective order or other remedy or
the receipt of a waiver by the Disclosing Party, the Receiving Party is
nonetheless legally compelled to disclose Confidential Information of the
Disclosing Party, then the Receiving Party may, without liability hereunder,
disclose only that portion of such Confidential Information that it is legally
compelled to disclose.
(f) Confidentiality of Agreement. The provisions of
this Section 9.12 also shall apply to the contents of this Agreement; provided,
however, that the contents hereof may be disclosed: (i) as required by
Applicable Law; (ii) to accountants, banks, financing sources, lawyers,
consultants, prospective clients, sublicensees, and any Person with whom a Party
has a written contractual collaboration, so long as such recipients keep such
contents confidential; (iii) in connection with the enforcement of this
Agreement; (iv) in connection with a financing, merger, acquisition, public
offering, or proposed financing, merger, acquisition or public offering; or (v)
pursuant to joint press releases prepared in accordance with Section 9.13
hereof.
(g) Notification of Breach. Each Party shall notify
the other Party in the event of any breach of this Section 9.12, including,
without limitation, conditions or circumstances that indicate Confidential
Information has been or may have been prejudiced or otherwise exposed to loss or
unauthorized disclosure or use. A Receiving Party shall, upon request of the
Disclosing Party, take all steps reasonably necessary to recover any and all
22
<PAGE> 26
Confidential Information that has been or may have been compromised, prejudiced,
improperly disclosed or otherwise exposed to loss or unauthorized use. The
expense of taking such steps shall be borne solely by the Receiving Party.
(h) Equitable Relief. Each Party acknowledges and
agrees that (i) any breach of the obligations under this Agreement, including,
without limitation, the confidentiality provisions under this Section 9.12, is
likely to cause or threaten irreparable harm to the other Party and (ii) in such
event, each Party shall be entitled to equitable relief to protect its
interests, including, without limitation, preliminary and permanent injunctive
relief, as well as money damages.
9.13. Publicity. The Parties shall jointly review, discuss
and agree upon any statement to the public regarding the subject matter of this
Agreement after full consideration of (a) the accuracy of the disclosure, (b)
the requirements for confidentiality under Section 9.12 hereof, (c) the
advantage a competitor of either Party might gain from any public or third-party
statements, (d) disclosure requirements under any Applicable Law (including,
without limitation, securities laws and regulations relating to public
offerings), and (e) the standards and customs in the pharmaceutical industry for
such disclosures by companies comparable to both of the Parties. Notwithstanding
the foregoing, neither of the Parties nor any of their respective officers,
directors, employees, agents or advisors shall publicize, advertise, announce or
describe to any Governmental Authority or any other Person the terms of this
Agreement, either of the Parties, or the transactions contemplated hereby,
except as required by Applicable Law or as required or expressly permitted
pursuant to this Agreement.
9.14. Entire Agreement. This Agreement contains the entire
agreement between the Parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings, oral and
written, with respect to such
23
<PAGE> 27
transactions, including, without limitation, Iomed's Letter of Understanding
(along with its attachments) dated October 3, 1995 and each and every provision
of the Research and Development Agreement (including, without limitation, the
provisions of Article 8 thereof).
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly executed as of the date first above written.
IOMED, INC.
By:/s/ Ned M. Weinshenker
------------------------------------------
Ned M. Weinshenker
Title: President and Chief Executive Officer
LABORATOIRES FOURNIER S.C.A.
By:/s/ Bernard Majoie
------------------------------------------
Bernard Majoie
Title: Monsieur Le Gerant
24
<PAGE> 28
EXHIBIT A - FOURNIER INVENTIONS
****
25
<PAGE> 29
EXHIBIT B - FOURNIER TECHNOLOGY
****
26
<PAGE> 30
****
27
<PAGE> 31
EXHIBIT C - IOMED INVENTIONS
****
28
<PAGE> 32
EXHIBIT D - IOMED TECHNOLOGY
I. PRIOR TECHNOLOGY
Patents
- U.S. Patent 4,141,359 licensed form the University of Utah ****
- U.S. Patent 4,383,529 cross-licensed from Alza Corporation and Wescor,
Inc. ****
- U.S. Patent 4,416,274 licensed from the University of Utah ****
- U.S. Patent 4,752,285 licensed for the University of Utah ****
- U.S. Patents 4,747,819, 4,744,787, 5,135,477 and pending CIP's
cross-licensed from Alza Corporation ****
- U.S. Patent 4,915,685 ****
- U.S. Patents 5,087,242, 5,236,412, 5,328,455, 5,374,241, WO 9,210,235
and EP 515667 ****
- U.S. Patent 5,037,380 ****
- U.S. Patent 4,968,297 ****
- U.S. Patent 5,248,295 ****
Also included are all foreign equivalents, PCT equivalents, and all
related CIP to the above patents.
Other Technology and know-how
****
29
<PAGE> 33
EXHIBIT D - IOMED TECHNOLOGY (CONTINUED)
II. IMPROVEMENTS ON PRIOR TECHNOLOGY
****
30
<PAGE> 1
EXHIBIT 10.21
Note: Certain portions of the exhibit
have been omitted based upon a
request for confidential treatment.
The omitted portions have been
separately filed with the Commission.
SUPPLY AGREEMENT
This Agreement is made this 27th day of April, 1993 by and between Iomed,
Inc. ("Iomed"), 1290 West 2320 South, Salt Lake City, Utah 84119 and Abbott
Laboratories, One Abbott Park Road, Abbott Park, Illinois 60064-3500.
Iomed desires to purchase its requirements of Lidocaine 2% and Epinephrine
1:100,000 injection, USP, from Abbott and Abbott agrees to sell to Iomed its
requirements of such Product. Iomed will market the Product for use in
conjunction with Iomed's proposed medical device for iontophoretic
administration.
Therefore, in consideration of the premises and the mutual promises and
agreements contained herein, Iomed and Abbott agree as follows:
1. Product.
For purposes of this Agreement, the term "Product" shall mean Lidocaine 2%
and Epinephrine 1:100,000 injection, USP, packaged in 30ml SVP fliptop
containers and labeled for iontophoretic administration with Iomed medical
devices.
2. Custom Product Development.
Promptly after the execution of this Agreement, the parties shall
undertake a project to develop a custom packaged product suitable for marketing
with Iomed's iontophoretic medical administration device and suitable for
manufacturing on Abbott's standard packaging equipment for
<PAGE> 2
fliptop containers. The parties shall use their reasonable best efforts to
complete successfully the product development and to obtain U.S. Food and Drug
Administration ("FDA") marketing approval of the Product. It is understood and
agreed that there is no guarantee that the product development project will be
successful and no representation or warranty of any kind is given by either
party that a marketable Product will result from the project.
3. Abbott's Development Responsibilities.
-------------------------------------
The objective of the product development project shall be for Abbott to
assist Iomed as required in obtaining regulatory approval for sale of the
Product. The Product will then be manufactured by Abbott and sold to Iomed for
resale by Iomed. Abbott shall have the following development responsibilities:
a. Manufacture at Abbott's Rocky Mount plant 1,000 units of Product for
clinical and stability supplies for testing to be carried out by Iomed to
support FDA filings for device and drug marketing approvals.
b. Provide authorization to reference Abbott's Abbreviated New Drug
Application, as appropriate for Pre-market Approval submissions by Iomed.
2
<PAGE> 3
c. Assist Iomed, as reasonably requested, in preparation of regulatory
submissions for the Product and provide such other assistance as Iomed may
reasonably require.
d. Submit Investigational New Drug application and Supplemental New Drug
Application as Abbott's responsibilities in the development process
require.
e. Using Abbott's graphics studio, typeset final label and carton copy from
artwork provided by Iomed and generate proofs and negatives suitable for
printing.
4. Iomed's Regulatory Submissions.
Iomed agrees that Abbott shall have the right to review Iomed's proposed
Pre-market Approval submissions. Abbott shall complete its review within a
reasonable period of time after receipt from Iomed of the proposed regulatory
submission. Iomed further agrees that Abbott shall participate with Iomed in
responding to questions from the FDA regarding regulatory submissions
applicable to the Product. Iomed shall respond to questions relating to its
device. Abbott shall respond to questions relating to the product.
5. Payment for Abbott's Development Efforts.
5.1 Development Fee. To reimburse Abbott for its participation in the
product development project, IOMED shall pay to Abbott a
non-refundable development fee of $65,000 within ten (10) days after
execution of this Agreement.
3
<PAGE> 4
****.
5.2 Changes in Project Scope. If unanticipated changes occur in the
product development project or Product Specifications, or if technical
difficulties result in the requirement for Abbott to perform either additional
or repeat work, Abbott's costs for such work shall be paid by Iomed, subject to
Iomed's prior approval.
6. Manufacture and Supply of Product.
6.1 Purchase and Sale of Product - Iomed Requirements. During the terms
of this Agreement and pursuant to the terms and conditions hereof, Abbott
agrees to manufacture, sell and deliver Product exclusively to Iomed and Iomed
agrees to purchase its total requirements of Product from Abbott.
6.2 Orders and Delivery Variances. Unless otherwise agreed to by the
parties, the order quantity shall be a whole number in multiples of ****. The
maximum order quantity shall be two hundred thousand (200,000) units per month.
The maximum and minimum order sizes may be adjusted from time to time by written
agreement of the parties. Delivery of Product by Abbott may vary from quantities
ordered by Iomed plus or minus ****
4
<PAGE> 5
****. Such deliveries shall be in full compliance with this Agreement.
6.3 Manufacture of Product.
6.3.1 Abbott shall manufacture Product in accordance with the Product
Specifications for ****, as modified from time to time by Abbott. Product
shall be labeled by Abbott in accordance with FDA approved lable copy and as
mutually approved by the parties.
6.3.2 Abbott's quality control procedures and in-plant quality
control checks on the production of Product for Iomed shall be applied in the
same manner as those procedures and checks are applied to products manufactured
for sale directly by Abbott as Abbott products. Abbott shall provide a
certificate of analysis with each shipment of Product.
