UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
MEDgenesis Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1971978
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5182 W. 76th Street
Edina, Minnesota, 55439
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(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code: (952) 979-3600
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Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of Each Class to be Registered each class is to be registered
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Common stock, par value $.01 per share NASDAQ National Market System
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INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED BY REFERENCE
ITEM 1: BUSINESS.
See attached information statement under heading "Business".
ITEM 2: FINANCIAL INFORMATION.
See attached information statement under headings "Financial
Information".
ITEM 3: PROPERTIES.
See attached information statement under heading "Properties".
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See attached information statement under heading "Security Ownership
of Certain Beneficial Owners and Management".
ITEM 5: DIRECTORS AND EXECUTIVE OFFICERS.
See attached information statement under heading "Directors and
Executive Officers".
ITEM 6: EXECUTIVE COMPENSATION.
See attached information statement under heading "Executive
Compensation".
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See attached information statement under heading "Certain
Relationships and Related Transactions".
ITEM 8: LEGAL PROCEEDINGS.
See attached information statement under heading "Legal Proceedings".
ITEM 9: MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
See attached information statement under heading "Market Price of and
Dividends on Registrant's Common Equity and Related Stockholder
Matters".
ITEM 10: RECENT SALES OF UNREGISTERED SECURITIES.
See attached information statement under heading "Recent Sales of
Unregistered Securities".
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ITEM 11: DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
See attached information statement under heading "Description of
Registrant's Securities to be Registered".
ITEM 12: LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
See attached information statement under heading "Liability and
Indemnification of Officers and Directors".
ITEM 13: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See attached information statement under heading "Financial Statements
and Supplementary Data".
ITEM 14: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15: FINANCIAL STATEMENTS AND EXHIBITS.
See attached information statement under heading "Financial Statements
and Exhibits".
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CHRONIMED INC.
June __, 2000
To the Stockholders of Chronimed Inc.:
The Board of Directors of Chronimed Inc. has authorized a distribution to
the Chronimed stockholders of all of the outstanding shares of MEDgenesis Inc.,
a wholly owned subsidiary of Chronimed. The distribution will be made on or
about June __, 2000, to holders of record of Chronimed Inc. common stock at the
close of business on June __, 2000.
The distribution of the MEDgenesis Inc. common stock will be made on the
basis of one share of MEDgenesis Inc. common stock for each three shares of
Chronimed common stock held by a Chronimed stockholder on the record date. No
fractional shares of MEDgenesis will be issued. Shareholders with rights to a
half or greater fractional MEDgenesis share will receive one share for such
fractional rights. Shareholders with rights to less than a half MEDgenesis share
will receive only their whole number share entitlement.
MEDgenesis Inc. focuses on blood and urine medical diagnostic products and
related accessories that it either developed and manufactures, owns outright, or
controls through exclusive license or distribution agreements. Following the
distribution, the stock of MEDgenesis Inc. will be traded on the NASDAQ National
Market System under the symbol "MDGN".
The distribution of the MEDgenesis Inc. stock to the stockholders of
Chronimed is intended to allow Chronimed and MEDgenesis to better focus on
growing their respective businesses in today's highly competitive and volatile
markets. The distribution will separate the businesses of Chronimed and
MEDgenesis in a manner that reflects their different missions and different
financial, investment and operating characteristics so that each can pursue
business strategies and objectives appropriate to its specific business. We
expect the separation of the businesses to result in greater focus of our
management teams on the core strengths that make each business successful and to
allow for more effective incentives for key employees of each group. The
separation also will permit our investors, customers, lenders and other
constituencies to evaluate the respective businesses of Chronimed Inc. and
MEDgenesis Inc. on a stand-alone basis.
The attached Information Statement is provided to you solely for
informational purposes. It contains important information about the
distribution, as well as MEDgenesis financial and other business information. No
action is being requested of you. If you hold shares of Chronimed common stock
on the record date you will receive your shares of MEDgenesis Inc. stock in the
distribution.
Sincerely,
/s/ Maurice R. Taylor, II
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Maurice R. Taylor, II
President, Chief Executive Officer
and Chairman of the Board
Chronimed Inc. www.chronimed.com
10900 Red Circle Drive
Minnetonka, MN 55343
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Information Statement
Common Stock
(par value $.01 per share)
MEDGENESIS INC. June __, 2000
MEDgenesis Inc., a wholly owned subsidiary of Chronimed Inc., is furnishing
this information statement in connection with its spin-off from Chronimed.
Chronimed will make the spin-off through a distribution to its stockholders of
one share of MEDgenesis common stock for three shares of Chronimed common stock
held by the Chronimed stockholders on the record date for the distribution. The
Board of Directors of Chronimed has fixed the close of business on June __, 2000
as the record date for the spin-off. MEDgenesis is mailing this information
statement to holders of Chronimed common stock on or about June __, 2000.
MEDgenesis focuses on blood and urine medical diagnostic products and
related accessories that it either developed and manufactures, owns outright, or
controls through exclusive license or distribution agreements. The spin-off will
result in all of the outstanding shares of MEDgenesis common stock being
distributed to holders of Chronimed common stock on a pro rata basis. Chronimed
stockholders will not pay any consideration for shares of MEDgenesis common
stock. The distribution of the MEDgenesis stock to the Chronimed stockholders is
scheduled to be made on or about June __, 2000.
Currently, there is no public market for the MEDgenesis common stock,
although we expect that a "when-distributed" trading market will develop before
the distribution date. We will apply to list the MEDgenesis common stock, and we
believe that the MEDgenesis common stock will be approved for listing, on NASDAQ
National Market System.
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NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF. NO
PROXIES ARE BEING SOLICITED. PLEASE DO NOT SEND US A PROXY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Chronimed stockholders with questions related to the spin-off should
contact Investor Relations, Chronimed Inc., 10900 Red Circle Drive, Minnetonka,
MN 55343-9126, Telephone: (952) 979-3600; or the MEDgenesis common stock
transfer agent, Norwest Shareholder Services, at 1-800-468-9176. Norwest
Shareholder Services also is acting as distribution agent for the spin-off.
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TABLE OF CONTENTS
Forward-Looking Statements................................................... 1
Risk Factors................................................................. 1
Governmental Reimbursement............................................... 1
Regulatory Agencies...................................................... 2
Suppliers................................................................ 2
Third Parties............................................................ 2
Customers................................................................ 2
Risk of Obsolescence..................................................... 3
Product Development...................................................... 3
Patents and Intellectual Property........................................ 3
Chronimed Will Provide No Future Financial Support....................... 4
Litigation and Insurance................................................. 4
Lack of Operating History................................................ 4
Dependence on Key Personnel.............................................. 4
The IRS May Treat the Transaction as Taxable............................. 5
Hazardous Waste Generation............................................... 5
Item 1: Business............................................................ 5
General.................................................................. 5
History............................................................ 6
Discontinued Product Lines......................................... 7
Marketing Strategy................................................. 8
Market Trends and Outlook.......................................... 9
Products...........................................................10
Production.........................................................10
Inventory..........................................................11
Blood Glucose Monitoring.................................................11
Product Line Overview..............................................11
Blood Glucose Monitoring Market....................................12
MEDgenesis' History in Blood Glucose Monitoring....................13
MEDgenesis' Blood Glucose Monitoring Products......................13
Blood Glucose Meters and Strips..............................14
Supreme II(R) Blood Glucose Monitoring System................14
Select GT(R) Blood Glucose Monitoring System.................14
Assure(R) Blood Glucose Monitoring System....................15
Lancets and Lancing Devices..................................15
Haemolance(R) Lancets........................................16
TechLite(TM) Lancets.........................................16
SelectLite(TM) Lancing Device................................16
Infusion Sets................................................17
PureLine(TM) Infusion Sets...................................17
Marketing Strategy: Blood Glucose Monitoring......................17
Growth Strategy: Blood Glucose Monitoring.........................18
Competitors: Blood Glucose Monitoring.............................18
Lifescan, Inc................................................18
Roche Boehringer Mannheim Diagnostics........................18
Bayer Diagnostics............................................18
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MediSense....................................................19
Urinalysis Products................................................19
Product Line Overview........................................19
Urinalysis Market............................................21
MEDgenesis' History in Urinalysis............................21
DiaScreen(R) Reagent Strips for Urinalysis...................22
Marketing Strategy: Urinalysis..............................22
Growth Strategy: Urinalysis.................................22
Competitors: Urinalysis.....................................23
Bayer Diagnostics....................................23
Roche Diagnostics....................................23
Quidel Corporation...................................23
Others...............................................23
Insurance...........................................................23
Employees...........................................................24
Patents.............................................................24
Compliance with Environmental Laws .................................24
Item 2: Financial Information...............................................25
Summary Historical Financial Data...................................25
Quantitative and Qualitative Disclosures About Market Risk..........26
Item 3: Properties..........................................................26
Item 4: Security Ownership of Beneficial Owners and Management..............27
Item 5: Directors and Executive Officers....................................29
Board of Directors of MEDgenesis....................................29
MEDgenesis Board Committees.........................................30
Audit Committee..............................................30
Compensation Committee.......................................30
Director Compensation...............................................30
Board Fees...................................................30
Stock Options................................................31
Other........................................................31
Executive Officers of MEDgenesis....................................31
Item 6: Executive Compensation..............................................32
Executive Compensation..............................................32
Stock Option Plan...................................................32
Stock Purchase Plan.................................................32
401(k) Retirement Savings Plan......................................32
Employment Agreements and Change in Control Arrangements............33
Guaranty of Indebtedness............................................34
Item 7: Certain Relationships and Related Transactions......................34
Common Directors....................................................34
Agreements..........................................................34
Distribution and Spin-off Agreement..........................35
Transition Services Agreement................................36
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Purchase and Pricing Agreement...............................36
Guaranty............................................................36
Item 8: Legal Proceedings...................................................37
Item 9: Market Price of and Dividends on Registrant's Common Equity.........37
and Related Stockholder Matters.....................................37
Item 10: Recent Sales of Unregistered Securities.............................38
Item 11: Description of Registant's Securities to be Registered..............38
General.............................................................38
MEDgenesis Common Stock.............................................38
Voting Rights................................................38
Dividend Rights..............................................39
Liquidation Rights and Other Provisions......................39
Preemptive Rights............................................39
MEDgenesis Preferred Stock..........................................39
Board of Directors..................................................39
Shareholder Rights Plan.............................................40
Control Share Acquisition...........................................42
Business Combinations...............................................43
Item 12: Liability and Indemnification of Officers and Directors.............43
Item 13: Financial Statements and Supplementary Data.........................45
Selected Historical Financial Data .................................45
Pro Forma Financial Information ....................................46
Administrative and Public Company Costs ............................46
Cash and Investment Balances .......................................46
Management's Discussion and Analysis of Financial Condition
and Results of Operations ..........................................47
Item 14: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..............................51
Item 15: Financial Statements and Exhibits...................................51
Index to Historical Financial Statements............................52
Report of Independent Auditors.....................................F-1
Balance Sheets.....................................................F-2
Statements of Income...............................................F-3
Statements of Cash Flow............................................F-4
Notes to Financial Statements......................................F-5
Schedule II........................................................S-1
Exhibits Index...............................................................53
Signature ...................................................................54
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FORWARD-LOOKING STATEMENTS
As part of this registration document, you will read statements that are
not historical or current facts. These statements constitute "forward-looking"
statements as defined in the Private Securities Litigation Reform Act of 1995.
Words or phrases such as "estimate", "intend", "expect", "project", "will likely
result", "believes", "look for", "may result", "will continue", "is
anticipated", or other similar expressions are intended to identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are found at
various places throughout this document. Wherever they occur in this
registration document, or in other statements attributable to MEDgenesis,
forward-looking statements reflect management's best judgement of future events
and financial performance that are subject to a number of risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Discussions in
this document under the captions "Business: Market Trends and Outlook",
"Business: Products", "Business: Growth Strategy", "Business: Marketing
Strategy", and "Risk Factors" are particularly susceptible to risks and
uncertainties. Such forward-looking statements should, therefore, be considered
in light of various important factors, including those set forth in this
registration document. The Company cautions readers against placing undue
reliance on these forward-looking statements, which are based only on
information known as of the date of this filing. MEDgenesis disclaims any intent
or obligation to update forward-looking statements.
RISK FACTORS
In addition to the other information contained in this information
statement, recipients of MEDgenesis common stock should carefully consider that
the following important factors, among others, could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any forward-looking statements made by, or on
behalf of, the Company. The Company urges readers to understand the following
risks:
GOVERNMENTAL REIMBURSEMENT:
Currently, many of MEDgenesis' direct (and indirect) customers receive some
form of compensation from various governmental payors. Any adverse actions of
these governmental payors, including reduction of Medicare and Medicaid
reimbursement for products or services provided, or discontinuance or
limitations on governmentally-funded programs, may significantly impact the
ability of the Company's customers to continue purchasing its products.
In addition, MEDgenesis currently generates approximately 5% of its sales
from foreign countries and management expects this percentage to increase. As a
result, changes in current foreign trade practices or regulations may cause
MEDgenesis' growth to be different than
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currently planned and may impact overall financial performance. The changes may
include, but are not limited to: monetary and fiscal policies; laws and
regulations; changes in social and economic conditions; trade restrictions or
prohibitions; inflation and monetary fluctuations; import and other charges or
taxes; the ability or inability of the Company to obtain or hedge against
foreign exchange rates; unstable governments and legal systems; and
intergovernmental disputes.
REGULATORY AGENCIES:
The commercialization of the Company's products (current and future)
requires approvals from the Food and Drug Administration ("FDA") and comparable
regulatory agencies in most foreign countries. To obtain such approvals, the
safety of the products must be demonstrated. There can be no assurance that any
of the products will be shown safe or that regulatory approval of any product
will be obtained, if at all, in a timely manner or maintained once procured.
SUPPLIERS:
MEDgenesis relies on several suppliers to produce and deliver key raw
materials and components. There can be no assurance the Company will be able to
maintain its on-going arrangements with these manufacturers, or of its ability
to find suitable replacements. In addition, there is no guarantee of the current
manufacturers' ability to satisfy MEDgenesis' volume requirements, pricing
criteria or quality standards. In particular, the Company procures the membrane
necessary to produce MEDgenesis' Supreme II(R) and Select GT(R) blood glucose
dry reagent test strips from a sole source manufacturer. This supplier is the
only FDA approved laboratory for this product and any interruption of service
from the supplier would have a material impact on the operating results of
MEDgenesis.
THIRD PARTIES:
Part of the Company's ongoing growth strategy includes entering into
various agreements with licensors, manufacturers, contract research
organizations or other parties for the development of proprietary and licensed
products. As a result, a significant portion of MEDgenesis' success is dependent
on the success of these outside parties. No assurance can be given that the
Company will be successful in negotiating acceptable arrangements with third
parties in the future, or that current licensing relationships will be
continued.
CUSTOMERS:
MEDgenesis enjoys what it believes to be excellent relations with all of
its customers. However, given the competitive nature of the industry in which
the Company operates, there can be no guarantee that MEDgenesis will be able to
keep all of its existing customers nor that it will be able obtain new
customers. Currently, the Company has two customers that individually provide in
excess of 10% of MEDgenesis' gross revenue. The loss of either of these
customers would have a significant impact on the financial results of the
company.
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RISK OF OBSOLESCENCE:
The healthcare diagnostic products industry is experiencing significant
technological change. MEDgenesis expects that technological advancement will
continue to develop in this area, particularly as it relates to blood glucose
testing for people with diabetes. Consequently, MEDgenesis' future success will
depend in large part on its ability to maintain a competitive position. Rapid
technological development may result in the Company's products or processes
becoming obsolete before MEDgenesis is able to market, or recover any portion of
the research, development and commercialization costs associated with, new
products.
PRODUCT DEVELOPMENT:
Product development and approval within the regulatory framework discussed
above takes a number of years and involves the expenditure of substantial
resources. Many of MEDgenesis' competitors have substantially greater resources
than MEDgenesis, including access to capital, research and development staffs,
sales and marketing experience, new product introduction expertise and
facilities. Product development involves a high degree of risk. Difficulties or
delays in the development or marketing of the Company's products including, but
not limited to, failure to deliver new products and technologies when
anticipated or the ability to develop new technology free of competitors'
existing patents, may significantly impact the financial results of the Company
and the ability of the Company to continue as a going concern.
PATENTS AND INTELLECTUAL PROPERTY:
Due to the time and expense associated with bringing new products through
development and regulatory approval to the marketplace, the healthcare industry
has traditionally placed considerable importance on obtaining or maintaining
patent, trade and service mark, or trade secret protection for significant
products. Proprietary rights relating to the Company's products will be
protected from unauthorized use by third parties only to the extent they are
covered by enforceable patents or other rights registrations. If the Company's
intellectual property rights, including but not limited to patents, trade
secrets, trademarks, service marks, and rights granted in licensing agreements
are inadequately protected, or subject to claims that they violate or infringe
another person's intellectual property rights, the Company may be unable to
prevent others from using MEDgenesis' intellectual property.
The Company is currently party to patent infringement litigation
involving one of its products. See Section 8: Legal Proceedings. The Company can
give no assurance regarding a positive outcome to that lawsuit. Future claims by
others that the Company has violated their intellectual property rights could
prevent the sale of Company products and require MEDgenesis to pay damages.
Third parties may claim that the Company's products infringe upon their
intellectual property rights. Defending against third-party infringement claims
could be costly and divert important management resources. Furthermore, if these
claims are successful, the Company may have to pay substantial royalties or
damages, remove the infringing products from the marketplace or expend
substantial amounts in order to modify the products so that they no longer
infringe on third party's rights.
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CHRONIMED WILL PROVIDE NO FUTURE FINANCIAL SUPPORT TO MEDGENESIS:
Although management believes it will be able to fund planned expenditures
and meet general obligations following the spin-off, there can be no assurance
that sufficient funds will be generated or available to MEDgenesis. Further,
there are no guarantees that MEDgenesis will be able to secure sufficient debt
or equity financing to fund its growth strategy. While the Company has
investigated various sources of capital should this need arise, there can be no
assurance the additional capital will be available or if available, on terms
acceptable to the Company. The inability to secure additional financing on
acceptable terms may significantly impact MEDgenesis' ability to grow or compete
in their markets.
Chronimed Inc. has no obligation to provide any financial support to
MEDgenesis after the spin-off. As a result, the Company will need to secure and
maintain its own credit facilities. As a smaller company engaged in the
competitive healthcare diagnostics arena, the cost of capital may be greater
than that experienced by Chronimed.
LITIGATION AND INSURANCE:
In addition to the patent and intellectual property risks discussed above,
developing, manufacturing and selling medical products entails an inherent risk
of product liability. In recent years, participants in the healthcare industry
have become subject to an increasing number of lawsuits involving product
liability or related legal theories, many of which involve large claims.
MEDgenesis may from time to time be subject to such suits as a result of the
nature of its business.
The costs and other impacts of defending or pursuing legal claims may
become excessive. While MEDgenesis intends to apply for general insurance,
including product liability insurance, no assurance can be given that such
insurance will be available to the Company or if available, on terms acceptable
to MEDgenesis. In addition, if such insurance is obtained by MEDgenesis, there
can be no assurance that claims in excess of the coverage will not occur.
LACK OF OPERATING HISTORY:
The Company has been a business unit of Chronimed Inc. since Chronimed's
formation in 1985. As a result, MEDgenesis has always shared common general and
administrative expenses and efficiencies with Chronimed Inc. Therefore, the
actual amount and rate of growth in the Company's general and administrative
expenses could differ materially from the amounts allocated to MEDgenesis and
presented in the enclosed financial statements.
DEPENDENCE ON KEY PERSONNEL:
MEDgenesis' success will be largely dependent on the efforts of Maurice R.
Taylor, Chief Executive Officer of the Company, and other executive officers yet
to be identified. The Company's success will also depend on its ability to
retain existing employees and to compete successfully for additional qualified
personnel. MEDgenesis has not obtained a key-man insurance policy for Mr.
Taylor. Chronimed will assign to and MEDgenesis will assume Mr. Taylor's current
employment contract with Chronimed. See Item 6: Executive Compensation.
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THE IRS MAY TREAT THE TRANSACTION AS TAXABLE:
The spin-off is intended to be a tax-free distribution pursuant to Sections
355 and 368(a) of the Internal Revenue Code to the holders of Chronimed Inc.
common stock as of the record date. Chronimed will not be seeking a ruling from
the Internal Revenue Service ("IRS") to determine whether the IRS will treat the
spin-off as a tax-free event to Chronimed and its shareholders. However,
Chronimed has received an opinion from the accounting firm of Ernst & Young LLP
("E&Y") expressing its conclusion, subject to certain limitations contained
therein, that the spin-off should be treated as tax-free by the IRS. One
limitation would restrict certain transactions after the distribution that
result in a change of control of either Chronimed or MEDgenesis (see below).
Notwithstanding E&Y's opinion, the IRS could challenge Chronimed's position that
the spin-off qualifies as a tax-free distribution and deny tax-free treatment,
creating a substantial tax liability to Chronimed and its shareholders. The tax
to Chronimed would be based on the fair market value of MEDgenesis' assets less
Chronimed's tax basis in the MEDgenesis assets. If the spin-off fails to qualify
as tax-free, the distribution of MEDgenesis stock to the Chronimed shareholders
will be treated as a distribution, taxable to the shareholders as a dividend to
the extent of Chronimed's current and accumulated earnings and profits. If
tax-free treatment is denied and Chronimed is taxed on the transaction,
MEDgenesis will be obligated to pay a portion of the taxes due by way of an
indemnification agreement with Chronimed. For a description of Chronimed's and
MEDgenesis' obligations in connection with potential tax liabilities, please see
Exhibits: Distribution and Spin-Off Agreement.
If there is a change of control transaction involving either Chronimed or
MEDgenesis within two years following the spin-off, and the organizations are
unable to rebut presumption that the change of control was contemplated at the
time of the spin-off, the spin-off will deemed a taxable event.
HAZARDOUS WASTE GENERATION
As a part of its manufacturing processes, MEDgenesis generates small
quantities of materials classified as hazardous wastes. The Company participates
in locally regulated disposal programs and is categorized as a very small
quantity generator by the local regulatory unit, Hennepin County, Minnesota.
Management believes its waste management programs are effective, adequate, and
in compliance with State, Federal, and local laws. However, a hazardous waste
release could create environmental liabilities which would have adverse impact
on the Company's operations and financial condition.
ITEM 1: BUSINESS
GENERAL
MEDgenesis is a developer, manufacturer and distributor of diagnostics
products and related medical devices used outside the human body ("IN VITRO") to
monitor chronic conditions such as diabetes and to screen for acute conditions
utilizing blood and urine diagnostics. The primary focus of the Company's
technology is proprietary dry reagent chemistry that enables rapid point
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of care ("POC") testing of blood and urine. POC tests take place next to the
patient, and can occur at the patient's bedside at home, in a hospital or long
term care facility, in a doctor's office, or in an ambulance or emergency room.
Typically POC testing utilizes whole blood (like MEDgenesis' proprietary blood
glucose meters and reagent trips), urine (like the Company's numerous
proprietary DiaScreen(R) reagent test strips), saliva or other body fluids.
Healthcare professionals and individuals use MEDgenesis' products to
routinely screen for or monitor various acute and chronic conditions. The
Company's products provide rapid feedback, thereby enabling individuals and
professionals to make immediate refinements to the treatment of the condition.
MEDgenesis' vertical integration of research and development,
manufacturing, and distribution provide an element of autonomy not usually found
in similar size companies. Management believes the proprietary nature of the
Company's products allows them to define and protect unique niches in the
healthcare market. MEDgenesis also distributes ancillary products related to its
core technology. For example, in the blood glucose market, the company also
sells safety lancets and lancing devices to obtain capillary blood samples, and
infusion sets used with pumps to continuously administer precisely measured
micro-doses of insulin. In the urine diagnostic market, MEDgenesis is also
developing a urine test analyzer.
HISTORY:
Chronimed Inc. ("Chronimed") was incorporated under the laws of the State
of Minnesota on March 12, 1985, as Diabetes Center, Inc. From 1985 to 1990,
Diabetes Center, Inc. focused on the needs of patients with diabetes. In 1991,
the company's name was changed to Chronimed Inc., reflecting the company's
expansion into services directed to persons with other chronic conditions. On
March 23, 1992 Chronimed Inc. became a publicly traded company on the Nasdaq
National Market System (Nasdaq: CHMD).
Despite Chronimed's expansion of services related to other chronic
conditions, diabetes continued as the core focus of its diagnostics business.
Almost from inception, Chronimed's Diagnostic Products business unit had
developed exclusive distribution arrangements with various manufacturers to
provide diabetes products including blood glucose test strips, meters, and
lancing devices. In fiscal year 1994, Chronimed acquired the rights to begin
producing its first proprietary blood glucose test strips and launched its
Supreme(R) Blood Glucose System, targeted to long term care facilities. Since
that time, Chronimed has continued to add to its portfolio of proprietary
products. Some of the Company's key milestones were:
* August, 1995: Chronimed acquired the stock of British American Medical
("BAM"), a California-based medical products distributor. At the time
of acquisition, 1995 annualized revenues for BAM were $1.5 million
against total revenue for Diagnostic Products (excluding BAM) of $25
million. British American Medical's business and assets were merged
into Diagnostic Products and on August 18, 1997, BAM was formally
dissolved.
* April, 1997: Chronimed announced the first shipments of the Supreme
II(R) Blood Glucose System. This system represented the second
generation of Chronimed's highly successful Supreme(R) Blood Glucose
System. The Supreme II(R) is faster, lighter in weight, and has
enhanced memory capabilities.
* March, 1998: Chronimed announced the first shipments of its second
proprietary blood glucose system, the Select GT(R). This value-priced
system is sold through several retail
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distribution channels, including medical products and mail-order
distributors, as well as drug wholesalers, retailers, and
private-labelers. Its target market is the retail consumer.
* March, 1998: Chronimed acquired DiaScreen Corporation, a
Minneapolis-based developer and manufacturer of blood and urine IN
VITRO diagnostic products used by healthcare professionals in acute
and long-term care facilities and in-home testing markets worldwide.
This acquisition included a state-of-the-art manufacturing and
laboratory facility that enhanced Chronimed's capabilities to develop,
produce and distribute non-diabetes related diagnostic products.
* June, 1998: Chronimed received final 510(k) clearance by the Food &
Drug Administration ("FDA") to market its proprietary, urine chemistry
test strips. These urine chemistry test strips are used primarily in
acute care facilities and physicians' offices to rapidly screen for
acute conditions.
* August, 1998: Chronimed received 510(k) clearance by the FDA to market
the Assure(TM) Blood Glucose Monitoring System which uses
electrochemical biosensor technology.
* March, 1999: Chronimed announced that it had commenced an action
seeking a declaratory judgment against Bayer Corporation in
Minneapolis federal court. Chronimed asserts in the action that its
FDA approved DiaScreen(R) urine test strip is free from certain Bayer
patent claims.
* November, 1999: Chronimed announced that it received a sole source
contract from Beverly Enterprises, Inc. (NYSE: BEV), the nation's
largest nursing home operator, for the distribution of blood glucose
test strips, meters and related supplies.
* March, 2000: Chronimed announced the Diagnostics Products business
would be spun-off as an independent, publicly traded company whose
stock would be distributed to Chronimed shareholders as a tax-free
dividend.
During this period, Chronimed's Diagnostic Products business has seen
revenue from the sales of its proprietary products grow from around $5.0 million
in fiscal year 1995 to $20.9 million in fiscal year 1999. While there can be no
assurances this level of growth will continue, the total business has
nonetheless experienced a 21% compounded annual growth rate. See Exhibits:
Financial Statements.
MEDgenesis was incorporated under the laws of the State of Minnesota on May
3, 2000, as a wholly owned subsidiary of Chronimed. Effective with the spin-off
MEDgenesis will operate as an independent company and acquire substantially all
of the assets and assume all of the liabilities of Chronimed's Diagnostic
Products business.
DISCONTINUED PRODUCT LINES:
One of the products for which Chronimed had an exclusive license was the
Quick Check brand of diabetes test strips. Quick Check was a generic dry reagent
test strip for use with the Lifescan One Touch(R) monitor, the most widely used
blood glucose monitor. In 1993, Lifescan, Inc., a subsidiary of Johnson &
Johnson, sued the manufacturer and supplier of Quick Check, Diagnostic
Solutions, Inc. ("DSI") and Can Am Corp. The lawsuit alleged patent violations
and claimed that use of the Quick Check strips with Lifescan's monitor was
unsafe. Lifescan sought damages and an injunction prohibiting the sale of Quick
Check strips. Chronimed was not a named party to that lawsuit. DSI, Can Am, and
Lifescan settled the lawsuit in 1994.
In January 1995, DSI placed a hold on its production while improvements
were made to the manufacturing process. Shipments did not resume until August
1995.
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In December 1996, at the FDA's request, a production hold was placed on the
Quick Check strip. Over the ensuing few months, DSI attempted to resolve its
production issues with FDA. By April 1997, this effort was abandoned and
Chronimed and DSI engaged in discussions regarding Chronimed's possible
acquisition of the manufacturing rights to the product. In August 1997, the
parties determined that this was not viable. Neither Chronimed nor MEDgenesis
has had any business dealings with DSI since fiscal 1997, and MEDgenesis does
not anticipate dealing with DSI in the future.
Sales of the Quick Check dry reagent strip were approximately $5.9 million
in fiscal 1995, $13.8 in fiscal 1996, $8.3 million in fiscal 1997, or 42%, 48%
and 29% of MEDgenesis total revenue for these respective years. See Exhibits:
Financial Statements.
MARKETING STRATEGY:
Sales emphasis historically has been placed in the long-term care field.
The addition of the DiaScreen(R) urine reagent strips has opened the opportunity
for penetration into the medical community, primarily through doctors' offices.
The addition of biosensor technology to the company's line of blood glucose
strips has provided the opportunity to develop a stronger presence with the end
user. Durable medical suppliers, medical surgical distributors and the major
drug distributors, such as McKesson and Bergen Brunswig, are being added to such
historically strong distributor relations as McKesson Redline and Gulf South.
MEDgenesis has 35 direct sales people calling on its various customers. The
sales force is organized on classical lines into four regions each having a
regional sales manager. There is a vice president of sales and a national sales
manager as well as a major accounts manager. The major classes of trade upon
which the force calls are: Long Term Care, Medical-Surgical Distributors, Drug
Wholesalers and Durable Medical Equipment outlets. The company's ability to
service nursing homes through in-service programs has been a significant
contributor to its strong market share in the LTC market. However, the sales
force also has adequate time to expand its coverage into the Medical field as it
develops its urine diagnostic business. The DME business is similar in scope and
coverage to the LTC market. To the extent that the sales force becomes
overextended through expanded trade coverage there is a risk of diluted effort.
This has not been the case to date.
In the US the company has contracts with all its major customers.
MEDgenesis works closely with all the major distributors in the country to
ensure the continued growth of its lines. Contracts are negotiated annually,
usually on a calendar year basis. The company's relationships extend beyond the
distributors into major nursing home chains themselves, such as Beverly
Enterprises.
In the last two years, MEDgenesis has expanded its coverage into the
international area. At this point the company is working on appointing exclusive
distributors in most markets. To date, MEDgenesis' products are sold in 37
countries. The company is in a small investment/breakeven posture in developing
these markets. Prices tend to be much lower for the company's products and the
strong dollar has exacerbated this problem. MEDgenesis' strategy is to expand
its current relationships into partnerships with selected companies in the major
marketing areas of the world. Discussions relative to these arrangements are on
going.
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MARKET TRENDS AND OUTLOOK:
Diabetes is a chronic disease that has no cure. Worldwide, it is estimated
that there are between 100 and 120 million people with diabetes and the World
Health Organization (WHO) estimates that number will increase to 300 million by
2025.
There are 15.7 million people, or 5.9% of the population, in the United
States who have diabetes. While an estimated 10.3 million have been diagnosed,
5.4 million people are not aware that they have the disease. A new case of
diabetes is diagnosed every 40 seconds. Each day approximately 2,200 people are
diagnosed and about 798,000 people will be diagnosed this year. Diabetes is the
seventh leading cause of death (sixth-leading cause of death by disease) in the
United States. Based on death certificate data, diabetes contributed to 198,140
deaths in 1996. The life expectancy of persons with diabetes, on average, is 15
years less than persons without diabetes.
Diabetes is the leading cause of new cases of blindness in people ages 20
to 74. From 12,000 to 24,000 people lose their sight because of diabetes each
year in the United States. Diabetes is also the leading cause of end stage renal
disease, accounting for about 40% of new cases. In 1995, approximately 27,900
people in the US initiated treatment for end stage renal disease (kidney
failure) because of diabetes.
Approximately 60% to 70% of people with diabetes have mild to severe forms
of diabetic nerve damage, which, in severe forms, can lead to lower limb
amputations. In fact, diabetes is the most frequent cause of non-traumatic lower
limb amputations. The risk of a leg amputation is 15 to 40 times greater for a
person with diabetes. Each year more than 56,000 amputations are performed in
this country among people with diabetes.
Persons with diabetes are also about 2 to 4 times more likely to have heart
disease, which is present in 75% of diabetes-related deaths (more than 77,000 US
deaths due to heart disease annually). Diabetes sufferers are 2 to 4 times more
likely to experience a stroke.
Diabetes is one of the most costly health problems in America. Health care
and other costs directly related to diabetes treatment, as well as the cost of
lost productivity, run to $98 billion annually. This includes $44 billion in
direct medical and treatment costs and $54 billion for indirect costs attributed
to disability and mortality. In 1997, the US per capita costs of health care for
people with diabetes amounted to $10,071, while health care costs for people
without diabetes amounted to $2,699. One of every four Medicare dollars goes to
pay for health care of people with diabetes.
The IN VITRO diagnostic POC market is growing rapidly. In the
industrialized nations of the world this growth is being fueled by aging
populations and the shift of healthcare delivery from the acute care setting to
alternate care sites. Emerging nations are also contributing to the growth as
they improve the quality of healthcare they provide to their populations. For
example, blood glucose monitoring continues its double-digit growth because the
worldwide incidence of diabetes is increasing steadily, as is the number of
persons regularly testing their glucose levels. The worldwide diabetes care
market is estimated to represent an annual expenditure of roughly $2.0 billion.
The institutional market, including physicians' offices and Long Term Care
(LTC) facilities, has experienced an average selling price erosion during the
past few years. This is primarily due
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to the number of physicians and LTC facilities joining a buying groups, chains
or hospital consortiums. Average selling prices in the retail market have also
eroded. This is the direct result of an increase in the number of healthcare
consumer dollars covered by managed healthcare plans, who demand lower per unit
prices from providers.