6.3.3 Iomed shall have a period of ****days from the date of receipt
to inspect and reject any shipment of Product on the grounds that it does not
conform with the Product Specifications. Iomed shall have the right to return
any Product which does not conform. All of part of any shipment may be held for
Abbott's disposition if found to be not in conformance with the Product
Specifications, provided Abbott confirms such nonconformance through generally
accepted quality control procedures. Abbott shall have **** days from the
effective date of rejection (written notice) by Iomed in which to confirm
5
<PAGE> 6
nonconformance. Failure to confirm within such **** day period shall constitute
agreement with Iomed's rejection of Product. After Abbott confirms
nonconformance, Abbott shall have a period of **** days to replace such
nonconforming Product. Replacement of Product with conforming Product shall be
Iomed's sole and exclusive remedy for any nonconforming Product delivered
hereunder. Any Product not rejected by Iomed pursuant to this subparagraph 6.3.3
shall be deemed accepted for all purposes and all claims with respect to such
Product waived by Iomed. Shipment of rejected Product to Abbott and shipment of
replacement Product to Iomed shall be at Abbott's expense and by the carrier
designated by Abbott.
6.3.4 Abbott hereby approves placement of a descriptive private label
with Iomed's tradename and/or Iomed's trademark on the Product. Any material
changes to the descriptive label must be approved by Abbott prior to
implementing such changes.
6.5 Price and Payment.
6.5.1 Product shall be delivered by Abbott at prices set forth in Exhibit
A of this Agreement. The prices are based on standard Abbott packaging
components with custom Iomed print copy as approved by Abbott for
manufacturability.
6
<PAGE> 7
6.5.2 Abbott shall invoice Iomed upon delivery of Product. ****.
6.5.3 Any federal, state, county or municipal sales or use tax,
excise or similar charge, or any other tax assessment (other than that assessed
against income), license or other charge lawfully assessed and normally charged
on the manufacture, sale or transportation of Product sold pursuant to this
Agreement shall be paid by Iomed.
6.6 Delivery. Product shall be delivered to Iomed F.O.B. Abbott's Rocky
Mount, North Carolina plant and title shall pass to Iomed at such point.
6.7 Orders and Forecasts.
6.7.1 Abbott and Iomed shall cooperate fully in estimating and
scheduling production for the first firm order to be placed by Iomed. The first
firm order shall cover a period of three (3) consecutive calendar months.
Thereafter, firm orders shall be placed monthly and shall cover the next
succeeding third month. At the time Iomed places its firm monthly orders, Iomed
shall provide to Abbott Iomed's estimate of its monthly requirements for the
next succeeding nine (9) calendar month
7
<PAGE> 8
period. It is the intent that at all times Abbott shall have in hand firm
monthly orders covering the current three (3) calendar month period and Iomed's
estimates of its monthly requirements for the next succeeding nine (9) calendar
month period.
6.7.2 Each Iomed purchase order for Product shall be governed by the
terms of this Agreement and none of the provisions of such purchase order shall
be applicable except those specifying quantity ordered, delivery dates, shipping
instructions and invoice information.
6.8 Guarantees and Warranties.
6.8.1 Abbott guarantees to Iomed that Product delivered to Iomed
pursuant to this Agreement shall, at the time of delivery, not be adulterated
or misbranded within the meaning of the Federal Food, Drug, and Cosmetic Act,
as amended, or within the meaning of any applicable state or municipal law in
which the definitions of adulteration and misbranding are substantially the
same as those contained in the Federal Food, Drug, and Cosmetic Act, as such
Act and such laws are constituted and effective at the time of delivery and
will not be an article which may not under the provisions of Sections 404 and
505 of such Act be introduced into interstate commerce.
6.8.2 Abbott warrants that Product delivered to Iomed pursuant to
this Agreement shall conform with the Product Specifications
8
<PAGE> 9
and shall have been manufactured pursuant to current Good Manufacturing
Practice, as prescribed by regulations promulgated by the FDA. ABBOTT MAKES NO
OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCT. ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
DISCLAIMED BY ABBOTT. Abbott shall not be liable to Iomed for indirect,
incidental or consequential damages resulting from any breach of this Agreement.
6.8.3 Abbott shall indemnify and hold Iomed harmless from and against
all liability, loss or damage (including reasonable attorney fee(s) which Iomed
may incur, or be required to pay by reason of any injury, illness and/or death
that resulted from negligent or wrongful acts or omissions of Abbott. Iomed
shall indemnify and hold Abbott harmless from and against any and all
liability, loss or damage (including reasonable attorney fees) which Abbott may
incur, or be required to pay by reason of any injury, illness and/or death that
resulted from negligent or wrongful acts or omissions of Iomed, or the safety
or efficacy of the Product when used with Iomed's iontophoretic administration
devices.
The obligations of the indemnifying party under this paragraph are
conditioned upon the prompt written notification to the indemnifying party of
any of the aforementioned suits or claims upon the full cooperation of the
indemnified party in the investigation, defense and proposed settlement of such
suits or claims and the indemnifying party being given the opportunity to
defend. This provision for indemnification shall be void and there shall be no
liability against a party as to any suit or claim for which settlement or
compromise is made without prior written consent of the indemnifying party.
9
<PAGE> 10
****
7. Term and Termination.
7.1 This Agreement shall commence on the date first above written and the
initial term shall expire on December 31, 1998. Thereafter, the term shall
continue automatically until terminated. This agreement may be terminated on
December 31, 1998 or at anytime thereafter upon not less than one hundred
eighty (180) day's prior written notice from one party to the other. Iomed may
terminate this Agreement at anytime by giving Abbott one hundred eighty (180)
days prior written notice if Iomed discontinues sale of its iontophoretic
administration devices.
7.2 Either party may terminate this Agreement by giving to the other
sixty (60) days prior written notice as follows:
a. Upon the bankruptcy or the insolvency of the other party; or
b. Upon the breach of any warranty or any other material provision of
this Agreement by the other party if the breach is
10
<PAGE> 11
not cured within sixty (60) days after written notice thereof to the
party in default.
7.3 Termination, expiration, cancellation or abandonment of this Agreement
through any means and for any reason shall not relieve the parties of any
obligation accruing prior thereto and shall be without prejudice to the rights
and remedies of either party with respect to any antecedent breach of any of
the provisions of this Agreement.
8. Force Majeure.
Any delay in the performance of any of the duties or obligations of either
party hereto (except the payment of money) shall not be considered a breach of
this Agreement and the time required for performance shall be extended for a
period equal to the period of such delay, provided that such delay has been
caused by or is the result of any acts of God; acts of the public enemy;
insurrections; riots; embargoes; labor disputes, including strikes, lockouts,
job actions, or boycotts; fires; explosions; floods; shortages of material or
energy; or other unforeseeable causes beyond the control and without the fault
or negligence of the party so affected. The party so affected shall give prompt
notice to the other party of such cause, and shall take whatever reasonable
steps are necessary to relieve the effect of such cause as rapidly as possible.
11
<PAGE> 12
9. Confidential Information.
9.1 It is recognized by the parties that during the term of this
Agreement the parties may exchange Confidential Information. Each party agrees
not to disclose to any third person Confidential Information received from the
other party and not to use Confidential Information received from the other
party, except as authorized by the disclosing party. For purposes of this
Agreement, Confidential Information shall include all information disclosed
hereunder in writing and identified as being confidential or if disclosed
orally is reduced to writing within thirty (30) days of oral disclosure and
identified as being confidential, except any portion thereof which:
a. is known to the recipient before receipt thereof under this Agreement;
b. is disclosed in good faith to the recipient after acceptance of this
Agreement by a third person lawfully in possession of such information and
not under an obligation of nondisclosure;
c. is or becomes part of the public domain through no fault of the recipient;
d. is developed by the recipient independently of and without reference to
Confidential Information; or
e. is required by law to be disclosed.
12
<PAGE> 13
Notwithstanding the above, nothing contained in this Agreement shall
preclude Iomed or Abbott from utilizing Confidential Information as may be
necessary in prosecuting patent rights of the parties, or obtaining
governmental marketing approvals, or in manufacturing Product pursuant to this
Agreement. The obligations of the parties relating to Confidential Information
shall expire three (3) years after the termination of this Agreement.
10. Independent Contractors.
The relationship of Iomed to Abbott established by this Agreement is that
of an independent contractor. Nothing contained in this Agreement shall be
construed to constitute Iomed as a partner, agent or joint venturer with Abbott
or as a participant in a joint or common undertaking with Abbott.
11. Notices.
All notices hereunder shall be delivered personally or by registered or
certified mail, postage prepaid, to the following addresses of the respective
parties:
13
<PAGE> 14
Abbott Laboratories
One Abbott Park Road
Abbott Park, Illinois 60064-3500
Attention: General Counsel
With copy to: President
Hospital Products Division
Iomed, Inc.
1290 West 2320 South
Salt Lake City, Utah 84119
Attention: President
With copy to: Vice President Operations
Notices shall be effective upon receipt if personally delivered, or on
the third business day following the date of mailing. A party may change its
address listed above by notice to the other party.
12. Applicable Law.
This Agreement shall be construed, interpreted and governed by the
laws of the State of Illinois, except for choice of law rules.
13. Assignment.
Neither party shall assign this Agreement or any part thereof without
the prior written consent of the other party; provided, however, Abbott may
assign this Agreement to a wholly-owned subsidiary and either party, without
such consent, may assign or sell the same in connection with the transfer or
sale of substantially its entire business
14
<PAGE> 15
to which this Agreement pertains or in the event of its merger or consolidation
with another company. Any permitted assignee shall assume all obligations of
its assignor under this Agreement. No assignment shall relieve any party of
responsibility for the performance of any accrued obligation which such party
then has hereunder.
14. Entire Agreement
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all written or oral prior
agreements or understandings with respect thereto. No course of dealing or
usage of trade shall be used to modify the terms hereof.
15. Severability.
This Agreement is subject to the restrictions, limitations, terms and
conditions of all applicable laws, governmental regulations, approvals and
clearances. If any term or provision of this Agreement shall for any reason be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision
hereof, and this Agreement shall be interpreted and construed as if such term
or provision, to the extent the same shall have been held to be invalid,
illegal or unenforceable, had never been contained herein.
15
<PAGE> 16
16. Waiver -- Modification of Agreement.
No waiver or modification of any of the terms of this Agreement shall be
valid unless in writing and signed by authorized representatives of both
parties. Failure by either party to enforce any rights under this Agreement
shall not be construed as a waiver of such rights nor shall a waiver by either
party in one or more instances be construed as constituting a continuing waiver
or as a waiver in other instances.
17. Product Recalls.
If (a) any government authority issues a request, directive or order that
the Product be recalled, or (b) a court of competent jurisdiction orders such a
recall, or (c) Iomed or Abbott reasonably determine after consultation with the
other that the Product should be recalled, the parties shall take all
appropriate corrective actions. If such recall results from any cause or event
for which Abbott is responsible, Abbott shall be responsible for the expenses
of recall. In all other cases, Iomed shall be responsible for the expenses of
recall. For the purposes of this Agreement, the expenses of recall shall
include, without limitation, the reasonable expenses of notification and
destruction or return of the recalled Product and the costs for the Product
recalled which shall be equal to the purchase price paid for such Product.
16
<PAGE> 17
The parties intending to be bound by the terms and conditions hereof have
caused this Agreement to be signed by their fully authorized representatives on
the date first above written.
ABBOTT LABORATORIES IOMED, INC.
By: By:
------------------------------ ---------------------------
Title: President Hospital Products Title: President
Division
17
<PAGE> 18
Exhibit A
Price
Price per unit for the 30 mL fliptop container of Product is as follows:
Quantity Per Contract Year Price/Unit
-------------------------- ----------
0 - 300,000 Units $****
300,001 Units and above $****
1) Prices are based on Product purchased by delivery during each Contract
Year. A Contract Year shall be the twelve (12) month period beginning on the
first day of the month following the month in which Iomed receives final FDA
approval to market the Product.
2) Beginning January 1, 1994, and on each succeeding January 1 during the
term hereof, prices may be increased by Abbott. ****
<PAGE> 1
EXHIBIT 10.24
NOTE: CERTAIN PORTIONS OF THE EXHIBIT
HAVE BEEN OMITTED BASED UPON A
REQUEST FOR CONFIDENTIAL TREATMENT.
THE OMITTED PORTIONS HAVE BEEN
SEPARATELY FILED WITH THE COMMISSION.
LICENSE AGREEMENT
between
IOMED, INC.
and
UNIVERSITY OF UTAH RESEARCH FOUNDATION
<PAGE> 2
TABLE OF CONTENTS
Article No..................................................... Page
1. DEFINITIONS.............................................. 2
2. GRANT.................................................... 3
3. ROYALTIES................................................ 4
4. CONFIDENTIALITY.......................................... 4
5. BOOKS AND RECORDS........................................ 5
6. LIFE OF THE AGREEMENT.................................... 5
7. TERMINATION BY LICENSOR.................................. 6
8. DISPOSITION OF PRODUCTS ON HAND UPON TERMINATION......... 6
9. PATENT PROSECUTION AND MAINTENANCE....................... 7
10. WARRANTY BY LICENSOR..................................... 8
11. AFFIRMATIONS BY LICENSOR................................. 9
12. PRIOR AGREEMENTS......................................... 10
13. INFRINGEMENT............................................. 10
14. WAIVER................................................... 11
15. ASSIGNABILITY............................................ 12
16. INDEMNITY................................................ 12
17. LATE PAYMENTS............................................ 12
18. NOTICES.................................................. 12
19. FOREIGN LAWS............................................. 13
20. GOVERNING LAWS........................................... 14
21. MISCELLANEOUS............................................ 14
i
<PAGE> 3
LICENSE AGREEMENT
This LICENSE AGREEMENT is made and is effective as of October 1, 1992 (the
"Effective-,,Date") by and between the UNIVERSITY OF UTAH RESEARCH FOUNDATION,
having a principal place of business at 421 Wakara Way, Suite 170, Salt Lake
City, UT, 84108, hereinafter referred to as "LICENSOR", and IOMED, INC., having
a principal place of business at 1290 West 2320 South, Suite A, Salt Lake City,
UT 84119, hereinafter referred to as "LICENSEE".
W I T N E S S E T H:
WHEREAS, certain inventions, as listed in Exhibit "All and hereinafter
collectively referred to as "the Inventions", were made in the course of
research at the University of Utah by **** and are covered by LICENSORIS PATENT
RIGHTS as defined below;
WHEREAS, LICENSOR is desirous that the Inventions be developed and
utilized to the fullest extent so that the benefits can be enjoyed by the
general public; and
WHEREAS, LICENSOR and LICENSEE (hereinafter "the Parties") are party to
several agreements covering the Inventions dated ****, and the Parties wish to
terminate those agreements and to replace them with an agreement which better
suits the needs of their relationship;
NOW THEREFORE, for and in consideration of the covenants, conditions and
undertakings hereinafter set forth, it is agreed by and between the parties, as
follows:
1. DEFINITIONS
1.1 "LICENSORIS PATENT RIGHTS", as used herein, means patent rights to any
subject matter contained in the invention disclosures listed in Exhibit A and
claimed in or covered by the pending or issued U.S. and/or foreign patents and
applications recited in Exhibit "Bl' assigned to LICENSOR; any continuing or
divisional applications thereof assigned to LICENSOR; and any patents issuing on
said applications, continuing or divisional applications including reissues
assigned to LICENSOR.
1.2 "PRODUCTS" as used herein shall mean power supply units and electrode
kits for iontophoretic drug delivery; Utah Artificial Arms and ProControls where
such products are manufactured by or where such products are manufactured for
LICENSEE to LICENSEE'S design and specifications, whether Covered By LICENSOR'S
PATENT RIGHTS or not.
1.3 "...Covered By...", as used herein, means PRODUCTS that when made,
used, or sold would constitute, but for the license granted to LICENSEE pursuant
to this Agreement, an infringement of any claim or claims of LICENSOR'S PATENT
RIGHTS.
1
<PAGE> 4
1.4 "NET SALES", as used herein, means sales revenue received by LICENSEE
for "PRODUCTS" sold by LICENSEE ****.
2. GRANT
2.1 LICENSOR hereby grants to LICENSEE an exclusive license under
LICENSORS PATENT RIGHTS to make, have made, use, and sell PRODUCTS throughout
the world where LICENSOR may lawfully grant such a license.
2.2 LICENSEE shall have full and exclusive right to all LICENSOR'S PATENT
RIGHTS with right to sell, sublicense or crosslicense under any terms to any
party with no consideration due to LICENSOR except as specifically set forth in
Paragraphs 3.1 and 3.2.
2.3 LICENSEE agrees to provide LICENSOR with copies of all such
sublicenses or cross-licenses, and LICENSOR agrees to keep such copies
confidential per Paragraph 4.
2.4 Pursuant to Paragraph 2.2, LICENSOR further agrees that LICENSEE may
specifically enter into a royalty-free cross-licensing agreement covering any or
all of the LICENSOR'S PATENT RIGHTS with ****.
2.5 Should this Agreement terminate for whatever reason, LICENSOR agrees
to negotiate in good faith with any sublicensee or cross-licensee per Paragraph
2.2 or 2.3 in order for a continuation of its rights on terms and conditions
similar to those granted LICENSEE.
2.6 LICENSOR reserves the right to use the Inventions for educational and
research purposes at the University of Utah.
3. ROYALTIES
3.1 As consideration for this license, LICENSEE shall pay to LICENSOR an
earned royalty of **** of NET SALES for the life of this Agreement. All monies
due to LICENSOR shall be payable in United States funds. Royalties accruing to
LICENSOR shall be paid to LICENSOR within forty-five (45) Days following the
calendar quarter in which NET SALES are made.
3.2 If within Forty-five (45) Days of the end of each fiscal year (ending
June 30th), LICENSEE has not paid to LICENSOR an amount equal to at least a
minimum annual royalty of ****, LICENSEE shall pay LICENSOR the difference. All
such payments in partial years will be on a pro rata basis.
4. CONFIDENTIALITY
4.1 LICENSEE acknowledges that LICENSOR is subject to the Utah
Governmental Records Access and Management Act (GRAMA) and that pursuant to
GRAMA, confidential information of LICENSEE disclosed to LICENSOR must be in
written or other tangible form
2
<PAGE> 5
and appropriately marked as proprietary. In addition a claim stating the reasons
supporting such business confidentiality must also accompany the confidential
information (Utah Code Annotated 63-2-308). LICENSOR agrees to keep such
confidential information confidential to the extent allowable under the
applicable law.
5. BOOKS AND RECORDS
5.1 LICENSEE shall keep books and records accurately showing all PRODUCTS
manufactured, used, or sold under the terms of this Agreement. Such books and
records shall be open to inspection by representatives or agents of LICENSOR at
reasonable times and after reasonable advance notice, for the purpose of
verifying the accuracy of the quarterly reports and the royalties due or paid.
5.2 The fees and expenses of the representatives performing such an
examination shall be borne by LICENSOR.
5.3 These books and records required herein shall be preserved for at
least Five (5) Years from the date of the royalty payment to which they pertain.
6. LIFE OF THE AGREEMENT
6.1 This Agreement shall be in full force and effect from the Effective
Date and shall remain in effect until September 30, 2007; unless otherwise
terminated by operation of law or by acts of the parties in accordance with the
terms of this Agreement. After September 30, 2007, LICENSEE shall have a fully
paid-up license to practice LICENSOR'S PATENT RIGHTS pursuant to Article 2
without any further consideration to LICENSOR.