PRODUCTS:
Proprietary diagnostic products represent a vital component of MEDgenesis'
operations. In order to better control the costs and selling prices of its
products and to improve its gross margins on product sales, the Company
continues to emphasize the licensing and development of proprietary products
suitable for distribution through its specialized marketing and distribution
system. MEDgenesis' proprietary products consist of dry reagent diagnostic tests
that it either owns outright, controls through exclusive license or distribution
agreements, or has developed and manufactures itself. Designed for either
institutional (long-term care facilities, hospitals, and clinical settings) or
consumer (in-home healthcare) use, these products are sold to a variety of
customers, including distributors, institutions, independent agents, HMOs,
durable medical equipment suppliers, and secondary retail chain outlets.
Dry reagents tests are single use tests designed to measure chemical
characteristics in fluids, primarily blood and urine. In the healthcare setting,
these dry reagent tests are routinely used to screen for or monitor various
acute and chronic conditions. Dry reagent tests provide rapid feedback, thereby
enabling individuals and professionals to make immediate refinements to the
treatment of the identified condition.
When a liquid, such as blood, urine, saliva or other body fluid, comes in
contact with a dry reagent test strip, the reagent induces a chemical reaction
in the fluid. The chemical reaction produces either a color change on the test
strip or an enzymatic electrical charge. The test results can be interpreted
with an electronic device or by comparing the color change to a visual chart.
The intensity of the test results dictates whether the patient's test is
considered normal or abnormal, which would require further testing or treatment.
PRODUCTION:
The process of manufacturing dry reagent test strips involves impregnating
paper, fabric or other carrier media with a liquid chemical reagent and then
drying it in a tightly controlled environment. This process makes the test
reagents more stable and converts them into a dry reagent state. The dry reagent
chemicals are further processed to create an end user product. This step can
include such functions as cutting, stripping, laminating or shaping the dry
reagent media onto, or into, another carrier medium in final use form(like a
plastic strip that can be read in a blood glucose meter). Final assembly,
labeling and packaging (including color charts) completes the process.
The manufacturing process involves many points of quality control,
including raw materials acceptance, intermediate work-in-process, and finished
goods assembly and release. The manufacturing process, use of materials and
personnel must operate in compliance with comprehensive FDA regulations, and
other governmental programs and requirements. MEDgenesis dedicates significant
resources to the maintenance of and compliance to these regulatory requirements.
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A large percentage of the equipment involved in the manufacturing process
is proprietary and is designed specifically for MEDgenesis' processes and
products. Loss of key equipment or facilities would require significant lead
times to replicate and revalidate the current manufacturing processes.
MEDgenesis' production facilities have received FDA designation as approved
manufacturing sites. The facilities must adhere to FDA dictated standards.
Failure to maintain these standards or loss or FDA facility approval would have
a substantial impact on the Company's production capabilities. The Company
believes its facilities management and quality practices will assure ongoing FDA
site approval.
INVENTORY:
Inventories consist of raw materials, work in process and goods held for
resale. These items are carried at the lower of cost or market determined under
the average cost method.
One of MEDgenesis' most critical inventory items is an impregnable membrane
which is custom designed and manufactured to MEDgenesis' specific need. In order
to minimize the overall costs of this membrane, MEDgenesis usually purchases
enough membrane to support six months or more of production. As a result, the
dollar value of inventory on hand can vary greatly from period to period. In
addition, the Company generally maintains a safety stock of unfinished, but
fully processed, dry reagent test strips to protect against spikes in production
demands or interruptions in the manufacture or delivery of the membrane. If this
safety stock was damaged for any reason, MEDgenesis' production flow could be
impacted, and the financial results of the company would be affected. See also,
Risk Factors: Suppliers.
Several of the Company's products, including chemicals required to
manufacture the dry reagent test strips, and the finished tests themselves, have
expiration dates or shelf-lives that limit the period of time for which the item
can be sold or used. Currently, management does not feel there is any
significant amount of products or materials in their inventory that will become
obsolete in the near future.
Finally, as a by-product of MEDgenesis' production process, small amounts
of hazardous waste are created. MEDgenesis participates in a County approved
disposal process and is classified under that program as a very small quantity
generator. Management feels the programs in place to manage the safe and lawful
disposal of this waste are effective and sufficient.
BLOOD GLUCOSE MONITORING
PRODUCT LINE OVERVIEW
Diabetes is a chronic disease in which the body's metabolism of glucose is
ineffective due to inadequate or complete lack of insulin production by the
pancreas. Many complications can arise from the damage that diabetes inflicts
upon the body's vascular and neural systems, including reduced vision or
blindness, stroke, heart disease, kidney failure, impotence and loss of
circulation in the limbs, possibly leading to amputation.
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The National Institutes of Health announced in 1993 the results of a major
multi-year research study. The Diabetes Control and Complications Trial study
demonstrated that more frequent monitoring and control of blood glucose levels,
more frequent insulin injections, and a regimen of diet and exercise could
reduce by as much as 60% the complications of diabetes, such as blindness, loss
of nerve sensation and amputation.
Monitoring is completed using a lancing device, a blood glucose dry reagent
test strip and a blood glucose meter. The monitoring process begins when a
person with diabetes uses a lancing device, such as the Company's Haemolance(R),
TechLite(TM), or SelectLite(TM), to prick a finger, toe, earlobe or other body
part to extract a droplet of blood. The droplet is placed on a dry reagent blood
glucose test strip, which causes a reaction between the chemicals in the test
strip and the glucose in the blood. This chemical reaction is then measured by
either comparing the color change on the test strip to a visual chart or by an
electronic meter such as the Company's Supreme II(R), Select GT(R), or Assure(R)
Blood Glucose Monitoring Systems. Most people treating diabetes in the United
States use a meter to monitor their blood glucose levels.
Most of MEDgenesis' diabetes products are covered by distribution
arrangements which generally require minimum annual purchases or payments to
maintain the exclusive distribution rights. In addition, these rights generally
restrict the distribution territories the Company can service. Exclusive
distribution territories for each of the Company's current agreements include
North America and other markets and are for terms ranging from two years to the
life of the applicable patents.
BLOOD GLUCOSE MONITORING MARKET
According to their most recent statistics, the American Diabetes
Association ("ADA") estimates that roughly 16 million Americans have diabetes.
The ADA further estimates the market for diabetes screening tests in the United
States is $300 million per year, and growing at a rate of 12-18% per year. The
National Institutes of Health estimates the annual direct and indirect costs of
diabetes to represent 10% to 13% of total US healthcare costs. This estimate
includes costs due to complications from the disease as well as monitoring and
treatment costs.
The United States is not alone. The International Diabetes Foundation
estimates that up to 150 million people worldwide are effected by diabetes, and
according to a recent study by Clinica Reports, annual worldwide expenditures
for blood glucose testing and monitoring exceed $2.6 billion. The World Health
Organization forecasts that the number of people suffering from diabetes will
grow by 13% per year until 2005, and then by as much as 20% per year through
2025.
Approximately 80-90% of persons diagnosed with diabetes are Type II and the
remainder are Type I. With Type I diabetes, the pancreas produces little or no
insulin and Type I diabetics require daily insulin injections for survival. Type
I diabetics have the greatest need for products supplied by the Company. The
Company believes that a person with Type I diabetes spends an average of about
$1,000 a year on required supplies. Type II patients often do not require
insulin but do use some of the same diabetes testing products and, like Type I
patients, require ongoing education, self-care and clinical monitoring to
maintain glucose control. Both Type I and Type II diabetics need appropriate
products to monitor their glucose levels on a daily basis. MEDgenesis serves
diabetics with blood glucose control systems and supplies through a number of
distribution channels.
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MEDGENESIS' HISTORY IN BLOOD GLUCOSE MONITORING
Chronimed Inc. ("Chronimed") was incorporated under the laws of the State
of Minnesota on March 12, 1985, as Diabetes Center, Inc. From 1985 to 1990,
Diabetes Center focused on the needs of patients with diabetes.
From its inception, Chronimed's Diagnostic Products division developed
exclusive distribution arrangements with various manufacturers to sell blood
glucose test strips, meters, and lancing devices. In fiscal year 1994, Chronimed
acquired the rights to begin producing its first proprietary blood glucose test
strips. Since that time, Chronimed has continued to add to its portfolio of
proprietary products. Some of the Company's key milestones have been:
* August, 1995: Chronimed acquired the stock of British American Medical
("BAM"), a California-based medical products distributor. At the time
of acquisition, 1995 annualized revenues for BAM was $1.5 million
against total revenue for Diagnostic Products (excluding BAM) of $25
million. British American Medical's business and assets were merged
into Diagnostic Products and on August 18, 1997, BAM was formally
dissolved.
* April, 1997: Chronimed announced the first shipments of the Supreme
II(R) Blood Glucose System. This system represented the second
generation of Chronimed's highly successful Supreme(R) Blood Glucose
System. The Supreme II(R) is faster, lighter in weight, and has
enhanced memory capabilities.
* March, 1998: Chronimed announced the first shipments of its second
proprietary blood glucose system, the Select GT(R). This value-priced
system is sold through several retail distribution channels, including
medical products and mail-order distributors, as well as drug
wholesalers, retailers, and private-labelers.
* August, 1998: Chronimed received 510(k) clearance by the FDA to market
the Assure(TM) Blood Glucose Monitoring System which uses
electrochemical biosensor technology.
* November, 1999: Chronimed announced that it received a sole source
contract from Beverly Enterprises, Inc. (NYSE: BEV), the nation's
largest nursing home operator, for the distribution of blood glucose
test strips, meters and related supplies.
MEDGENESIS' BLOOD GLUCOSE MONITORING PRODUCTS
MEDgenesis develops, manufactures and distributes a broad range of diabetes
products, such as blood glucose monitors, test strips, infusion sets, lancing
devices, infusion devices and accessories. The arrangements pursuant to which
these products are distributed generally require minimum annual purchases or
payments to maintain exclusive distribution rights within specified territories.
Exclusive distribution territories for each of the Company's current agreements
include North America and other markets and are for terms ranging from two years
to the life of the applicable patents.
The Company's products are designed for either institutional (long-term
care facilities, hospitals, and clinical settings) or consumer (in-home
healthcare) use. These products are sold to a variety of customers, including
distributors, institutions, independent agents, HMOs, durable medical equipment
suppliers, and secondary retail chain outlets.
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MEDgenesis' goal is to produce easy-to-use diabetes products that provide
fast and accurate glucose test results. The Company is currently exploring new
proprietary diagnostic products and new generations of current products. Such
products, if they are determined to be economically feasible, will be
distributed to new and existing markets.
BLOOD GLUCOSE METERS AND STRIPS
Supreme II(R) Blood Glucose Monitoring System
The Supreme II(R), a small hand held device used to monitor blood glucose
levels of individuals with diabetes. It is the second generation of MEDgenesis'
first proprietary blood glucose meter, the Supreme(R) Blood Glucose System.
Introduced in April, 1997, the Supreme II(R) is faster, lighter in weight, has
enhanced memory capabilities, and a wider test and hematocrit range.
The Supreme II(R) utilizes photometric technology. This means that glucose
in the patient's blood, applied to the test strip either inside or outside of
the meter, creates a reaction to and color change in the chemicals in the test
strip. This color change is then read by the meter's photo optic sensors. The
more intense the color change, the higher the blood glucose concentration. As an
added benefit of this color change, test strips can be read visually to confirm
the meter results. Supreme II(R) stores up to 100 test results in memory, has a
test range of 30 to 600 mg/dL, is easy to use, and requires minimal cleaning of
the strip platform and optics. Finally, the Supreme II(R) can be programmed to
display results in mg/dL or mmol/L and can report results in plasma/serum or
whole blood values.
The Company believes that the Supreme II(R) blood glucose monitor is
well-suited for use in healthcare facilities, particularly long-term care
facilities, where the same monitor is used to test the blood glucose levels of
more than one patient. The Company has the exclusive rights to manufacture and
market the Supreme II(R) test strips in defined territories and the Company's
production met all of its sales requirements in fiscal 1999.
Select GT(R) Blood Glucose Monitoring System
Introduced in March, 1998, the Select GT(R) Blood Glucose Testing System
represents MEDgenesis' second proprietary blood glucose system. The Select GT(R)
is a small hand held system that, except for minor cosmetic changes and
accessories designed specifically for in-home use, is identical to the Supreme
II(R).
As with the Supreme II(R), the Select GT(R) utilizes photometric
technology. The Select GT(R) also stores up to 100 test results in memory, has a
test range of 30 to 600 mg/dL, is easy to use, and requires minimal cleaning of
the strip platform and optics. Like the Supreme II(R), the Select GT(R) can be
programmed to display results in mg/dL or mmol/L and can calculate report
results in plasma/serum or whole blood values.
Management believes the Select GT(R) blood glucose monitor is well-suited
for its consumer sector target market. The value-priced Select GT(R) is sold
through several retail distribution channels, including medical products and
mail-order distributors, as well as wholesalers, retailers, and other
private-labelers. The company continues to update its technology to provide
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state of the art products to its customers and end users. Plans are being
developed to update this product with the new Quick Tech product mentioned
below.
In the interim, the licensing arrangements with Hypoguard PLC covering the
Supreme technology also apply to the Select product. Both are licensed under
"evergreen" contract renewal terms.
Assure(TM) Blood Glucose Monitoring System
The Assure(TM) Blood Glucose Monitoring System was introduced in August,
1998. This new diabetes testing product is the third member in MEDgenesis'
family of proprietary blood glucose systems.
The Assure(TM) Blood Glucose Monitoring System uses electrochemical
biosensor technology. With a biosensor meter, the chemical reaction between the
glucose in the patient's blood and the test strip creates an enzymatic reaction
that emits an electrical charge which is read by the meter. High concentrations
of blood glucose cause a stronger electrical charge and thus a higher reading on
the meter. Conversely, lower blood glucose levels produce a lower the electrical
charge and lower reading on the meter.
The Assure(TM) Blood Glucose Monitoring System features a large soft-touch
screen display that has required minimal cleaning. The test range of the
Assure(TM) is from 30 to 550 mg/dL with results in 35 seconds. Assure(TM) is
capable of storing 180 tests with a date and time stamp. Data can be downloaded
from the Assure(TM) meter to a personal computer for data manipulation and trend
analysis. Blood sugar trend analysis provides a powerful tool in fine tuning the
correct dosage of insulin, especially when in the hands of a health care
professional. Finally, the Assure(TM) can be programmed to display results in
mg/dL or mmol/L, however it only reports results in whole blood values.
While both types of the Company's meters, biosensor and photometric, must
pass stringent FDA accuracy testing, consumer demand for the latest technology
drives the demand for the Assure(TM) meter. The Company believes this
photometric product will allow MEDgenesis to compete in the broad market on a
more competitive basis as this technology is becoming the market standard.
Assure(TM) is marketed and sold through both local and national medical
distributors to local and national retail pharmacies, to hospitals, long term
care facilities, and individuals with diabetes. The Assure(TM) is purchased from
a Taiwanese company on an exclusive basis for the Western hemisphere. MEDgenesis
is in continuing discussions with the manufacturer to continue to update this
product, to expand the Company's ability to sell it worldwide, and to extend the
parties' contract. The current contract expires in November, 2000.
LANCETS AND LANCING DEVICES
Lancets are sterile, disposable devices used to obtain a small drop of
blood. They are most often used by healthcare professionals and individuals who
need capillary blood samples for IN VITRO diagnostic tests such as monitoring
blood glucose levels.
Lancets are made from sterile, steel needles and come in many different
sizes, ranging from 21 to 28 gauge. The higher the gauge the sharper the needle,
resulting in a smaller puncture wound and less pain for the individual. Higher
gauge lancets yield a smaller blood sample.
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Lower gauge lancets (i.e. 21 gauge) are used when a person has calluses and
it is difficult to obtain a drop of blood. Higher gauge lancets (i.e. 28 gauge)
are used when a patient requires frequent finger pricks or has thin skin, such
as a child or elderly person.
A standard lancet, such as the Company's TechLite(TM), can be held directly
in the hand or used with a lancing device (like MEDgenesis' SelectLite(TM)), A
lancing device eases the use of a lancet needle. An alternative for lancing is a
safety lancet, such as the Company's Haemolance(R). These lancet-and-holder
devices contain in a spring mechanism and offer built-in needle protection in
that the needle is not exposed until the user activates the device. After use,
the needle retracts back into the device to guard against accidental sticks.
MEDgenesis' strategy is to sell a broad selection of these products at the
higher end of the quality scale to avoid the commoditization of the line.
Haemolance(R) Lancets
MEDgenesis licenses the distribution of Haemolance(R) lancets on an
exclusive basis in North America and a non-exclusive basis in South America. The
contract has been in existence since 1994 and is continued year to year. The
next extension for the contract occurs at the end of calendar 2000. Management
is in on-going discussions with the supplier of Haemolance(R) lancets to ensure
continuity.
The Haemolance(R) lancet is a "safety lancet", which is most often used by
healthcare professionals to obtain a capillary blood sample. The patient never
actually sees the lancet during use. This system protects staff and patient from
accidental punctures before and after use, eliminating the risk of
cross-contamination. The Haemolance(R) lancet is available in two sizes: 21
gauge and 25 gauge.
TechLite(TM) Lancets
TechLite(TM) lancets are purchased by MEDgenesis from a Southeast Asian
manufacturer. The company is in the process of outlining a long term letter of
agreement with the manufacturer. It is expected that MEDgenesis will have
worldwide marketing rights to the lancets under its own trademark and will
maintain exclusive rights to the United States.
The TechLite(TM) lancet is compatible with most standard lancing devices
and is available in the most popular needle gauge formats (21, 23, 25, 26, and
28 gauge).
SelectLite(TM) Lancing Device
The SelectLite(TM) Lancing Device is provided to the Company by a
California manufacturer. MEDgenesis does not have any type of exclusivity
arrangement with the manufacturer. MEDgenesis has worldwide marketing rights for
this product under the SelectLite(TM) trademark.
The SelectLite(TM) Lancing Device is a small, spring-loaded pen-shaped
device that is used with a standard lancet. The device is used in long-term care
facilities, physician's offices, and by individuals. The device features an
adjustable tip that allows users to choose from five settings for maximum
comfort. It is compatible with most standard lancets.
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INFUSION SETS
Diabetes is a chronic disease in which the failure by the pancreas to
produce adequate insulin reduces the body's ability to metabolize glucose. In
order to metabolize glucose, many people with diabetes must take insulin to
counteract their body's insufficient production of insulin. For people who
manage their diabetes with insulin, there are two primary delivery options
available. They can either inject themselves one or more times a day with an
insulin syringe or they can utilize an insulin infusion pump. An infusion pump
delivers a continual, very small dose of insulin on a subcutaneous basis with
the use of an infusion set.
An insulin pump is made up of a pump reservoir (similar to, but larger
than, a regular syringe) filled with insulin, a small battery operated pump, and
a computer chip that allows the user to control the delivered insulin dosage. It
is all contained in a plastic case about the size of a pager.
The pump reservoir delivers insulin to the body by way of a thin plastic
tube called an "infusion set." Infusion sets come in 24 inch and 42 inch lengths
and have a needle or soft cannula at the end, through which the insulin passes
into the body. The needle or cannula is inserted under the skin, usually on the
abdomen. The process of putting the infusion set in place is called "insertion"
and is very much like giving a standard insulin injection. The infusion set is
changed approximately every two to three days.
The pump is intended to deliver insulin on a continual basis 24 hours a
day, according to a programmed plan unique to each pump wearer. The volume and
rate of the continual insulin dose is called the "basal rate". This insulin
keeps blood glucose in the desired range between meals and over night. When food
is eaten, the user programs the pump to deliver a "bolus dose" of insulin
matched to the amount of food that will be consumed.
PureLine(TM) Infusion Sets
MEDgenesis' licenses the distribution of PureLine(TM) Infusion Sets from a
European manufacturer, on a non-exclusive basis in the United States and related
territories. The company is in current discussions with the manufacturer to
ensure continuity of this relationship.
PureLine(TM) Infusion Sets include the tubing, needle and pump used to
deliver insulin from the pump into the patient. There are three varieties of
PureLine(TM) Infusion Sets: PureLine(TM) Comfort, PureLine(TM) Basic, and
PureLine(TM) Contact. The PureLine(TM) Comfort has a soft, Teflon-coated
catheter that remains in place after insertion. This version also has a feature
that enables users to disconnect from the pump and gives them the freedom
necessary for bathing, exercise, swimming, and other activities. The
PureLine(TM) Basic and the PureLine(TM) Contact feature a needle that remains in
place after insertion. The Basic has a pre-bent 30-degree needle. The Contact
has a 90-degree needle.
MARKETING STRATEGY: BLOOD GLUCOSE MONITORING
Historically, MEDgenesis has focused primarily on the long-term care
market. The ease of use and simplicity of the Supreme(R) blood glucose
monitoring systems have been well suited for the LTC market. Additionally, its
field sales force has provided the quality of service necessary
17
<PAGE>
to consistently penetrate this market. More recently, MEDgenesis has expanded
the scope of its efforts to include Durable Medical Equipment (DME) suppliers
and Home Medical Equipment (HME) suppliers that sell directly to persons with
diabetes. MEDgenesis has also started expansion into select retail pharmacies
not targeted by the larger manufacturers.
GROWTH STRATEGY: BLOOD GLUCOSE MONITORING
Moving forward, MEDgenesis will continue penetration of the long-term care,
DME, HME and select retail pharmacies. Expansion of the field sales force and
the introduction of new products will help facilitate this growth. Additionally,
MEDgenesis will expand their target markets to include the next tier of retail
pharmacies and aggressively pursue private label opportunities with key
distributors.
COMPETITORS: BLOOD GLUCOSE MONITORING
Market leaders in this segment include LifeScan, Roche Diagnostics, Bayer
Diagnostics and MediSense (a subsidiary of Abbott Laboratories).
LifeScan, Inc.
LifeScan is a subsidiary of Johnson & Johnson and only markets diabetes
products. They are widely regarded to be the largest distributor of blood
glucose meters and test strips in the world. LifeScan's product line includes
the One Touch(R) family (Basic(R), Profile(R), SureStep(R) and FastTake(R)).
Their products are distributed in over 50 different countries. Lifescan
consistently provides quality support materials and service to health care
professionals including endocrinologists, certified diabetes educators, and
pharmacists. Its products are also readily available in virtually all retail
pharmacies throughout the US. Lifescan's primary focus is hospitals, key
healthcare professionals, and high volume retailers.
Roche Boehringer Mannheim Diagnostics
Roche Diagnostics (formerly Boehringer Mannheim Diagnostics) is
generally considered to be the second largest distributor of diabetes products
in the world. Roche's product line includes the Accu-Chek(R) family
(Advantage(R), Complete(TM), Simplicity(TM) and Instant(TM)). Roche consistently
provides quality support materials and service to health care professionals
including endocrinologists, certified diabetes educators, and pharmacists. Roche
products are also readily available in virtually all retail pharmacies
throughout the US. Its primary focus is hospitals, key healthcare professionals,
and high volume retailers.
Bayer Diagnostics
Bayer Diagnostics is considered the world's third largest distributor
of blood glucose meters and test strips. Bayer's product line includes the
Glucometer(R) family (Elite(R), Elite(R) XL, DEX(TM), and Encore(R) QA +). Bayer
provides acceptable support materials and service to health care professionals
including endocrinologists, certified diabetes educators, and pharmacists.
Bayer's products are also readily available in most retail pharmacies throughout
the US. Its primary focus is key healthcare professionals and high volume
retailers. It appears that Bayer competes less effectively in the hospital
market.
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<PAGE>
MediSense
MediSense, acquired by Abbott Laboratories in 1996, is currently
believed to be the fourth largest blood glucose meter manufacturer in the world.
MediSense's product line includes the Precision family (Qo Io D(R) Sensor, Qo Io
D(R) Pen, Xtra(TM), G and PCx), the ExacTech(R) family (Ro So G(TM) Sensor and
Card Sensor) and the MediSense(R) 2 family (Card Sensor and Pen Sensor). The
Precision PCx is a sophisticated meter designed for use in large hospitals.
MediSense consistently provides good support materials and service to health
care professionals including endocrinologists, certified diabetes educators, and
pharmacists. Its products are also readily available in almost all retail
pharmacies throughout the US. Its primary focus is hospitals, key healthcare
professionals, and high volume retailers. MediSense appears to be positioned to
challenge Bayer's status as third largest worldwide distributor of these
products.
URINALYSIS PRODUCTS
PRODUCT LINE OVERVIEW
10-parameter urine test strips (one strip that performs ten distinct tests)
are the most widely used urine screening tests and generate a major portion of
urine diagnostic revenues worldwide. MEDgenesis' 10-test strip is a 4 3/8" x
3/16" piece of inert plastic with ten reagent test pads affixed to it. Its test
strips are packaged in bottles of 100 with a desiccant to absorb excess ambient
moisture that may enter the container. Shelf life of these products is 16 to 24
months from the date of manufacture and the use life is 60 to 90 days after the
product has been opened.
To perform a test, the strip is momentarily immersed in a fresh, well-mixed
urine sample and removed immediately. Each test is read at a specified time
after removing the strip from the urine specimen and is compared to a color
chart on the side of the bottle or read with a meter-type analyzer. The
intensity of the color that develops on a test pad indicates whether the
patient's test is considered normal or abnormal, which would require further
testing or treatment.
Doctors prefer the 10-test combination because it allows them to screen for
a wide variety of acute and chronic health conditions. These tests can provide
early warning signs for several serious afflictions such as kidney and liver
disease, hepatitis, and diabetes, among others. The dry reagent urine tests
currently available are:
Leukocytes
During a bacterial infection of the urogenital tract, leukocytes (white
blood cells) move toward the focus of inflammation to kill germs. This
increased accumulation of leukocytes in the tissue of the bladder or the
kidneys leads to an excretion of leukocytes in the urine. Presence of
leukocytes can indicate an infection of the kidney or the lower urinary
tract. Clinical conditions can include pyelonephritis, cystitis, urethritis
and renal tuberculosis.
Specific Gravity
The specific gravity of the urine demonstrates the concentrating and
diluting ability of the kidneys. In healthy persons, urine specific gravity
varies from 1.000 g/ml (after water intake) up to 1.040 g/ml (after
prolonged fluid deprivation). Normal values range between 1.020 and 1.030
g/ml. Reduced specific gravity can indicate the kidneys do not have the
ability to concentrate urine. Clinical conditions include diabetes
insipidus,
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<PAGE>
glomerulonephritis, pyelonephritis or other renal disorders. Elevated
specific gravity indicates excessive loss of water (sweating, fever,
vomiting, diarrhea), adrenal insufficiency, liver diseases or congestive
heart failure.
Glucose
Reduced insulin secretion by the islet cells of the pancreas leads to
an insufficient utilization of glucose, resulting in increased blood
glucose. If the blood glucose level surpasses the renal threshold of
approximately 180 mg/dL, there is a corresponding increase of the glucose
content of the urine. Clinical conditions include diabetes mellitus and
renal glycosuria.
Ketone
Ketone bodies include acetone and acetoacetic acid. These substances
are formed by healthy individuals, but concentrations are so small they
cannot be detected with conventional methods. A number of conditions may
lead to an increased formation of ketone bodies. They include severe
malnutrition, weight reducing diets where carbohydrate intake is reduced
and replaced by protein rich foods, hyperemesis gravidarum, acetonemic
emesis of infants, and febrile states.
Blood
Excreted erythrocyte (red blood cells) concentrations in healthy
persons' urine are below conventional chemical tests' detection thresholds.
The presence of blood in urine may indicate disorders of the kidneys or
urogenital tract. This can occur due to stone formation, tumors of the
kidneys, glomerulonephritis, pyelonephritis, cystitis, trauma to the
kidneys, or diabetes. It can also occur with poisoning, burns, myocardial
infarction, muscular lesions and progressive myopathies.
Nitrite
The urine of a healthy person does not contain nitrites. Even a small
concentration in the urine is a specific indicator for a urinary tract
infection. High-risk groups include pregnant women, diabetics, and patients
with gout or calculosis. Nitrite forming bacteria (particularly E. coli)
convert the nitrate present in urine into nitrite.
Bilirubin
Erythrocytes (red blood cells) circulating in the blood stream have a
life expectancy of 120 days. When these cells die they release hemoglobin.
Hemoglobin degradation occurs predominantly in the spleen and liver. The
resulting product is bilirubin. Bilirubin is excreted via the gall bladder
into the intestines, where bacteria digest the bilirubin to produce
urobilinogen and stercobilinogen. While Bilirubin is largely reabsorbed,
the non-absorbed portion is excreted with the stool in the form of urobilin
and stercobilin. Bilirubin cannot be detected in the urine in healthy
subjects. Clinical conditions indicated by excess bilirubin include liver
diseases such a obstructive jaundice, hepatitis and hepatocirrhosis. Excess
bilirubin can also occur with bilirubin metabolism disorders such as
Dubin-Johnson syndrome or Rotor syndrome.
Urobilinogen
Urobilinogen and stercobilinogen are from the byproducts of bilirubin
reduction in the intestines. Some excretion of urobilinogen in the urine is
normal. The presence of excess urobilinogen usually indicates a liver
disease or hemolytic disease. Examples are pernicious
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<PAGE>
anemia, hemolytic anemia, viral hepatitis, hepatocirrohosis, chronic
hepatitis, toxicopathic hepatic lesions and carcinoma of the liver.
Protein
When blood passes through the kidneys, normally low-molecular weight
proteins are filtered out and high-molecular weight proteins are retained.
Low-molecular weight proteins are reabsorbed in the tubules of the kidneys
and only a small amount of these filtered proteins are actually excreted in
the urine. Proteinuria refers to a condition where excreted protein
concentration exceeds standard values. Benign proteinuria can occur in
patients with healthy kidneys. It can be caused by strenuous physical
(sports) or emotional stress, fever, hypothermia, influenza or pregnancy.
Pathological proteinuria can occur in colics, heart attacks and cardiac
insufficiencies. It can also indicate glomerulonephritis, pyelonephritis,
nephrotic syndrome, glomerulosclerosis, gouty kidney, cystitis and
nephrotoxic damages.
pH
pH expresses the concentration of hydrogen ions in a solution, on a
scale from 0 to 14. Values from 0 to 6 characterize an acidic solution
whereas values from 8 to 14 identify a solution as alkaline. A pH of 7 is
considered neutral. A healthy person's urine pH value usually ranges
between 5 and 8. Alkaline urine (pH greater than 8) can indicate urinary
tract infection. Strongly acidic urine (pH less than 6) can indicate gout,
fever, heavy perspiration or a high dose of phenacetin.
URINALYSIS MARKET
The U.S. market for urinalysis has been relatively flat, holding at roughly
$125 million per year for each of the past several years, as measured by the
number of urinalysis tests performed in both the hospital and alternate site
market. The urinalysis market in the rest of the world is also mature and in
1998 generated approximately $250 million in sales.
However, a report published by Intelab projects worldwide demand for dry
screen urinalysis will increase by 4.7% per year during the period from 1999 -
2004. In addition, management believes that while Bayer Diagnostics has
historically enjoyed dominance in the market, its lead is eroding as companies
like Roche Diagnostics and MEDgenesis develop comparable products and find
better ways to compete in the market.
There are ten different tests that can be performed on a patient's urine
using dry reagent chemistry. These tests can be "mixed and matched" on a test
strip to create a multitude of different test combinations. Currently,
MEDgenesis is one of only three U.S. owned manufacturing companies in the dry
reagent urine chemistry market and one of only four companies with FDA approved,
patented or patent pending leukocytes and specific gravity tests.
MEDGENESIS' HISTORY IN URINALYSIS
In March 1998, Chronimed Inc. acquired DiaScreen Corporation, a
Minneapolis-based developer and manufacturer of blood and urine IN VITRO
diagnostic products used by healthcare professionals in acute care, long-term
care, and in-home testing markets worldwide. This acquisition included a
state-of-the-art manufacturing and laboratory facility that enhanced
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Chronimed's capabilities to develop, produce and distribute blood glucose and
non-diabetes related diagnostic products.
On June 24, 1998, Chronimed announced it had received final 510(k)
clearance by the Food & Drug Administration (FDA) to market DiaScreen's
proprietary urine chemistry testing strips, making the Company one of only three
businesses in the world to have a 10-parameter urine test strip. On November 4,
1998, Chronimed began shipping its new DiaScreen(R) Reagent Strips for
Urinalysis to both domestic and international customers.
On March 8, 1999, Chronimed announced that it had commenced an action
against Bayer Corporation in Minneapolis federal court. At the time the suit was
filed, Chronimed's management believed that Bayer was unfairly opposing efforts
to introduce the DiaScreen(R) family of urine test strips into the market by
claiming the DiaScreen(R) products infringed Bayer's patents. The declaratory
judgment action seeks a ruling that Chronimed's FDA approved DiaScreen(R) urine
test strip is free from any patent infringement claims by Bayer. See Item 8:
Legal Proceedings.
DIASCREEN(R) REAGENT STRIPS FOR URINALYSIS
MEDgenesis is one of only three U.S.-owned manufacturing companies in the
global dry reagent urine chemistry screening market, estimated to be $250
million per year. MEDgenesis' DiaScreen(R) family of reagent strips for
urinalysis includes the DiaScreen(R) 10 with leukocytes and specific gravity
tests. The 10-parameter urine test strip is the most widely used urine screening
test in the world, and generates 80% of urine diagnostic revenues worldwide.
Urine test strips are used in physicians' offices, hospitals, and in the
home to detect a variety of acute and chronic health conditions. Easy to use and
non-invasive, a single DiaScreen(R) test strip screens 10 different clinical
markers in a patient's urine. If positive, more definitive tests can be
conducted to confirm a diagnosis. MEDgenesis currently offers 14 different
reagent strip configurations.
Management believes the DiaScreen(R) Reagent Strips are comparable to or
improve upon the market leader products are superior to other urine test strips
available in the market.
MARKETING STRATEGY: URINALYSIS
MEDgenesis' marketing strategy for the DiaScreen(R) Reagent Strips is to
create awareness and stimulate demand for the Company's urine test strips among
physicians, veterinarians and long-term care facilities. Generally speaking,
this is accomplished using the Company's national sales force and focuses on
identifying the key value differences between MEDgenesis' products and those of
the competition. In addition, MEDgenesis works hard to ensure ongoing, active
support by providing its clients with appropriate pricing incentives,
cultivating strong business relationships, and providing superior service to
their customers.