7. TERMINATION BY LICENSOR
7.1 It is expressly agreed that if LICENSEE should fail to make any
payment at the time that the same should be due or if LICENSEE should violate or
fail to perform any material covenant, condition, or undertaking- of this
Agreement on its part to be performed hereunder, then and in such event LICENSOR
may give written notice of such default to LICENSEE. If LICENSEE should fail to
repair such default within Sixty (60) Days of such notice or, in the
alternative, to request Arbitration in accordance with the rules of the American
Arbitration Association, LICENSOR shall have the right to terminate this
Agreement and the license granted herein-by written notice to LICENSEE. Upon
such notice of termination, this Agreement shall automatically terminate. Such
termination shall not relieve LICENSEE of its obligation to pay any royalty due
or owing at the time of such termination and shall not impair any accrued right
of LICENSOR. LICENSEE shall pay all attorney's fees and costs incurred by
LICENSOR in enforcing any obligation of LICENSEE or accrued right of LICENSOR
after termination.
8. DISPOSITION OF PRODUCTS ON HAND UPON TERMINATION
8.1 Upon termination of this Agreement by LICENSOR., LICENSEE shall
provide LICENSOR with a written inventory of all PRODUCTS in process of
manufacture, in use or in
3
<PAGE> 6
stock and shall have the privilege of disposing of such PRODUCTS, but not more,
within a period of Ninety (90) Days, provided, however, that LICENSEE shall pay
royalties thereon and shall render reports thereon in the manner herein
provided.
9. PATENT PROSECUTION AND MAINTENANCE
9.1 LICENSEE shall diligently prosecute and maintain LICENSOR'S PATENT
RIGHTS using counsel of its choice and after due consultation with LICENSOR.
LICENSEE shall provide LICENSOR with copies of all relevant documentation so
that LICENSOR may be informed and apprised of the continuing prosecution, and
LICENSOR agrees to keep this documentation confidential to the extent allowable
under the law.
9.2 Pursuant to Paragraph 9.1 above LICENSEE shall be able .to exercise
sole and reasonable judgment in its decisions regarding the prosecution and
maintenance of LICENSOR'S PATENT RIGHTS. Should LICENSEE decide to abandon the
prosecution, maintenance or reinstatement of LICENSOR'S PATENT RIGHTS, it shall
notify LICENSOR of such decision within Forty Five (45) Days of any applicable
deadline. LICENSOR shall then have the opportunity to take over such
prosecution, maintenance or reinstatement at its own expense. LICENSEE shall
have no further rights in any patents on which LICENSOR takes over the
prosecution, maintenance or reinstatement unless LICENSEE requests such rights
and reimburses LICENSOR for costs incurred.
9.3 Subject to Paragraphs 9.1 and 9.2, LICENSEE agrees to pay all costs and
legal fees incurred for the prosecution, maintenance, defense, reinstatement and
taxes for such patents. LICENSOR agrees to reimburse LICENSEE for **** of such
reasonable costs in excess of **** per year. Such reimbursements shall not
exceed **** in any one year. Such reimbursements may be offset against earned
royalty payments due LICENSOR, ****. Such reimbursement shall be on a pro rata
basis for any partial year this Agreement is in effect.
10. WARRANTY BY LICENSOR
10.1 LICENSOR warrants that it has the lawful right to grant this
license.
10.2 LICENSOR makes no express or implied warranties of merchantability or
fitness of the Inventions for a particular purpose.
10.3 Nothing in this Agreement shall be construed as:
(a) a warranty or representation by LICENSOR as to the validity
or scope of any LICENSOR'S PATENT RIGHTS; or
4
<PAGE> 7
(b) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement is or
will be free from infringement of patents of third parties; or
(c) an obligation to bring or prosecute actions or suits
against third parties for patent infringement except as provided
herein; or
(d) conferring by implication, estoppel or otherwise any license or
rights under any patents of LICENSOR other than LICENSOR'S PATENT RIGHTS
as defined herein.
11. AFFIRMATIONS BY LICENSOR
11.1 LICENSOR affirms that to the best of its knowledge, other than what
has already been disclosed to LICENSEE per Exhibit "D", no invention disclosures
have been made to LICENSOR or the University of Utah Technology Transfer Office,
patents or patent applications pending relating to the PRODUCTS to which
LICENSEE may have certain rights under the agreements dated ****.
11.2 If LICENSOR becomes aware of any new invention disclosures with
creation dates prior to the Effective Date of this Agreement which LICENSEE may
have had rights to under the agreements referred to in Paragraph 11.1, LICENSOR
shall inform LICENSEE of such inventions. LICENSEE shall have Forty Five (45)
days to inform LICENSOR that it wants to include the rights to such inventions
in this Agreement.
11.3 Provided that this Agreement is currently in effect and remains in
effect for Fifteen (15) Years ending September 30, 2007, LICENSOR affirms the
assignment of any patents listed in Exhibit B.
12. PRIOR AGREEMENTS
12.1 The Parties agree to the following:
(a) The Artificial Arm Agreement dated July 29, 1976, the
Hemodialysis Agreement dated October 5, 1977 and the SPAD Agreement
dated August 27, 1980 are terminated in their entirety. All rights to
patents listed in Exhibit "C" will revert to LICENSOR;
(b) This Agreement embodies the entire understanding of the parties
and shall supersede all previous communications, representations or
understandings either oral or written between the parties relating to the
subject matter hereof.
13. INFRINGEMENT
13.1 In the event that LICENSEE or LICENSOR learn of infringement of any
of LICENSOR'S PATENT RIGHTS licensed under this Agreement, they shall call such
infringement to the attention of the other party thereto in writing and shall
provide the other party
5
<PAGE> 8
with evidence of such infringement. LICENSOR and LICENSEE shall cooperate and
shall then attempt to terminate such infringement. In the event the Parties fail
to abate the infringing activity within Ninety (90) Days, LICENSEE or LICENSOR
may bring suit for patent infringement, naming the other as nominal party
plaintiff.
13.2 Any legal action as is brought shall be at the expense of the party
by whom suit is filed, hereinafter referred to as the Litigating Party. Any
damages or costs recovered by the Litigating Party in connection with such
infringement, after first reimbursing it for its costs and expenses of the
lawsuit, shall be equally divided between LICENSEE and LICENSOR except where
LICENSEE is the Litigating Party. In that case LICENSOR shall receive a royalty
per this Agreement from such damages and costs recovered with LICENSEE retaining
the remainder.
13.3 LICENSEE and LICENSOR agree to cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the Litigating Party.
Such litigation shall be controlled by the Litigating Party. LICENSOR or
LICENSEE at their own expense, may be represented by counsel of their choice
pursuant to any suit brought by the Litigating Party.
14. WAIVER
14.1 It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
15. ASSIGNABILITY
15.1 This Agreement is binding upon and shall inure to the benefit of
LICENSOR, its successors and assigns, but shall be personal to LICENSEE and
assignable by LICENSEE only with the written consent of LICENSOR; provided,
however, that LICENSEE, without consent, may assign or sell the same in
connection with the transfer or sale of all or substantially all of its business
relating- to its interest in LICENSOR'S PATENT RIGHTS as defined herein or in
the event of merger or consolidation with another company.
16. INDEMNITY
16.1 LICENSEE agrees to indemnify, hold harmless and defend LICENSOR, its
officers, employees, and agents, against any and all claims, suits, losses,
damage, costs, fees and expenses resulting from or arising out of exercise of
this license.
17. LATE PAYMENTS
17.1 In the event royalty payments or fees are not -received by LICENSOR
when due, LICENSEE shall pay to LICENSOR interest charges at the rate of ****
on the total royalties or fees due for the reporting period.
18. NOTICES
6
<PAGE> 9
18.1 Any payment, notice or other communication required or permitted to
be given to either party hereto shall be deemed tohave been properly given and
to be effective: (a) on the date of delivery if delivered in person; or (b) on
the date of delivery if delivered by courier, express mail service or
first-class certified mail. Such notice shall be sent or delivered to the
respective address given below, or to such other address as it shall designate
by written notice given to the other party as follows:
In the case of LICENSEE:
IOMED, INC.
Attention: President
1290 West 2320 South, Suite A Salt Lake City UT 84119
In the case of LICENSOR:
UNIVERSITY OF UTAH
TECHNOLOGY TRANSFER OFFICE
421 Wakara Way, Suite 170
Salt Lake City, UT 84108
19. FOREIGN LAWS
19.1 LICENSEE agrees to register this Agreement when required by
local/national law, to pay all costs and legal fees connected therewith, and to
otherwise insure that the local/ national laws affecting this Agreement are
fully satisfied. 19.2 LICENSEE further agrees to insure compliance with all
appropriate U.S. laws dealing with the export of technology or technical
information.
20. GOVERNING LAWS
20.1 This Agreement shall be interpreted and construed in accordance with
the laws of the State of Utah.
21. MISCELLANEOUS
21.1 The headings of the several sections are inserted for Convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
21.2 This Agreement will not be binding upon the parties until it has been
signed hereinbelow by or on behalf of each party, in which event, it shall be
effective as of the date first above written.
21.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed as aforesaid.
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<PAGE> 10
21.4 In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof, but this Agreement shall be construed as if such
invalid or illegal or unenforceable provisions had never been contained herein.
IN WITNESS WHEREOF, both LICENSOR and LICENSEE have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
8
<PAGE> 11
Page (1) of (1)
EXHIBIT "A"
To License Agreement between
University of Utah Research Foundation
and Iomed, Inc.
Inventions
(by University of Utah designation numbers and titles)
U-0671 EPIDERMAL IONTOPHORESIS DEVICE
Stephen Jacobsen, Robert Stephen, Richard Luntz, R. Todd Johnson and
David F. Knutti
U-1110 METHODS & APPARATUS FOR IONTOPHORESIS APPLICATION OF
MEDICAMENTS AT A CONTROLLED pH CIP
Stephen C. Jacobsen, Tomasz J. Petelenz, Robert L. Stephen and Jiri
Janata
U-1209 ARTICULATED PROSTHETIC WRIST
Stephen C. Jacobsen
U-1231 ELECTRICALLY DRIVEN ARTIFICIAL ARM
Stephen C. Jacobsen, R. Todd Johnson and David F. Knutti
U-1246 FLUID SELF-SEALING BIOELECTRODE
Stephen C. Jacobsen, Robert L. Stephen, Richard D. Luntz, Richard T.
Johnson, David F. Knutti and Carl F. Mandleco
<PAGE> 12
EXHIBIT "B"
To License Agreement between
University of Utah Research Foundation
and Iomed, Inc.
[Pg 1 of 3]
IOMED PATENTS, TRADEMARKS AND APPLICATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # WNJ NO. HHD NO. TITLE INVENTORS FILED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IONTOPHORESIS
- -----------------------------------------------------------------------------------------------------------------------------------
IO-01 7247.25 2930.25 Epidermal Iontophorolic Device SCJ, RLS, et al. 8/16/76
- -----------------------------------------------------------------------------------------------------------------------------------
IO-02 7247.26 2930.02 Fluid Self-Sealing Bioelectrode SCJ, RLS, RDL, et al. 11/14/77
- -----------------------------------------------------------------------------------------------------------------------------------
IO-03 7247.27 2930.06 Non-Invasive Chemical Species SCJ, JCS, RLS, RDL 11/22/78
Delivery Apparatus and Method
- -----------------------------------------------------------------------------------------------------------------------------------
IO-03-EP 7247.27a 2930.06EP Non-Invasive Chemical Species RLS, RDL 11/20/79
Delivery Apparatus and Method
- -----------------------------------------------------------------------------------------------------------------------------------
IO-03-JP 7247.27b 2930.06JP Non-Invasive Chemical Species RLS, RDL 11/9/79
Delivery Apparatus and Method
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04 7247.28 2930.20 Ion Mobility Limiting Iontophoretic SCJ, RDL 2/23/81
Bioelectrode
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04-CN 7247.28a 2930.20CN Ion Mobility Limiting Iontophoretic SCJ, RDL 2/19/82
Bioelectrode
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04-EP 7247.28b 2930.20EP Ion Mobility Limiting Iontophoretic SCJ, RDL 2/16/82
Bioelectrode
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04-JP 7247.28c 2930.20JP Ion Mobility Limiting Iontophoretic SCJ, RDL 10/21/81
Bioelectrode
- -----------------------------------------------------------------------------------------------------------------------------------
IO-05-IFG 7247.29 2930.03 Infringement of #4,416,274 SCJ 5/10/91
- -----------------------------------------------------------------------------------------------------------------------------------
IO-06 7247.30 2930.09 Iontophoretic Electrode Structure SCJ, RDL, BKH 11/6/61
- -----------------------------------------------------------------------------------------------------------------------------------
IO-07 7247.30.1 2930.09.1 Iontophoretic Electrode Structure SCJ, RDL, BKH 9/27/83
- -----------------------------------------------------------------------------------------------------------------------------------
IO-08 7247.8 2930.14 Methods & Apparatus for Iontophoresis TJP, RLS, SCJ, JJ 3/19/86
(silver) Application of Medicaments
- -----------------------------------------------------------------------------------------------------------------------------------
IO-08-EP 7247.8a 2930.14EP Methods & Apparatus for Iontophoresis TJP, RLS, SCJ, JJ 3/11/87
Application of Medicaments
- -----------------------------------------------------------------------------------------------------------------------------------
IO-08-JP 7247.8b 2930.14JP Methods & Apparatus for Iontophoresis TJP, RLS, SCJ, JJ 3/19/87
Application of Medicaments
- -----------------------------------------------------------------------------------------------------------------------------------
IO-09 7247.8.1 2930.14C Methods & Apparatus for Iontophoresis TJP, RLS, SCJ, JJ 4/5/89
Vol. I & II Application of Medicaments
- -----------------------------------------------------------------------------------------------------------------------------------
IO-10 7247.15 2930.16 Flow-Through Methods & Apparatus SCJ, TJP, RLS 6/19/87
for Iontophoresis Application of
Medicaments at a Controlled pH
- -----------------------------------------------------------------------------------------------------------------------------------
5/14/93
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # APPL. NO. STATUS. ISSUED NUMBER ASSIGNED TO ACTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IONTOPHORESIS
- -----------------------------------------------------------------------------------------------------------------------------------
IO-01 714,942 issued 2/27/79 4,141,359 Univ. of Utah NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-02 851,082 issued 9/4/79 4,166,457 Univ. of Utah NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-03 963,029 issued 2/17/81 4,250,878 Motion Control Name change
filed
- -----------------------------------------------------------------------------------------------------------------------------------
IO-03-EP 79104616.2 issued 8/4/82 0011813 Motion Control MF due 11/93
- -----------------------------------------------------------------------------------------------------------------------------------
IO-03-JP 150793/79 issued 3/12/84 1,195,921 Motion Control A. due 5/13/93
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04 236,753 issued 11/22/83 4,416,274 Motion Control NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04-CN 396,679 issued 1/22/85 1181490 Motion Control NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04-EP 82101141.8 issued 9/1/82 0058920 Motion Control A. pd. 2/93
- -----------------------------------------------------------------------------------------------------------------------------------
IO-04-JP 26921/82 issued 8/15/91 1,614,476 Motion Control NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-05-IFG NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-06 319,074 issued 12/6/83 4,419,092 Motion Control NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-07 536,304 issued 10/23/84 4,477,971 Motion Control NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-08 841,329 issued 6/21/88 4,752,285 UU Res. Found. Inquiry with
(silver) D. Seeley
- -----------------------------------------------------------------------------------------------------------------------------------
IO-08-EP 87302061.4 pending UU Res. Found. Resp. O/A filed
A. pd.
- -----------------------------------------------------------------------------------------------------------------------------------
IO-08-JP 65522/87 pending UU Res. Found. Exam decision
1/93
- -----------------------------------------------------------------------------------------------------------------------------------
IO-09 90/001,744 Re-exam 4,752,285 UU Res. Found. 9/30 complaint
Vol. I & II filed
- -----------------------------------------------------------------------------------------------------------------------------------
IO-10 7/064,813 issued 12/12/89 4,886,489 Univ. of Utah MF due 6/93
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
EXHIBIT "B"
To License Agreement between
University of Utah Research Foundation
and Iomed, Inc.
[Pg 2 of 3]
IOMED PATENTS, TRADEMARKS AND APPLICATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # WNJ NO. HHD NO. TITLE INVENTORS FILED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IO-10-EP 7247.15a 2930.16EP Flow-Through Methods & Apparatus SCJ, TJP, RLS 2/6/88
for Ionlophoresis Application of
Medicaments at a Contolled pH
- -----------------------------------------------------------------------------------------------------------------------------------
IO-10-JP 7247.15b 2930.16JP Flow-Through Methods & Apparatus SCJ, TJP, RLS 6/20/88
for Iontophoresis Application of
Medicaments at a Controlled pH
- -----------------------------------------------------------------------------------------------------------------------------------
IO.11 7247.10 2930.15 Methods & Apparatus for Iontophoresis TJP, SCJ, RLS, JJ 6/19/87
Vol. I-85/88 Application of Medicaments at a
Vol. II 89- Contolled pH Through Ion Exchange
- -----------------------------------------------------------------------------------------------------------------------------------
IO-11-EP 7247.10a 2930.15EP Methods & Apparatus for Iontophoresis TJP, SCJ, RLS, JJ 6/8/88
Application of Medicaments at a
Controlled pH Through Ion Exchange
- -----------------------------------------------------------------------------------------------------------------------------------
IO-11-JP 7247.10b 2930.15JP Methods & Apparatus for Iontophoresis TJP, SCJ, RLS, JJ 6/20/86
Application of Medicaments at a
Controlled pH Through Ion Exchange
- -----------------------------------------------------------------------------------------------------------------------------------
IO-12 7237.31 2930.04 Iontophoretic Electrode With Solution SCJ, TJP, JEB, RLS 5/8/89
Containment System
- -----------------------------------------------------------------------------------------------------------------------------------
IO-12-EP 7247.31a 2930.04EP Iontophoretic Electrode With Solution SCJ, TJP, JEB, RLS 11/14/90
Containment System
- -----------------------------------------------------------------------------------------------------------------------------------
12-JP 7247.31b 2930.04JP Iontophoretic Electrode With Solution SCJ, TJP, JEB, RLS 5/9/90
Containment System
- -----------------------------------------------------------------------------------------------------------------------------------
IO-13 7247.31.1 2930.04.1 Iontophoretic Electrode With Solution SCJ, TJP, JEB, RLS 8/23/90
Containment System
- -----------------------------------------------------------------------------------------------------------------------------------
IO-14 7247.32 2930.1 Bioelectrode Seal SCJ, TJP, JEB, RLS 5/8/89
- -----------------------------------------------------------------------------------------------------------------------------------
IO-14.1 7247.32.1 2930.10.1 Bioelectrode Seal SCJ, TJP, JEB, RLS 5/21/91
- -----------------------------------------------------------------------------------------------------------------------------------
IO-14.2 2930.10.2 Bioelectrode Containing Silicon Gel Seal SCJ, TJP, JEB, RLS
- -----------------------------------------------------------------------------------------------------------------------------------
IO-15 7247.33 2930.01 Method of Iontophoretically Treating RLS, TJP, SCJ 5/11/89
Acne, Furuncies & Like Skin Disorders
- -----------------------------------------------------------------------------------------------------------------------------------
IO-15-EP 7247.33a 2930.01EP Method of Iontophoretically Treating RLS, TJP, SCJ 10/5/90
Acne, Furuncies & Like Skin Disorders
- -----------------------------------------------------------------------------------------------------------------------------------
IO-15-JP 7247.33b 2930.01JP Method of Iontophoretically Treating RLS, TJP, SCJ 5/11/90
Acne, Furuncies & Like Skin Disorders
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # APPL. NO. STATUS ISSUED NUMBER ASSIGNED TO ACTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IO-01-EP 8830566.6 pending Univ. of Utah U of U action
due 6/20/93
- -----------------------------------------------------------------------------------------------------------------------------------
IO-10-JP 152068/88 pending Univ. of Utah NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-11 7/064,769 issued 4/10/90 4,915,685 Univ. of Utah MF due 10/93
Vol. I-85/86 EMPIREX
Vol. II 89
- -----------------------------------------------------------------------------------------------------------------------------------
IO-12-EP 88305243.3 pending Iomed, Inc. A due 6/8/93
- -----------------------------------------------------------------------------------------------------------------------------------
IO-11-JP 152068/88 pending Iomed, Inc. Review
R for E due
1995
- -----------------------------------------------------------------------------------------------------------------------------------
IO-12 7/349,489 issued 11/5/90 4,968,297 Iomed, Inc. MF due 2/6/94
- -----------------------------------------------------------------------------------------------------------------------------------
IO-12-EP 90/108643.9 pending Iomed, Inc. MR due 5/93
- -----------------------------------------------------------------------------------------------------------------------------------
12-JP 117787/90 pending Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-13 7/572,477 issued 8/6/91 5,037,380 Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-14 7/348/596 abandoned Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-14.1 7/703,456 allowed Iomed, Inc. issue fee pd.