GROWTH STRATEGY: URINALYSIS
MEDgenesis' strategy for growth in the dry reagent urine test market will
be to:
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* Refine chemical formulations of current tests that will enhance patent
protection and performance;
* Introduce new tests to increase the number of conditions to be
detected;
* Complete development of an analyzer to automatically read the test
strips; and
* Apply and maximize excess production capacities through contract
manufacturing projects.
COMPETITORS: URINALYSIS
Bayer Diagnostics
Bayer is the largest manufacturer and distributor of urine chemistry
reagent strips in the world. Management believes that Bayer has been successful
maintaining market share because of contract pricing and the large population of
instruments they have sold and placed during the past twenty years. Management
estimates that Bayer controls about 50% to 55% of the worldwide urine chemistry
market.
Roche Diagnostics
Roche Diagnostics is the second largest manufacturer and distributor of
urine chemistry reagent strips in the world. They carry a broad line of
diagnostic products, and management estimates Roche has about 35% to 40% of the
worldwide urine chemistry market.
Quidel Corporation
Quidel Corporation recently purchased their urinalysis business from Dade
Behring. Management estimates that Quidel has less than 3% of the worldwide
urine chemistry market.
Others
In addition to these major competitors, there are several smaller dry
reagent, urine chemistry manufacturers including Teco, Macherey Nagel,
Yeongdong, Chung-Do, Eiken and Kyoto Daiichi.
INSURANCE:
Chronimed's general insurance policies will cover all activities of
Chronimed's Diagnostic Products business and MEDgenesis prior to the spin-off.
MEDgenesis will purchase a variety of insurance policies, underwritten by
several different companies, with coverage equivalent to those maintained while
a division of Chronimed. MEDgenesis will be partially self-insured for certain
claims in amounts that management believes to be customary and reasonable.
Although management believes that MEDgenesis will maintain insurance
coverage that is adequate for the risks involved, there is always a risk that
the Company's insurance may not be sufficient to cover any particular loss, or
that the insurance policies may not respond to a particular type of loss. For
example, while MEDgenesis maintain product liability insurance, this
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type of insurance is limited in coverage and it is possible that an adverse
claim could arise that exceeds the Company's coverage.
Finally, the insurance rates charged as a stand-alone entity may differ
from those rates obtained as a division of Chronimed. Insurance rates have
historically been subject to wide pricing fluctuations. Changes to the pricing
offered by underwriters could result in substantial increases to MEDgenesis'
cost of insurance, require the Company to assume more risk by accepting higher
deductibles and co-insurance levels, or cause the Company to drop a particular
insurance policy altogether. See Risk Factors: Litigation and Insurance.
EMPLOYEES:
As of April 30, 2000, MEDgenesis employed approximately 125 persons
full-time. None of the Company's employees is represented by a labor union, and
the Company believes that its employee relations are excellent.
PATENTS:
MEDgenesis utilizes patented technology in a number of its products. It
maintains the right to use these patents either through direct ownership of
patent rights or through license of rights from third parties, both of which to
be assigned by Chronimed to MEDgenesis effective with the spin-off. See Risk
Factors: Patents and Intellectual Property, and Risk Factors: Third Parties.
Chronimed has filed patent applications covering aspects of its urine
diagnostic product line. Patent applications related to the urine test strip
leukocyte test feature include U.S. Patent Serial Numbers 60/116,613 (filed
01/21/99), #60/142,383 (filed 07/12/99), #60/365,322 and #60/365,592 (both filed
07/30/99). A patent application related to the urine test strip specific gravity
feature has been filed under Serial Number 60/116,611 (filed 01/21/99). These
patent applications will be assigned by Chronimed to MEDgenesis effective with
the spin-off.
Chronimed also filed a Patent Cooperation Treaty patent application on
January 21, 2000 covering the leukocyte test technology claimed in patent
applications #60/352,322 and 60/352,592. This patent application will be
assigned by Chronimed to MEDgenesis effective with the spin-off.
Effective with the spin-off, MEDgenesis will manufacture, distribute and
sell the Select and Supreme blood glucose meters, Supreme blood glucose test
strips, Haemolance(R) Lancets and TechLite(TM) Lancets, and PureLine(TM)
Infusion Sets under agreements with third party patent holders or licensees.
COMPLIANCE WITH ENVIRONMENTAL LAWS:
The costs associated with compliance with Federal, State, and local
environmental laws are minimal. For these reasons, MEDgenesis' compliance with
such laws does not have a material effect on its capital expenditures, earnings,
or its competitive position in the marketplace.
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ITEM 2: FINANCIAL INFORMATION
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth certain historical financial data of
MEDgenesis. The financial information presented under the headings "July 2,
1999", "July 3, 1998", and "June 27, 1997" is audited information. The remaining
information is unaudited. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the Notes thereto. The following
information may not be indicative of future operating results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
--------------------- --------------------- ---------------------------------------------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2, JULY 2, JULY 3, JUNE 27, JUNE 28, JUNE 30,
2000 1999 2000 1999 1999 1998 1997 1996 1995
-------- -------- --------- -------- --------- --------- --------- --------- ---------
(in thousands except per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $8,083 $7,638 $24,980 $22,723 $29,789 $25,041 $28,964 (a) $28,975 (a) $13,953 (a)
Operating Income 567 1,121 2,342 5,113 5,671 9,224 8,183 (b) 7,488 1,679
Net Income 635 (c) 684 1,718 (c) 3,119 3,459 5,671 5,022 (b) 4,642 1,042
Pro Forma Earnings
Per Share (d)
Basic 0.16 (c) 0.17 0.43 (c) 0.77 0.86 1.42 1.25 (b) 1.14 0.27
Diluted 0.16 (c) 0.17 0.43 (c) 0.76 0.85 1.39 1.19 (b) 1.06 0.25
<CAPTION>
MARCH 31, JULY 2, JULY 3, JUNE 27, JUNE 28, JUNE 30,
2000 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- ---------
(in thousands)
BALANCE SHEET DATA
Total Assets $14,000 $14,132 $14,135 $8,622 $11,043 $5,565
Long-Term Debt -- -- -- -- -- --
Total Equity (e) 11,743 11,624 12,269 6,304 7,120 3,532
</TABLE>
(a) Includes revenue from a discontinued product line, Quick Check, of $8.3
million, $13.8 million and $5.9 million in fiscal 1997, 1996 and 1995,
respectively.
(b) Includes unfavorable impact of write-off of HCI note - operating income
($1,374), net income ($844), and pro forma EPS ($.20).
(c) Includes favorable impact of gain on sale of securities--net income $289
and pro forma EPS $0.07.
(d) Basic and diluted pro forma earnings per share has been calculated using
pro forma basic and diluted weighted average shares outstanding for each of
the periods presented. Pro forma basic weighted average shares have been
calculated by adjusting Chronimed's historical basic weighted average
shares outstanding for the applicable period to reflect the number of
MEDgenesis shares that would have been outstanding at the time assuming the
distribution of one share of MEDgenesis common stock for three shares of
Chronimed common stock. Pro forma diluted weighted average shares for
MEDgenesis reflect an estimate of the potential dilutive effect for common
stock equivalents. Such estimate is calculated based on Chronimed's
dilutive effect of stock options divided by three to reflect the
distribution ratio.
(e) Total equity has been reduced by the net cash paid by MEDgenesis as an
internal business unit to Chronimed Inc. as the corporate fiduciary for
cash management. Total Assets and Total Equity therefore do not necessarily
reflect the balances that would have been created if MEDgenesis had been a
standalone entity.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATE RISK
MEDgenesis generates approximately five percent of its revenue from
business outside of the United States. All billings to foreign distributors and
customers are in U.S. dollars and are recorded as accounts receivable in U.S.
dollars.
MEDgenesis acquires approximately sixty-five percent of its direct
products and components from foreign countries. All payments to foreign
suppliers are in U.S. dollars and are recorded as accounts payable in U.S.
dollars. Based on the above, the Company believes its foreign currency exchange
rate risk is minimal.
EQUITY PRICE RISK
As identified in Note 2 of Notes to the Company's Financial Statements,
MEDgenesis held 203,000 shares of the common stock of Cell Robotics
International, Inc. (CRII) as of March 31, 2000, which were acquired in 1999 as
part of a distribution agreement. As of March 31, 2000, the price of CRII common
stock was $5.44 per share, compared to the Company's acquisition cost of $1.50
per share. Because CRII is a small cap stock being traded on an over-the-counter
stock exchange, it should be viewed as a high risk investment. The Company's
maximum negative exposure against its acquisition cost of CRII is $304,500
(203,000 shares times $1.50). The Company intends to sell the remaining 203,000
shares within one year as certain stock selling restrictions expire.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
See ITEM 13: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 3: PROPERTIES
Following the spin-off MEDgenesis intends to continue leasing
manufacturing, product distribution and general office space (currently leased
by Chronimed) at two suburban Minneapolis locations:
<TABLE>
<CAPTION>
SIZE
FUNCTIONS LOCATIONS (SQUARE FEET) LEASE EXPIRATION
- - - - - - -------------------------- ----------------------- --------------- ----------------------
<S> <C> <C> <C>
General office, including 5182 West 76th Street 25,420 November 14, 2001
manufacturing and product Edina, MN
distribution
Manufacturing and product 6214 Bury Drive 18,040 August 31, 2002
distribution Eden Prairie, MN
</TABLE>
Chronimed and the Company have requested the owners of both the West 76th
and Bury Drive properties approve lease assignments by Chronimed to MEDgenesis.
In the alternative, Chronimed would seek landlord approval to sublease both
properties to MEDgenesis. Landlord responses are expected to be received prior
to the spin-off.
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Effective with the spin-off, MEDgenesis may also sublease corporate office
space from Chronimed, at Chronimed's Minnetonka, Minnesota headquarters, until
December 31, 2000. That address is 10900 Red Circle Drive, Minnetonka, MN,
55343. If MEDgenesis does sublease such space from Chronimed, MEDgenesis will
relocate its corporate offices to its West 76th Street facility on or about
January 1, 2001.
The phone number for Chronimed's Red Circle Drive headquarters is (952)
979-3600 and the telephone number for MEDgenesis' West 76th Street facility is
(952) 835-3446. Based on current growth projections, the Company estimates its
manufacturing facilities will be able to handle the majority of all
manufacturing and product distribution needs for the next two years. With modest
expansion of these facilities, management believes these locations will have the
capacity to support operations for five years or more.
Chronimed has not had any problems with current landlords, nor been given
any indication the current leases will not be renewed. However, there can be no
assurance the Company will be able to obtain lease assignment approvals from
Chronimed's landlords or landlord approved subleases from Chronimed, renew these
leases or, if the leases are not renewed, find suitable replacements. In
addition, there is no guarantee that when the current leases expire, MEDgenesis
will be able to enter into new agreements at rent levels similar to its current
leases.
-REMAINDER OF PAGE INTENTIONALLY LEFT BLANK-
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<PAGE>
ITEM 4: SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND
MANAGEMENT
The spin-off distribution of MEDgenesis common stock to Chronimed
shareholders will result in significant MEDgenesis stock ownership by MEDgenesis
directors and management personnel. The following table shows information
concerning each person who, to the knowledge of the Company, (i) would be the
beneficial owner of more than 5% of MEDgenesis' common stock, (ii) is
anticipated to be a director of the Company, (iii) is a named executive officer
of the Company and (iv) is anticipated to be a member of the directors and
executive officers of the Company as a group, as of June 30, 2000. All persons
have or will have sole or joint with spouse voting and investment power with
respect to all shares shown beneficially owned by them. The numbers of shares
identified in the table represent the result of the dividend distribution of one
share of MEDgenesis common stock received on the date of spin-off for every
three shares of Chronimed common stock owned on the record date for
distribution.
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
- - - - - - ------------------------ -------------------- --------
Heartland Advisors, Inc.
Milwaukee, Wisconsin ...................... 453,367 11.2%
Maurice R. Taylor, II ..................... 137,573 (1) 3.3%
Earl K. Beitzel (2) ....................... -- --
Leo T. Furcht, M.D. (2) ................... -- --
All anticipated directors and executive
officers as a group (4 persons) ........... 137,573 3.3%
- - - - - - ---------------------------------
(1) Mr. Taylor is beneficial owner of 121,518 shares of Chronimed stock and
291,201 options to acquire Chronimed stock exercisable within 60 days. Upon
Chronimed's issuance of the MEDgenesis stock dividend, Mr. Taylor will
receive 40,506 shares of MEDgenesis stock. Mr. Taylor's Chronimed stock
options are held subject to a three month right to exercise following
termination of his directorship after the 2000 Chronimed Shareholders'
Annual Meeting. His unexercised Chronimed options will expire at that time.
If MEDgenesis were to issue Mr. Taylor MEDgenesis options, on a one for
three ratio similar to the Chronimed dividend of MEDgenesis stock, Mr.
Taylor's present Chronimed options would equate to 97,067 MEDgenesis
options. MEDgenesis is under no formal obligation to issue MEDgenesis
options to any executive or other employee. See Executive Compensation.
(2) Messrs. Beitzel and Furcht own no Chronimed stock and will receive no
MEDgenesis shares as a part of the Chronimed spin-off dividend. Each of
them will receive MEDgenesis stock options following the spin-off,
consistent with the MEDgenesis 2000 Stock Option Plan. See Director
Compensation.
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ITEM 5: DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS OF MEDGENESIS
MEDgenesis' Bylaws create a Board consisting of five directors. Effective
as of the distribution date, MEDgenesis' Board of Directors will consist of
three (3) persons. It is expected that the fourth and fifth directors will be
named to the Board shortly before or after the spin-off. The persons listed
below are expected to serve as directors. Each director will serve until the end
of the annual shareholders meeting at which elections are held for the director
Class to which the individual belongs. Dr. Furcht and a director to be appointed
will be members of Class I and will serve until the end of the 2000 annual
meeting. Mr. Beitzel and a director to be appointed will be a members of Class
II and will serve until the end of the 2001 annual meeting. Mr. Taylor is a
member of Class III and will serve until the end of the 2002 annual meeting. See
ITEM 11: DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED, Board of
Directors.
The following table provides information about the executive officers,
directors and key employees of MEDgenesis Inc.
NAME AGE
---------------------------- -------
Earl K. Beitzel 45
Leo T. Furcht, M.D. 53
Maurice R. Taylor, II 54
Earl K. Beitzel is a principal and senior consultant with MedTrust, Inc., a
company providing services to healthcare organizations involved in
restructurings and turnarounds, where he has been employed for more than five
years. Mr. Beitzel is a Certified Public Accountant. Mr. Beitzel serves on the
board of directors of The Scripps/Whittier Institute for Diabetes, a non-profit
organization dedicated to research, education and patient care in the field of
diabetes. He is also on the board of directors of ProUroCare, Inc.
Leo T. Furcht, MD, is a professor of Ophthalmology, professor of Department
of Laboratory Medicine and Pathology, Medical Director, Medical Technology
Program, and Head of the Department of Laboratory Medicine and Pathology at the
University of Minnesota, where he has been employed for more than five years.
Dr. Furcht has also held numerous academic committee posts in a variety of
areas. He has been involved in a number of national committees and activities
related to the National Institutes of Health. In addition, he serves or has
served on several editorial boards for medical publications.
Maurice R. Taylor, II, a co-founder of Chronimed Inc., has served as
Chronimed's Chief Executive Officer and as a director of Chronimed since 1985.
He has been Chairman of Chronimed Inc. since 1994. Additionally, Mr. Taylor
served as Chronimed's President from 1985 through April 1997, until the hiring
of Henry F. Blissenbach, Pharm.D. Prior to Chronimed, Mr. Taylor held various
management positions in companies whose principal
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activities were manufacturing, distribution and international trade. Mr. Taylor
is also Chairman of The Scripps/Whittier Institute for Diabetes.
MEDGENESIS BOARD COMMITTEES
The Board will have standing Audit and Compensation committees.
AUDIT COMMITTEE
The Audit Committee will be comprised of independent directors who are not
employees of MEDgenesis or any of its subsidiaries. Messrs. Beitzel, Furcht and
a director to be appointed will serve as initial members of the Audit Committee,
with Mr. Beitzel as Chairman. The primary functions of the Audit Committee are:
* assessing the independence and performance of the Company's
independent auditors,
* recommending to the Board the selection and discharge of the
independent auditors,
* evaluating the adequacy of internal financial controls, and
* oversight of management of the accounting and financial activities of
the Company.
The Company's independent auditors will have unrestricted access to the
Audit Committee and vice versa.
COMPENSATION COMMITTEE
The Compensation Committee will be comprised of independent directors who
are not employees of the Company or any of its subsidiaries. Messrs. Beitzel,
Furcht and a director to be appointed will serve initially as members of the
Compensation Committee, with the Chairman to be named. The primary functions of
the Compensation Committee are:
* recommending to the Board the compensation to be paid to the Company's
directors an officers, and
* subject to review and approval of certain matters by the full Board of
Directors, administering compensation plans for executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
No member of the MEDgenesis Compensation Committee is or has been a member
of the Chronimed Compensation Committee or an executive or employee of
MEDgenesis. No executive of MEDgenesis is or has been a member of a compensation
committee or director of another entity one of whose executive officers or
compensation committee members is or has served as a director or Compensation
Committee member of MEDgenesis.
DIRECTOR COMPENSATION
BOARD FEES
Each non-employee Director will receive the following fees:
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* $12,000 per year for each year in which the person serves as a
Director, and
* $3,000 per year for the Committee Chairmen.
STOCK OPTIONS
The MEDgenesis' 2000 Stock Option Plan is designed in part to encourage
non-employee directors to obtain an equity interest in MEDgenesis. A total of
six hundred thousand (600,000) shares of MEDgenesis common stock may be subject
to options under the plan. Management believes that stock ownership in
MEDgenesis will motivate the directors to work toward long term growth and
development. Under the plan, non-employee directors, upon initial election, will
be granted ten thousand (10,000) options to purchase MEDgenesis common stock at
exercise prices equal to the market price on the date of grant. In addition,
directors will be granted options each year to purchase an additional five
thousand (5,000) shares of MEDgenesis common stock, with the exercise price
equal to that of the market price of MEDgenesis stock on the date of grant. It
is anticipated that options granted to non-employee directors may be issued
subject to a four year vesting schedule which may be accelerated based on
Company performance. The options will become immediately exercisable upon the
death or disability of the director, as defined under the plan. The options will
also be immediately exercisable upon the occurrence of a change of control
event, as defined in the plan.
OTHER
Directors will be reimbursed for reasonable expenses associated with travel
to and from Board and committee meetings.
EXECUTIVE OFFICERS OF MEDGENESIS
Set forth below is information with respect to the individuals who will
serve as MEDgenesis executive officers as of the distribution date:
NAME AGE POSITION
-------------------------- --------- ---------------------------------
Maurice R. Taylor, II 54 Chairman of the Board, Chief
Executive Officer, Interim Chief
Financial Officer
Maurice Taylor is a co-founder of Chronimed Inc., has served as Chronimed's
Chief Executive Officer and as a director of Chronimed since 1985. He has been
Chairman of Chronimed Inc. since 1994, and served as Chronimed's President from
1985 through April 1997. He will resign his Chairman and CEO positions with
Chronimed Inc. to serve as Chairman and CEO of MEDgenesis. He will continue as a
director of Chronimed until the 2000 Annual Meeting of Chronimed Shareholders,
at which time he will decline re-election.
MEDgenesis is engaged in an active search process to recruit and hire a
permanent Chief Financial Officer. It is anticipated that the Company will hire
a Chief Financial Officer prior to
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the effective date of the spin-off. Until the time of such hire, Mr. Taylor will
serve as Interim Chief Financial Officer in compliance with the Minnesota
Business Corporation Act.
ITEM 6: EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
MEDgenesis executives will receive no compensation from MEDgenesis prior to
the effective date of spin off. A description of Maurice Taylor's Employment
Agreement, to be assigned by Chronimed to MEDgenesis, is set forth below in the
section "Employment Agreements and Change of Control Arrangements".
STOCK OPTIONS
MEDgenesis executives will receive no MEDgenesis stock options in
consideration of services rendered to the Company prior to the spin off.
Executive employees will be eligible to participate in the MEDgenesis 2000 Stock
Option Plan. See Exhibits: 2000 Stock Option Plan. Mr. Taylor currently holds
773,800 options to purchase Chronimed stock. Many, if not all, of his Chronimed
options may expire unexercised three months following termination of his
directorship after the 2000 Chronimed Shareholders' Annual Meeting. It is
anticipated MEDgenesis may issue to Mr. Taylor MEDgenesis options representing
value substantially equivalent to the value of his expired, unexercised
Chronimed options.
STOCK PURCHASE PLAN
The 2000 MEDgenesis Employee Stock Purchase Plan will allow employees,
including executives, to purchase MEDgenesis common stock through a payroll
deduction plan. The plan will allow two offering periods per year and
participating employees will be able to purchase MEDgenesis stock at a price
equal to 85% of the lower of the market price on the first day or last day of
the offering period. No employee owning stock comprising 5% or more of the total
combined voting power or value of all classes of stock of the Company will be
allowed to participate. It is anticipated the Board of Directors will authorize
approximately 100,000 shares to be made available for employee purchase under
the Plan.
401(k) RETIREMENT SAVINGS PLAN
MEDgenesis will establish a retirement savings plan under IRC Section
401(k). This plan will allow employees to make before-tax contributions to the
plan on a tax deferred basis, and will also allow for an employer match of
employee contributions up to a specified maximum. All employees who meet the
requirements for eligibility under the plan will be eligible to participate,
which will include virtually all of the full time employees of MEDgenesis. An
eligible employee may defer up to 15% of compensation into the plan, subject to
government mandated maximums. MEDgenesis will match 40% of the first 5% of
employee contribution, again subject to regulated maximums. There will also be
an option for the MEDgenesis Board of Directors, at its sole discretion, to
declare an additional lump sum profit sharing match on an
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annual basis. Employee contributions are immediately vested, and employer
matching contributions will be subject to a graded vesting schedule. Loans will
be available under certain conditions as specified in the plan. Additionally,
hardship withdrawals are available under certain specified conditions, as are
withdrawals upon attainment of age 59 1/2. Participants may invest their
contributions, as well as the employer contributions on their behalf, in one or
more investment fund choices. A distribution of a participant's before and after
tax contributions, and vested employer contributions, may be made when a
participant terminates employment, becomes disabled, dies or retires. This plan
is intended to contribute greatly toward a more financially secure retirement
for the employees.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Effective with the spin-off, Chronimed will assign to MEDgenesis and
MEDgenesis will assume an existing Employment Agreement with Mr. Taylor as the
Chief Executive Officer. The Employment Agreement will have a remaining term of
two years on the date of the spin off. Thereafter, automatic renewal will occur
every two years, subject to notice of termination provisions. Mr. Taylor has
agreed that he will not seek or participate in discussions regarding
modification of his assigned Employment Agreement for at least 6 months
following the spin-off. MEDgenesis or Mr. Taylor may seek renegotiation of his
employment agreement after that time.
Under the terms of the Agreement, if MEDgenesis terminates Mr. Taylor's
employment for any reason other than for cause, or upon disability or death, or
Mr. Taylor terminates the Agreement due to a change of employment, all as
defined in the Agreement, Mr. Taylor will be entitled to receive salary equal to
twelve months of base salary, payment of the average of any bonus paid for the
preceding two fiscal years, vesting of all outstanding stock options, and
benefit plan participation at the regular ongoing employee rate for up to twenty
four months.
"Cause" is defined as (i) employee's breach of the covenants contained in
the Agreement, (ii) commission of any criminal act, or any act of fraud or
dishonesty in connection with or related to employee's employment, or (iii)
failure to substantially perform duties reasonably required by the Company that
are consistent with employee's position. "Change of employment" includes (a) a
material and adverse change, without cause, in employee's position, duties, or
title, (b) reduction, without cause, in employee's salary or benefits, or (c) a
change in the location of performance of most of employee's duties from the
general geographic location in which employee performed such duties.
The Employment Agreement also addresses possible change in control of the
Company. "Change-in-control" is defined as (i) when any "person" as defined in
Section 3(a)(9) of the Securities Exchange Act as used in sections 13(d) and
14(d), including a "group" as defined in Section 13(d) of the Securities
Exchange Act, but excluding the Company or any subsidiary or parent or any
employee benefit plan sponsored or maintained by the Company or any subsidiary
or parent (including any trustee of such plan acting as trustee), directly or
indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act), of securities of the Company representing greater than
50 (fifty) percent of the combined voting power of the Company's then
outstanding securities, (ii) when subsequent to the effective date of the
Agreement, the individuals who, at the beginning of such period, constitute the
Board ("Incumbent Directors") cease for any reason other than death to
constitute at least a majority of the Board, provided however that a Director
who was not a Director at the beginning of the period will be deemed to have
satisfied the definition of "Incumbent Director" if such Director was elected
by, or with the approval of at least 60% (sixty percent) of the Directors who
then
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qualified as Incumbent Directors, or (iii) the approval by the shareholders of
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company
or the adoption of any plan or proposal for the liquidation or dissolution of
the Company.
If, within two years following a Change-in-Control event, the Company
terminates Mr. Taylor's employment other than for cause, Mr. Taylor is asked to
assume a position, duties, or level of responsibility which are unacceptable to
him, or Mr. Taylor is asked to relocate to an unacceptable geographic location,
then Mr. Taylor will be entitled to receive thirty-six months of salary
continuation; the average sum of the annual bonus compensation paid for
preceding three calendar years, in aggregate, and vesting of all outstanding
options. See Exhibits: Employment Agreement.
GUARANTY OF INDEBTEDNESS
On April 9, 1997, Chronimed guaranteed an indebtedness of Mr. Maurice R.
Taylor, II, MEDgenesis' Chairman and Chief Executive Officer, owed by him to
U.S. Bank National Association. This indebtedness permits Mr. Taylor to continue
to hold Chronimed's stock. There was indebtedness of approximately $735,000 in
outstanding principal and accrued interest under the guaranty as of April 30,
2000. Chronimed is charging Mr. Taylor an arm's-length fee for this guarantee
and has obtained security from Mr. Taylor for this guarantee.
It is anticipated that effective with the spin-off, MEDgenesis will be
substituted in the place and stead of Chronimed on the guarantee of Mr. Taylor's
loan from U.S. Bank National Association, subject to and contingent upon the
Approval of U.S. Bank National Association. From and after the spin-off, Mr.
Taylor will pay the fee for the guarantee to MEDgenesis, and Chronimed will
transfer its security interest concerning the loan to MEDgenesis. Although Mr.
Taylor has committed to a repayment program, the guarantee arrangement has been
renewed, and may continue to be renewed, on an annual basis.
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMMON DIRECTORS
As of the effective date of the spin-off, Maurice R. Taylor will serve as a
director of both MEDgenesis and Chronimed. Effective with the spin-off, Mr.
Taylor will resign his positions of Chairman and CEO of Chronimed and will
become the Chairman and CEO of MEDgenesis. Mr. Taylor will continue to serve as
a director of Chronimed until the Chronimed Shareholders' 2000 Annual Meeting,
at which time he will decline re-election. There will be no other common
officers or directors among MEDgenesis and Chronimed following the spin-off.
AGREEMENTS
MEDgenesis has entered a number of agreements with Chronimed which will
become effective upon the closing date of the MEDgenesis spin-off. These
agreements include the Distribution and Spin-off Agreement, the Transition
Services Agreement, and a Purchase and Pricing Agreement.
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DISTRIBUTION AND SPIN-OFF AGREEMENT
The Distribution and Spin-off Agreement (the "Agreement") dictates the
terms and conditions by which Chronimed will transfer the assets and liabilities
of its Diagnostic Products division to MEDgenesis and distribute all of the
outstanding shares of MEDgenesis stock to Chronimed shareholders. Pursuant to
the Agreement, Chronimed and MEDgenesis will collaborate on various actions and
filings preliminary to public issuance of MEDgenesis stock, including
preparation and filing of this Form 10, a shareholders' Information Statement, a
NASDAQ listing application, and any materials the parties may deem necessary or
appropriate under state blue sky laws.
To effect the transfer of Chronimed's Diagnostic Products division's assets
and liabilities to MEDgenesis, the Agreement provides for the execution of a
Subscription Agreement and a Bill of Sale and Assumption Agreement. The
Subscription Agreement obligates Chronimed to contribute capital to MEDgenesis,
in the form of the Diagnostic Products division assets and business, in exchange
for all of the MEDgenesis stock to be issued. The Bill of Sale and Assumption
Agreement constitutes the actual transfer of title document and provides a
detailed listing of the assets, liabilities, and business conveyed.
The Agreement further establishes the terms by which Chronimed shareholders
of record on June __, 2000, will receive from Chronimed all of the shares of
MEDgenesis in the form of a dividend. The Agreement provides for treatment of
fractional share ownership. Shareholders with rights to a half or greater
fractional MEDgenesis share will receive one share for such fractional rights.
Shareholders with rights to less than a half MEDgenesis share will receive only
their whole number share entitlement. Any non-distributed MEDgenesis shares held
by Chronimed following the dividend distribution will be returned to MEDgenesis.
The Agreement contains comprehensive cross indemnification covenants.
MEDgenesis will indemnify Chronimed for any liabilities incurred by MEDgenesis
subsequent to the spin-off effective date, certain transferred liabilities, and
any breach of a representation or warranty in the Agreement. Transferred
liabilities include liabilities under assigned contracts with vendors and
customers, product liability accruing prior to the effective date of transfer,
any pre-transfer administrative or regulatory liability, pre- and post-transfer
environmental liability, patent and other intellectual property liability
associated with Chronimed's Diagnostic Products division or MEDgenesis products,
other liabilities specific to MEDgenesis' business, brokerage commissions which
would be due to PaineWebber in the event of a subsequent sale of all of
substantially all of the stock or assets of MEDgenesis, and liability under
Chronimed's patent infringement action with Bayer Diagnostics. See Item 8: Legal
Proceedings.
Chronimed will indemnify MEDgenesis for any liabilities not transferred to
MEDgenesis under the Agreement or other ancillary agreements, as well as any
breach of the Agreement. The Agreement also establishes the respective
responsibilities among the parties for transaction expenses.
MEDgenesis and Chronimed further indemnify one another under the Agreement
for taxes related to their respective post spin-off businesses. The Agreement
establishes procedures for preparing and filing returns and the parties'
respective rights and obligations related to adjustments, credits or refunds.
Tax indemnification under the Agreement also addresses possible taxes related to
the spin-off transaction. While the spin-off is anticipated to be a tax free
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event, the Agreement dictates that in the event of any subsequent adverse
determination by the IRS, tax liabilities assessed at the corporate level will
be shared 40% by MEDgenesis and 60% by Chronimed.
The Agreement establishes that the parties will enter into a Transition
Services Agreement, by which Chronimed will provide MEDgenesis with support in
the areas of accounting, information systems, and legal affairs for various
periods of time following the spin-off. The Agreement also enables to parties to
obtain access to one another's records as necessary following the spin-off and
ensures cooperation in the event of administrative, regulatory, or litigation
actions.
With regard to employees and benefits, the Agreement establishes the
parties' respective responsibilities for accrued benefits, vacation, flex
account and other benefit balances maintained by Chronimed employees who will
become MEDgenesis employees. See Exhibits: Distribution and Spin-off Agreement.
TRANSITION SERVICES AGREEMENT
Effective with the spin-off, the Transition Services Agreement establishes
that certain Chronimed functions and employees will provide support services to
MEDgenesis for periods up to six months following the spin-off. Individuals with
accounting, legal, and information systems skills will provide consulting
services to MEDgenesis during the transition. Chronimed will charge MEDgenesis
for these consulting services on both an hourly and a flat rate basis, depending
on the area of service. MEDgenesis will pay Chronimed on a monthly basis. The
individual consultants will remain Chronimed employees and MEDgenesis will have
no employer/employee obligations with regard to these individuals. Either party
may terminate portions or all of the Transition Services Agreement under
conditions stated therein. See Exhibits: Transition Services Agreement
PURCHASE AND PRICING AGREEMENT
Effective with the spin-off, MEDgenesis and Chronimed will also execute a
Purchase and Pricing Agreement. Under that Agreement, MEDgenesis agrees to
extend to Chronimed certain volume pricing incentives for purchase of MEDgenesis
glucose test systems, lancing products, infusion products, and urine diagnostic
products. The agreement is similar to MEDgenesis pricing agreements with other
customers and contains standards terms and conditions, including product
liability indemnification and insurance requirements. The Purchase and Pricing
Agreement does not obligate Chronimed to minimum purchase volumes other than to
obtain volume pricing discounts. See Exhibits: Purchase and Pricing Agreement.
GUARANTY
It is anticipated that MEDgenesis will assume liability under and replace
Chronimed as guarantor on Chronimed's guaranty of Maurice Taylor's personal
indebtedness to U.S. Bank National Association. See Executive Compensation,
Guaranty of Indebtedness.
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ITEM 8: LEGAL PROCEEDINGS
Effective with the spin-off, MEDgenesis will assume Chronimed's rights and
liabilities in the lawsuit Chronimed Inc. v. Bayer Corporation, USDC (Minn),
#99CV369. Under the terms of the Distribution and Spin-off Agreement, MEDgenesis
will indemnify Chronimed against all costs, fees, and damages incurred or
assessed following the spin-off. MEDgenesis will receive the benefit of any
judgment rendered in favor of Chronimed and the parties will share, pro rated on
the basis of expenditure, any legal fees and litigation costs awarded to
MEDgenesis. While MEDgenesis will not be substituted as the named Plaintiff,
MEDgenesis will assume the full prosecution of Chronimed's cause of action and
defense of Bayer's counterclaims.
In the Bayer action, Chronimed has sued Bayer seeking a declaratory
judgment that technology Chronimed uses in its urine diagnostic strips, in
particular its leukocyte test feature, is clear of claims asserted in a
portfolio of Bayer patents related to leukocyte testing. Bayer counterclaimed
alleging infringement of its patents covering both leukocyte and specific
gravity tests. Bayer also plead unspecified actual and statutory treble damages.
The lawsuit was commenced in March, 1999 and is in the pre-trial discovery
phase. The District Court calendar appears to support a mid-2001 trial date.
While Chronimed and MEDgenesis are confident in the merits of their case, and
will continue to vigorously pursue Chronimed's rights, an adverse ruling could
have a material, negative impact on MEDgenesis' business. Possible adverse
judgments could include an injunction against the future sale of urine test
strips containing leukocyte or specific gravity tests, damages for past sales,
treble damages on a finding of willful infringement, and an award of legal fees
and costs.
Effective with the spin-off, MEDgenesis will assume Chronimed's rights in
two customer bankruptcy actions. Chronimed has filed a Proof of Claim in the
matter In Re Diabetics Wholesale Club, Inc., Bankr. E.D.N.Y., #99-86372, in
which Chronimed seeks payment of an account past due in the amount of $42,677.
The claim is non-priority and unsecured. Chronimed has also filed a Proof of
Claim in the matter In Re Sun Healthcare Group Inc. et. al., Bankr. Del.,
#99-3657 through 99-3841, in which Chronimed has asserted an unsecured,
non-priority claim for a past due account in the amount of $67,576.
ITEM 9: MARKET PRICE OF AND DIVIDENDS ON
REGITRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no public market for the common stock of MEDgenesis Inc.
In conjunction with the filing of this Registration Statement, MEDgenesis will
file an application to include the shares of its common stock on the NASDAQ
National Market System under the symbol "MDGN".
Following completion of the distribution by Chronimed of the shares of
MEDgenesis to the shareholders of Chronimed, MEDgenesis expects that it will
have approximately 500 shareholders of record and approximately 7,000 beneficial
owners. The distribution is expected to be completed on June __, 2000. At such
time, there are expected to be approximately 4,100,000 shares of the Company's
Common Stock outstanding.
MEDgenesis has never declared or paid cash dividends on its capital stock.
MEDgenesis currently intends to retain its earnings to finance its future growth
and therefore does not
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anticipate paying any dividends in the foreseeable future. It is anticipated
that the terms of any line of credit the Company may procure will likely
prohibit MEDgenesis from paying any dividends or distributions to stockholders
unless certain working capital and liquidity requirements are met.
MEDgenesis has no outstanding warrants or options. As of the date of the
spin-off, upon return by Chronimed of all MEDgenesis shares not distributed to
Chronimed shareholders, no MEDgenesis affiliates will own MEDgenesis stock.
ITEM 10: RECENT SALES OF UNREGISTERED SECURITIES
Prior to the spin-off, on June __, 2000, MEDgenesis will issue 4,500,000 shares
of common stock to Chronimed for $1,000. These shares will be issued pursuant to
Section 4(2) of the Securities Act of 1933 as a transaction by an issuer not
involving any public offering.
ITEM 11: DESCRIPTION OF REGISTRANT'S SECURITIES
TO BE REGISTERED
GENERAL
MEDgenesis' authorized capital stock as of the spin-off will consist of 40
million shares of common stock, par value $.01 per share, and 5 million shares
of preferred stock, par value $.01 per share. On the date of the spin-off, it is
anticipated that approximately 4,100,000 shares of common stock will be issued,
outstanding and owned solely by Chronimed. While no shares of preferred stock
will be issued or outstanding, the Directors will have designated 200,000 shares
of Series A Junior Preferred stock, in accordance with the Company's Shareholder
Rights Plan. See Exhibits: Shareholder Rights Plan Agreement. All of the shares
of issued and outstanding common stock will be distributed by Chronimed as a
dividend to Chronimed shareholders of record. Following the Chronimed dividend
distribution, Chronimed will not own any shares of MEDgenesis. All of the
MEDgenesis common shares distributed to Chronimed shareholders will be fully
paid and non-assessable.
MEDGENESIS COMMON STOCK
VOTING RIGHTS
Holders of MEDgenesis common stock will be entitled to one vote for each
share on all matters voted on by shareholders. MEDgenesis common stock will
possess all voting power of MEDgenesis, except as otherwise required by law or
provided in any resolution adopted by the MEDgenesis Board designating any
series of MEDgenesis preferred stock. The shares of MEDgenesis common stock will
not have cumulative voting rights.
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Although holders of MEDgenesis common stock are generally entitled to vote
by simple majority for the approval of amendments to MEDgenesis' Articles of
Incorporation, any amendment by shareholders of Article VI of MEDgenesis'
Articles of Incorporation, pertaining to constitution of the Board, must be
approved by an 80% majority of all shares entitled to vote. See Exhibits:
Articles of Incorporation.
DIVIDEND RIGHTS
Subject to any preferential or other rights of any outstanding series of
MEDgenesis preferred stock that the Board may designate, and subject to the
terms of any possible MEDgenesis debt agreements or credit facilities, holders
of MEDgenesis common stock will be entitled to such dividends as may be declared
from time to time by MEDgenesis' Board from funds legally available.
LIQUIDATION RIGHTS AND OTHER PROVISIONS
Subject to the prior rights of creditors and the holders of preferred stock
that may be outstanding from time to time, the holders of common stock are
entitled in any liquidation, dissolution or winding up to share pro rata in the
distribution of all remaining assets.
MEDgenesis common stock is not liable for any calls or assessments and is
not convertible into any other securities. There are no redemption or sinking
fund provisions applicable to MEDgenesis common stock and ownership of
MEDgenesis stock will not render any person liable on account of the debts or
obligations of MEDgenesis.
PREEMPTIVE RIGHTS
No holder of MEDgenesis stock of will have any preemptive right to purchase
MEDgenesis shares or securities.
MEDGENESIS PREFERRED STOCK
MEDgenesis' Board is authorized to issue shares of preferred stock, in one
or more series, and to fix the voting powers, designations, preferences and
relative, participating, optional and other special rights, qualifications,
limitations or restrictions of such shares, subject to the Minnesota Business
Corporation Act, without the prior approval of MEDgenesis shareholders. While no
shares of preferred stock will be issued in connection with the spin-off, the
Directors will have designated 200,000 shares of Series A Junior Preferred
stock, in accordance with the Company's Shareholder Rights Plan. See Exhibits:
Shareholder Rights Plan Agreement.
BOARD OF DIRECTORS
MEDgenesis' Articles of Incorporation and By-laws establish three classes
of directorship tenure, resulting in a "staggered" Board. MEDgenesis' Board
consists of five directors, two of whom are designated as Class I directors, two
of whom are designated as Class II directors, and
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one of whom is designated as a Class III director. Current Class I directors
will serve until the conclusion of the 2000 Annual Meeting of Shareholders,
Class II directors will serve until the conclusion of the 2001 Annual Meeting of
Shareholders, and Class III directors will serve until the conclusion of the
2002 Annual Meeting of Shareholders. Beginning with the 2000 Annual Meeting of
Shareholders, an elected director will serve until the conclusion of the third
succeeding annual meeting following the director's election. In addition to
director removal consistent with the Minnesota Business Corporation Act, and
subject to the rights of any holders of any class or series of preferred shares
then outstanding, MEDgenesis shareholders may remove a director at any time,
with or without cause, but only if such removal is approved by an 80% vote of
all the outstanding shares of MEDgenesis stock.
SHAREHOLDER RIGHTS PLAN
On the effective date of the spin off, the MEDgenesis Board of Directors
will declare a dividend of one preferred share purchase right (a "Right") per
share for each outstanding share of common stock, par value $.0l (the "Common
Shares"), of MEDgenesis. The dividend will be payable 30 days following the
effective spin off date (the "Record Date") to shareholders of record on that
date.
Each Right will entitle the registered holder to purchase from MEDgenesis
one one-thousandth of a share of Series A Junior Participating Preferred Stock,
par value $.0l (the "Preferred Shares"), of MEDgenesis at a price of $120 per
one one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement'), dated as of June __, 2000, between
MEDgenesis and Norwest Bank Minnesota, National Association, as Rights Agent
(the "Rights Agent").
Initially, the Rights will be evidenced by the certificates representing
Common Shares then outstanding and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares, and a Rights
Distribution Date will occur upon the earlier of: (i) the first date of public
announcement that a Person or group of affiliated or associated Persons has
become an "Acquiring Person" (i.e., has become, subject to certain exceptions,
the beneficial owner of 15% or more of the outstanding Common Shares) (except
pursuant to a Permitted Offer, as hereinafter defined) and (ii) the 10th day
following the commencement or public announcement of a tender offer or exchange
offer, the consummation of which would result in a Person or group of affiliated
or associated Persons becoming, subject to certain exceptions, the beneficial
owner of 15% or more of the outstanding Common Shares (or such later date as may
be determined by the Board of Directors of MEDgenesis prior to a Person or group
of affiliated or associated Persons becoming an Acquiring Person) (the earlier
of such dates being called the "Rights Distribution Date").
Until the Rights Distribution Date, (i) the Rights will be evidenced by the
Common Share certificates and will be transferred with and only with the Common
Shares, (ii) new Common Share certificates issued after the Record Date upon
transfer or new issuance of the Common Shares will contain a notation
incorporating the Rights Agreement by reference, and (iii) the surrender for
transfer of any Common Share certificate, even without such notation or a copy
of the Summary of Rights attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate.
40
<PAGE>
As promptly as practicable following the Rights Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the Rights
Distribution Date, and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on 10 years following issuance, unless extended or earlier
redeemed or exchanged by MEDgenesis as described below.
The Purchase Price payable and the number of Preferred Shares or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution: (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain
rights, options or warrants to subscribe for or purchase Preferred Shares or
convertible securities at less than the then current market price of the
Preferred Shares, or (iii) upon the distribution to holders of the Preferred
Shares of evidences of indebtedness or assets (excluding regular periodic cash
dividends or dividends payable in Preferred Shares) or of subscription rights or
warrants (other than those described in clause (ii) of this paragraph). With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in the Purchase
Price.
No fraction of a Preferred Share (other than fractions in integral
multiples of one one-thousandth of a share) will be issued and, in lieu thereof,
an adjustment in cash will be made based on the closing price on the last
trading date prior to the date of exercise.
The number of outstanding Rights and the number of one one-thousandth of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Rights Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $.0l per share but will be entitled to an
aggregate dividend of 1,000 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $1,000 per share but will be
entitled to an aggregate payment of 1,000 times the payment made per Common
Share. Each Preferred Share will have 1,000 votes, voting together with the
Common Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 1,000 times the amount received per Common Share. These
rights are subject to adjustment in the event of a stock dividend on the Common
Shares or a subdivision, combination or consolidation of the Common Shares.
In the event that a person or group becomes an Acquiring Person (except
pursuant to a Permitted Offer (as defined below)), each holder of a Right, other
than the Acquiring Person or the affiliates, associates or transferees thereof
(whose Rights will thereafter be void), will thereafter have the right to
receive upon exercise thereof at the then current exercise price of the Right
that number of Common Shares having a market value of two times the exercise
price of the Right, subject to certain possible adjustments.
41
<PAGE>
In the event that MEDgenesis is acquired in certain mergers or other
business combination transactions or 50% or more of the assets or earning power
of MEDgenesis and its subsidiaries (taken as a whole) are sold after a person or
group becomes an Acquiring Person (except pursuant to a Permitted Offer),
holders of the Rights will thereafter have the Right to receive, upon exercise
thereof at the then current exercise price of the Right, that number of Common
Shares of the acquiring company (or, in certain cases, one of its Affiliates)
having a market value of two times the exercise price of the Right.
A "Permitted Offer" is a tender offer or an exchange offer for all
outstanding Common Shares of MEDgenesis at a price and on terms determined by a
majority of the Board of Directors of MEDgenesis who are not officers of
MEDgenesis and who are not Acquiring Persons or affiliates or associates of an
Acquiring Person and after receiving advice from one or more investment banking
firms, to be (a) fair to shareholders (taking into account all factors which the
Board of Directors deems relevant) and (b) otherwise in the best interests of
MEDgenesis and its shareholders, employees, customers, suppliers and creditors
and the communities in which MEDgenesis does business, and which the Board of
Directors determines to recommend to the shareholders of MEDgenesis.
At any time after a Person becomes an Acquiring Person (subject to certain
exceptions), and prior to the acquisition by a Person of 50% or more of the
outstanding Common Shares, the Continuing Directors may exchange all or part of
the Rights for Common Shares at an exchange ratio per Right equal to the result
obtained by dividing the exercise price of a Right by the current per share
market price of the Common Shares, subject to adjustment.
At any time before a Person has become an Acquiring Person, the Continuing
Directors may redeem the Rights in whole, but not in part, at a price of $.0l
per Right (the "Redemption Price"), subject to adjustment. The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as such Continuing Directors may, in their sole discretion,
establish.
A "Continuing Director" is a member of the Board of Directors who was a
member of the Board on June __, 2000, or who subsequently became or becomes a
member of the Board of Directors with the recommendation or approval of a
majority of the Continuing Directors. Continuing Directors do not include any
Acquiring Person or affiliate or associate of an Acquiring Person.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of MEDgenesis, including without limitation, the right
to vote or to receive dividends. See Exhibits: Shareholder Rights Plan
Agreement.
CONTROL SHARE ACQUISITIONS
Shares of publicly traded, Minnesota corporations obtained in a control
share acquisition will be afforded full voting rights only if the control share
acquirer follows the procedures required under Minnesota Business Corporation
Act Section 302A.671. This "Control Share Acquisition" statute is triggered,
unless expressly exempted in the public corporation's articles or bylaws, any
time that a person or group proposes to acquire at least 20% of a class of the
public corporation's shares.
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<PAGE>
To preserve potential voting rights, an acquirer must deliver to the public
corporation an information statement including the identity and background of
the acquiring person; the number and class of shares beneficially owned by the
acquirer before the control share acquisition; the number and class of shares
proposed to be acquired; and certain other information.
Following submission of the information statement, the acquirer must
request a special meeting of the public corporation's shareholders. The acquirer
may not call the special meeting unless at the time of delivery of the
information statement, the acquirer has entered into and delivered to the public
corporation copies of a definitive financing agreement for any of the
acquisition funds not provided by the acquirer.
The shares acquired within the percentage ranges specified in the
information statement will have full voting rights within their class of shares
only if the control share acquisition is approved by a majority of shares
entitled to vote, both including and excluding shares held and voted by the
acquirer. The control share acquisition must be consummated within 180 days of
approval in order for the acquired shares to retain voting rights. If the
control acquisition is not approved by the shareholders, shares obtained in the
control acquisition will not have voting rights unless or until they are
re-conveyed to a person other than the acquirer. If the re-conveyance itself
would constitute a control share acquisition, the new transfer is also subject
to the control share acquisition statute.
Further, if an information statement is not delivered to the public
corporation within ten days of a control share acquisition, or the shareholders
fail to approve the control share acquisition, the corporation may redeem all,
but not less than all, the control shares acquired. The redemption price would
be the market value at the time of the redemption call.
BUSINESS COMBINATIONS
The Minnesota Business Corporation Act, Section 302A.673 requires that
boards of public corporations be afforded the opportunity to review proposed
business combinations. Under the business combinations statute, an issuing
public corporation may not engage in a business combination with an interested
shareholder, within four years of the interested shareholder's share acquisition
date, unless the business combination or interested shareholder's share
acquisition has received prior approval by a committee of disinterested
directors. Boards of public corporations are obligated to review and respond to
written, good faith, definitive business combination or share acquisition
proposals within 30 days. A recipient board must form a committee of
disinterested persons to review the proposal.
ITEM 12: LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Minnesota Business Corporation Act, Section 302A.521, requires
corporate indemnification of persons acting in their official capacity on behalf
of the corporation. The indemnification obligation extends to directors,
officers, and employees. An officer, director or
43
<PAGE>
employee will qualify for indemnification if, with respect to the act for which
indemnification is sought, the person:
1. Has not been indemnified by another organization,
2. Acted in good faith,
3. Received no improper personal benefit,
4. In the case of a criminal proceeding, had no reasonable cause to
believe the act was unlawful, and
5. Reasonably believed the act was in the best interests of the
corporation, or not opposed to the best interests of the corporation,
depending on the nature of the corporation.
Section 302A.521 permits a corporation, in its articles or bylaws, to
prohibit or limit indemnification if such prohibition or limitation is applied
equally to all persons within a given class and is not applied retroactively to
deny a right previously existing. MEDgenesis' Articles and Bylaws do not
prohibit or limit indemnification of officers, directors or employees.
Consistent with Minnesota Business Corporation Act Section 302A.251,
MEDgenesis' Articles of Incorporation establish that MEDgenesis directors shall
not be personally liable to MEDgenesis or its shareholders for monetary damages
for breach of duty as a director, except for:
1. liability based on a breach of loyalty to the corporation or the
shareholders,
2. liability for acts or omissions not in good faith or involving knowing
violation of the law,
3. liability based on the payment of an improper dividend or repurchase
of the corporation's stock, or
4. liability for any transaction for which the director received an
improper personal benefit, or
5. liability for any act occurring prior to the effective date of the
Articles of Incorporation.
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<PAGE>
ITEM 13: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical financial data of
MEDgenesis. The financial information presented under the headings "July 2,
1999", "July 3, 1998", and "June 27, 1997" is audited information. The remaining
information is unaudited. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the Notes thereto. The following
information may not be indicative of future operating results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
--------------------- --------------------- ---------------------------------------------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2, JULY 2, JULY 3, JUNE 27, JUNE 28, JUNE 30,
2000 1999 2000 1999 1999 1998 1997 1996 1995
-------- -------- --------- -------- --------- --------- --------- --------- ---------
(in thousands except per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $8,083 $7,638 $24,980 $22,723 $29,789 $25,041 $28,964 (a) $28,975 (a) $13,953 (a)
Operating Income 567 1,121 2,342 5,113 5,671 9,224 8,183 (b) 7,488 1,679
Net Income 635 (c) 684 1,718 (c) 3,119 3,459 5,671 5,022 (b) 4,642 1,042
Pro Forma Earnings
Per Share (d)
Basic 0.16 (c) 0.17 0.43 (c) 0.77 0.86 1.42 1.25 (b) 1.14 0.27
Diluted 0.16 (c) 0.17 0.43 (c) 0.76 0.85 1.39 1.19 (b) 1.06 0.25
<CAPTION>
MARCH 31, JULY 2, JULY 3, JUNE 27, JUNE 28, JUNE 30,
2000 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- ---------
(in thousands)
BALANCE SHEET DATA
Total Assets $14,000 $14,132 $14,135 $8,622 $11,043 $5,565
Long-Term Debt -- -- -- -- -- --
Total Equity (e) 11,743 11,624 12,269 6,304 7,120 3,532
</TABLE>
(a) Includes revenue from a discontinued product line, Quick Check, of $8.3
million, $13.8 million and $5.9 million in fiscal 1997, 1996 and 1995,
respectively.
(b) Includes unfavorable impact of write-off of HCI note - operating income
($1,374), net income ($844), and pro forma EPS ($.20).
(c) Includes favorable impact of gain on sale of securities--net income $289
and pro forma EPS $0.07.
(d) Basic and diluted pro forma earnings per share has been calculated using
pro forma basic and diluted weighted average shares outstanding for each of
the periods presented. Pro forma basic weighted average shares have been
calculated by adjusting Chronimed's historical basic weighted average
shares outstanding for the applicable period to reflect the number of
MEDgenesis shares that would have been outstanding at the time assuming the
distribution of one share of MEDgenesis common stock for three shares of
Chronimed common stock. Pro forma diluted weighted average shares for
MEDgenesis reflect an estimate of the potential dilutive effect for common
stock equivalents. Such estimate is calculated based on Chronimed's
dilutive effect of stock options divided by three to reflect the
distribution ratio.
(e) Total equity has been reduced by the net cash paid by MEDgenesis as an
internal business unit to Chronimed Inc. as the corporate fiduciary for
cash management. Total Assets and Total Equity therefore do not necessarily
reflect the balances that would have been created if MEDgenesis had been a
standalone entity.
45
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
Selected Quarterly Financial Data has been provided in Note 14 of Notes
to the Financial Statements.
PRO FORMA FINANCIAL INFORMATION
The objective of pro forma financial information is to provide the
reader with information about the continuing operations of MEDgenesis and how it
might have performed if the spin-off occurred at an earlier date. Pro forma
financial information is intended to assist the reader in analyzing the future
prospects of MEDgenesis. Given this objective, there are two important items
that are not currently factored into the historical financial statements that
will help the reader better understand the future prospects of MEDgenesis, as
follows:
ADMINISTRATIVE AND PUBLIC COMPANY COSTS
In the historical financial statements, general and administrative
costs for senior management, information systems, finance, legal and corporate
services have been allocated by Chronimed to MEDgenesis as described in Notes 2
and 4 of Notes to Financial Statements. These allocations represent a sharing of
total Chronimed costs between MEDgenesis and the other internal businesses of
Chronimed prior to the spin-off. However, after the spin-off, MEDgenesis, as a
standalone public company, will have its own senior management (CEO, CFO,
others), information Systems, finance, legal and corporate services. It is
expected that these costs could amount to a maximum additional impact of $1
million per year and thus would reduce the historical annual pre-tax operating
income by up to this amount.
CASH AND INVESTMENT BALANCES
MEDgenesis has generated positive cash flow, after investing
activities, in two of the last three fiscal years and in the nine month period
ended March 31, 2000, as reported in the Statements of Cash Flows. Had
MEDgenesis been a standalone business, it is likely that the positive cash flow
would have created positive cash or investment balances that are not reflected
on the MEDgenesis historical balance sheets. It is also likely that these cash
or investment balances would have generated interest income, been invested in
growing the business, or been provided as a dividend to shareholders. Past
performance is no guarantee that this positive cash flow trend will continue
into the future.
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46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the results of operations and current financial
position of MEDgenesis on a stand-alone basis. This discussion should be read in
conjunction with the Financial Statements and Notes thereto.
The fiscal years and quarter periods referenced herein are as follows:
FISCAL YEAR YEAR ENDED
------------- ---------------------
1999 7/2/1999 (52 weeks)
1998 7/3/1998 (53 weeks)
1997 6/27/1997 (52 weeks)
3RD QUARTER MONTH ENDED
------------- ---------------------
2000 March 31 (13 weeks)
1999 April 29 (13 weeks)
INCOME AND EXPENSE ITEMS AS A PERCENTAGE OF REVENUE
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED THREE MONTHS ENDED
-------------------------- ----------------- ------------------
1999 1998 1997 Q3 2000 Q3 1999 Q3 2000 Q3 1999
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 53.2 37.3 47.3 60.2 50.6 61.2 56.1
Gross profit 46.8 62.7 52.7 39.8 49.4 38.8 43.9
Operating expenses
Selling and marketing 15.1 15.3 10.7 15.4 15.0 15.2 15.8
Research and development 3.1 1.5 1.8 3.7 2.8 3.9 3.3
General and administrative 9.5 9.0 12.0 11.3 9.1 12.7 10.1
----- ----- ----- ----- ----- ----- -----
27.7 25.8 24.5 30.4 26.9 31.8 29.2
Income from operations 19.0 36.8 28.2 9.4 22.5 7.0 14.7
Other income -- -- -- 1.9 -- 5.9 --
Income tax expense 7.4 14.2 10.9 4.4 8.8 5.0 5.7
----- ----- ----- ----- ----- ----- -----
Net income 11.6% 22.6% 17.3% 6.9% 13.7% 7.9% 9.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
BUSINESS
The Company is a medical product and service business focusing on blood and
urine medical diagnostic products and related accessories that it has either
developed and manufactures, owns outright, or controls through exclusive license
or distribution agreements. Designed for either institutional use (long-term
care facilities, hospitals and clinical settings) or consumer use (in-home
healthcare), these products are sold to a variety of customers, including
distributors, institutions, independent agents, HMOs, durable medical equipment
suppliers and secondary retail chain outlets.
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<PAGE>
RECAP OF RESULTS
NINE MONTHS ENDED MARCH 31, 2000 Total revenues increased 9.9% to $25.0 million
compared to the prior year's first nine months of $22.7 million. Sales of the
Company's proprietary blood glucose systems --Supreme and Select combined--were
down 11%. This decline was more than offset by the strong sales performance of
the Assure biosensor meter, the Haemolance lancet and the Diascreen urine line.
Income from operations decreased from $5.1 million to $2.3 million due to
continuing price and cost pressures on the gross profit margin, which was 39.8%
against 49.4% in the comparable period a year ago. Also, dollar and percentage
increases in operating expenses contributed to the decline in income from
operations. A significant portion of increased operating expenses can be
attributed to the Bayer lawsuit, the development of new strategic organizational
and product pursuits and the expansion of the international distribution
network. Net income was $1.7 million, or 6.9% of revenue, compared to $3.1
million, or 13.7% in the corresponding prior year period.
The quarter ended March 31, 2000 income from operations is down significantly
from last year's quarter for substantially the same reasons noted above. A
realized gain on the sale of investment securities in the third quarter of
fiscal 2000 contributed $0.5 million or 5.9% of revenue to other income. Net
income was $0.6 million, or 7.9% of revenue, compared to $0.7 million, or 9.0%,
in the comparable prior year period.
Net cash provided by operations continued to be strong in the recent nine month
period, though down $1.6 million from last year's nine month period due
primarily to decreased net income. The Company provided direct financing to
Chronimed of $2.2 million compared to $2.6 million for the first nine months of
1999.
FISCAL YEAR 1999 COMPARED TO 1998 Total revenues for 1999 increased 19% to
$29.8 million compared to the prior year of $25.0 million on the strength of the
Company's new Select GT blood glucose system, which was aimed at the retail
consumer market. The Company experienced a significant reduction in gross profit
margins, which fell 16 percentage points to 46.8% from a historical high of
62.7% in fiscal 1998. Income from operations decreased 39% from $9.2 million to
$5.7 million because of the gross margin reduction and increased operating
expenses to grow the business. The reduction in gross margin was due to
significant price pressures in the long term care market, less-than-expected
revenue from the March 1998 acquisition of the DiaScreen urine line, and a slow
ramp-up of Select GT strip sales. Net income decreased $2.2 million, from $5.7
million the previous year to $3.5 million for fiscal 1999.
Net cash provided by operations was very strong for the business in 1999 growing
to $8.3 million compared to $4.5 million in 1998, with $4.3 million provided to
the Company for investment. The Company used $4.0 million for the purchase of
property, plant and equipment--mostly monitoring equipment--and other investing
activities.
FISCAL YEAR 1998 COMPARED TO 1997 Total revenues declined 14% in 1998 from
$29.0 million in 1997 to $25.0 million in 1998. Gross profit margins increased
10 percentage points from 52.7% to 62.7%. General and administrative expense
(G&A) decreased by three percentage points and $1.2 million which resulted in
net income of $5.7 million, a 13% increase for the year. The primary reason for
the decline in G&A expense was the write off of the HCI note for $1.4
48
<PAGE>
million in 1997. The Supreme and Select GT blood glucose systems were the
leading contributors to the Company's improved gross profit margins for fiscal
1998.
OPERATING EXPENSES
The Company's operating expenses include selling and marketing, research and
development, and general and administrative expenses. Operating expenses have
historically been in the range of 24 to 28% of revenue. The nine months ended
March 31, 2000 has seen an increase in operating expenses to 30% of revenue for
the nine months ended March 31, 2000 and 32% for the most recent quarter then
ended. This can be attributed primarily to the cost of Company's lawsuit with
Bayer, an increase in product development and FDA compliance efforts, and an
increase in bad debt reserves as a result of nursing home bankruptcies.
The financial statements include an allocation of certain general corporate
expenses of Chronimed for information systems, finance, legal and corporate
services which was based upon revenues, personnel, space, and estimates of usage
or time spent to provide services. General and administrative expenses allocated
were $1.5 million in 1999 and 1998 and $1.3 million in 1997. The allocation was
$1.1 million for the nine months ended March 31, 2000.
It is expected after the spin-off, the Company will have its own senior
management, information services, investor relations, accounting and human
resources instead of sharing the cost of these functions with Chronimed.
Management anticipates these additional costs related to operating as a
standalone public corporation to be up to a maximum of $1 million annually.
ACQUISITIONS
In March 1998, the Company acquired the assets of DiaScreen Corporation, a
medical diagnostic products company, for $1.9 million in cash. The purchase
agreement provides for additional payments up to a maximum of $3.2 million if
certain product revenue levels are met or exceeded. As of March 31, 2000, the
Company has paid $549,000 in additional payments to DiaScreen which were
recorded as goodwill.
TAX MATTERS
As a result of the separation from Chronimed, the results of MEDgenesis
operations will no longer be combined with those of Chronimed in reporting
income for income tax purposes. This should not have a material adverse effect
on income taxes or earnings beyond what has been provided for in the historical
financial statements that have been prepared as if the Company was a separate
entity.
The effective tax rates in the historical financial statements were 39.0%, 38.5%
and 38.6% for the three years ended 1999, 1998 and 1997, respectively. The
Company's future effective tax rate will largely depend on its structure and tax
strategies as a separate company.
LIQUIDITY AND CAPITAL RESOURCES
Chronimed manages its cash and financing activities at the corporate level. As a
result, cash and cash equivalents, interest income and short term borrowings and
interest expense were not allocated to the Company in the financial statements.
The Company's financing requirements are represented by cash transactions with
Chronimed and are reflected in the "Net Investment by
49
<PAGE>
Chronimed" account (See Note 7 of Notes to the Financial Statements). Activity
in the "Net Investment by Chronimed" relates to net cash flows of the Company as
well as changes in the assets and liabilities not allocated to the Company.
In recent years, the Company has been able to generate internal cash for its
capital financing needs and currently has no allocated debt. It is anticipated
that cash flows will continue to satisfy internal operating needs. If
acquisitions are identified or capital growth requirements exceed current
expectations, traditional sources of financing such as lines of credit or
asset-based financing may be required. Due to a long track record of
profitability and positive cash flow, the prospect of obtaining financing at
attractive market rates appears reasonable, though not guaranteed. At the time
of filing the Form 10 for the intended spinoff, the Company was pursuing a bank
line of credit of up to $5 million.
NEW ACCOUNTING STANDARDS
Certain accounting standards have been issued which the Company is not yet
required to adopt. See Notes to Financial Statements for a discussion of the
applicable standards.
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50
<PAGE>
ITEM 14: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 15: FINANCIAL STATEMENTS AND EXHIBITS
The Financial Statements filed as part of this Form 10 can be found as
referenced in the following "Index to Historical Financial Statements." The
Financial Statement Schedule, Valuation and Qualifying Accounts and Reserves,
can be found on page S-1, immediatley following the Financial Statements.
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51
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors...............................................F-1
Balance Sheets as of July 2, 1999, July 3, 1998
and March 31, 2000 (unaudited)..........................................F-2
Statements of Income for the years ended July 2, 1999,
July 3, 1998 and June 27, 1997
and the nine and three months ended March 31, 2000
and April 2, 1999 (unaudited)...........................................F-3
Statements of Cash Flows for the years ended July 2, 1999,
July 3, 1998 and June 27, 1997
and the nine months ended March 31, 2000
and April 2, 1999 (unaudited)...........................................F-4
Notes to Financial Statements................................................F-5
52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders
Chronimed Inc.
We have audited the accompanying balance sheets of the businesses of Chronimed
Inc. that comprise MEDgenesis Inc., (as described in Note 1 to the financial
statements) as of July 2, 1999 and July 3, 1998, and the related statements of
income and cash flows for each of the three years in the period ended July 2,
1999. Our audits also included the financial statement schedule listed in the
Index at Item 15. These financial statements and schedule 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MEDgenesis Inc. at July 2, 1999
and July 3, 1998, and the results of its operations and its cash flows for each
of the three years in the period ended July 2, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 1, 2000
F-1
<PAGE>
MEDGENESIS INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 2, 1999 JULY 3, 1998 MARCH 31, 2000
------------ ------------ --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable (net of allowance of $75, $77 and
$227 at July 2, 1999, July 3, 1998 and March 31, 2000) $ 3,741 $ 3,410 $ 4,642
Available-for-sale securities -- -- 1,104
Inventories 4,391 5,112 3,087
Other current assets 171 9 463
Deferred taxes -- 123 --
------------ ------------ ------------
Total current assets 8,303 8,654 9,296
Property and equipment 12,104 8,957 14,287
Allowance for depreciation (7,752) (4,108) (10,541)
------------ ------------ ------------
4,352 4,849 3,746
Available-for-sale securities 608 -- --
Goodwill, net 869 632 958
------------ ------------ ------------
Total assets $ 14,132 $ 14,135 $ 14,000
============ ============ ============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,313 $ 934 $ 1,270
Accrued royalties 627 266 411
Accrued commissions 193 230 201
Accrued vacation 117 120 125
Accrued salaries and bonuses 103 159 75
Other accrued expenses -- -- 20
Deferred taxes 72 -- 72
------------ ------------ ------------
Total current liabilities 2,425 1,709 2,174
Deferred taxes 83 157 83
Equity
Accumulated other comprehensive income 158 -- 799
Net Investment by Chronimed 11,466 12,269 10,944
------------ ------------ ------------
11,624 12,269 11,743
------------ ------------ ------------
Total liabilities and equity $ 14,132 $ 14,135 $ 14,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
MEDGENESIS INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED THREE MONTHS ENDED
----------------------------------- ---------------------- ----------------------
July 2, July 3, June 27, March 31, April 2, March 31, April 2,
1999 1998 1997 2000 1999 2000 1999
--------- --------- --------- --------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 29,789 $ 25,041 $ 28,964 $ 24,980 $ 22,723 $ 8,083 $ 7,638
Cost of revenues 15,855 9,345 13,699 15,038 11,497 4,948 4,287
--------- --------- --------- --------- --------- --------- ---------
Gross profit 13,934 15,696 15,265 9,942 11,226 3,135 3,351
Operating expenses
Selling and marketing 4,507 3,830 3,085 3,839 3,403 1,231 1,209
Research and development 934 377 511 934 642 316 254
General and administrative 2,822 2,265 3,486 2,827 2,068 1,021 767
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses 8,263 6,472 7,082 7,600 6,113 2,568 2,230
Income from operations 5,671 9,224 8,183 2,342 5,113 567 1,121
Other income -- -- -- 474 -- 474 --
--------- --------- --------- --------- --------- --------- ---------
Income before taxes 5,671 9,224 8,183 2,816 5,113 1,041 1,121
Income tax expense 2,212 3,553 3,161 1,098 1,994 406 437
--------- --------- --------- --------- --------- --------- ---------
Net income $ 3,459 $ 5,671 $ 5,022 $ 1,718 $ 3,119 $ 635 $ 684
========= ========= ========= ========= ========= ========= =========
Pro forma net income per share
Basic earnings per share $ 0.86 $ 1.42 $ 1.25 $ 0.43 $ 0.77 $ 0.16 $ 0.17
Basic weighted average
shares 4,032 3,985 4,006 4,035 4,036 4,044 4,036
Diluted earnings per share $ 0.85 $ 1.39 $ 1.19 $ 0.43 $ 0.76 $ 0.16 $ 0.17
Diluted weighted average
shares 4,085 4,074 4,220 4,035 4,088 4,044 4,074
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
MEDGENESIS INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------------------- -----------------------
JULY 2, JULY 3, JUNE 27, MARCH 31, APRIL 2,
1999 1998 1997 2000 1999
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,459 $ 5,671 $ 5,022 $ 1,718 $ 3,119
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 3,894 1,611 1,769 3,027 2,688
Gain on sale of securities -- -- -- (474) --
Write off of HCI note -- -- 1,374 -- --
Deferred income taxes 121 22 (82) -- --
Changes in operating assets and liabilities
Accounts receivable (331) (638) 1,694 (901) (944)
Inventory 721 (1,557) (901) 1,304 865
Accounts payable 379 (846) (370) (43) (134)
Accrued expenses 265 249 (1,153) (208) 216
Other assets (162) (9) 17 (292) (114)
--------- --------- --------- --------- ---------
Net cash provided by operating activities 8,346 4,503 7,370 4,131 5,696
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (487) (1,869) -- (327) (237)
Purchases of property and equipment (3,147) (2,928) (1,532) (2,183) (2,500)
Purchases of available-for-sale securities (450) -- -- -- (300)
Proceeds from sale of securities -- -- -- 619 --
--------- --------- --------- --------- ---------
Net cash used in investing activities (4,084) (4,797) (1,532) (1,891) (3,037)
FINANCING ACTIVITIES
Net cash provided (to) from Chronimed Inc. (4,262) 294 (5,838) (2,240) (2,659)
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities (4,262) 294 (5,838) (2,240) (2,659)
Increase (decrease) in cash -- -- -- -- --
--------- --------- --------- --------- ---------
Cash at beginning and end of year $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
MEDGENESIS INC.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND, BASIS OF PRESENTATION AND NATURE OF OPERATIONS
BACKGROUND
MEDgenesis Inc. (the "Company" or "MEDgenesis") is a newly formed Minnesota
corporation, which initially will be a wholly owned subsidiary of Chronimed Inc.