- -----------------------------------------------------------------------------------------------------------------------------------
IO-14.2 in prep. Ready to file?
- -----------------------------------------------------------------------------------------------------------------------------------
IO-15 7/350.227 issued 12/25/90 4,979,938 Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-15-EP 90108838.5 pending Iomed, Inc. A. due 5/93
- -----------------------------------------------------------------------------------------------------------------------------------
IO-15-JP 122780/90 pending Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 14
EXHIBIT "B"
To License Agreement between
University of Utah Research Foundation
and Iomed, Inc.
[Pg 3 of 3]
IOMED PATENTS, TRADEMARKS AND APPLICATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # WNJ NO. HHD NO. TITLE INVENTORS FILED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IONTOPHORESIS
- -----------------------------------------------------------------------------------------------------------------------------------
IO-06 7247.34 2930.05 Hydratable Bioelectrode TJP, SCJ, RLS, JB, LL 7/21/89
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16-CN 7247.34a 2930.05CN Hydratable Bioelectrode TJP, SCJ, RLS, JB, LL 9/29/89
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16-EP 7247.34b 2930.05EP Hydratable Bioelectrode TJP, SCJ, RLS, JB, LL 7/11/90
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16-JP 7247.34c 2930.05JP Hydratable Bioelectrode TJP, SCJ, RLS, JB, LL 7/18/90
- -----------------------------------------------------------------------------------------------------------------------------------
IO-17 7247.34.1 2930.05.1 Hydratable Bioelectrode TJP, SCJ, RLS, JB, LL 1/23/91
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16 7247.34.2 2930.01.1 Rehydratable Product & Method of LBL, JEB, TJP, SCJ 12/14/90
(TransO) Preparation Thereof
- -----------------------------------------------------------------------------------------------------------------------------------
IO-19 7247.33.1 2930.37 Method of Treating Infection of a TJP, NMW, SCJ 11/2/90
Fingernail, Toenail and the Like
- -----------------------------------------------------------------------------------------------------------------------------------
IO-20 7247.33.2 2930.38 Apparatus For Treating & Preventing JEB, LBL, TJP, NW, 11/2/90
Infection of a Fingernail, Toenail & the Like SCJ
- -----------------------------------------------------------------------------------------------------------------------------------
IO-21 7247.34.2.1 2930.33 An iontophoretic Bioelectrode LBL, JEB, TJP, SCJ 6/2/92
Incorporating Hydratable Element and
Method of Preparation Thereof
- -----------------------------------------------------------------------------------------------------------------------------------
IO-21-PCT 7247.34.2.1a 2930.33PCT An iontophoretic Bioelectrode LBL, JEB, TJP, SCJ 12/16/91
Incorporating Hydratable Element and
Method of Preparation Thereof
- -----------------------------------------------------------------------------------------------------------------------------------
MOTION CONTROL
- -----------------------------------------------------------------------------------------------------------------------------------
MC-01 2930.19 Constant Tension Traction Device SCJ, DFK, RDL 7/22/82
- -----------------------------------------------------------------------------------------------------------------------------------
MC-02 2930.3 Electrically Driven Artificial Arm SCJ, DFK, RTJ 3/1/83
- -----------------------------------------------------------------------------------------------------------------------------------
MC-03 7247.40 2930.31 Articulated Prosthetic Wrist SCJ 10/5/84
- -----------------------------------------------------------------------------------------------------------------------------------
5/14/93
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # APPL. NO. STATUS ISSUED NUMBER ASSIGNED TO ACTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IONTOPHORESIS
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16 7/383,939 issued 2/11/92 5,087,242 Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16-CN 614,496 pending Iomed, Inc. Rsp. to CN PTO
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16-EP 90113284.5 pending Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-16-JP 188182/90 pending Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-17 7/645,028 pending Iomed, Inc. Refile case
- -----------------------------------------------------------------------------------------------------------------------------------
IO-18 7/627,714 allowed Iomed, Inc. Issue fee pd.
- -----------------------------------------------------------------------------------------------------------------------------------
IO-19 7/609,181 pending Iomed, Inc. Resp. to O/A
filed
- -----------------------------------------------------------------------------------------------------------------------------------
IO-20 7/608,565 pending Iomed, Inc. Resp. to O/A
filed 10/20/92
- -----------------------------------------------------------------------------------------------------------------------------------
IO-21 7/892,341 pending Iomed, Inc. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
IO-21-PCT PCT/US91 pending Iomed, Inc. NAR
/09329
- -----------------------------------------------------------------------------------------------------------------------------------
MOTION CONTROL
- -----------------------------------------------------------------------------------------------------------------------------------
MC-01 400,914 issued 11/20/84 4,483,330 Motion Control MF not pd. uu?
- -----------------------------------------------------------------------------------------------------------------------------------
MC-02 470,927 issued 6/11/85 4,521,924 Univ. of Utah MF due pd.
- -----------------------------------------------------------------------------------------------------------------------------------
MC-03 658,192 issued 9/23/86 4,613,331 Univ. of Utah 2nd A. 3/94
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 15
EXHIBIT "C"
To License Agreement between
University of Utah Research Foundation
and Iomed, Inc.
[Pg 1 of 1]
IOMED PATENTS, TRADEMARKS AND APPLICATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # WNJ NO. HHD NO. TITLE INVENTORS FILED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DRUG DELIVERY
- -----------------------------------------------------------------------------------------------------------------------------------
DD-01 2930.4 Implantable Catheter System AF 2/14/77
- -----------------------------------------------------------------------------------------------------------------------------------
DD-02 2930.41 Peritoneal Dialysis Catheter WJK, TRK 8/26/77
- -----------------------------------------------------------------------------------------------------------------------------------
DD-03 5339.10 2930.42 Subcutaneous Peritoneal Injection RLS 10/27/80
Catheter
- -----------------------------------------------------------------------------------------------------------------------------------
DD-04 5339.10a 2930.43 Subcutaneous Peritoneal Injection RLS, CK, BKH, SCJ, 2/17/81
Catheter JJH
- -----------------------------------------------------------------------------------------------------------------------------------
DD-05 5339.23 2930.44 Apparatus & Methods for Minimizing DEG, RLS, DLC, SKH, 8/12/83
Cellular Adhesion on Peritoneal BKH, JJH
Injection Catheters
- -----------------------------------------------------------------------------------------------------------------------------------
DD-05-CN 5339.22b 2930.44CN Apparatus and Methods for Minimizing DEG, RLS, DLC, SKH, 11/13/84
Cellular Adhesion on Peritoneal BKH, JJH
Injection Catheters
- -----------------------------------------------------------------------------------------------------------------------------------
DD-06 5339.20 2930.46 Apparatus & Method of Minimizing RLS, CK, BKH, SCJ 8/12/83
Peritoneal Injection Catheter Obstruc.
- -----------------------------------------------------------------------------------------------------------------------------------
DD-07-EP 5339.22 2930.45EP Peritoneal Injection Catheter RLS, BKH, CK, SCJ, 8/22/83
Apparatus & Method JJH, DLC, DEG, SKH
- -----------------------------------------------------------------------------------------------------------------------------------
DD-07-CN 5339.22a 2930.45CN Peritoneal Injection Catheter RLS, CK, BKH, SCJ, 11/13/84
Apparatus & Method JJH
- -----------------------------------------------------------------------------------------------------------------------------------
5/14/93
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IOMED # APPL. NO. STATUS. ISSUED NUMBER ASSIGNED TO ACTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DRUG DELIVERY
- -----------------------------------------------------------------------------------------------------------------------------------
DD-01 768,520 issued 7/10/79 4,160,454 Univ. of Utah Don't pay MF
- -----------------------------------------------------------------------------------------------------------------------------------
DD-02 828,019 issued 1/22/80 4,184,497 Univ. of Utah as above
- -----------------------------------------------------------------------------------------------------------------------------------
DD-03 200,830 issued 8/23/83 4,400,169 UU Res. Found. as above
- -----------------------------------------------------------------------------------------------------------------------------------
DD-04 235,185 issued 9/20/83 4,405,305 UU Res. Found. 3rd A. due
3/20/95
- -----------------------------------------------------------------------------------------------------------------------------------
DD-05 522,914 issued 12/10/85 4,557,724 UU Res. Found. 2nd A due
6/10/93
- -----------------------------------------------------------------------------------------------------------------------------------
DD-05-CN 467,690 issued 3/15/88 1234030 UU Res. Found. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
DD-06 522,907 issued 12/17/85 4,559,033 UU Res. Found. 2nd A due
6/7/93
- -----------------------------------------------------------------------------------------------------------------------------------
DD-07-EP 83304828.3 issued 3/20/85 134,340 UU Res. Found. Don't pay MF
- -----------------------------------------------------------------------------------------------------------------------------------
DD-07-CN 467,671 issued 3/15/88 1,234,029 UU Res. Found. NAR
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
[UNIVERSITY OF UTAH LOGO]
EXHIBIT "D"
To License Agreement between
University of Research Foundation and Iomed, Inc.