("Chronimed"). On March 13, 2000, Chronimed announced its intention to spin-off
its diagnostic products business as an independent, publicly owned company. This
transaction is expected to be effected through a tax-free dividend of shares of
the Company to Chronimed shareholders effective on or about June 30, 2000 (the
"Distribution"). Prior to the Distribution, Chronimed plans to transfer to the
Company substantially all of the assets and liabilities associated with
Chronimed's diagnostic products business. Chronimed and the Company will enter
into a number of agreements to facilitate the Distribution and the transition of
the Company to an independent business enterprise. Immediately following the
Distribution, Chronimed will no longer have an equity investment in the Company
other than shares of the Company held in trust for employee benefit plans.
Chronimed will also remain liable on certain existing contingent liabilities
relating to MEDgenesis which were not able to be released, terminated or
replaced prior to the Distribution date ("unreleased contingent liabilities").
MEDgenesis will fully indemnify Chronimed for any payments made under the
unreleased contingent liabilities.
Chronimed believes that the Distribution should be tax-free to Chronimed and its
shareholders, based on certain limitations. One limitation would restrict
certain transactions after the distribution that result in a change of control
of either Chronimed or MEDgenesis. Chronimed has not received a tax ruling from
the Internal Revenue Service in advance of the Distribution. Should the
Distribution be challenged by the Internal Revenue Service and deemed to be
taxable, MEDgenesis has indemnified Chronimed for a portion of the corporate tax
liability paid by Chronimed on the Company's behalf. Any shareholder tax
liability arising from the Distribution is the sole responsibility of the
shareholder. For a description of Chronimed's and MEDgenesis' obligations in
connection with potential tax liability, see Exhibits: Distribution and Spin-off
Agreement.
BASIS OF PRESENTATION
The financial statements reflect assets, liabilities, revenues and expenses that
were directly related to the diagnostic products business of Chronimed including
an allocation of certain general and administrative costs of Chronimed for
senior management, information systems, finance, legal and corporate services.
Allocations and estimates, as described in Note 4, are based on assumptions that
Chronimed management believes are reasonable and present fairly the costs and
expenses of the Company.
Chronimed manages its cash and financing activities at the corporate level. As a
result, cash and cash equivalents, corporate investments, debt and related
interest income and expense were not allocated to the Company in the financial
statements. The Company's financing requirements are represented by cash
transactions with Chronimed and are reflected in the "Net Investment by
Chronimed" account (See Note 7). Activity in the "Net Investment by Chronimed"
account relates to net cash flows of the Company as well as changes in the
assets and liabilities not allocated to the Company.
F-5
<PAGE>
1. BACKGROUND, BASIS OF PRESENTATION AND NATURE OF OPERATIONS (CONTINUED)
The financial information included herein may not necessarily be indicative of
the financial position or results of operations or cash flows of the Company in
the future or what the financial position, results of operations or cash flows
would have been if the Company had operated on a stand-alone basis. Subsequent
to the Distribution, the Company will be responsible for the costs associated
with the management of a public standalone corporation. These costs are not
directly provided for in the historical financial statements.
NATURE OF OPERATIONS
The Company focuses on blood and urine medical diagnostic products and related
accessories that it has either developed and manufactures, owns outright, or
controls through exclusive license or distribution agreements. Designed for
either institutional use (long-term care facilities, hospitals and clinical
settings) or consumer use (in-home healthcare), these products are sold to a
variety of customers, including distributors, institutions, independent agents,
HMOs, durable medical equipment suppliers and secondary retail chain outlets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company uses a four-week, four-week, five-week (4-4-5) quarterly accounting
cycle with the fiscal year ending on the Friday closest to June 30.
The fiscal years referenced herein are as follows:
FISCAL YEAR YEAR ENDED
- - - - - - --------------------------------------------------------------------------------
1999 July 2, 1999 (52 weeks)
1998 July 3, 1998 (53 weeks)
1997 June 27, 1997 (52 weeks)
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of March 31, 2000 and for each of the
three and nine month periods ended March 31, 2000 and April 2, 1999 is
unaudited. In the opinion of management, this financial information reflects all
adjustments necessary for a fair presentation of the financial information for
such periods. These adjustments consist of normal, recurring items. The results
of operations for the nine months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the full year ending June 30,
2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Those assumptions and estimates are subject to constant revisions, and actual
results could differ from those estimates. Principal areas requiring use of
estimates include: allocation of shared general and administrative costs between
the Company and Chronimed, determination of allowances for uncollectible
accounts receivable, sales returns and discounts, obsolete or excess
inventories, and assessments of recoverability of certain long-lived assets.
F-6
<PAGE>
2. ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized upon the shipment of products.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
AVAILABLE-FOR-SALE SECURITIES
In fiscal 1999, the Company invested $450,000 to acquire 300,000 shares of the
common stock of Cell Robotics International, Inc. (CRII) as part of an exclusive
distribution and accessory manufacturing agreement for the Lasette Laser Lancing
Device. Available-for-sale securities as of July 2, 1999 and March 31, 2000
consist entirely of these CRII equity securities. During fiscal 2000, the
Company amended the agreement to be a nonexclusive distributor and accessory
manufacturer. Subsequently the Company decided to begin divesting itself of the
CRII common stock and in the three month period ended March 31, 2000, realized a
net gain of $474,000 on sales of 97,000 shares which has been recorded as other
income. Management determines the appropriate classification of securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Securities are classified as "available-for-sale" as of July 2, 1999 and
March 31, 2000. There were no investments outstanding as of July 3, 1998. The
Company considers the net unrealized gain on this investment of $158,000 and
$799,000 at July 2, 1999 and March 31, 2000, respectively, to be temporary and
as such has recorded as other comprehensive income.
ACCOUNTS RECEIVABLE ALLOWANCE
The Company determines an allowance based upon an analysis of the collectibility
of specific accounts and the aging of the accounts receivable.
INVENTORIES
Inventories consist of raw materials, work in process and goods held for resale,
and are carried at the lower of cost or market determined under the average cost
method.
Inventories consist of the following:
JULY 2, 1999 JULY 3, 1998 MARCH 31, 2000
------------ ------------ --------------
(unaudited)
Raw materials $ 1,942,000 $ 1,749,000 $ 1,155,000
Work in process 208,000 375,000 375,000
Goods held for resale 2,241,000 2,988,000 1,557,000
------------ ------------ ------------
$ 4,391,000 $ 5,112,000 $ 3,087,000
============ ============ ============
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation on property and equipment
is computed using the straight-line method. Depreciation occurs over estimated
useful lives of one to seven years. Depreciation expense was $3,644,000,
$1,336,000 and $1,465,000 in fiscal 1999, 1998 and 1997, respectively.
Depreciation expense for the nine months ended March 31, 2000 was $2,789,000.
F-7
<PAGE>
2. ACCOUNTING POLICIES (CONTINUED)
Property and equipment consist of the following:
JULY 2, 1999 JULY 3, 1998 MARCH 31, 2000
------------ ------------ --------------
(unaudited)
Monitoring equipment $ 7,477,000 $ 4,729,000 $ 8,638,000
Production equipment 3,476,000 3,269,000 4,214,000
Office equipment 501,000 413,000 524,000
Leasehold improvements 246,000 235,000 457,000
Computer equipment 404,000 311,000 454,000
------------ ------------ ------------
$ 12,104,000 $ 8,957,000 $ 14,287,000
============ ============ ============
GOODWILL
Goodwill is amortized on a straight-line basis over two to twenty years. The
Company periodically evaluates its goodwill for impairment by comparison of the
carrying value against anticipated business performance. Amortization expense
was $250,000, $275,000 and $304,000 in fiscal 1999, 1998 and 1997, respectively.
For the nine months ended March 31, 2000 amortization expense was $238,000.
Accumulated amortization was $1,509,000, $1,271,000 and $1,021,000 as of the
third quarter ended March 31, 2000 and fiscal year end 1999 and 1998,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment losses when
indicators of impairment are present by comparing the undiscounted cash flows to
the assets' carrying amount. An impairment loss is recorded if necessary.
INCOME TAXES
As an operating unit within Chronimed, the Company does not file separate tax
returns but rather is included in the income tax returns filed by Chronimed. For
purposes of the financial statements, the Company's allocated share of
Chronimed's income tax provision has been prepared assuming MEDgenesis was a
separate entity. Deferred tax assets and liabilities have been 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. The balance for accrued current income taxes for
MEDgenesis is included in the Net Investment by Chronimed equity account because
Chronimed currently pays all taxes and receives all tax refunds on the Company's
behalf.
In connection with the Distribution, MEDgenesis and Chronimed will enter into a
tax allocation agreement (the Tax Allocation Agreement"). Under the terms of the
Tax Allocation Agreement, MEDgenesis will be responsible for all taxes and
associated liabilities relating to the historical businesses of MEDgenesis. The
Tax Allocation Agreement will also provide that any tax liabilities associated
with the spinoff shall be assumed and paid by MEDgenesis subject to certain
exceptions relating to changes in control of Chronimed. The Tax Allocation
Agreement will further provide that in the event there is a tax liability
associated with the historical operations of the Company that is offset by a tax
benefit of Chronimed, Chronimed will apply the tax benefit against such tax
liability and will be reimbursed for the value of such tax benefit when and as
Chronimed would have been able to otherwise utilize that tax benefit for its own
businesses.
F-8
<PAGE>
2. ACCOUNTING POLICIES (CONTINUED)
The Company's future effective tax rate will largely depend on its structure and
tax strategies as a separate company.
PRO FORMA EARNINGS PER SHARE
Basic and diluted pro forma earnings per share have been calculated using pro
forma basic and diluted weighted average shares outstanding for each of the
periods presented. Pro forma basic weighted average shares have been calculated
by adjusting Chronimed's historical basic weighted average shares outstanding to
reflect the number of MEDgenesis shares that would have been outstanding at the
time assuming the distribution of one share of MEDgenesis common stock for three
shares of Chronimed common stock. Pro forma diluted weighted average shares for
MEDgenesis reflect an estimate of the potential dilutive effect for common stock
equivalents. Such estimate is calculated based on Chronimed's dilutive effect of
stock options divided by three to reflect the distribution ratio.
RECENT ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. FAS 133, as recently amended, is effective
for fiscal years beginning after June 15, 2000. The Company believes the
adoption of FAS 133 will not have a material effect on the Company's financial
position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101. "Revenue Recognition in Financial Statements" (SAB 101). SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. Any change in the
Company's revenue recognition policy resulting from the interpretation of SAB
101 would be reported as a change in accounting principle in the first quarter
of fiscal 2001. While the Company has not fully assessed the impact of the
adoption of SAB 101, it believes that implementation of SAB 101 will not have a
material adverse impact on its existing revenue recognition policies or its
reported results of operations for the year ending June 30, 2000.
3. ACQUISITIONS
In March 1998, the Company acquired the assets of DiaScreen Corporation, a
medical diagnostic products company, for $1.9 million in cash. The excess
purchase price over book value of the net assets acquired was $400,000, of which
$230,000 was allocated to property and equipment and is being depreciated over
five years, and $170,000 was allocated to goodwill and is being amortized on a
straight-line basis over seven years. The purchase agreement provides for
additional payments up to a maximum of $3.2 million if certain product revenue
levels are met or exceeded. No additional payments have been made as of July 2,
1999. The Company has accrued $386,000 of anticipated payments due at July 2,
1999. The acquisition was accounted for as a purchase and accordingly, operating
results of this business subsequent to the date of the acquisition were included
in the Company's financial statements.
The following is a summary of pro forma operating results as if the DiaScreen
Corporation acquisition had taken place at the beginning of fiscal 1997:
F-9
<PAGE>
1998 1997
-------------------------------
Total revenues $26,065,000 $30,562,000
Net income 5,258,000 4,608,000
The pro forma information is provided for informational purposes only. It is
based on historical information and does not purport to be indicative of the
results that would have occurred had the acquisition been made at the beginning
of fiscal 1997 as described above, or of future results, as significant changes
to its operations, products and cost and expense structures have taken place
since acquisition.
F-10
<PAGE>
4. CORPORATE ALLOCATIONS
Corporate general and administrative expenses were allocated based upon
revenues, personnel, space, and estimates of usage or time spent to provide
services. General and administrative expenses allocated were $1,502,000,
$1,509,000 and $1,328,000 in fiscal 1999, 1998 and 1997, respectively. General
and administrative expenses allocated for the first nine months ended March 31,
2000 were $1,135,000.
5. OPERATING LEASES AND RENT EXPENSE
The Company leases its manufacturing and distribution facilities under separate
operating lease agreements and does not share the related space with other
Chronimed businesses. The Company does share space with Chronimed for general
office use and has been allocated rent expense consistent with the market rate
provided in the Chronimed lease. The remaining lease terms of the manufacturing
and distribution facilities range from two to four years as of July 2, 1999.
Future minimum lease payments, including current real estate taxes and operating
expenses, under the separate operating leases for the specific manufacturing and
distribution space with lease terms in excess of one year at July 2, 1999, are
approximately as follows:
2000 $326,000
2001 329,000
2002 238,000
2003 30,000
--------------
$923,000
==============
Total rent expense was $382,000, $245,000 and $162,000 during fiscal 1999, 1998
and 1997, respectively, and $337,000 for the nine months ended March 31, 2000
including the rent expense allocation for the shared general office space.
6. INCOME TAXES
The components of the provision for income taxes are as follows:
1999 1998 1997
----------- ----------- -----------
Current $ 2,091,000 $ 3,531,000 $ 3,243,000
Deferred 121,000 22,000 (82,000)
----------- ----------- -----------
$ 2,212,000 $ 3,553,000 $ 3,161,000
=========== =========== ===========
F-11
<PAGE>
6. INCOME TAXES (CONTINUED)
The Company's income tax expense differs from the applicable federal rate of
34%. The reconciliation of differences is:
1999 1998 1997
----------- ----------- -----------
Federal statutory rate $ 1,925,000 $ 3,137,000 $ 2,782,000
State taxes, net of federal benefit 210,000 341,000 303,000
Goodwill amortization 77,000 75,000 76,000
----------- ----------- -----------
$ 2,212,000 $ 3,553,000 $ 3,161,000
=========== =========== ===========
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
1999 1998
----------- -----------
Deferred tax assets:
Allowance for doubtful accounts $ 29,000 $ 30,000
Inventory reserve 14,000 14,000
Accrued vacation 46,000 47,000
Goodwill amortization 6,000 1,000
Other 56,000 36,000
----------- -----------
151,000 128,000
Deferred tax liabilities:
Depreciation (89,000) (158,000)
Prepaid assets (67,000) (4,000)
Royalties (150,000) --
----------- -----------
(306,000) (162,000)
----------- -----------
Net deferred tax liabilities $ (155,000) $ (34,000)
=========== ===========
F-12
<PAGE>
7. EQUITY
The equity account for MEDgenesis, which is an internal business unit of
Chronimed Inc. until the spin-off date, represents the accumulated net income of
MEDgenesis, adjusted by the net cash paid to Chronimed Inc. because all cash
accounts were maintained at the corporate level versus the business unit level.
Changes in equity during each of the years and nine months ended March 31, 2000
were as follows:
<TABLE>
<CAPTION>
NET ACCUMULATED
INVESTMENT OTHER COMPREHENSIVE TOTAL
BY CHRONIMED INCOME EQUITY
------------ ------------------- ------------
<S> <C> <C> <C>
Balance at June 28, 1996 $ 7,120,000 $ $ 7,120,000
Net amount paid to Chronimed (5,838,000) (5,838,000)
Net income 5,022,000 5,022,000
------------ ------------
Balance at June 27, 1997 6,304,000 6,304,000
Net amount received from Chronimed 294,000 294,000
Net income 5,671,000 5,671,000
------------ ------------
Balance at July 3, 1998 12,269,000 12,269,000
Net amount paid to Chronimed (4,262,000) (4,262,000)
Net income 3,459,000 3,459,000
Unrealized gain on available-for-sale securities 158,000 158,000
------------
Subtotal--Comprehensive Income 3,617,000
------------ ------------ ------------
Balance at July 2, 1999 11,466,000 158,000 11,624,000
Net amount paid to Chronimed (2,240,000) (2,240,000)
Net income 1,718,000 1,718,000
Unrealized gain on available-for-sale securities 641,000 641,000
------------
Subtotal--Comprehensive Income 2,359,000
------------ ------------ ------------
Balance at March 31, 2000 $ 10,944,000 $ 799,000 $ 11,743,000
============ ============ ============
</TABLE>
8. SIGNIFICANT CONCENTRATIONS
The Company manufactures the Supreme and Select blood glucose reagent strips and
distributes them through its direct sales force. These two products accounted
for 63%, 68% and 45% of the total revenue of the Company in fiscal years 1999,
1998 and 1997, respectively, and 53% for the nine months ended March 31, 2000.
9. EMPLOYEE BENEFIT PLANS
The Company participated with Chronimed in a qualified 401(k) Employee Savings
Plan covering substantially all employees. Company contributions are required.
The cost of this plan, including matching contributions, was included in
corporate general and administrative costs allocated to the Company (see Note
4).
F-13
<PAGE>
10. STOCK-BASED COMPENSATION
STOCK OPTION PLANS
Employees, as well as directors of Chronimed, hold various options to purchase
shares of Chronimed. It is anticipated that employees of Chronimed who will
become employees of MEDgenesis will be terminated at the spinoff date and given
90 days to exercise their Chronimed options, which is consistent with the
provisions of the current option agreements. These terminated Chronimed
employees will be immediately hired by MEDgenesis. It is the intent of
MEDgenesis to grant options in its stock that represent substantially equivalent
value and terms to each new employee who held Chronimed options at the time of
spinoff. MEDgenesis has provided for up to one million shares in its option
plans to cover the above-described option grants. The Company cannot currently
determine the exact number of shares of its common stock that will be subject to
these substitute awards after the Distribution.
11. RELATED PARTY TRANSACTIONS
TAX ALLOCATION AGREEMENT
The Company and Chronimed intend to enter into a Tax Allocation Agreement in
connection with the spinoff (see Note 2).
TRANSITION SERVICES AGREEMENT
The Company intends to enter into a transition services agreement with Chronimed
for a period of up to six months from the Distribution date. Under the
agreement, Chronimed will provide certain services requested by the Company. The
fee for these services will be basedon rates similar to those being allocated to
the Company prior to the spinoff. The transition services to be provided under
this agreement include accounting, legal, and information systems.
PRODUCT DISTRIBUTION AGREEMENT
The Company intends to enter into a product distribution agreement with
Chronimed pursuant to which the Company will agree to provide certain diabetes
supply products at a negotiated price. Based on historical performance, the
dollar volume from this agreement will provide less than five percent of the
Company's revenue.
12. BUSINESS SEGMENT INFORMATION
Prior to the intended spin-off, Chronimed Inc. disclosed three business segments
- - - - - - --- Diagnostic products, Specialty Pharmacy Services and Disease Management.
MEDgenesis, as a result of the spin-off, will receive virtually all of the
assets and liabilities of the Diagnostic Products segment from Chronimed. At the
time of the proposed spin-off, MEDgenesis intends to report one business
segment, which is the medical diagnostic products business.
13. LEGAL PROCEEDINGS
MEDgenesis has assumed Chronimed's rights and liabilities in a lawsuit Chronimed
Inc. v. Bayer Corporation. Chronimed sued Bayer seeking judgment that specific
technology which Chronimed uses in its urine diagnostic strips is not in
violation of Bayer patents. Bayer counterclaimed alleging infringement of its
patents and also pleads unspecified actual and statutory treble damages.
Chronimed and MEDgenesis are confident in the merits of the case, and continue
to vigorously pursue Chronimed's rights. An adverse ruling could include an
injunction against the future sale of urine test strips containing leukocyte or
specific
F-14
<PAGE>
gravity tests, as well as a requirement of monetary compensation to Bayer for
specified damages. The lawsuit was commenced in March 1999, and is currently in
the pre-trial discovery phase. A mid-2001 trial date is expected.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for the
nine months ended March 31, 2000 and fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4 TOTAL
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
2000
Revenues $ 8,072 $ 8,825 $ 8,083 -- $24,980
Gross profit 3,138 3,668 3,136 -- 9,942
Operating expenses 2,424 2,607 2,569 -- 7,600
Operating income 714 1,061 567 -- 2,342
Net income 436 647 635(a) -- 1,718
Pro forma earnings per share
Basic (b) 0.11 0.16 0.16 -- 0.43
Diluted (b) 0.11 0.16 0.16 -- 0.43
1999
Revenues $ 7,426 $ 7,659 $ 7,638 $ 7,066 $29,789
Gross profit 3,943 3,932 3,351 2,708 13,934
Operating expenses 1,873 2,013 2,231 2,146 8,263
Operating income 2,070 1,919 1,120 562 5,671
Net income 1,263 1,171 683 342 3,459
Pro forma earnings per share
Basic (b) 0.31 0.29 0.17 0.09 0.86
Diluted (b) 0.31 0.29 0.17 0.09 0.85
1998
Revenues $ 5,852 $ 5,849 $ 6,347 $ 6,993 $25,041
Gross profit 3,367 4,126 3,967 4,236 15,696
Operating expenses 1,554 1,529 1,625 1,764 6,472
Operating income 1,813 2,597 2,342 2,472 9,224
Net income 1,115 1,597 1,440 1,519 5,671
Pro forma earnings per share
Basic (b) 0.28 0.40 0.36 0.38 1.42
Diluted (b) 0.27 0.39 0.35 0.37 1.39
</TABLE>
(a) The third quarter includes favorable impact of gain on sale of securities
--- after tax $289, and proforma EPS of $.07.
(b) Basic and diluted pro forma earnings per share have been calculated using
pro forma basic and diluted weighted average shares outstanding for each of
the periods presented. Pro forma basic weighted average shares have been
calculated by adjusting Chronimed's historical basic weighted average
shares outstanding for the applicable period to reflect the number of
MEDgenesis shares that would have been outstanding at the time assuming the
distribution of one share of MEDgenesis common stock for three shares of
Chronimed common stock. Pro forma diluted
F-15
<PAGE>
weighted average shares reflect an estimate of the potential dilutive
effect for common stock equivalents. This estimate is calculated based on
Chronimed's dilutive effect of stock options divided by three to reflect
the distribution ratio.
F-16
<PAGE>
SCHEDULE II
MEDGENESIS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
------------ ---------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) END OF PERIOD
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Description
Nine months ended March 31, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 75,000 $ 220,000 $ -- $ 68,000 $ 227,000
============ ============ ============ ============ ============
Year ended July 2, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 77,000 $ 22,000 $ -- $ 24,000 $ 75,000
============ ============ ============ ============ ============
Year ended July 3, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 71,000 $ 29,000 $ -- $ 23,000 $ 77,000
============ ============ ============ ============ ============
Year ended June 27, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 10,000 $ 98,000 $ -- $ 37,000 $ 71,000
============ ============ ============ ============ ============
</TABLE>
- - - - - - -------------------------------
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE>
Required exhibits are referenced as follows:
EXHIBIT INDEX
2.1 Distribution and Spin-Off Agreement
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Shareholder Rights Plan Agreement
10.1 Transition Services Agreement
10.2 Purchase and Price Agreement
10.3 2000 Stock Option Plan
10.4 2000 Employee Stock Purchase Plan
10.7 Maurice R. Taylor Employment Agreement
10.8 Material Contracts
10.8.1 Lease
10.8.2 Lease
10.8.3 Supplier Agreement
10.8.4 License Agreement
10.8.5 Development and License Agreement
10.8.6 Supplier Agreement
10.8.7 Supplier Agreement
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
53
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
MEDgenesis Inc.
By: /s/ Maurice R. Taylor, II
------------------------------------
Chairman of the Board and
Chief Executive Officer
Date: May 5, 2000
------------------------------------
54
EXHIBIT 2.1
DISTRIBUTION AND SPINOFF AGREEMENT
THIS AGREEMENT (the "Agreement") is made effective as of July 1, 2000,
between CHRONIMED INC., a Minnesota corporation ("Chronimed") and MEDgenesis
INC., a Minnesota corporation and a wholly-owned subsidiary of Chronimed
("MGI").
RECITALS
A. Until ______, 2000, Chronimed was the holder of all the issued and
outstanding shares of capital stock of MGI. At a meeting held on ____, 2000,
Chronimed's Board of Directors declared a dividend, effective _________, of all
the issued and outstanding shares of capital stock of MGI to the Chronimed
shareholders, thereby creating an obligation to distribute such shares.
B. Pursuant to the Chronimed Board Resolutions, the dividend of
substantially all of the shares of stock of MGI to the Chronimed shareholders is
to be effectuated on ______, 2000 or as rapidly thereafter as practical, with
the record date to be established and the dividend payment completed as soon as
applicable corporate and securities law requirements can be satisfied.
C. Chronimed is contributing certain assets to MGI, is transferring to
MGI certain employees, and is making other arrangements to establish MGI as a
separate enterprise for the purpose of developing and exploiting the products
previously developed and exploited by Chronimed's Diagnostic Products Division
(the "Division").
D. The distribution of substantially all of the issued and outstanding
capital stock of MGI to the shareholders of Chronimed will result in MGI being
independent of Chronimed. Chronimed believes, among other things, that this
arrangement will enable the separated companies to more capably operate within
their unique industries, market and sell their specific goods and services,
attract and procure capital, and independently enhance shareholder value.
E. Chronimed and MGI are entering into certain other agreements and
understandings.
F. MGI and Chronimed desire to set forth their agreements and
understandings in connection with the distribution of the shares of stock of MGI
to the shareholders of Chronimed.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
made herein, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 General. As used in this Agreement and the Exhibits hereto, the
following terms shall have the following meanings and when said meaning is
intended said terms shall be capitalized:
"Action" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Affiliate: Of a Person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporation, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"Agent" means Norwest Bank Minnesota, N.A., as distribution agent
appointed by Chronimed to assist in the distribution of copies of the
Information Statement and to distribute certificates for shares of MGI Common
Stock pursuant to the Distribution.
"Ancillary Agreements" means all of the agreements, instruments,
understandings, assignments or other arrangements entered into in connection
with the transactions contemplated hereby, including, without limitation, the
Purchase and Pricing Agreement, and the Transition Services Agreement.
"Assets" means the assets contributed by Chronimed to MGI as described
in Section hereof.
"Business" means the business previously conducted by Chronimed's
Diagnostic Products Division.
"Chronimed Common Stock" means the Common Stock, par value $.0l per
share, of Chronimed.
"Claim" means any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys fees).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Determination" means a "determination" as defined by Section 1313(a)
of the Code.
-2-
<PAGE>
"Distribution" means the distribution to holders of Chronimed Common
Stock of all of the outstanding shares of MGI Common Stock.
"Distribution Agency Agreement" means the Distribution Agency Agreement
between Chronimed and the Agent, providing for, among other things, the
dissemination of the Information Statement to Chronimed shareholders as of the
Record Date and the distribution of certificates evidencing shares of MGI Common
Stock to such shareholders.
"Distribution Date" means the date of effecting the Distribution, which
is anticipated to occur on or about _______, 2000, or the date as soon as
feasible thereafter when all actions necessary to permit the Distribution,
including approval from the Commission, have occurred.
"Effective Date" means July 1, 2000, effective as of 12:01 AM on said
date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form 10" means the registration statement on Form 10 to be filed by
MGI with the Commission to effect the registration of the MGI Common Stock
pursuant to the Exchange Act.
"Income Taxes" means all Taxes based upon or measured by income.
"Information Statement" means the information statement, constituting a
part of the Form 10, in the form to be distributed to the holders of Chronimed
Common Stock as of the Record Date in connection with the Distribution, and as
it may be amended or supplemented subsequent to such dissemination.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all debts, liabilities and obligations,
absolute or contingent, mature or unmature, liquidated or unliquidated, accrued
or unaccrued, known or unknown, whenever arising (unless otherwise specified in
this Agreement), including all costs and expenses relating thereto, and those
debts, liabilities and obligations arising under any law, rule, regulation,
order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
"MGI Common Stock" means the Common Stock, par value $.01 per share, of
MGI.
"MGI Liabilities" means all of (i) the Liabilities assumed by MGI under
this Agreement or any of the Ancillary Agreements to which MGI is a party and
(ii) the Liabilities arising out of any of the documents or instruments executed
and delivered by MGI pursuant to the transactions contemplated hereby.
"Purchase and Pricing Agreement" means the Purchase and Pricing
Agreement to be entered into between MGI and Chronimed's wholly owned
subsidiary, Home Service Medical & Pharmacy, Inc. providing for the supply on
standard terms and conditions of products from MGI to Home Service Medical.
-3-
<PAGE>
"Record Date" means the date established as the record date for the
Distribution by Chronimed.
"Returns" means returns, reports and forms required to be filed with
respect to Taxes.
"Tax Laws" means the Code, federal, state, county, local, or foreign
laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
"Taxes" means all taxes (whether federal, state, local or foreign)
based upon or measured by income and any other tax whatsoever, including,
without limitation, gross receipts, profits, sales, use, occupation, value
added, AD VALOREM, transfer, franchise, capital stock, net worth, withholding,
payroll, employment, excise, or property taxes, together with any interest or
penalties imposed with respect thereto.
"Taxing Authority" means any governmental authority, domestic or
foreign, having jurisdiction over the assessment, determination, collection, or
other imposition of Tax.
"Transition Services Agreement" means the Transition Services Agreement
between Chronimed and MGI, providing for, among other things, the extension of
certain administrative and related services by Chronimed to MGI after the
Distribution.
ARTICLE II
PRELIMINARY ACTION
2.1 Cooperation Prior to the Distribution.
(a) Form 10: Information Statement. Chronimed and MGI have
prepared, and MGI shall file with the Commission, the Form 10, which
shall include or incorporate by reference the Information Statement.
Chronimed and MGI shall use reasonable efforts to cause the Form 10 to
become effective under the Exchange Act. Chronimed and MGI shall also
prepare, and Chronimed shall cause to be mailed, on or about ________,
2000, (or a later date, if delay to a later date is necessary to comply
with corporate and securities laws requirements) to the holders of
record of Chronimed Common Stock as of such date, the Information
Statement, which shall set forth appropriate disclosures concerning
MGI, the Distribution and other matters.
(b) Blue Sky. Chronimed and MGI shall take all such action as
may be necessary or appropriate under the securities or blue sky laws
of states or other political subdivisions of the United States in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements.
(c) Listing. Chronimed and MGI shall prepare, and MGI shall
file and pursue, an application to effect the listing of the MGI Common
Stock on the Nasdaq National Market System under the symbol MDGN.
2.2 Consents. The parties shall use reasonable commercial efforts to
obtain all consents and approvals, to enter into all agreements and to make all
filings and applications
-4-
<PAGE>
which may be required for the consummation of the transactions contemplated by
this Agreement, including, without limitation, all applicable regulatory filings
or consents under federal or state laws and all necessary consents, approvals,
agreements, filings and applications.
ARTICLE III
CAPITAL CONTRIBUTION OF CHRONIMED
3.1 Contribution. Under its Subscription Agreement for the shares of
stock of MGI, Chronimed agreed to contribute a total amount of $1,000.00 to MGI
with such contribution to be completed on or before the Distribution Date.
Chronimed agrees that such contribution will be completed in accordance with its
terms, and in any event, will be completed no later than Distribution Date.
Chronimed acknowledges that no additional shares of MGI Common Stock will be
issued or issuable in connection with or as a result of completing such
contribution.
3.2 Intended Tax Treatment. The contribution to capital, the transfer
of assets under Article IV and the distribution to Shareholders are intended to
qualify under Section 351 and Section 368(a)(1)(D) of the Code, and shall be
reported on all Chronimed and MGI tax returns and information statements in
accordance with such intentions, unless otherwise indicated by Chronimed.
Chronimed and MGI understand and acknowledge that all of the shares of MGI
Common Stock held by Chronimed will be distributed by Chronimed to the holders
of outstanding shares of Chronimed Common Stock.
ARTICLE IV
TRANSFER AND ASSUMPTION
4.1 Transfer of the Assets.
(a) Subject to and upon the terms and conditions of this
Agreement, effective as of the Effective Date, Chronimed shall
transfer, convey, assign and deliver to MGI, and MGI shall acquire from
Chronimed, the following properties, assets and other claims, rights
and interests:
(i) all inventories of raw materials, work in
process, finished goods, maintenance supplies, packaging
materials, spare parts and similar items of Chronimed which
are used exclusively for the Business (collectively, the
"Inventory") which exist on the Effective Date;
(ii) all accounts, accounts receivable, notes and
notes receivable existing on the Effective Date which are
payable to Chronimed, and which apply exclusively to the
Business (the accounts, accounts receivable, notes and notes
receivable, including any related security therein, to be
transferred to MGI pursuant hereto are collectively referred
to herein as the "Accounts Receivable");
(iii) all prepaid expenses of Chronimed which are
used exclusively for the Business existing on the Effective
Date (the "Prepaid Expenses");
-5-
<PAGE>
(iv) all rights of Chronimed under the contracts,
agreements, leases, licenses and other instruments specific to
the Business, including the real estate leases for the
premises at 6214 Bury Drive, Eden Prairie, Minnesota (the
"Bury Drive Location"), and at 5182 W. 76th St., Edina,
Minnesota (the "Edina Location") (collectively, the "Contract
Rights");
(v) all books, records and accounts, correspondence,
production records, technical, manufacturing and procedural
manuals, customer lists, studies which are used exclusively
for the Business; provided, however, that Chronimed's
corporate record books, minute books, tax returns and records
relating to taxes, employment records and general ledgers are
not included in the books and records being conveyed to MGI;
provided further, that Chronimed shall provide or make
available to MGI copies of its general ledgers and records
relating to taxes which relate to the Business and the Assets
being acquired hereunder (the "Records");
(vi) all rights of Chronimed under express or implied
warranties which relate exclusively to the Business from the
suppliers to the Business (the "Warranty Rights");
(vii) except for items specifically listed as
Excluded Assets, all of the machinery, equipment, tools,
tooling, dies, production fixtures, maintenance machinery and
equipment, furniture, office equipment and leasehold
improvements owned by Chronimed on the Effective Date which
are located at the Bury Drive Location, the Edina Location or
in the area at Chronimed's headquarters at Red Circle Drive
used exclusively for the business, whether or not reflected as
capital assets in the accounting records of Chronimed
(collectively, the "Fixed Assets"). It is understood that all
of the furniture, equipment, inventory and other personal
property owned by Chronimed and located at the Edina Location
and the Bury Drive Location are included in the assets, except
for items specifically designated as Excluded Assets;
(viii) all of Chronimed's right, title and interest
in and to all intangible property rights, including but not
limited to inventions, discoveries, trade secrets, processes,
formulas, know-how, software, computer codes, internet domain
names, United States and foreign patents, patent applications,
trade names, trademarks, trademark registrations, applications
for trademark registrations, copyrights, copyright
registrations, which are used exclusively for the Business and
are (i) owned by Chronimed or, (ii) where not owned, used by
Chronimed in its business (it being understood that in the
case of any such items not owned by Chronimed, Chronimed's
interest therein is being conveyed subject to any necessary
consents or approvals being obtained from the third party who
owns the same) and all licenses and other agreements to which
Chronimed is a party (as licensor or licensee) which relate
exclusively to the Business (again subject to any necessary
consents or approvals from third parties who own the same)
(collectively, the "Intangible Property");
-6-
<PAGE>
(ix) Chronimed's right, title and interest to its
governmental licenses, permits and authorizations which relate
exclusively to the Business, to the extent transferable under
applicable law (collectively, the "Licenses");
(x) The computer hardware, software and software
licenses designated by Chronimed, with a schedule listing the
same to be delivered as of the Effective Date; -
(xi) The shares of stock in Cell Robotics
International, Inc. ("Cell Robotics"), if any, owned by
Chronimed on the Effective Date, it being understood that
Chronimed will continue to sell the Cell Robotics shares owned
by it on a regular basis until the Effective Date; and
(xii) Except as specifically provided in Subsection
4.1(b) hereof, all other assets, properties, claims, rights
and interests of Chronimed which exist on the Effective Date,
of every kind and nature and description which are used
exclusively for the Business and not for other businesses of
Chronimed or for Chronimed's general and administrative
functions or headquarters activities.
(b) Notwithstanding the provisions of paragraph (a) above, the
assets to be transferred to the MGI under this Agreement shall not
include (i) Chronimed's cash and cash equivalents, deposits, bank
accounts and other similar assets, (ii) except for assets specifically
listed on a schedule of additional assets designated by Chronimed and
delivered as of the Effective Date, any assets of Chronimed utilized in
other businesses of Chronimed, including Chronimed's Disease Management
and Specialty Pharmacy businesses (collectively, the "Other
Businesses") or in Chronimed's general and administrative activities or
headquarters activities (collectively, the "G&A Activities") , and
(iii) those assets listed on a schedule of excluded assets designated
by Chronimed and delivered as of the Effective Date attached hereto
(the "Excluded Assets").
(c) The Inventory, Accounts Receivable, Prepaid Expenses,
Contract Rights, Records, Warranty Rights, Fixed Assets, Intangible
Property, Licenses, Stock of Cell Robotics, if any, and other
properties, assets and business of Chronimed described in paragraph (a)
above, other than the Excluded Assets, shall be referred to
collectively as the "Assets."
4.2 Assumption of Liabilities; Etc.
(a) All of the Business and Assets shall be transferred to MGI
free and clear of security interests, mortgages, liens and encumbrances
of any kind (collectively "Liens") except the following (the "Permitted
Liens"): (i) materialmen's, merchants, carriers, workmen's, repairmen's
or other like liens arising in the ordinary course of business, and
(ii) those Liens, if any, which secure the liabilities of Chronimed
which exist on the Effective Date and which are being assumed by MGI.
(b) Effective as of the Effective Date, MGI shall assume and
agree to pay and perform all liabilities, whether known or unknown,
absolute or contingent, accrued or non-accrued, or otherwise, of
Chronimed which arise or arose in the past in the ordinary
-7-
<PAGE>
course of business of the Business, or which primarily relate to or
which primarily arise from or arose from the Assets or from the
Business or its operation, past, present or future, including, but not
limited to:
(i) All accounts payable and accrued liabilities for
the Business as they exist on the Effective Date;
(ii) All warranty and service liabilities and
obligations of Chronimed for products of the Business or
services of the Business sold, leased or provided on, prior to
or after the Effective Date;
(iii) All other liabilities and obligations of
Chronimed for products of the Business or services of the
Business sold, leased or provided on, prior to or after the
Effective Date, including but not limited to liabilities and
obligations for product liability, product defects or for
infringement;
(iv) All claims and litigation that primarily relate
to the Business or the Assets, including any liabilities and
obligations that arise thereunder and all costs and expenses
arising in connection therewith, including but not limited to
the Bayer litigation and the other now known claims and other
litigation specified on Schedule 4.2(b)(iv) attached hereto;
(v) All liabilities and obligations of Chronimed
under the leases, contracts and employee benefit plans set
forth on Schedule 4.2(b)(iv) attached hereto, whether arising
on, prior to or after the Effective Date; and
(vi) All other liabilities and obligations of
Chronimed specifically set forth in Schedule 4.2(b)(vi)
attached hereto.
(Hereinafter, the liabilities and obligations assumed by MGI are
collectively referred to as the "Assumed Liabilities".) MGI shall not
assume or agree to perform, pay or discharge, and Chronimed shall
remain liable for, all obligations, liabilities and commitments, fixed
or contingent, of Chronimed other than the Assumed Liabilities,
specifically including those which relate exclusively to the Other
Businesses and the G&A Activities (the "Retained Liabilities").
MGI shall use reasonable commercial efforts to obtain
Chronimed's release from the Assumed Liabilities, including, without
limitation, from guaranties included in the Assumed Liabilities.
4.3 Conveyance; Further Assurances. At Closing, Chronimed and MGI shall
execute and deliver a Bill of Sale and Assumption Agreement (the "Bill of Sale")
pursuant to which Chronimed shall transfer, convey and assign the Assets to MGI,
and MGI shall assume and agree to perform, pay and discharge the Assumed
Liabilities.
At any time and from time to time after the Closing, at MGI's or
Chronimed's request and expense, as applicable, but without further
consideration, (i) Chronimed promptly shall execute and deliver such instruments
of sale, transfer, conveyance, assignment and confirmation, and
-8-
<PAGE>
take such other action, as MGI may reasonably request to more effectively
transfer, convey and assign to MGI, and to confirm MGI's title to, all of the
Assets, to put MGI in actual possession and operating control thereof, to assist
MGI in exercising all rights with respect thereto and to carry out the purpose
and intent of this Agreement; and (ii) MGI promptly shall execute and deliver
such instruments of assumption, and take such other action, as Chronimed may
reasonably request to evidence and carry out MGI's assumption of the Assumed
Liabilities.
To the extent that any advances, assignments, transfers or deliveries,
or assumptions shall not have been consummated on the Effective Date, Chronimed
and MGI shall cooperate to effect such consummation as promptly thereafter as
shall be practicable, however, neither Chronimed nor MGI shall have any
liability to any third party for any failure of any transfers or assumptions
contemplated hereby to be consummated on or subsequent to the Effective Date.
Whether or not all advances, assignments, transfers and deliveries of the Assets
have occurred by the Effective Date, MGI shall have, and shall be considered to
have acquired complete and sole beneficial ownership over all of the Assets, and
shall be deemed to have assumed in accordance with the terms of the Agreement
all of the Assumed Liabilities.
4.4 Ownership of the Assets; No Other Warranties. The delivery to MGI
of the instruments of transfer of ownership contemplated by this Agreement will
convey all of Chronimed's right, title and interest to the Assets to MGI, free
and clear of all liens, mortgages, pledges, security interests, restrictions,
prior assignments, encumbrances and claims of (i) Chronimed and (ii) Chronimed's
lender, except for the Permitted Liens, and, except as may arise from failure to
obtain the Required Consents (as defined in Section 4.6 below).
Except for the foregoing warranty, MGI understands and agrees that
Chronimed is not making any representation or warranty as to the value or
freedom from encumbrance of or any other matter concerning the Assets, it being
agreed and understood that the Assets and the Assumed Liabilities are being
transferred "AS IS, WHERE IS," without any other representation or warranty of
any kind, express, implied, by description or otherwise. Further, MGI
understands and agrees that it will bear the economic and legal risk that any
necessary consents or approvals are not obtained or any other requirements of
law are not complied with. This provision however, shall not limit any
responsibilities which Chronimed may have to provide further assurances under
this Agreement.
4.5 Payments With Respect to Contract Rights. The parties specifically
agree as follows with respect to payments due with respect to the transferred
Contract Rights:
(a) Where Chronimed made payments under contracts included in
the Contract Rights before the Effective Date, Chronimed shall bear
such payments without reimbursement from MGI even if such payments
relate in whole or in part to obligations arising after the Effective
Date; and
(b) MGI shall be responsible for all other payments due under
contracts included in the Contract Rights even if such payments were
due before the Effective Date or related to time periods before the
Effective Date.
-9-
<PAGE>
4.6 Consents. Each of Chronimed and MGI agree to use reasonable
commercial efforts to seek and obtain any required consents (the "Required
Consents") to the assignment of the Contract Rights and Licenses to MGI. It is
understood, however, that neither party shall be required to make any
out-of-pocket payments in order to obtain said consents. In obtaining said
consents, the parties shall use reasonable commercial efforts to obtain a
release and discharge of Chronimed from liabilities under the Contract Rights
effective as of the Effective Date. Chronimed shall use its reasonable
commercial efforts to take such actions as may be reasonably necessary to assure
that MGI and MGI's successors and assigns receive the rights and benefits of the
assignments of the Contract Rights.
4.7 Power of Attorney. Chronimed hereby irrevocably constitutes and
appoints MGI (and MGI's successors and assigns) as the true and lawful agent and
attorney-in-fact of Chronimed, with full power of substitution, to perform the
following acts in the name of MGI or in the name of Chronimed but on behalf of
and for the benefit of MGI: collect for the account of MGI all items transferred
to MGI hereunder; endorse checks received in connection therewith; institute and
prosecute all actions, suits, or proceedings which MGI may deem proper in order
to collect, assert, or enforce any claim, right, or title of any kind in, and to
the Assets transferred hereunder; defend and compromise any and all actions,
suits, or proceedings, in respect of such Assets; and do all such acts and
things in relation thereto as MGI shall deem advisable. Chronimed agrees that
the foregoing powers are coupled with an interest and shall be irrevocable by
Chronimed or by Chronimed's dissolution or in any manner or for any reason.
Chronimed further agrees that MGI shall retain for its own account any amounts
collected pursuant to the foregoing powers, including any amounts payable as
interest in respect thereof, and Chronimed agrees to pay to MGI, when received,
any amounts which shall be received by Chronimed in respect of any Assets
transferred to MGI hereunder.
4.8 Delivery of Payments, Etc. From and after the Effective Date, if
either MGI or Chronimed receives any payments, mail, communications or
deliveries to which the other party is entitled, the receiving party shall
promptly deliver the same to the other party entitled thereto.
ARTICLE V
THE DISTRIBUTION
5.1 General. MGI shall take all steps required by Chronimed or the
Agent to effect the transactions contemplated by the Distribution Agency
Agreement.
5.2 Rounding of Fractional Shares; Issuance of Additional Shares, If
Necessary. It is anticipated that each Chronimed shareholder on the Record Date
will receive one (1) share of MGI Common Stock for each three (3) shares of
Chronimed held by such a shareholder. No fractional shares of the MGI Common
Stock shall be issued. In lieu thereof, each Chronimed shareholder having a
fractional interest equal to or greater than one-half share of MGI Common Stock
shall be entitled to receive one additional full share of the MGI Common Stock
and each Chronimed shareholder having a fractional interest less than one-half
share of MGI Common Stock shall be entitled to receive only the actual number of
full shares of the MGI Common Stock which such shareholder is entitled to
receive in accordance with the Distribution.
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5.3 Contribution of MGI Common Stock to MGI. Immediately following the
Distribution, Chronimed shall contribute to the capital of MGI all of the shares
of MGI Common Stock owned by Chronimed which are distributed to Chronimed's
shareholders. Chronimed expects that of the 4,500,000 shares of MGI Common Stock
which Chronimed currently owns or will own, approximately 4,100,000 shares will
be distributed to Chronimed shareholders, and approximately 400,000 shares will
be contributed to the capital of MGI.
ARTICLE VI
LIABILITIES AND INDEMNIFICATION
6.1 MGI's Liabilities: Indemnification. Subject to the provisions of
Article VIII (Tax Matters) below, MGI shall be liable for (i) any and all
liabilities assumed by it pursuant to this Agreement, including the Assumed
Liabilities, (ii) any and all Liabilities incurred by it subsequent to the
Effective Date, (iii) any breach of this Agreement or the Ancillary Agreements
by MGI; and (iv) any claims by third parties that the information provided by
MGI included in the Information Statement or the Form 10 is false or misleading
with respect to any material fact or misstates any material fact required to be
stated therein, or omits to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. MGI hereby agrees to indemnify, save and hold harmless Chronimed
from and against such claims, Liabilities and breaches including any third party
claims arising in connection with such claims, Liabilities and breaches. In the
event Chronimed incurs any Liability or expense to be borne by MGI hereunder,
MGI agrees to reimburse, indemnify and hold harmless Chronimed for any expense
or Liability associated therewith.
6.2 Chronimed Liabilities; Indemnification. Subject to the provisions
of Article VIII (Tax Matters) below, Chronimed shall be liable for (i) any and
all claims and Liabilities relating to the business and assets not transferred
to MGI and the Liabilities not assumed by MGI under the terms of this Agreement
and the Ancillary Agreements, including the Retained Liabilities, and (ii) any
breach of this Agreement or the Ancillary Agreements by Chronimed. Chronimed
hereby agrees to indemnify and hold harmless MGI from and against such claims,
Liabilities and breaches, including any third party claims arising in connection
with such claims, Liabilities and breaches. In the event MGI incurs any
Liability or expense to be borne by Chronimed hereunder, Chronimed agrees to
reimburse, indemnify and hold harmless MGI for any expense or Liability
associated therewith.
6.3 Notice; Defense of Claims.
(a) The party which is entitled to indemnification hereunder
(for purposes of this Section 6.3, the "Indemnified Party") may make claims for
indemnification hereunder by giving written notice thereof to the party required
to indemnify (for purposes of this Section 6.3, the "Indemnifying Party"). If
indemnification is sought for a claim or liability asserted by a third party,
the Indemnified Party shall also give written notice thereof to the Indemnifying
Party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so, or any delay in doing so, shall not relieve
the Indemnifying Party from any liability, unless, and then only to the extent
that, the rights and remedies of the Indemnifying Party are prejudiced as a
result of the failure to give, or delay in giving, such notice. Such notice
shall summarize the
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bases for the claim for indemnification and any claim or liability being
asserted by a third party. Within 30 days after receiving such notice, the
Indemnifying Party shall give written notice to the Indemnified Party stating
whether it disputes the claim for indemnification and whether it will defend
against any third party claim or liability at its own cost and expense. If the
Indemnifying Party fails to give notice that it disputes an indemnification
claim within 30 days after receipt of notice thereof, it shall be deemed to have
accepted and agreed to the claim, which shall become immediately due and
payable.
(b) The Indemnifying Party shall be entitled to direct the
defense against a third party claim or litigation with counsel selected by it
(subject to the consent of the Indemnified Party, which consent shall not be
unreasonably withheld) as long as the Indemnifying Party is conducting a good
faith and diligent defense. Notwithstanding the foregoing, the obligations of
the Indemnifying Party hereunder as to such third party claim or litigation
shall include taking all steps necessary in the defense, settlement, or
compromise of such claim or litigation and holding the Indemnified Party
harmless from and against any and all damages, liabilities, losses and expenses
(including, without limitation, reasonable fees of counsel) of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) caused by or arising out of any settlement or compromise approved by
the Indemnifying Party or any judgment in connection with such claim or
litigation. The Indemnifying Party shall not, in the defense of such third party
claim or any litigation resulting therefrom, consent to entry of any judgment
(other than a judgment of dismissal on the merits without costs) except with the
written consent of the Indemnified Party, or enter into any settlement or
compromise (except with the written consent of the Indemnified Party) which does
not include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a full release from all liability in respect
of such claim or litigation. The Indemnified Party shall at all times have the
right to fully participate in the defense of a third party claim or liability at
its own expense directly or through counsel; provided, however, that if the
named parties to the action or proceeding include both the Indemnifying Party
and the Indemnified Party and the Indemnified Party is advised that
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the Indemnified Party may engage
separate counsel at the expense of the Indemnifying Party.
(c) If the Indemnifying Party shall not give notice of its
intent to dispute and defend a third party claim or liability or litigation
resulting therefrom after receipt of notice from the Indemnified Party, or if
such good faith and diligent defense is not being or ceases to be conducted by
the Indemnifying Party, the Indemnified Party shall have the right, at the
expense of the Indemnifying Party, to undertake the defense of such claim or
liability in such manner as it deems appropriate (with counsel selected by the
Indemnified Party), and to compromise or settle such claim or litigation on such
terms as it may deem appropriate, exercising reasonable business judgment.
(d) The Indemnifying Party shall promptly reimburse the
Indemnified Party for the amount of any settlement or compromise in connection
with, or any judgment rendered with respect to, any claim by a third party in
such litigation and for all damages, liabilities, losses and expenses
(including, without limitation, reasonable fees of counsel) of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in
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investigation, defense or settlement of the foregoing) incurred by the
Indemnified Party in connection with the defense against such claim or
litigation, whether or not resulting from, arising out of, or incurred with
respect to, the act of a third party.
(e) If the third party claim or liability is one that by its
nature cannot be defended solely by the Indemnifying Party, the Indemnified
Party shall make available such information and assistance in connection
therewith as the Indemnifying Party may reasonably request and shall cooperate
with the Indemnifying Party in such defense at the expense of the Indemnifying
Party.
6.4 Agreements Relating to Indemnification. The amount which any
Indemnifying Party is required to pay to any Indemnified Party pursuant to this
Article VI shall be reduced (including, without limitation, retroactively) by
any insurance proceeds and other amounts actually recovered by such Indemnified
Party in reduction of the claim for which indemnification is provided. If an
Indemnified Party shall have received an indemnity payment in respect of an
indemnifiable loss and shall subsequently actually receive insurance proceeds or
other amounts (such as settlement amounts) in respect of the indemnifiable loss
then such Indemnified Party shall immediately pay to such Indemnifying Party a
sum equal to the lesser of the amount of such insurance proceeds or other
amounts actually received or the net amount of indemnity payments actually
received by the Indemnified Party previously.
If an Indemnified Party is able to deduct an amount attributable to the
indemnifiable loss (the "Indemnifiable Loss Deduction"), and the Indemnified
Party does not have to include in income an amount attributable to the indemnity
payment it receives from the Indemnifying Party, the Indemnified Party shall be
deemed to have received a tax saving; provided, however, that if the
Indemnifying Party is able to deduct the amount attributable to the Indemnity
Payment, no tax saving shall be deemed to have occurred.
Where an Indemnified Party is deemed to have received a tax saving,
such Indemnified Party shall pay the Indemnifying Party an amount equal to the
tax saving achieved by the Indemnified Party within forty-five (45) days after
the filing of the tax return giving rise to the tax saving by the Indemnified
Party. The amount of the tax saving shall be calculated based on the highest
marginal combined federal and state income tax rate applicable to the
Indemnified Party on the return whereby the tax saving is realized.
6.5 No Beneficiaries. Except to the extent expressly provided otherwise
in this Article VI, the indemnification provided for by this Article VI shall
not inure to the benefit of any third party or parties, and shall not relieve
any insurer who would otherwise be obligated to pay any claim of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, provide any subrogation rights with respect thereto, and each
party agrees to waive such rights against the other to the fullest extent
permitted.
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ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
7.1 Provision of Corporate Records. Upon MGI's request, Chronimed shall
arrange as soon as practicable following the Distribution Date for the delivery
to MGI of existing corporate records in the possession of Chronimed relating to
the business and assets to be transferred to MGI, together with all active
agreements relating to the businesses to be transferred to MGI, except to the
extent such items are already in the possession of MGI. Such records shall be
the property of MGI, but shall be available to Chronimed for review and
duplication until Chronimed shall notify MGI in writing that such records are no
longer of use to Chronimed.
7.2 Access to Information. From and after the Distribution Date,
Chronimed shall afford to MGI and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable efforts
to give access to persons or firms possessing information) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within Chronimed's possession relating to the businesses
transferred to MGI, insofar as such access is reasonably required by MGI. MGI
shall afford to Chronimed and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable efforts
to give access to persons or firms possessing Information) and duplicating
rights during normal business hours to Information within MGI's possession
relating to the Chronimed business as constituted after the Distribution and to
the business of the Division before MGI was spun-off, insofar as such access is
reasonably required by Chronimed. Information may be requested under this
Article VII for, without limitation, audit, accounting, claims, litigation and
tax purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing the transactions contemplated in this Agreement
and the Ancillary Agreements.
7.3 Securities Filings. For a period of five years following the
Distribution Date, each of Chronimed and MGI shall provide to the other, if the
other has requested it, promptly following such time at which such documents
shall be filed with the Commission, copies of all documents which shall be
publicly filed with the Commission pursuant to the periodic and interim
reporting requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder.
7.4 Provision of Services. In addition to any services contemplated to
be provided following the Distribution Date by any Ancillary Agreement, each
party, upon written request, shall make available to the other party, during
normal business hours and in a manner that will not unreasonably interfere with
such party's business, its financial, tax, accounting, legal, employee benefits
and similar staff services (collectively "Services") whenever and to the extent
that they may be reasonably required in connection with the preparation of tax
returns, audits, claims, litigation or administration of employee benefit plans,
and otherwise to assist in effecting an orderly transition following the
Distribution.
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7.5 Production of Witnesses. At all times from and after the
Distribution Date, each of Chronimed and MGI shall use reasonable efforts to
make available to the other, upon written request, its officers, directors,
employees and agents as witnesses to the extent that such persons may reasonably
be required in connection with legal, administrative or other proceedings in
which the requesting party may from time to time be involved.
7.6 Reimbursement. Except to the extent otherwise contemplated by any
Ancillary Agreement, a party providing Information, Services or witnesses to the
other party under this Article VIII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses
(but not salary payments), as may be reasonably incurred in providing such
Information or Services.
7.7 Retention of Records. For a period of six (6) years following the
Distribution Date, each of Chronimed and MGI shall retain all Information
relating to the other, except as otherwise required by law or set forth in an
Ancillary Agreement or except to the extent that such Information is in the
public domain or in the possession of the other party; provided, that, after the
expiration of such retention period, such Information shall not be destroyed or
otherwise disposed of at any time, unless, prior to such destruction or
disposal, (a) the party proposing to destroy or otherwise dispose of such
Information shall provide no less than ninety (90) days' prior written notice to
the other, specifying in reasonable detail the Information proposed to be
destroyed or disposed of and (b) if a recipient of such notice shall request in
writing prior to the scheduled date for such destruction or disposal that any of
the Information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the information as was requested, at the
expense of the party requesting such Information.
7.8 Confidentiality. Subject to any contrary requirement of law and the
right of each party to enforce its rights hereunder in any legal action, each
party shall keep strictly confidential, and shall cause its employees and agents
to keep strictly confidential, any Information of or concerning the other party
which it or any of its agents or employees may acquire pursuant to, or in the
course of performing its obligations under, any provisions of this Agreement or
any Ancillary Agreement; provided, however, that such restriction shall not
apply to any Confidential Information which is (a) independently developed by
the receiving party outside the scope of this Agreement, (b) in the public
domain at the time of its receipt or thereafter becomes part of the public
domain through no fault of the receiving party, (c) received without an
obligation of confidentiality from a third party having the right to disclose
such information, (d) released from the restrictions of this Section 7.8 by the
express written consent of the disclosing party, (e) disclosed to any permitted
assignee, permitted sublicensee or permitted subcontractor of either Chronimed
or MGI hereunder (if such assignee, sublicense or subcontractor is subject to
the provisions of this Section 7.8 or comparable provisions), or (f) required by
law, statute, rule or court order to be disclosed (the disclosing party shall,
however, use commercially reasonable efforts to obtain confidential treatment of
any such disclosure). The obligations set forth in this Section 7.8 shall
survive for a period of five (5) years from the Effective Date.
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7.9 Privileges. Chronimed and MGI agree to maintain, preserve and
assert all privileges that either party may have, including without limitation,
any privilege or protection arising under or relating to any attorney-client
relationship that existed prior to the Distribution Date ("Privilege" or
"Privileges"). MGI and Chronimed shall be entitled to require the assertion of,
or to decide whether to consent to the waiver of, any and all Privileges which,
in the case of MGI, relate to the Assets and/or Assumed Liabilities, and, in the
case of Chronimed, relate to the assets and/or liabilities not transferred to
MGI. Each of Chronimed and MGI shall use the same degree of care as it would
with respect to itself so as not to waive any Privilege which could be asserted
under applicable law.
Upon receipt by any party of any subpoena, discovery or other requests
which arguably calls for the production or disclosure of information subject to
Privilege of the other party, such receiving party shall promptly notify the
other party of the existence of the request and shall provide the other party
reasonable opportunity to review the information and to assert any rights that
it may have under this section or otherwise with respect to such information.
Nothing in this Agreement shall operate to reduce, minimize or
condition the right either party has under its Privileges, or the rights granted
to either party in, or the obligations imposed upon either party by, this
Section 7.9.
ARTICLE VIII
TAX MATTERS
8.1 Effective Date. It is the intention of Chronimed and MGI that the
Distribution shall be treated as being effective on the Effective Date for
purposes of allocating Tax liability (other than Taxes as a result of the
Transfer of Assets to MGI and the Distribution). Consistent with this intention,
liabilities for such Taxes relating to periods ending on or prior to the
Effective Date, and, correspondingly, the benefit of any credits, refunds or
other Tax benefits relating to such periods, shall be for the account of
Chronimed. Similarly, all liabilities for such Taxes relating to the operations
of MGI and the MGI business for periods on or after the Effective Date, and
corresponding, any credits, refunds or other Tax benefits relating to such
periods, shall be for the account of MGI. The sections set forth below specify
in greater detail how said objectives are to be achieved (and the sections below
shall govern if there are any inconsistencies between this section and such
sections) and address other matters relating to Taxes.
8.2. Tax Indemnification by Chronimed. Chronimed shall indemnify and
hold MGI and any successor corporation thereto or post-Distribution Date
Affiliates thereof harmless from and against the following Taxes arising from or
attributable to the business or operations of MGI or Chronimed or their
respective Affiliates:
(a) Any and all Taxes arising in or attributable to any taxable period
ending before the Effective Date;
(b) Except as provided in Section 8.6 below, 60% of any and all Taxes
of Chronimed and/or MGI or their Affiliates in connection with the Transfer of
Assets to MGI described herein
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and the Distribution (including any liability of Chronimed and/or MGI or their
Affiliates to shareholders of Chronimed or MGI for Taxes of shareholders in
connection with the Distribution), specifically including but not limited to any
Taxes attributable to gain imposed on Chronimed under Sections 311 or 355 of the
Code, and any sales and use, gross receipts, or other transfer Taxes imposed on
the Transfer of Assets to MGI described herein or on the Distribution;
(c) Any several liability of MGI under Treasury Regulations section
1.1502-6 or under any comparable or similar provision under state, local or
foreign Laws or regulations for Tax periods beginning on or prior to the
Distribution Date;
(d) Any Taxes allocated to Chronimed under Section 8.4.
On or prior to the Effective Date, Chronimed shall cancel any other Tax sharing
agreements to which MGI would be subject.
8.3 Tax Indemnification by MGI. MGI shall indemnify and hold Chronimed
and any successor corporations thereto and any Affiliates thereof (other than
MGI) harmless from and against the following Taxes:
(a) any and all Taxes from or attributable to the Business or
operations of MGI arising in or attributable to any taxable period beginning on
or after the Effective Date, due or payable by MGI or by Chronimed, except Taxes
described in Sections 8.2(b) or (c) above or Section 8.3(b);
(b) Except as provided in Section 8.6 below, 40% of any and all Taxes
of Chronimed and/or MGI or their Affiliates in connection with the Transfer of
Assets to MGI described herein and the Distribution (including any liability of
Chronimed and/or MGI or their Affiliates to shareholders of Chronimed or MGI for
Taxes of shareholders in connection with the Distribution), specifically
including but not limited to any Taxes attributable to gain imposed on Chronimed
under Sections 311 and 355 of the Code, and any sales and use, gross receipts,
or other transfer Taxes imposed on the Transfer of Assets to MGI described
herein or on the Distribution;
(c) any Taxes allocated to MGI under Section 8.4.
8.4 Allocation of Certain Taxes. Any Taxes for a taxable period
beginning before the Effective Date and ending after the Effective Date with
respect to MGI or the Business (other than Taxes described in Sections 8.2(b) or
(c), Section 8.3(b), or Section 8.6 herein) shall be paid by Chronimed or MGI,
and the Taxes for such period shall be apportioned for purposes of Section 8.2
and Section 8.3 between Chronimed and MGI based upon (i) whether the date of the
transaction or incident creating the Tax liability occurred before the Effective
Date on the one hand, or on or after the Effective Date, for transactional or
similar Taxes (such as sales tax), (ii) on the portion of the income for the
period before the Effective Date and the portion of the income on or following
the Effective Date for Income Taxes (with the allocation of income being made as
if the books were closed as of the day before the Effective Date), and (iii) on
the portion of such period before the Effective Date and the portion of such
period on and after the
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Effective Date for all other Taxes. For purposes of Section 8.3(a), MGI's Income
Tax liability for periods beginning on or after the Effective Date for Returns
for which MGI and Chronimed filed consolidated or combined Returns shall be the
excess of Chronimed's combined or consolidated (as the case may be) Income Tax
liability for its Return including MGI, over Chronimed's combined or
consolidated Income Tax liability for such Return if neither the Business nor
MGI were included in the combined or consolidated group for the Tax year
beginning on the Effective Date.
8.5 Indemnification Matters. Unless otherwise specified in this
Agreement, all indemnification and other Tax payments to be made pursuant to
this Article VIII shall be made within thirty (30) days of (a) written notice of
a payment by or the incurrence of such an amount based on a Determination by a
Taxing Authority or the filing of a Tax Return, which notice shall be
accompanied by a computation of the Tax due, or (b) written notice of an other
indemnifiable Tax payment due, which notice shall be accompanied by a
computation of the Tax due. Chronimed and MGI agree to report for Tax purposes
any Tax indemnity payment made pursuant to this Article VIII as a distribution
or capital contribution, as appropriate, occurring immediately before the
Effective Date. If, notwithstanding the manner in which Tax indemnity payments
are reported, there is an adjustment to the Tax liability of the recipient of a
Tax indemnity payment, the payment shall be appropriately adjusted to place the
parties in the same after-Tax position they would have enjoyed absent such
adjustment to Tax liability. If an indemnified party realizes a benefit in any
period as a result of making the payment with respect to which an
indemnification or other Tax payment is required to be made, the indemnified
party shall pay to the indemnifying party the amount of such Tax benefit. If any
indemnification payment required to be made pursuant to this Agreement is not
made when due, such payment shall bear interest at the prevailing interest rate
for underpayments as determined under Section 6621 of the Code; provided,
however, that this sentence shall not permit a doubling up of interest for a
time period if the amount to paid as an indemnity payment includes interest for
such time period.
8.6 Covenant Against Certain Actions. Chronimed agrees that it shall
not, and MGI agrees that it shall not, take or fail to take any action
(including, without limitation, any cessation, transfer to Affiliates or
disposition of its active trade or business, certain reacquisitions of its
stock, and entering into any transaction or arrangement pursuant to which one or
more persons acquire stock of the company representing a "50% or greater
interest" within the meaning of Section 355(d)(2)(4) of the Code that would
cause Section 355(e) of the Code to apply to the Distribution) that would cause
the Transfer of Assets to MGI hereunder to be taxable, the Distribution to fail
to qualify under Section 355 of the Code, or the Distribution to result in Tax
to Chronimed under Sections 355(d) or (e) of the Code. Chronimed shall be
responsible for all of any Taxes of Chronimed and MGI in connection with the
Transfer of Assets to MGI and the Distribution (including any liability of
Chronimed and/or MGI or their Affiliates to shareholders of Chronimed or MGI for
Taxes of shareholders in connection with the Distribution) that are solely
attributable to, or solely result from, Chronimed's violation of its covenant in
this Section 8.6. MGI shall be responsible for all of any Taxes of Chronimed and
MGI in connection with the Transfer of Assets to MGI and the Distribution
(including any liability of Chronimed and/or MGI or their Affiliates to
shareholders of Chronimed or MGI for
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Taxes of shareholders in connection with the Distribution) that are solely
attributable to, or solely result from, MGI's violation of its covenant in this
Section 8.6.
8.7 Filing Responsibility.
(a) Chronimed shall prepare and file or shall cause MGI to prepare and
file the following Returns with respect to MGI:
(i) all Income Tax Returns for any taxable period ending on or
before the Distribution Date; and
(ii) all other Returns required to be filed (taking into
account extensions) on or before the Distribution Date.