[Pg. 1 of 11]
June 9, 1993
Ned Weinshenker
IOMED, Incorporated
1290 West 2320 South Suite A
Salt Lake City, Utah 84119
RE: IOMED License Agreement (U-671D)
Dear Ned:
In accordance with paragraph 11.1 of the revised agreement which we are
currently negotiating, the University and I want to disclose to IOMED that we
are aware of a Sarcos project on a mechanical artificial arm that Dr. Jaocobsen
is involved in.
It is our understanding that the Department of Veterans Affairs is funding
the project at Sarcos, and although some machining work may be done at the
University, no inventive work will be involved at the University.
Since this is a mechanical device and a Sarcos project without University
rights involved, paragraph 11.2 should not apply.
If you have any questions, please don't hesitate to call.
Yours truly,
/s/ TOM MAJOR
--------------------------
Tom Major
Director
TM/pls
cc: Steve Jacobsen
Technology Transfer Office
421 Wakara Way, Suite 170
Salt Lake City, Utah 84108
(801) 581-7792
FAX: (901) 581-7538
<PAGE> 1
Exhibit 10.31
NOTE: CERTAIN PORTIONS OF THE EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION.
SUPPLY AGREEMENT
This Agreement is made this 4 day of DEC, 1994 by and between Iomed, Inc.
("Iomed"), 1290 West 2320 South, Salt Lake City, Utah 84119 and Luitpold
Pharmaceuticals, Inc./American Regent Laboratories Inc., ("American Regent Inc.
or Luitpold") 1 Luitpold Drive, Shirley, NY 11967. Iomed and American Regent
Inc. or Luitpold, for the purposes of this Agreement, may be referred to jointly
as the "Parties".
Iomed desires to purchase its requirements of Dexamethasone 0.4% injection,
USP, from American Regent Inc. and American Regent Inc. agrees to sell to Iomed
its requirements of such Product. Iomed will market the Product for use in
conjunction with Iomed's Iontophoretic Delivery System.
Therefore, in consideration of the premises and the mutual promises and
agreements contained herein, Iomed and American Regent Inc. agree as follows:
1. Product.
For purposes of this Agreement, the term "Product" shall mean Dexamethasone
Sodium Phosphate 0.4% injection, USP, packaged on 30ml SVP fliptop containers
(ANDA#87-440) and labeled for iontophoretic administration with Iomed's
Iontophoretic Delivery System. A single 30ml SVP fliptop container of Product is
referred to as a "Unit" for the purposes of this Supply Agreement.
2. Custom Product Development.
Promptly after the execution of this Agreement, the Parties shall undertake
to develop a custom labeled packaged product suitable for marketing with Iomed's
Iontophoretic Delivery System and suitable for manufacturing on American Regent
Inc.'s standard packaging equipment for fliptop containers. The Parties shall
use their reasonable best efforts to successfully complete the product
development and to obtain U.S. Food and Drug Administration ("FDA") marketing
approval of the Product. It is understood and agreed that
<PAGE> 2
there is no guarantee that the product development will be successful and no
representation or warranty of any kind is given by either party that a
marketable Product will result from the development.
3. American Regent Inc.'s Responsibilities.
The objective of the product development shall be for American Regent Inc.
to assist Iomed as required in obtaining regulatory approval for sale of the
Product. The Product will then be manufactured by American Regent Inc. and sold
to Iomed for resale by Iomed. American Regent Inc. shall have the following
development responsibilities:
a. Manufacture at American Regent Inc.'s plant, ***** Units of Product (at
a price of *****/Unit to Iomed) for use in clinical studies to be carried out by
Iomed to support FDA filings for device and drug labeling approvals.
b. Provide authorization to Iomed to reference Luitpold's Abbreviated New
Drug Application (#87-440), as appropriate for Pre-market Approval submissions
by Iomed. Assist Iomed, as reasonably requested, in preparation of regulatory
submissions for the Product and provide such other assistance as Iomed may
reasonably require.
c. Using American Regent Inc.'s graphics studio, typeset final label and
carton copy from artwork provided by Iomed and generate proofs and negatives
suitable for printing.
4. Iomed's Regulatory Submissions.
Iomed agrees that American Regent Inc. shall have the right to copies of
Iomed's proposed Pre-market Approval submissions. Iomed further agrees that
American Regent Inc. shall participate with Iomed in responding to questions
from the FDA regarding regulatory submissions applicable to the Product. Iomed
shall respond to questions relating to its device and the clinical studies.
American Regent Inc. shall respond to questions relating to the Product.
<PAGE> 3
5. Manufacture and Supply of Product.
5.1 Purchase and Sale of Product - Iomed Requirements. During the term
of this Agreement and pursuant to the terms and conditions hereof, American
Regent Inc. agrees to manufacture, sell and deliver Product exclusively to
Iomed and Iomed agrees to purchase its total requirements of Product from
American Regent Inc.
5.2 Orders and Delivery Variances. Unless otherwise agreed to by the
Parties, an order quantity, if any, shall be in multiples of ***** Units
and in quantities not less than ****** Units. The maximum order quantity
shall be ******* Units per month. The maximum and minimum order sizes may
be adjusted from time to time by written agreement of the Parties. Delivery
of Product by American Regent Inc. may vary from quantities ordered by
Iomed by plus or minus *** percent *****. Such deliveries shall be in full
compliance with this Agreement.
5.3 Manufacture of Product.
5.3.1 Luitpold shall manufacture Product in accordance with the
Product Specifications for American Regent Inc., Product Number
4930-25. Such Product Number may be modified from time to time by
Luitpold. The Product shall be labeled by American Regent Inc. in
accordance with FDA approved label copy and as mutually approved by
the Parties.
5.3.2 Luitpold's quality control procedures and in-plant quality
control checks on the production of Product for Iomed shall be applied
in the same manner as those procedures and checks are applied to
products manufactured for sale directly by American Regent Inc. as
American Regent Inc. products. Luitpold shall provide a certificate of
analysis with each shipment of Product.
5.3.3 Iomed shall have a period of ************* days from the
date of receipt to inspect and reject any shipment of Product on the
grounds that it does not conform with the Product Specifications.
Iomed shall have the right to return any Product which does not
conform. All or part of any shipment may be held for Luitpold's
disposition if found to be not in conformance with the Product
Specifications, provided Luitpold confirms
<PAGE> 4
such nonconformance through generally accepted quality control
procedures. Luitpold shall have ********** days from the
effective date of rejection (written notice) by Iomed in which to
confirm nonconformance. Failure to confirm within such **********
day period shall constitute agreement with Iomed's rejection of
Product. Luitpold may, at its discretion, send Product to an
independent third party for analysis of conformance. After Luitpold
confirms nonconformance, Luitpold shall have a period of **********
days to replace such nonconforming Product. Replacement with
conforming Product shall be Iomed's sole and exclusive remedy for any
nonconforming Product delivered hereunder. Shipment of rejected
Product to American Regent Inc. and shipment of replacement Product to
Iomed shall be at American Regent Inc.'s expense and by the carrier
designated by American Regent Inc.
5.3.4 American Regent Inc. hereby approves placement of a
descriptive private label with Iomed's trademark and/or Iomed's
trademark on the Product. Any material changes to the descriptive
label must be approved by American Regent Inc. prior to implementing
such changes.
5.4 Price and Payment
5.4.1 Product shall be delivered by American Regent Inc. at
prices set forth in Exhibit A of this Agreement. The prices are based
on standard American Regent Inc. packaging components with custom
Iomed print copy as approved by American Regent Inc. for
manufacturability.
5.4.2 American Regent Inc. shall invoice Iomed upon delivery of
Product. *****
5.4.3 Any federal, state, county or municipal sales or use tax,
excise or similar charge, or any other tax assessment (other than that
assessed against income), license or other
<PAGE> 5
charge lawfully assessed and normally charged on the manufacture,
sale or transportation of Product sold pursuant to this Agreement
shall be paid by Iomed.
5.5 Delivery.
Product shall be delivered to Iomed, or an Iomed designee, F.O.B.
plant and title shall pass to Iomed at such point.
5.6 Orders and Forecasts.
5.6.1 American Regent Inc. and Iomed shall cooperate fully in
estimating and scheduling production for the first firm order to be
placed by Iomed. The first firm order shall cover a period of three
(3) consecutive calendar months, Thereafter, firm orders shall be
placed monthly and shall cover the next succeeding third month. At the
time Iomed places its firm monthly orders, Iomed shall provide to
American Regent Inc. Iomed's estimate of its monthly requirements for
the next succeeding nine (9) calendar month period. It is the intent
that at all times American Regent Inc. shall have in hand firm monthly
orders covering the current three (3) calendar month period and
Iomed's estimates of its monthly requirements for the next succeeding
nine (9) calendar month period.
5.6.2 Each Iomed purchase order for Product shall be governed by
the terms of this Agreement and none of the provisions of such
purchase order shall be applicable except those specifying quantity
ordered, delivery dates, shipping instructions and invoice
information.
5.7 Guarantees and Warranties.
5.7.1 Luitpold guarantees to Iomed that Product delivered to
Iomed pursuant to this Agreement shall, at the time of delivery, not
be adulterated or misbranded within the meaning of the Federal Food,
Drug, and Cosmetic Act, as amended, or within the meaning of any
applicable state or municipal law in which the definitions of
adulteration and misbranding are substantially the same as those
contained in the Federal Food, Drug, and Cosmetic Act, as such Act and
such laws are constituted and effective at the time of
<PAGE> 6
delivery and will not be an article which may not under the provisions
of Sections 404 and 505 of such Act be introduced into interstate
commerce.