(b) MGI shall prepare and file all other Returns with respect to MGI
required to be filed (taking into account extensions) after the Distribution
Date. MGI and Chronimed agree that they will treat MGI as if such entity ceased
to be part of Chronimed's affiliated group, within the meaning of Section 1504
of the Code, as of the opening of business on the day after the Distribution
Date.
(c) With respect to any Return to be filed by MGI including Taxes for
which Chronimed has liability hereunder, MGI shall consult with Chronimed
concerning such Return and shall report all items directly resulting in Tax
liability to Chronimed in accordance with this Agreement and the instruction of
Chronimed (but in accordance with past practices in preparing such returns to
the extent still permissible), unless otherwise agreed by Chronimed and MGI. MGI
shall provide Chronimed with a copy of each proposed return at least fifteen
(15) days prior to the filing of such Return, and Chronimed may propose comments
to MGI, which comments shall be delivered to MGI within seven (7) days of
receiving such copies from MGI.
(d) With respect to any Return to be filed by Chronimed including Taxes
for which MGI has liability hereunder (other than by reason of Section 8.3(b)),
Chronimed shall consult with MGI concerning each such Return and shall report
all items directly resulting in Tax liability to MGI in accordance with this
Agreement and the instruction of MGI (but in accordance with past practices in
preparing such returns to the extent still permissible), unless otherwise agreed
by Chronimed and MGI. Chronimed shall provide MGI with a copy of each proposed
return at least fifteen (15) days prior to the filing of such Return, and MGI
may propose comments to Chronimed, which comments shall be delivered to
Chronimed within seven (7) days of receiving such copies from Chronimed.
(e) All Returns shall be filed consistent with the Distribution
qualifying as a spin-off under Section 355 of the Code.
8.8 Refunds and Carrybacks.
(a) Chronimed shall be entitled to an amount equal to any refunds or
credits of Taxes attributable to taxable periods ending before the Effective
Date and attributable to Taxes
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allocated to Chronimed under Section 8.4. MGI shall be entitled to an amount
equal to any refunds or credits of Taxes attributable MGI or the Business for
taxable periods beginning on or after the Effective Date (except for Taxes
described in Sections 8.2(b), 8.3(b) and 8.6) and attributable to Taxes
allocated to MGI under Section 8.4. Refunds of credits of Taxes described in
Sections 8.2(b), 8.3(b), and 8.6 shall be allocated to Chronimed and MGI in
proportion to the parties' liability hereunder for such Taxes.
(b) MGI shall promptly forward to Chronimed or reimburse Chronimed for
any refunds or credits due Chronimed (pursuant to the terms of this Article
VIII) after receipt thereof, and Chronimed shall promptly forward to MGI or
reimburse MGI (pursuant to the terms of this Article VIII) for any refunds or
credits due MGI after receipt thereof.
(c) Chronimed agrees to pay to MGI the Income Tax benefit from its use
of an item of loss, deduction or credit of the Business or MGI, or a carryback
thereof, which arises in any taxable period beginning on or after the Effective
Date (or is attributable to the portion of the taxable period on or after the
Effective Date for a Tax period that begins before the Effective and ends after
the Effective Date); provided, however, that if such use permanently prevents
Chronimed from receiving a Tax benefit from its own loss, deduction, or credit
carryback, MGI shall reimburse Chronimed for such payment to the extent of such
lost Tax benefit at the time Chronimed would have received such benefit. Unless
Chronimed otherwise agrees in writing, MGI agrees to elect under Section
172(b)(3) of the Code, and any corresponding state or foreign statutes, to
relinquish any right to carryback net operating losses (in which event no
payment is due from Chronimed to MGI).
(d) (i) If (xx) any adjustment is made to any Return where the
adjustment relates to the Tax Liability of Chronimed or any of its Affiliates
(including, prior to the Effective Date, MGI) for any period prior to the
Effective Date or under Section 8.2(b) and there is a correlative offsetting
adjustment to any Return applicable to the Business or MGI or any of its
Affiliates for any period on or after the Effective Date (including Chronimed's
combined or consolidated Return including MGI for the period beginning on the
Effective Date and ending on the Distribution Date but only with respect to the
Tax liability allocated to MGI under Section 8.4 hereof) or (yy) any adjustment
is made to any Return where the adjustment relates to the Tax Liability of MGI
or of its Affiliates for any period on or after the Effective Date (including
Chronimed's combined or consolidated Return including MGI for the period
beginning on the Effective Date and ending on the Distribution Date but only
with respect to the Tax liability allocated to MGI under Section 8.4 hereof) and
there is a correlative offsetting adjustment applicable to any Return of
Chronimed or any of its Affiliates (including, prior to Effective Date, MGI),
the party whose adjustment is favorable (i.e., the party to which there inures,
directly or indirectly, a net Tax benefit as the result of any adjustment (MGI
or Chronimed, as the case may be)) shall pay to the other party the amount of
such net Tax benefit at such time or times as and to the extent that such
benefit is realized through a refund of Tax or actual reduction in the amount of
Taxes which would otherwise be paid if such adjustment had not been made;
provided, however, that the party whose adjustment is favorable shall not be
required to make a payment to the other party in excess of the amount (if any)
of the net Tax detriment to such other party correlative to such net Tax
benefit; provided, further, that if the party whose adjustment is favorable
realizes a net Tax benefit prior to the time the other party realizes a net Tax
determent,
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the party whose adjustment is favorable shall not be required to make any
payments to the other party until such time or times as the net Tax detriment is
actually realized by such other party. This subparagraph (i) shall apply whether
the adjustment is a result of or in settlement of any audit, other
administrative proceeding or judicial proceeding or the filing of an amended
Return to reflect the consequences of any Determination made in connection with
any such audit or proceeding or otherwise. This subparagraph (i) shall not be
applicable to the extent that the party obligated to make a payment under this
subparagraph is obligated under this Article VIII (aside from this subparagraph)
to make a payment to the other party for the Tax detriment described in this
subparagraph.
(ii) If either MGI or Chronimed makes a payment to the other party
pursuant to subparagraph (i) above, and (a) it is later determined by the
applicable Taxing Authority that the party who made such payment is not entitled
to the net Tax benefit which gave rise to such payment, then the party who
received such payment shall promptly remit to the party who made such payment
the amount of such payment that is attributable to the disallowed Tax benefit,
or (b) if, as a result of a correlative adjustment, an attribute arising in a
later period which would otherwise be able to be carried back to the taxable
year or years in which the party making the payment thereunder realized a net
Tax benefit (a "Displaced Carryback") cannot be utilized, the party receiving a
payment pursuant to this subsection (d) will repay to the payer an amount
sufficient to place the payer in the same position (ignoring for this purpose
any potential carry forward of the Displaced Carryback) as it would have been if
the correlative adjustment had not occurred, except that the payer shall
subsequently return an amount up to such repayment when as and to the extent the
payer actually receives a net Tax benefit from the Displaced Carryback.
(iii) For purposes of determining whether a correlative adjustment
described in this subsection (d) has a net Tax benefit, or detriment to the
party affected, all effects of such adjustment, including without limitation,
interest, penalties and additions to Tax required to be paid or received, any
Tax imposed upon a refund or reduction in Tax and any Tax consequences
occasioned by any payment made or to be made by one party to the other shall be
taken into account.
(iv) Each of Chronimed and MGI agrees that, unless the other company
consents in writing, no amended Return shall be filed with a Taxing Authority
(other than an amended Return to reflect the consequences of any Determination
made in connection with any Tax Audit described in subparagraph 8.8(d)(i)) if
the effect of the amended Return would be to produce a correlative Tax detriment
to the company not filing the amended Return in the manner described in
subparagraph 8.8(d)(i).
(f) Where a payment is required under this Section 8.8, such payment
shall be made within thirty (30) days of the filing of any Tax Return that
creates the Tax benefit or detriment giving rise thereto, or the payment or
reduction in credit creating the Tax detriment or the receipt of the refund or
credit creating the Tax benefit.
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8.9 Cooperation and Exchange of Information.
(a) As soon as practicable but in any event within sixty (60) days
after Chronimed's request, from and after the Effective Date, MGI shall provide
Chronimed with such cooperation and shall deliver to Chronimed such information
and data concerning the pre-Distribution Date operations of MGI and make
available such knowledgeable employees of such entities as Chronimed may
reasonably request, including providing the information and data required by
Chronimed 's customary Tax accounting questionnaires, in order to enable
Chronimed to complete and file all Returns which it may be required to file with
respect to the operations and business of MGI through the Distribution Date or
to respond to audits by any Taxing Authorities with respect to such operations
and to otherwise enable Chronimed to satisfy its internal accounting, Tax and
other legitimate requirements. Such cooperation and information shall include
without limitation provision of powers of attorney for the purpose of signing
Returns and defending audits for the periods ending on or prior to the
Distribution Date and MGI will promptly forward copies of appropriate notices
and forms or other communications received from or sent to any Taxing Authority
which relate to Chronimed or its obligations hereunder and provide copies of all
relevant Returns, together with accompanying schedules and related workpapers,
documents relating to rulings or other Determinations by any Taxing Authority
and records concerning the ownership and Tax basis or property, which MGI and
its Affiliates, if any, may possess. Chronimed shall furnish MGI with its
cooperation in a manner comparable to that described in this Section 8.9(a) for
all pre-Distribution periods.
(b) For a period of ten (10) years after the Distribution Date or such
longer period as may be required by law, each of Chronimed and MGI shall retain
and not destroy or dispose of all Returns (including supporting materials),
books and records (including computer files) of, or with respect to its
activities or Taxes, for all taxable periods ending on or prior to the
Distribution Date. Thereafter, each of Chronimed or MGI shall not destroy or
dispose of any such Returns, books or records unless it first offers such
Returns, books and records to the other party in writing and the other party
fails to accept such offer within sixty (60) days of its being made.
(c) MGI and Chronimed and their respective Affiliates shall cooperate
in the preparation of all Returns relating in whole or in part to taxable
periods ending on or before or including the Effective Date or Distribution
Date.
(d) Whenever Chronimed or MGI receives in writing from the IRS or any
other Taxing Authority notice of an adjustment which may give rise to a payment
from the other party under this Article VIII, Chronimed or MGI (as the case may
be) shall give notice of the adjustment to the other party within ten (10) days
after the receipt of the notice. Chronimed shall have the right, at its own
expense, to control any audit or examination by any Taxing Authority ("Tax
Audit"), initiate any claim for refund, contest, resolve and defend against any
assessment, notice of deficiency, or other adjustment or proposed adjustment
relating to any and all Taxes for which it would be liable under this Article
VIII. MGI shall have the right, at its own expense, to control any other Tax
Audit, initiate any other claim for refund, and contest, resolve and defend
against any other assessment, notice of deficiency, or other adjustment or
proposed adjustment relating to Taxes for which it would be liable under this
Article VIII. If the Tax Audit relates to Taxes for which MGI would be liable
under this Article VIII and for which Chronimed would be
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liable under this Article VIII, Chronimed shall control the Tax Audit subject to
provisions of this Section 8.9(d). Chronimed and MGI, as the case may be, shall
keep the other party duly informed and shall consult with each other with
respect to the resolution of any issue that would adversely affect the other
party, and not settle any such issue, or file any amended Return relating to any
such issue, without the consent of the affected party, which consent shall not
unreasonably be withheld. Where consent to a settlement is withheld pursuant to
this Section, the party controlling the audit or examination may nevertheless
settle, continue or initiate any further proceedings at its own expense,
provided that any adjustments required shall be made and treated as set forth in
Section 8.9(d).
(e) If MGI or Chronimed fails to provide any information requested by
the other party in the time specified herein, or if no time is specified
pursuant to this Section 8.9, within a reasonable period, or otherwise fails to
do any act required of it under this Section 8.9, then, notwithstanding any
other provision of this Agreement, the party failing to provide the information
shall indemnify and hold the other party harmless from and against any and all
costs, claims or damages, including, without limitation, all Taxes or
deficiencies thereof, payable as a result of such failure.
(f) MGI and Chronimed shall cooperate with each other by providing any
appropriate certificates or statements (such as a Minnesota resale exemption
certificate) if needed for the Transfer of Assets to MGI hereunder or the
Distribution to qualify for a Tax exemption or other provision making the
transaction nontaxable.
ARTICLE IX
ADDITIONAL ASSURANCES
9.1 Mutual Assurances. Chronimed and MGI agree to cooperate with
respect to the implementation of this Agreement and the Ancillary Agreements and
to execute such further documents and instruments as may be necessary to confirm
the transactions contemplated hereby. Such cooperation may include joint
meetings with corporate partners, suppliers, customers and others to the extent
necessary to assure the orderly transition of the business and assets
contemplated hereby; provided, however, that nothing herein shall be deemed to
obligate either Chronimed or MGI to take any action or reach any understandings
which may violate any applicable laws.
ARTICLE X
EMPLOYEES AND BENEFITS
10.1 Offers of Employment and Benefits. Effective as of the Effective
Date, MGI shall offer employment to all employees of Chronimed primarily
employed in the Business, including but not limited to those employees who are
then on authorized leaves of absence or legally required leaves of absence, and
to those employees specified on Schedule 10.1. Said offers of employment to each
employee shall be at rates of compensation, including incentive compensation, no
less favorable than the rate of compensation currently being paid to each
employee, and the package of benefits offered to each employee shall be
reasonably comparable,
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taken as a whole, to the package of benefits presently received by such employee
from Chronimed; provided, however, that it is specifically understood and agreed
that MGI will be establishing its own Stock Option Plan, which may or may not be
similar to the Stock Option Plan of Chronimed; and provided further, that MGI
reserves the right to reevaluate, alter, amend, terminate or suspend any
employee benefit plan at MGI at any time after the Distribution Date for any
reason.
After the Effective Date wherever any employee benefit plan, program or
policy is made available by MGI to the former employees of Chronimed who are now
employed by MGI: (i) to the extent permitted by law, service with Chronimed by
any such employee prior to the Effective Date shall be credited in determining
such employee's eligibility, vesting, vacation accruals and benefit levels under
any such plan, program or policy; and (ii) with respect to any welfare benefit
plans for which such employees may become eligible, MGI shall, to the extent
permitted by law, cause such plans to provide credit for any applicable
co-payments or deductibles paid prior to the Effective Date by such employees
and waive pre-existing conditions, exclusions and waiting periods, other than
exclusions or waiting periods that have not been satisfied or waived under any
welfare plans maintained by Chronimed for such employees prior to the Closing
Date.
10.2 Termination of Employment and Chronimed Obligations.
Contemporaneously with such offers of employment by MGI, Chronimed shall
terminate each such employee. In the event that any employee does not accept
MGI's offer of employment, and Chronimed is required to pay severance to said
employee, MGI shall reimburse Chronimed for the cost of such severance payments.
Any severance payments will be made in accordance with Chronimed's current
policy.
Chronimed shall pay to each employee terminated by Chronimed as of the
Effective Date all accrued wages, salary, commission and other employee
compensation payments due for services prior to the Effective Date promptly, and
in any event no later than such payments would have otherwise been due to said
employees. Chronimed shall not pay accrued vacation or holiday pay due to said
employees; rather, said amounts shall be assumed and paid by MGI and the amount
thereof shall be treated as an Assumed Liability pursuant to Section 4.2.
10.3 401(k) Plan. MGI shall establish a 401(k) Plan which is
substantially similar in its terms and provisions to the 401(k) Plan currently
maintained by Chronimed. However, MGI intends to use a different trustee and
custodian for its Plan and, as a result, investment choices under the MGI Plan
will not be identical to those provided under Chronimed's Plan. No distributions
will be made from the Chronimed Plan to Chronimed employees who become employees
of MGI. Rather, there will be a plan-to-plan transfer of account balances for
all such employees from the Chronimed Plan to the MGI Plan.
10.4 No Hiring. For a period of 12 months following the Effective Date,
each of Chronimed and MGI shall not employ any employee of the other without the
written consent of the other party.
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ARTICLE XI
CERTAIN ADDITIONAL MATTERS
11.1 Nasdaq National Market Listing. MGI hereby agrees to use its
reasonable efforts to effect and maintain the listing of the MGI Common Stock on
the Nasdaq National Market System.
11.2 PaineWebber. Under an agreement with PaineWebber dated March 25,
1999 ("PaineWebber Agreement"), Chronimed will be obligated to pay a fee to
PaineWebber if certain types of transactions are closed by either Chronimed or
MGI for the time period specified in the PaineWebber Agreement. If Chronimed is
party to a transaction which gives rise to a fee obligation under the
PaineWebber Agreement, Chronimed shall be solely responsible for, and shall
indemnify, save and hold harmless MGI against, any obligation for said fee.
Correspondingly, if MGI is party to any transaction which gives rise to a fee
obligation under the PaineWebber Agreement, MGI shall be solely responsible for,
and shall indemnify, save and hold harmless Chronimed against, any obligation
for said fee.
11.3 Use of Chronimed Name. Within 90 days after the Distribution Date,
MGI, at its own expense, shall remove (or, if necessary, cover-up) any and all
exterior and interior signs and identifiers which refer or pertain to Chronimed
at MGI's locations. Until March 31, 2001, MGI shall have the right to use
existing supplies and documents, such as, but not limited to forms, labels,
shipping materials, packaging materials, catalogs, manuals, advertising material
and similar material being transferred to it pursuant to this Agreement which
have imprinted thereon the name "Chronimed" or trademarks or symbols comprising
the name "Chronimed." At the end of such time period, MGI shall destroy all such
remaining supplies and documents.
11.4 Limitation of Liability. Notwithstanding anything to the contrary
contained herein, each of Chronimed's and MGI's respective obligations under
this Agreement to the other where either has claims against the other, shall be
limited to direct and actual damages and shall exclude incidental,
consequential, punitive and special damages; provided, however, that the
foregoing shall not be deemed to limit either party's obligation to indemnify
the other with respect to claims by a third party where the damages obtained by
the third party might otherwise be subject to the foregoing limitations.
11.5 Letters of Credit. MGI shall use its commercially reasonable
efforts to substitute MGI letters of credit for any Chronimed letters of credit
outstanding on the Effective Date with respect to obligations of the Assets and
Business transferred to MGI hereunder. In addition, MGI shall reimburse
Chronimed for any costs incurred or funds advanced by Chronimed following the
Effective Date with respect to any such letters of credit.
11.6 Liabilities Related to Transaction. The parties have reached
specific agreement regarding which party should bear certain specific expenses
and liabilities relating the implementation of the transactions contemplated by
this Agreement and the Ancillary Agreements. Exhibit A attached hereto sets
forth the expenses which are subject to the parties' specific agreement and sets
forth the agreement of the parties regarding the bearing of such
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expenses. Each of MGI and Chronimed agree to pay and be responsible for those
expenses allocated to them pursuant to Exhibit A.
Except as otherwise specifically provided in this Agreement, Chronimed
and MGI shall bear their own expenses associated with the Distribution.
11.7 Insurance. MGI acknowledges that from and after the Distribution
Date, MGI will not be covered under, nor will it be entitled to protection
pursuant to this Agreement under, the insurance policies maintained by
Chronimed. MGI acknowledges that it is its responsibility to obtain such
insurance coverage as it deems appropriate, specifically including insurance
coverage for actions, events and transactions which have occurred with respect
to the Business prior to the Effective Date.
ARTICLE XII
DISPUTE RESOLUTION
12.1 Procedure; Initial Meeting. In the event a dispute arises between
Chronimed and MGI arising out of or related to this Agreement or the Ancillary
Agreements or otherwise in connection with this Agreement and the transactions
contemplated hereby, the aggrieved party shall promptly notify the other party
by written notice, describing briefly the nature of the dispute (the "Dispute").
A meeting shall be held between the parties within ten (10) business days of
receipt of the notice, attended by individuals with decision-making authority
regarding the Dispute, to attempt in good faith to negotiate a resolution of the
Dispute.
12.2 Submission to Mediation. If, within thirty (30) days after such
meeting, the parties have not succeeded in negotiating a resolution to the
Dispute, they shall submit the Dispute at the earliest possible date to
non-binding mediation in accordance with the Commercial Mediation Rules of the
American Arbitration Association. In the event the mediation is not successful
in obtaining an agreed resolution of the Dispute, then the Dispute shall be
submitted to binding arbitration in accordance with the following section.
12.3 Binding Arbitration. If the mediation has not been successful,
either party may submit the dispute to binding arbitration before three (3)
arbitrators in Minneapolis, Minnesota (or such other location mutually
acceptable to the parties) pursuant to the then existing Commercial Arbitration
Rules of the American Arbitration Association. Each of Chronimed and MGI shall
select one (1) arbitrator, and the arbitrator so selected shall select the third
arbitrator. The arbitrators shall issue a written decision within forty-five
(45) days of the date all evidence is finally submitted to the panel. The
majority decision of the panel of arbitrators shall be final and binding on the
parties to this Agreement. Judgment upon the majority award of the arbitrators
may be entered by any court of competent jurisdiction.
Each party shall pay the fees of the arbitrator selected by that party.
Remaining costs of the arbitration shall be shared equally by the parties.
All negotiations and mediations pursuant to this Article XII shall be
treated as compromise and settlement negotiations for purposes of Federal Rules
of Evidence and comparable State Rules of Evidence.
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12.4 Equitable Relief. Nothing herein shall preclude either party from
seeking equitable relief to prevent any immediate or irreparable harm to its
interests, including multiple breaches of this Agreement or an Ancillary
Agreement by the other party. Otherwise, the procedures set forth in this
Article XII are the exclusive means of resolving any Disputes. Either party may
seek specific enforcement of any arbitrator's decision under this Article XII.
ARTICLE XIII
MISCELLANEOUS
13.1 Governing law. This Agreement shall be governed by the laws of the
State of Minnesota.
13.2 Construction. Each provision of this Agreement shall be
interpreted in a manner to be effective and valid to the fullest extent
permissible under applicable law. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions of
this Agreement which shall remain in full force and effect.
13.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
13.4 Complete Agreement: Construction. This Agreement and the Ancillary
Agreements and other agreements and documents referred to herein, shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter.
13.5 Exhibits. Exhibits to this Agreement shall be deemed to be an
integral part hereof, and schedules or exhibits to such Exhibits shall be deemed
to be an integral part thereof.
13.6 Amendments; Waivers. This Agreement may be amended or modified
only in writing executed on behalf of Chronimed and MGI. No waiver shall operate
to waive any further or future act and no failure to object of forbearance shall
operate as a waiver.
13.7 Notices. Notices hereunder shall be effective if given in writing
and delivered or mailed, postage prepaid, by registered or certified mail to:
Chronimed Inc.
13911 Ridgedale Drive
Minnetonka, Minnesota 55305
Attention: CEO
or to:
MEDgenesis Inc.
5182 West 76th Street
Edina, Minnesota 55439
Attention: CEO
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13.8 Successors and Assigns. this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, provided that this Agreement and the rights and obligations
contained herein or in any exhibit or schedule hereto shall not be assignable,
in whole or in part, without the prior written consent of the parties hereto and
any attempt to effect any such assignment without such consent shall be void.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CHRONIMED INC.
By _____________________________________
Its ____________________________________
MEDgenesis INC.
By _____________________________________
Its ____________________________________
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EXHIBIT A
AGREEMENT REGARDING SPECIFIC EXPENSES
Chronimed shall be responsible (i) for the legal fees of Gray, Plant,
Mooty, Mooty & Bennett relating to the Spin-Off transaction incurred through the
Distribution Date, (ii) for the fees of Ernst & Young relating to the Spin-off
transaction incurred through the Distribution Date, (iii) for the printing of
stock certificates, and (iv) for the charges of the Transfer Agent in connection
with the Distribution, for the Nasdaq fee and for the SEC fee.
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF MEDGENESIS INC.
ARTICLE I
The name of this corporation shall be MEDgenesis Inc.
ARTICLE II
The location and address of the corporation's registered address in
this State shall be 5182 W. 72nd Street, Edina, Minnesota 55439.
ARTICLE III
The total number of shares of all classes of stock that this
corporation shall be authorized to issue is Forty-five Million (45,000,000)
shares, divided into the following: (i) Five Million (5,000,000) shares of
Preferred Stock, of the par value of $.01 per share; and (ii) Forty Million
(40,000,000) shares of Common Stock, of the par value of $.01 per share. A
description of the respective classes of stock and a statement of the
designations, preferences, limitations and relative rights of such classes of
stock and the limitations on or denial of the voting rights of the shares of
such classes of stock are as follows:
A. Preferred Stock
1. Issuance in Series. The Preferred Stock may be divided into and
issued in one or more series. The Board of Directors is hereby vested with
authority from time to time to establish and designate such series and, within
the limitations prescribed by law or set forth herein, to fix and determine the
relative rights and preferences of the shares of any series so established, but
all shares of Preferred Stock shall be identical except as to the following
relative rights and preferences, as to which there may be variations between
different series: (a) the rate of dividend; (b) the price at and the terms and
conditions on which shares may be redeemed; (c) the amount payable upon shares
in the event of involuntary liquidation; (d) the amount payable upon shares in
the event of voluntary liquidation; (e) sinking fund provisions, if any, for the
redemption or purchase of shares; (f) the terms and conditions on which shares
may be converted, if the shares of any series are issued with the privilege of
conversion; and (g) voting rights. The Board of Directors shall exercise such
authority by the adoption of a resolution or resolutions as prescribed by law.
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2. Dividends. The holders of each series of Preferred Stock at the time
outstanding shall be entitled to receive, when and as declared to be payable by
the Board of Directors, out of any funds legally available for the payment
thereof, dividends at the rate theretofore fixed by the Board of Directors for
such series of Preferred Stock.
3. Preferred Dividends Cumulative. Dividends on all Preferred Stock,
regardless of series, shall be cumulative. No dividend shall be declared on any
series of Preferred Stock for any dividend period unless all dividends
accumulated for all prior dividend periods shall have been declared or shall
then be declared at the same time upon all Preferred Stock then outstanding. No
dividend shall be declared on any series of Preferred Stock unless a dividend
for the same period shall be declared at the same time upon all Preferred Stock
outstanding at the time of such declaration in like proportion to the divided
rate then declared. No dividend shall be declared or paid on the Common Stock
unless full dividends on all Preferred Stock then outstanding for all past
dividend periods and for the current dividend period shall have been declared
and the corporation shall have paid such dividends or shall have set apart a sum
sufficient for payment thereof.
4. Preferences on Liquidation. In the event of any dissolution,
liquidation or winding up of the corporation, whether voluntary or involuntary,
the holders of each series of the then outstanding Preferred Stock shall be
entitled to receive the amount fixed for such purpose in the resolution or
resolutions of the Board of Directors establishing the respective series of
Preferred Stock that might then be outstanding together with a sum equal to the
amount of all accumulated and unpaid dividends thereon at the dividend rate
fixed therefor in the aforesaid resolution or resolutions. After such payment to
such holders of Preferred Stock, the remaining assets and funds of the
corporation shall be distributed pro rata among the holders of the Common Stock.
A consolidation, merger or reorganization of the corporation with any other
corporation or corporations or a sale of all or substantially all of the assets
of the corporation shall not be considered a dissolution, liquidation or winding
up of the corporation within the meaning of these provisions.
5. Redemption. The whole or any part of the outstanding Preferred Stock
or the whole or any part of any series thereof may be called for redemption and
redeemed at any time at the option of the corporation, subject to and in
accordance with such terms and conditions as shall be set forth in the
resolutions of the Board of Directors establishing the respective series of
Preferred Stock. The holders of the particular shares of the Preferred Stock so
to be redeemed shall be entitled to receive, at the time of redemption of such
shares, the redemption price fixed for such shares in the resolution or
resolutions of the Board of Directors establishing the particular series of
which such shares are a part together with a sum equal to the amount of all
accumulated and
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unpaid dividends thereon to the date fixed for redemption at the dividend rate
fixed for such shares in the aforesaid resolution or resolutions.
B. Common Stock
1. Dividends. Subject to all the rights of the Preferred Stock or any
series thereof and on the conditions set forth in Part A of this Article III or
in any resolution of the Board of Directors providing for the issuance of any
series of Preferred Stock, the holders of the Common Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, dividends payable in cash, stock or otherwise.
2. Voting Rights. Each holder of Common Stock shall be entitled to one
vote for each share held.
3. Issuance. The shares of Common Stock may be issued from time to time
at the option and discretion of the Board of Directors of the corporation for
such consideration as may be fixed from time to time by the Board of Directors
in compliance with the Minnesota Business Corporation Act, and shares so issued,
the full consideration for which has been paid or delivered, shall be deemed
full paid stock and the holder of such shares shall not be liable for any
further payment thereon.
4. Miscellaneous. Each and every share of Common Stock shall be equal
and without preference or without classification as between such shares of
stock, and none of such shares of stock shall, in the hands of any person
whomsoever, be liable, or render such person liable, to pay any assessment or
any obligation or payment on account of the debts or obligations of the
corporation.
ARTICLE IV
Shareholders shall have no right of cumulative voting.
ARTICLE V
Shareholders shall have no rights, preemptive or otherwise, under
Minnesota Statutes Section 302A.413 (or similar provisions of future law) to
acquire any part of any unissued shares or other securities of this corporation
or of any rights to purchase shares or other securities of this corporation
before the corporation may offer them to other persons.
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ARTICLE VI
(a) The Board of Directors of this corporation shall consist of five
directors or such greater number of directors as shall be fixed in the manner
provided in the By-Laws of this corporation; provided, however, that if the
holders of any class or series of Preferred Stock, voting as a separate class or
series, have the right to elect director(s) and such right is in effect, the
number of directors shall be increased by the number of directors that such
holders may so elect and upon termination of such right the number of directors
shall be decreased by the number of directors equal to such previous increase.
(b) The directors (other than those directors who may be elected by the
holders of any class or series of Preferred Stock voting as a separate class or
series) shall be divided into three classes (Class I, Class II and Class III),
with the number of directors in each class as nearly equal as reasonably
possible. The initial terms of office for the Class I, Class II and Class III
directors shall be as follows:
(i) Class I directors shall be elected to serve until the
conclusion of the 2000 Annual Meeting of Shareholders,
(ii) Class II directors shall be elected to serve until the
conclusion of the 2001 Annual Meeting of Shareholders, and
(iii) Class III directors shall be elected to serve until the
conclusion of the 2002 Annual Meeting of Shareholders,
and until such director's successor shall have been duly elected and qualified.
Commencing with the 2000 Annual Meeting of Shareholders and continuing at each
annual meeting of shareholders thereafter, a director (other than those
directors who may be elected by the holders of any class or series of Preferred
Stock voting as a separate class or series) elected to succeed a director whose
term has expired shall be elected to serve until the conclusion of the third
succeeding annual meeting of shareholders from the date of such director's
election and until such director's successor shall have been duly elected and
qualified.
(c) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the number of authorized directors or eliminated directorships
resulting from any decrease in the number of authorized directors shall be
apportioned by the Board of Directors among the Class I, Class II and Class III
directors to keep the number of directors in each such class as nearly equal as
reasonably possible; provided, however, that no decrease in the number of
authorized directors shall shorten the term or effect the removal of any
incumbent director except upon compliance with the provisions of sections (e) or
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(f) of this Article VI. Vacancies on the Board of Directors created by any
increase in the number of authorized directors may be filled by the affirmative
vote of a majority of the directors then holding office. A director so chosen
shall hold office for a term expiring at the next annual meeting of shareholders
at which the term of office of the class of directors to which such director has
been elected expires and until such director's successor shall have been duly
elected and qualified.
(d) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, any vacancies on the Board of Directors
resulting from the death, resignation, retirement, disqualification, removal
pursuant to sections (e) and (f) of this Article VI, or other cause (other than
a vacancy due to an increase in the number of authorized directors) may be
filled by the affirmative vote of a majority of the directors then holding
office, though less than a quorum. A director so chosen shall hold office for a
term expiring at the next annual meeting of shareholders at which the term of
office of such director's predecessor expires and until such director's
successor shall have been duly elected and qualified.
(e) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, the shareholders may remove a director, at any
time, with or without cause, but only if such removal is approved by the
affirmative vote of the holders of at least 80% of the voting power of all of
the then outstanding shares of capital stock of this corporation entitled to
vote on such removal.
(f) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, the Board of Directors of this corporation, by
the affirmative vote of a majority of the directors then holding office, (i) may
remove a director, at any time, with or without cause, pursuant to the terms and
provisions of Minnesota Statutes, Section 302A.223, subdivision 2 (or similar
provision of future law) or (ii) may remove a director, at any time, but only if
such removal is for cause (as defined below), regardless of whether (a) such
director was appointed by the Board of Directors to fill a vacancy on the Board
of Directors and the shareholders have elected any directors in the interval
between the time of appointment to fill such vacancy and the time of the removal
or (b) such director was elected by the shareholders. For purposes of this
section (f), "cause" shall mean (1) misconduct as a director of this corporation
or any subsidiary of this corporation which involves dishonesty with respect to
a substantial or material corporate activity or corporate assets or (2)
conviction of an offense punishable by one (1) or more years of imprisonment
(other than minor regulatory infractions and traffic violations which do not
materially and adversely affect this corporation).
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ARTICLE VII
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for (i) liability based on a breach of the duty of
loyalty to the corporation or the shareholders; (ii) liability for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) liability based on the payment of an improper dividend
or an improper repurchase of the corporation's stock under Section 559 or on the
sale of unregistered securities or securities fraud under Minnesota Statutes
Section 80A.23; or (iv) liability for any transaction from which the director
derived an improper personal benefit. If Minnesota Statutes Chapter 302A
hereafter is amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the corporation in
addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended Minnesota Statutes
Chapter 302A. Any repeal or modification of this Article by the shareholders of
the corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
ARTICLE VIII
Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken by written action signed by all of the directors then
in office, unless the action is one which need not be approved by the
shareholders, in which case such action shall be effective if signed by the
number of directors that would be required to take the same action at a meeting
at which all directors were present.
ARTICLE IX
No amendment, addition, alteration, change or repeal of the Articles of
Incorporation of this corporation shall be made unless such amendment, addition,
alteration, change or repeal is approved pursuant to Minnesota Statutes, Section
302A.437 (or similar provision of future law) unless a different vote is
required by law. Notwithstanding the foregoing sentence, any other provision of
these Articles of Incorporation of this corporation, the By-Laws of this
corporation, or any provision of law which might otherwise permit a lesser vote
or no vote, no amendment, addition, alteration, change or repeal of this Article
IX or Article VI of these Articles of Incorporation, after which this
corporation is to continue in existence, shall be made unless such amendment,
addition, alteration, change or repeal is approved by the affirmative vote of
the holders of
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at least 80% of the voting power of all of the then outstanding shares of
capital stock entitled to vote on such amendment, addition, alteration, change
or repeal.