5.7.2 Luitpold warrants that Product delivered to Iomed pursuant
to this Agreement shall conform with the Product Specifications and
shall have been manufactured pursuant to current Good Manufacturing
Practice, as prescribed by regulations promulgated by the FDA.
American Regent Inc. makes no other warranties, express or implied,
with respect to the product. All other warranties, express or implied,
including without limitation the implied warranties of
merchantability and fitness for a particular purpose are hereby
disclaimed by American Regent Inc.
5.7.3 Luitpold shall indemnify and hold Iomed harmless from and
against all liability, loss or damage (including reasonable attorney
fees) which Iomed may incur, or be required to pay by reason of any
injury, illness and/or death that resulted from negligent or wrongful
acts or omissions of Luitpold. Iomed shall indemnify and hold
Luitpold harmless from and against any and all liability, loss or
damage (including reasonable attorney fees) which Luitpold may incur,
or be required to pay by reason of any injury, illness and/or death
that resulted from negligent or wrongful acts or omissions of Iomed,
or the safety or efficacy of the Product when used with Iomed's
iontophoretic administration devices as approved for use with the
Product. The obligations of the indemnifying party under this
paragraph are conditioned upon the prompt, written notification to
the indemnifying party of any of the aforementioned suits or claims,
upon the full cooperation of the indemnified party in the
investigation, defense and proposed settlement of such suits or
claims and the indemnifying party being given the opportunity to
defend. Such notification must be provided to the indemnifying party
within forty-five (45) days of the event giving rise to such notice.
This provision for indemnification shall be void and there shall be
no liability against a party as to any suit or claim for which
settlement or compromise is made without the prior consent of the
indemnifying party.
<PAGE> 7
6. Term and Termination.
6.1 This Agreement shall commence on the date first above written and
the initial term shall expire on January 1, 2005. Thereafter, the term
shall continue automatically until terminated. This agreement may be
terminated on January 1, 2005 or at anytime thereafter upon not less than
one hundred eighty (180) day's prior written notice from one party to the
other. Iomed may terminate this Agreement at any time by giving American
Regent Inc. one hundred eighty (180) days prior written notice if Iomed
discontinues sale of its Iontophoretic Delivery System for the Product.
6.2 Either party may terminate this Agreement by giving to the other
sixty (60) days prior written notice as follows:
a. Upon the bankruptcy or the insolvency of the other party; or
b. Upon the breach of any warranty or any other material
provision of this Agreement by the other party if the breach is not
cured within sixty (60) days after written notice thereof to the party
in default.
6.3 Termination, expiration, cancellation or abandonment of this
Agreement through any means and for any reason shall not relieve the
Parties of any obligation accruing prior thereto and shall be without
prejudice to the rights and remedies of either party with respect to any
antecedent breach of any of the provisions of this Agreement.
7. Force Majeure.
Any delay in the performance of any of the duties or obligations of either
party hereto (except the payment of money) shall not be considered a breach of
this Agreement and the time required for performance shall be extended for a
period equal to the period of such delay, provided that such delay has been
caused by or is the result of any acts of God; acts of the public enemy;
insurrections; riots; embargoes; labor disputes, including strikes, lockouts,
job actions, or boycotts; fires; explosions; floods; shortages of material or
energy; or other
<PAGE> 8
unforeseeable causes beyond the control and without the fault or negligence of
the party so affected. The party so affected shall give prompt notice to the
other party of such cause, and shall take whatever reasonable steps are
necessary to relieve the effect of such cause as rapidly as possible.
8. Confidential Information.
8.1 It is recognized by the Parties that during the term of this
Agreement the Parties may exchange Confidential Information. Each party
agrees not to disclose to any third person Confidential Information
received from the other party and not to use Confidential Information
received from the other party, except as authorized by the disclosing
party. For purposes of this Agreement, Confidential Information shall
include all information disclosed hereunder in writing and identified as
being confidential or if disclosed orally is reduced to writing within
thirty (60) days of oral disclosure and identified as being confidential,
except any portion thereof which:;
a. is known to the recipient before receipt thereof under this
Agreement;
b. is disclosed in good faith to the recipient after acceptance
of this Agreement by a third person lawfully in possession of such
information and not under an obligation of nondisclosure;
c. is or becomes part of the public domain through no fault of
the recipient;
d. is developed by the recipient independently of and without
reference to Confidential Information; or
e. is required by law to be disclosed.
Notwithstanding the above, nothing contained in this Agreement
shall preclude Iomed or America Regent Inc. from utilizing
Confidential Information as may be necessary in prosecuting patent
rights of the Parties, or obtaining governmental marketing approvals,
or in manufacturing Product pursuant to this Agreement. The
obligations of the Parties relating to Confidential Information shall
expire three (3) years after the termination of this Agreement.
Page 8 of 13
<PAGE> 9
9. Independent Contractors.
The relationship of Iomed to American Regent Inc. established by this
Agreement is that of an independent contractor. Nothing contained in the
Agreement shall be construed to constitute Iomed as a partner, agent or joint
venturer with American Regent Inc. or as a participant in a joint or common
undertaking with American Regent Inc.
10. Notices
All notices hereunder shall be delivered personally or by registered or
certified mail, postage prepaid, to the following addresses of the respective
Parties:
American Regent Inc.
1 Luitpold Drive
Shirley, NY 11967
Attention: Mary Jane Helenek, VP Sales & Marketing
With copy to: Fred Pratt, VP of Manufacturing
Iomed, Inc.
1290 West 2320 South
Salt Lake City, Utah 84119
Attention: General Manager, Rehabilitative Medicine
With copy to: Vice President Operations
Notices shall be effective upon receipt if personally delivered, or on the
third business day following the date of mailing. A party may change its address
listed above by written notice to the other party.
<PAGE> 10
11. Applicable Law.
This Agreement shall be construed, interpreted and governed by the laws of
the State of New York, except for choice of law rules.
12. Assignment.
Neither party shall assign this Agreement or any part thereof without the
prior written consent of the other party; provided, however, American Regent
Inc. may assign this Agreement to a wholly-owned subsidiary and either party,
without such consent, may assign or sell the same in connection with the
transfer or sale of substantially its entire business to which this Agreement
pertains or in the event of its merger or consolidation with another company.
Any permitted assignee shall assume all obligations of its assignor under this
Agreement. No assignment shall relieve any party of responsibility for the
performance of any accrued obligation which such party then has hereunder.
13. Entire Agreement.
This Agreement constitutes the entire agreement between the Parties
concerning the subject matter hereof and supersedes all written or oral prior
agreements or understandings with respect thereto. No course of dealing or usage
of trade shall be used to modify the terms hereof.
14. Severability.
This Agreement is subject to the restrictions, limitations, terms and
conditions of all applicable laws, governmental regulations, approvals and
clearances. If any term or provision of this Agreement shall for any reason be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision, to
the extent the same shall have been held to be invalid, illegal or
unenforceable, had never been contained herein.
<PAGE> 11
15. Waiver - Modification of Agreement.
No waiver or modification of any of the terms of this Agreement shall be
valid unless in writing and signed by authorized representatives of both
Parties. Failure by either party to enforce any rights under this Agreement
shall not be construed as a waiver of such rights nor shall a waiver by either
party in one or more instances be construed as constituting a continuing waiver
or as a waiver in other instances.
16. Product Recalls.
If (a) any government authority issues a request, directive or order that
the Product be recalled, or (b) a court of competent jurisdiction orders such a
recall, or (c) Iomed or American Regent Inc. reasonably determine after
consultation with the other that the Product should be recalled, the Parties
shall take all appropriate corrective actions. If such recall results from any
course or event for which American Regent Inc. is responsible, American Regent
Inc. shall be responsible for the expenses of recall. In all other cases, Iomed
shall be responsible for the expenses of recall. For the purposes of this
Agreement, the expenses of recall shall include, without limitation, the
reasonable expenses of notification and destruction or return of the recalled
Product and the costs for the Product recalled which shall be equal to the
purchase price paid for such Product. The Parties intending to be bound by the
terms and conditions hereof have caused this Agreement to be signed by their
fully authorized representatives on the date first above written.
17. Product Liability.
Both Luitpold and Iomed will maintain product liability insurance for the
Product of not less than **********.
The parties intending to be bound by the terms and conditions hereof have
caused this Agreement to be signed by their fully authorized representatives on
the date first above written.
<PAGE> 12
IOMED. INC. LUITPOLD PHARMACEUTICALS, INC.
AMERICAN REGENT LABORATORIES INC.
By: /s/ Ned M. Weinshenker By: /s/ Ralph Lange
----------------------- ----------------
Dr. Ned M. Weinshenker Mr. Ralph Lange
President & CEO President & CEO
Date: November 22, 1994 Date: Dec 4 1994
----------------- ----------
<PAGE> 13
Exhibit A
PRICE
Price per Unit for the 30 mL fliptop container of Product is as follows:
<TABLE>
<CAPTION>
QUANTITY PER ORDER PRICE/UNIT
- -------------------- ----------
<S> <C>
10,000-74,999 Units ****
74,999-120,000 Units ****
</TABLE>
1) Prices are based on Product purchased for delivery for each order. Iomed
shall provide firm orders and forecasts as per paragraph 5.6.1.
2) Beginning January 1, 1996, and on each succeeding January 1 during the
term hereof, prices may be adjusted by American Regent Inc. Any such adjustment
shall be ****.
The Product will be bulk packaged.
Product Inserts will be provided by American Regent Inc., at our cost, to
Iomed, if requested by Iomed.
Page 13 of 13
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
August 4, 1997, except for Note 15 as to which the date is November 7, 1997,
with respect to the consolidated financial statements included in Amendment No.
4 to the Registration Statement (Form S-1 No. 333-37159) and related prospectus
of IOMED, Inc. for the registration of 1,700,000 shares of its common stock.
/s/ Ernst & Young LLP
Salt Lake City, Utah
December 17, 1997