The name and address of the Incorporator are John E. Brower, care of
Gray, Plant lawfirm, 33 South 6th Street, Suite 3400, Minneapolis, MN 55402.
INCORPORATOR:
/s/ John E. Brower
Dated: May 3, 2000
EXHIBIT 3.2
BY-LAWS
OF
MEDGENESIS INC.
ARTICLE I
Offices
Section 1. Principal Executive Office. The principal executive
office of the corporation shall be in the City of Edina, County of
Hennepin, Minnesota.
Section 2. Registered Office. The location and address of the
registered office of the Corporation is 5182 W. 72nd Street, Edina,
Minnetonka, Minnesota 55439. The registered office need not be identical
with the principal executive office of the Corporation and may be changed
from time to time by the Board of Directors.
Section 3. Other Offices. The Corporation may have other offices
at such places within and without the State of Minnesota as the Board of
Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meeting. All meetings of the shareholders of
this Corporation shall be held at its principal executive office unless
some other place for any such meeting within or without the State of
Minnesota be designated by the Board of Directors in the notice of
meeting. Any regular or special meeting of the shareholders of the
Corporation called by or held pursuant to a written demand of shareholders
shall be held in the county where the principal executive office is
located.
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Section 2. Regular Meetings. Regular meetings of the shareholders
of this Corporation may be held at the discretion of the Board of
Directors on an annual or less frequent periodic basis on such date and at
such time and place as may be designated by the Board of Directors in the
notice of meeting. At regular meetings the shareholders shall elect a
Board of Directors and transact such other business as may be appropriate
for action by shareholders. If a regular meeting of shareholders has not
been held for a period of fifteen (15) months, one or more shareholders
holding not less than three percent (3%) of the voting power of all shares
of the Corporation entitled to vote may call a regular meeting of
shareholders by delivering to the Chief Executive Officer or the Chief
Financial Officer a written demand for a regular meeting. Within thirty
(30) days after the receipt of such written demand by the recipient Chief
Officer, the Board of Directors shall cause a regular meeting of
shareholders to be called and held on notice no later than ninety (90)
days after the receipt of written demand, all at the expense of the
Corporation.
Section 3. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes appropriate for action by
shareholders, may be called by the Chief Executive Officer, the Chief
Financial Officer, or any two or more members of the Board of Directors.
Such meeting shall be held on such date and at such time and place as
shall be fixed by the person or persons calling the meeting and designated
in the notice of meeting. Special meetings may also be called by one or
more shareholders holding not less than ten percent (10%) of the voting
power of all shares of the Corporation entitled to vote by delivering to
the Chief Executive Officer or the Chief Financial Officer a written
demand for a special meeting, which demand shall contain the purposes of
the meeting. Within thirty (30) days after the receipt of a written demand
for a special
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meeting of shareholders by the recipient Chief Officer, the Board of
Directors shall cause a special meeting of shareholders to be called and
held on notice no later than ninety (90) days after the receipt of such
written demand, all at the expense of the Corporation. Business transacted
at any special meeting of shareholders shall be limited to the purpose or
purposes stated in the notice of meeting. Any business transacted at any
special meeting of shareholders that is not included among the stated
purposes of such meeting shall be voidable by or on behalf of the
Corporation unless all of the shareholders have waived notice of the
meeting.
Section 4. Notice of Meetings. Except where a meeting of
shareholders is an adjourned meeting and the date, time, and place of such
meeting were announced at the time of adjournment, notice of all meetings
of shareholders stating the date, time, and place thereof, and any other
information required by law or desired by the Board of Directors or by
such other person or persons calling the meeting, and in the case of
special meetings, the purpose thereof, shall be given to each shareholder
of record entitled to vote at such meeting not less than three (3) nor
more than sixty (60) days prior to the date of such meeting. In the event
that a plan of merger or the sale or other disposition of all or
substantially all of the assets of the Corporation is to be considered at
a meeting of shareholders, notice of such meeting shall be given to every
shareholder, whether or not entitled to vote, not less than fourteen (14)
days prior to the date of such meeting.
Notices of meeting shall be given to each shareholder entitled
thereto by oral communication, by mailing a copy thereof to such
shareholder at an address the shareholder has designated or to the last
known address of such shareholder, by handing a copy thereof to such
shareholder, or by any other delivery that conforms to
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law. Notice by mail shall be deemed given when deposited in the United
States mail with sufficient postage affixed.
Any shareholder may waive notice of any meeting of shareholders.
Waiver of notice shall be effective whether given before, at, or after the
meeting and whether given orally, in writing, or by attendance. Attendance
by a shareholder at a meeting is a waiver of notice of that meeting,
except where the shareholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting, or objects
before a vote on an item of business because the item may not lawfully be
considered at that meeting and does not participate in the consideration
of that item at the meeting.
Section 5. Record Date. For the purpose of determining
shareholders entitled to notice of and to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may, but need not, fix a date as the record date for any such
determination of shareholders, which record date, however, shall in no
event be more than sixty (60) days prior to any such intended action or
meeting.
Section 6. Quorum. The holders of a majority of the voting power
of all shares of the Corporation entitled to vote at a meeting shall
constitute a quorum at a meeting of shareholders for the purpose of taking
any action other than adjourning such meeting. If the holders of a
majority of the voting power of all shares are not represented at a
meeting, the shareholders present in person or by proxy shall constitute a
quorum for the sole purpose of adjourning such meeting, and the holders of
a majority of the shares so represented may adjourn the meeting to such
date, time, and place as they shall
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announce at the time of adjournment. Any business may be transacted at the
meeting held pursuant to such an adjournment and at which a quorum shall
be represented, which might have been transacted at the adjourned meeting.
If a quorum is present when a duly called or held meeting is convened, the
shareholders present may continue to transact business until adjournment,
even though the withdrawal of a number of shareholders originally
represented leaves less than the number otherwise required for a quorum.
Section 7. Voting and Proxies. At each meeting of the
shareholders every shareholder shall be entitled to one vote in person or
by proxy for each share of capital stock held by such shareholder, but no
appointment of a proxy shall be valid for any purpose more than eleven
(11) months after the date of its execution, unless a longer period is
expressly provided in the appointment. Every appointment of a proxy shall
be in writing (which shall include telegraphing, cabling, or
telephotographic transmission), and shall be filed with the Secretary of
the Corporation before or at the meeting at which the appointment is to be
effective. An appointment of a proxy for shares held jointly by two or
more shareholders shall be valid if signed by any one of them, unless the
Secretary of the Corporation receives from any one of such shareholders
written notice either denying the authority of that person to appoint a
proxy or appointing a different proxy. All questions regarding the
qualification of voters, the validity of appointments of proxies, and the
acceptance or rejection of votes shall be decided by the presiding officer
of the meeting. The shareholders shall take action by the affirmative vote
of the holders of a majority of the voting power of the shares present, in
person or represented by proxy, and entitled to vote, except where a
different vote is required by law, the Articles of Incorporation, or these
By-Laws.
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Section 8. Action Without Meeting by Shareholders. Any action
required or permitted to be taken at a meeting of the shareholders may be
taken without a meeting by written action signed by all of the
shareholders entitled to vote on such action. Such written action shall be
effective when signed by all of the shareholders entitled to vote thereon
or at such different effective time as is provided in the written action.
ARTICLE III
Directors
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. The directors may exercise all such powers and do all such
things as may be exercised or done by the Corporation, subject to the
provisions of applicable law, the Articles of Incorporation, and these
By-Laws.
Section 2. Number, Tenure, and Qualification.
(a) The Board of Directors of this Corporation shall consist of
five directors, subject to increase by the Board of Directors or decrease
by the Board of Directors to no fewer than four directors; provided,
however, that if the holders of any class or series of Preferred Stock,
voting as a separate class or series, have the right to elect director(s)
and such right is in effect, the number of directors shall be increased by
the number of directors that such holders may so elect and upon
termination of such right the number of directors shall be decreased by
the number of directors equal to such previous increase. No decrease in
the number of directors pursuant to this Section shall effect the removal
of any director then in office except upon compliance with the provisions
of these By-Laws and the Articles of Incorporation. Directors shall be
natural persons but
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need not be shareholders.
(b) The directors (other than those directors who may be elected
by the holders of any class or series of Preferred Stock voting as a
separate class or series) shall be divided into three classes (Class I,
Class II and Class III), with the number of directors in each class as
nearly equal as reasonably possible. The initial terms of office for the
Class I, Class II and Class III directors shall be as follows:
(i) Class I directors shall be elected to serve until the
conclusion of the 2000 Annual Meeting of Shareholders,
(ii) Class II directors shall be elected to serve until the
conclusion of the 2001 Annual Meeting of Shareholders, and
(iii) Class III directors shall be elected to serve until the
conclusion of the 2002 Annual Meeting of Shareholders,
and until such directors' successors shall have been duly elected and
qualified. Commencing with the 2000 Annual Meeting of Shareholders and
continuing at each annual meeting of shareholders thereafter, a director
(other than those directors who may be elected by the holders of any class
or series of Preferred Stock voting as a separate class or series) elected
to succeed a director whose term has expired shall be elected to serve
until the conclusion of the third succeeding annual meeting of
shareholders from the date of such director's election and until such
director's successor shall have been duly elected and qualified.
Section 3. Meetings. Meetings of the Board of Directors shall be
held immediately before or after, and at the same place as, regular
meetings of shareholders. Other meetings of the Board of Directors may be
held at such times and places as shall from time to time be determined by
the Board of Directors. Meetings of the Board of Directors
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also may be called by the Chief Executive Officer, the Chief Operating
Officer if any in the absence of the Chief Executive Officer, the Chief
Financial Officer in the absence of the Chief Executive Officer and Chief
Operating Officer, or by any director, in which case the person or persons
calling such meeting may fix the date, time, and place thereof, either
within or without the State of Minnesota, and shall cause notice of
meeting to be given.
Section 4. Notice of Meetings. If the date, time, and place of a
meeting of the Board of Directors has been announced at a previous
meeting, no notice is required. In all other cases three (3) days' notice
of meetings of the Board of Directors, stating the date and time thereof
and any other information required by law or desired by the person or
persons calling such meeting, shall be given to each director. If notice
of meeting is required, and such notice does not state the place of the
meeting, such meeting shall be held at the principal executive office of
the Corporation. Notice of meetings of the Board of Directors shall be
given to directors in the manner provided in these By-Laws for giving
notice to shareholders of meetings of shareholders.
Any director may waive notice of any meeting. A waiver of notice
by a director is effective whether given before, at, or after the meeting,
and whether given orally, in writing, or by attendance. The attendance of
a director at any meeting shall constitute a waiver of notice of such
meeting, unless such director objects at the beginning of the meeting to
the transaction of business on grounds that the meeting is not lawfully
called or convened and does not participate thereafter in the meeting.
Section 5. Quorum and Voting. A majority of the directors
currently holding office shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. In the absence of a
quorum, a majority of the directors present may adjourn
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the meeting from time to time until a quorum is present. If a quorum is
present when a duly called or held meeting is convened, the directors
present may continue to transact business until adjournment, even though
the withdrawal of a number of directors originally present leaves less
than the number otherwise required for a quorum.
The Board of Directors shall take action by the affirmative vote
of a majority of the directors present at any duly held meeting, except as
to any question upon which any different vote is required by law, the
Articles of Incorporation, or these By-Laws. A director may give advance
written consent or objection to a proposal to be acted upon at a meeting
of the Board of Directors. If the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the
proposal to which the director has consented or objected, such consent or
objection shall be counted as a vote for or against the proposal and shall
be recorded in the minutes of the meeting. Such consent or objection shall
not be considered in determining the existence of a quorum.
Section 6. Vacancies and Newly Created Directorships.
(a) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, newly created directorships resulting
from any increase in the number of authorized directors or eliminated
directorships resulting from any decrease in the number of authorized
directors shall be apportioned by the Board of Directors among the Class
I, Class II and Class III directors to keep the number in each such class
as nearly equal as reasonably possible; provided, however, that no
increase in the number of authorized directors shall shorten the term or
effect the removal of any incumbent director except upon compliance with
the provisions of Sections 7(a) or 7(b) of this Article III and the
Articles of Incorporation. Vacancies on the Board of Directors created by
any increase in the number of authorized directors may be filled by the
affirmative
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vote of a majority of the directors then holding office. A director so
chosen shall hold office for a term expiring at the next annual meeting of
shareholders at which the term of office of the class of directors to
which such director has been elected and until such director's successor
shall have been duly elected and qualified.
(b) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, any vacancies on the Board of
Directors resulting from the death, resignation, retirement,
disqualification, removal pursuant to Sections 7(a) or 7(b) of this
Article III and the Articles of Incorporation, or other cause (other than
a vacancy due to an increase in the number of authorized directors) may be
filled by the affirmative vote of a majority of the directors then holding
office, though less than a quorum. A director so chosen shall hold office
for a term expiring at the next annual meeting of shareholders at which
the term of office of such director's predecessor expires and until such
director's successor shall have been duly elected and qualified.
Section 7. Removal of Directors.
(a) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, the shareholders may remove a
director, at any time, with or without cause, but only if such removal is
approved by the affirmative vote of the holders of at least 80% of the
voting power of all of the then outstanding shares of capital stock of
this Corporation entitled to vote on such removal.
(b) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, the Board of Directors of this
Corporation, by the affirmative vote of a majority of the directors then
holding office, (i) may remove a director, at any time, with or without
cause, pursuant to the terms and provisions of Minnesota Statutes, Section
302A.223, subdivision 2 (or similar provision of future law) or (ii) may
remove a director,
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at any time, but only if such removal is for cause (as defined below),
regardless of whether (a) such director was appointed by the Board of
Directors to fill a vacancy on the Board of Directors and the shareholders
have elected any directors in the interval between the time of appointment
to fill such vacancy an the time of removal or (b) such director was
elected by the shareholders. For purposes of this subsection (b), "cause"
shall mean (1) misconduct as a director of this Corporation or any
subsidiary of this Corporation which involves dishonesty with respect to a
substantial or material corporate activity or corporate assets or (2)
conviction of an offense punishable by one (1) or more years of
imprisonment (other than minor regulatory infractions and traffic
violations which do not materially and adversely affect this Corporation).
Section 8. Committees. The Board of Directors, by a resolution
approved by the affirmative vote of a majority of the directors then
holding office, may establish one or more committees of one or more
persons having the authority of the Board of Directors in the management
of the business of the Corporation to the extent provided in such
resolution. Such committees, however, shall at all times be subject to the
direction and control of the Board of Directors. Committee members need
not be directors and shall be appointed by the affirmative vote of a
majority of the directors present. A majority of the members of any
committee shall constitute a quorum for the transaction of business at a
meeting of any such committee. In other matters of procedure the
provisions of these By-Laws shall apply to committees and the members
thereof to the same extent they apply to the Board of Directors and
directors, including, without limitation, the provisions with respect to
meetings and notice thereof, absent members, written actions, and valid
acts. Each committee shall keep regular minutes of its proceedings and
report the same to the Board of Directors.
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Section 9. Action in Writing. Any action required or permitted to
be taken at a meeting of the Board of Directors or of a lawfully
constituted committee thereof may be taken by written action signed by all
of the directors then in office or by all of the members of such
committee, as the case may be. If the action does not require shareholder
approval, such action shall be effective if signed by the number of
directors or members of such committee that would be required to take the
same action at a meeting at which all directors or committee members were
present. If any written action is taken by less than all directors, all
directors shall be notified immediately of its text and effective date.
The failure to provide such notice, however, shall not invalidate such
written action.
Section 10. Meeting by Means of Electronic Communication. Members
of the Board of Directors of the Corporation, or any committee designated
by such Board, may participate in a meeting of such Board or committee by
means of conference telephone or similar means of communication by which
all persons participating in the meeting can simultaneously hear each
other, and participation in a meeting pursuant to this section shall
constitute presence in person at such meeting.
ARTICLE IV
Officers
Section 1. Number and Qualification. The officers of the
Corporation shall be elected by the Board of Directors and shall include a
Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer.
The officers of the Corporation may include a Chief Operating Officer. The
Board of Directors may also appoint one or more Vice
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Presidents or such other officers and assistant officers as it may deem
necessary. Except as provided in these By-Laws, the Board of Directors
shall fix the powers, duties, and compensation of all officers. Officers
may, but need not, be directors of the Corporation. Any number of offices
may be held by the same person.
Section 2. Term of Office. An officer shall hold office until the
officer's successor shall have been duly elected, unless prior thereto the
officer shall have resigned or been removed from office as hereinafter
provided.
Section 3. Removal and Vacancies. Any officer or agent elected or
appointed by the Board of Directors shall hold office at the pleasure of
the Board of Directors and may be removed, with or without cause, at any
time by the vote of a majority of the Board of Directors. Any vacancy in
an office of the Corporation shall be filled by the Board of Directors.
Section 4. Chief Executive Officer. The Chief Executive Officer
shall be the chief executive of the Corporation, shall preside at all
meetings of the shareholders and, in the absence of the Chairman of the
Board, at meetings of the Board of Directors. The Chief Executive Officer
shall exercise such duties as customarily pertain to the office of Chief
Executive Officer and shall have the general supervision of the several
officers of the Corporation. The Chief Executive Officer shall see that
all orders and resolutions of the Board of Directors are carried into
effect and shall have such other powers and perform such other duties as
the Board of Directors may from time to time prescribe.
Section 5. Chief Operating Officer. The Chief Operating Officer,
if any, shall be the President of the Corporation and shall have general
and active supervision over the property, business, and affairs of the
Corporation. The Chief Operating Officer shall have the general powers and
duties usually vested in the offices of the Chief Operating
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Officer and President and shall have such other powers and perform such
other duties as the Chief Executive Officer or the Board of Directors may
from time to time prescribe.
Section 6. Chief Financial Officer. The Chief Financial Officer
shall have the general and active management of the funds and securities
of the Corporation. The Chief Financial Officer shall from time to time
report the Corporation's financial status and affairs to the Board of
Directors. The Chief Financial Officer shall have such other powers and
perform such other duties as the Chief Executive Officer or the Board of
Directors may from time to time prescribe.
Section 7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and of the shareholders and shall maintain records
of, and whenever necessary, certify all proceedings of the Board of
Directors and of the shareholders. The Secretary shall keep the stock
books of the Corporation and, when so directed by the Board of Directors
or other person or persons authorized to call such meetings, shall give or
cause to be given notice of meetings of the shareholders and of meetings
of the Board of Directors. The Secretary shall also perform such other
duties and have such other powers as the Chief Executive Officer or the
Board of Directors may from time to time prescribe.
Section 8. Treasurer. The Treasurer shall keep full and accurate
financial records for the Corporation and shall disburse the funds of the
Corporation as may be ordered from time to time by the Chief Executive
Officer or the Board of Directors. The Treasurer shall have such other
powers and perform such other duties as the Chief Executive Officer or the
Board of Directors may from time to time prescribe.
Section 8. Vice Presidents. The Vice President, if any, or Vice
Presidents in case there be more than one, shall have such powers and
perform such duties as the Chief
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Executive Officer or the Board of Directors may from time to time
prescribe.
Section 9. Other Officers. The Assistant Secretaries and
Assistant Treasurers in the order of their seniority, unless otherwise
determined by the Board of Directors, shall, in the absence or disability
of the Secretary or Treasurer, perform the duties and exercise the powers
of the Secretary and Treasurer respectively. Such Assistant Secretaries
and Assistant Treasurers shall have such other powers and perform such
other duties as the Chief Executive Officer or the Board of Directors may
from time to time prescribe. Any other officers appointed by the Board of
Directors shall hold office at the pleasure of the Board of Directors and
shall have such powers, perform such duties, and be responsible to such
other officers as the Board of Directors may from time to time prescribe.
ARTICLE V
Certificates and Ownership of Shares
Section 1. Certificates. All shares of the Corporation shall be
represented by certificates. Each certificate shall contain on its face
(a) the name of the Corporation, (b) a statement that the Corporation is
incorporated under the laws of the State of Minnesota, (c) the name of the
person to whom it is issued, and (d) the number and class of shares, and
the designation of the series, if any, that the certificate represents.
Certificates shall also contain any other information required by law or
desired by the Board of Directors, and shall be in such form as shall be
determined by the Board of Directors. Such certificates shall be signed by
either the Chief Executive Officer, the Secretary, or the Treasurer. If a
certificate is signed (1) by a transfer agent or an
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assistant transfer agent or (2) by a transfer clerk acting on behalf of
the Corporation and a registrar, the signature of any such Chief Executive
Officer, Secretary or Treasurer may be a facsimile. If a person signs or
has a facsimile signature placed upon a certificate while an officer,
transfer agent, or registrar of a Corporation, the certificate may be
issued by the Corporation, even if the person has ceased to have that
capacity before the certificate is issued, with the same effect as if the
person had that capacity at the date of its issue. All certificates for
shares shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares represented thereby are
issued with the number of shares and date of issue shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to
the Corporation or the transfer agent for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in
case of a lost, destroyed, or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the Corporation as the
Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by the holder's legal
representative who shall furnish proper evidence of authority to transfer,
or by the holder's attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and on surrender
of such shares to the Corporation or the transfer agent of the
Corporation.
Section 3. Ownership. Except as otherwise provided in this
Section, the person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for
all purposes. The Board of Directors, however,
16
<PAGE>
by a resolution approved by the affirmative vote of a majority of
directors then in office, may establish a procedure whereby a shareholder
may certify in writing to the Corporation that all or a portion of the
shares registered in the name of the shareholder are held for the account
of one or more beneficial owners. Upon receipt by the Corporation of the
writing, the persons specified as beneficial owners, rather than the
actual shareholder, shall be deemed the shareholders for such purposes as
are permitted by the resolution of the Board of Directors and are
specified in the writing.
ARTICLE VI
Contracts, Loans, Checks and Deposits
Section 1. Contracts. The Board of Directors may authorize such
officers or agents as they shall designate to enter into contracts or
execute and deliver instruments in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 2. Loans. The Corporation shall not lend money to,
guarantee the obligation of, become a surety for, or otherwise financially
assist any person unless the transaction, or class of transactions to
which the transaction belongs, has been approved by the affirmative vote
of a majority of directors present, and (a) is in the usual and regular
course of business of the Corporation, (b) is with, or for the benefit of,
a related Corporation, an organization in which the Corporation has a
financial interest, an organization with which the Corporation has a
business relationship, or an organization to which the Corporation has the
power to make donations, (c) is with, or for the benefit of, an officer or
other employee of the Corporation or a subsidiary, including an officer
17
<PAGE>
or employee who is a director of the Corporation or a subsidiary, and may
reasonably be expected, in the judgment of the Board of Directors, to
benefit the Corporation, or (d) has been approved by the affirmative vote
of the holders of two-thirds of the outstanding shares, including both
voting and nonvoting shares.
Section 3. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officers or
agents of the Corporation as shall be designated and in such manner as
shall be determined from time to time by resolution of the Board of
Directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks or other financial institutions as the Board of
Directors may select.
ARTICLE VII
Miscellaneous
Section 1. Dividends. The Board of Directors may from time to
time declare, and the Corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law.
Section 2. Reserves. There may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the directors
from time to time, in their absolute discretion, deem proper as a reserve
or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for the
purchase of additional property, or for such other purpose as the
directors shall
18
<PAGE>
deem to be consistent with the interests of the Corporation, and the
directors may modify or abolish any such reserve.
Section 3. Fiscal Year. The fiscal year of the Corporation shall
be established according to a four-week, four-week, five-week (4-4-5)
quarterly accounting cycle with the fiscal year ending on the Friday
closest to June 30 and the fiscal quarters ending on the Friday closest to
the last day of the respective month.
Section 4. Amendments.
(a) Except as limited by Minnesota Statutes Section 302A.181,
subd. 2 (or similar provision of future law), the Articles of
Incorporation or Section 4(b) of this Article VII, these By-Laws may be
amended, added to, altered, changed or repealed by the Board of Directors
at any meeting of directors to the full extent permitted by law, subject
however to the power of the shareholders of this Corporation to amend, add
to, alter, change or repeal such By-Laws.
(b) No amendment, addition, change or repeal of Sections 2, 6 or
7 of Article III of these By-Laws, after which this Corporation is to
continue in existence, shall be made unless such amendment, addition,
alteration, change or repeal is approved by the affirmative vote of the
holders of at least 80% of the voting power of all of the then outstanding
shares of capital stock entitled to vote on such amendment, addition,
alteration, change or repeal.
The undersigned, Chief Executive Officer of MEDgenesis Inc., a
Minnesota Corporation, does hereby certify that the foregoing By-Laws are
the By-Laws adopted for the Corporation by its Board of Directors by
unanimous action in writing dated the ___ day of ________, 2000.
19
<PAGE>
--------------------------------
Maurice R. Taylor II,
Chief Executive Officer
20
EXHIBIT 4.1
MEDGENESIS INC.
and
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
RIGHTS PLAN AGREEMENT
Dated as of _____________,2000
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Certain Definitions........................................1
Section 2. Appointment of Rights Agent................................5
Section 3. Issue of Right Certificates................................6
Section 4. Form of Right Certificates.................................7
Section 5. Countersignature and Registration..........................8
Section 6. Transfer, Split Up, Combination and Exchange
of Right Certificates; Mutilated, Destroyed,
Lost or Stolen Right Certificates..........................9
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights..................................9
Section 8. Cancellation and Destruction of Right Certificates........11
Section 9. Availability of Preferred Shares..........................12
Section 10. Preferred Shares Record Date .........................13
Section 11. Adjustment of Purchase Price, Number
of Shares or Number of Rights.............................13
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares..........................................23
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power................................23
Section 14. Fractional Rights and Fractional Shares...................25
Section 15. Rights of Action.........................................27
Section 16. Agreement of Right Holders................................27
Section 17. Right Certificate Holder Not Deemed a Shareholder........28
<PAGE>
Section 18. Concerning the Rights Agent...............................28
Section 19. Merger or Consolidation or Change of......................29
Name of Rights Agent
Section 20 Duties of Rights Agent....................................29
Section 21. Change of Rights Agent....................................31
Section 22. Issuance of New Right Certificates........................32
Section 23. Redemption................................................33
Section 24. Exchange..................................................34
Section 25. Notice of Certain Events..................................35
Section 26. Notices...................................................36
Section 27. Supplements and Amendments................................37
Section 28. Successors................................................37
Section 29. Benefits of this Agreement................................37
Section 30. Severability..............................................37
Section 31. Governing Law.............................................38
Section 32. Counterparts..............................................38
Section 33. Descriptive Headings......................................38
Signatures..................................................................39
Exhibit A - Certificate of Designation of Series A Junior Participating
Preferred Stock
Exhibit B - Form of Right Certificates
Exhibit C - Summary of Rights to Purchase Preferred Shares
<PAGE>
RIGHTS PLAN AGREEMENT
AGREEMENT, dated as of __________________, 2000, between MEDgenesis
Inc., a Minnesota corporation (the "Company"), and Norwest Bank Minnesota,
National Association (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
of the Company outstanding at the Close of Business on [TO BE DETERMINED], 2000
(the "Record Date"), each Right representing the right to purchase one
one-thousandth of a Preferred Share, upon the terms and subject to the
conditions herein set forth, and has further authorized and directed the
issuance of one Right with respect to each Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to Common
Shares that shall become outstanding after the Distribution Date and prior to
the earlier of the Redemption Date and the Final Expiration Date in accordance
with the provisions of Section 22 of this Agreement.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of the Threshold Percentage or more of the Common Shares then
outstanding, other than pursuant to a Permitted Offer, but shall not include any
Exempt Person. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to the
Threshold Percentage or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of the Threshold Percentage or more of the Common Shares of the Company
then outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, increase the number of Common Shares of the
Company beneficially owned by such Person above the number of Common Shares of
the Company beneficially owned by such Person at the time of the last such share
purchase by the Company, then such Person shall be deemed to be an "Acquiring
Person." Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person", as defined pursuant to the foregoing provisions of this paragraph, has
become such inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an
"Acquiring
<PAGE>
Person", as defined pursuant to the foregoing provisions of this paragraph, then
such Person shall not be deemed to be an "Acquiring Person" for any purposes of
this Agreement.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
A Person shall be deemed the "Beneficial Owner" of and shall
be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, including without
limitation securities with respect to which such Person or any such
Person's Affiliates or Associates has "beneficial ownership" pursuant
to Rule 13d-3 of the General Rules and Regulations under the Exchange
Act, as in effect on the date of this Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to
vote such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose
of acquiring, holding, voting (except to the extent contemplated by the
proviso to clause(ii)(B) above) or disposing of any securities of the
Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with
<PAGE>
the number of such securities not then actually issued and outstanding which
such Person would be deemed to own beneficially hereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of Minnesota are
authorized or obligated by law or executive order to close.
"Close of Business" on any given date shall mean 5:00 P.M.,
prevailing Minneapolis time, on such date; provided, however, that if such date
is not a Business Day, it shall mean 5:00 P.M., prevailing Minneapolis time, on
the next succeeding Business Day.
"Common Shares," when used with reference to the Company,
shall mean the shares of Common Stock, par value $.01 per share, of the Company.
"Common Shares," when used with reference to any Person other than the Company,
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of any other
Person, the Person or Persons which ultimately control such first mentioned
Person.
"Continuing Director" shall mean (a) any member of the Board
of Directors of the Company, while such Person is a member of the Board of
Directors, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, and was a member of the Board of Directors prior to the
date of this Agreement, or (b) any Person who subsequently becomes a member of
the Board of Directors, while such Person is a member of the Board of Directors,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person or of such Affiliate or Associate, if such Person's nomination for
election or election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors.
"Distribution Date" shall have the meaning set forth in
Section 3.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Exchange Date" shall have the meaning set forth in Section 7.
"Exempt Person" shall mean the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan, and any Person who or which, together
with all Affiliates and Associates of such Person, shall become the Beneficial
Owner of the Threshold Percentage or more of the then outstanding Common Shares
as the result of acquisitions of Common Shares directly from the Company;
provided however, that if a Person shall become the Beneficial Owner of the
Threshold Percentage or more of the Common Shares of the Company then
outstanding by reason of acquisitions of Common Shares directly from the Company
and shall, after such share acquisitions from the Company, increase the number
of Common Shares of the Company
<PAGE>
beneficially owned by such Person above the number of Common Shares of the
Company beneficially owned by such Person at the time of the last such share
acquisitions from the Company, then such Person shall be deemed to be an
"Acquiring Person".
"Final Expiration Date" shall have the meaning set forth in
Section 7.
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
"Permitted Offer" shall mean a tender offer or an exchange
offer for all outstanding Common Shares of the Company at a price and on terms
determined, prior to the purchase of shares under such tender or exchange offer,
by a majority of the Continuing Directors, after receiving advice from one or
more investment banking firms, to be (a) fair to shareholders of the Company
(taking into account all factors which such Continuing Directors deem relevant)
and (b) otherwise in the best interests of the Company, its shareholders,
employees, customers, suppliers and creditors and the communities in which the
Company does business, and which such Continuing Directors determine to
recommend to the shareholders of the Company.
"Preferred Shares" shall mean shares of Series A junior
Participating Preferred Stock, par value $.0l, of the Company having the rights
and preferences set forth in the form of Certificate of Designations attached to
this Agreement as Exhibit A.
"Redemption Date" shall have the meaning set forth in Section
7.
"Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii).
"Section 13 Event" shall mean any event described in clauses
(w), (x), (y) or (z) of Section 13(a).
"Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or any Person that such Person has become an Acquiring Person.
"Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
"Threshold Percentage" shall mean 15%.
"Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3,
<PAGE>
shall prior to the Distribution Date also be the holders of the Common Shares)
in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the Shares Acquisition Date or (ii) the
tenth day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an Acquiring Person) after
the date of the commencement by any Person (other than an Exempt Person) of, or
of the first public announcement of the intention of any Person (other than an
Exempt Person) to commence, a tender or exchange offer the consummation of which
would result in any Person becoming an Acquiring Person (the earlier of such
dates being referred to herein as the "Distribution Date"), (x) the Rights will
be evidenced (subject to the provisions of Section 3(b)) by the certificates for
Common Shares registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of Common Shares. As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit B (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) As soon as practicable after the Record Date, the Company will send
a copy of a Summary of Rights to Purchase Preferred Shares, in substantially the
form of Exhibit C (the "Summary of Rights"), by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Record Date, at the address of such holder shown on the records of the Company.
With respect to certificates for Common Shares outstanding as of the Close of
Business on the Record Date, until the Distribution Date, the Rights will be
evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights. Until the Distribution Date (or
the earlier of the Redemption Date or the Final Expiration Date if occurring
prior to the Distribution Date), the surrender for transfer of any certificate
for Common Shares outstanding on the Record Date, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding after the
Record Date but prior to the earliest of the Distribution Date, the Redemption
Date or the Final Expiration Date shall have impressed on, printed on, written
on or otherwise affixed to them the following legend:
<PAGE>
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Plan Agreement between
MEDgenesis Inc. and Norwest Bank Minnesota, National Association, dated
as of [TO BE DETERMINED], 2000 (the "Rights Plan Agreement"), the terms
of which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of MEDgenesis Inc.
Under certain circumstances, as set forth in the Rights Plan Agreement,
such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. MEDgenesis Inc. will mail to
the holder of this certificate a copy of the Rights Plan Agreement
without charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Plan Agreement,
Rights issued to any Person who becomes an Acquiring Person or an
Associate or Affiliate thereof (as defined in the Rights Plan
Agreement), or certain transferees of such Person, may become null and
void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
Section 4. Form of Right Certificates.
(a) The Right Certificates (and the forms of election to purchase
Preferred Shares and of assignment to be printed on the reverse thereof) shall
be substantially the same as Exhibit B and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange or automated quotations system on which the Rights may
from time to time be listed, or to conform to usage. Subject to the provisions
of Section 11, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-thousandths of a Preferred Share as shall be set
forth therein at the price per one one-thousandth of a Preferred Share set forth
therein (the "Purchase Price"), but the number of such one one-thousandths of a
Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon
<PAGE>
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Plan Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
President, any of its Vice Presidents or its Treasurer either manually or by
facsimile signature and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent for purposes of
authorization only and shall not be valid for any purpose unless countersigned.
In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Plan Agreement
any such Person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and Section
14, at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the earlier of the Redemption Date or the
Final Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
one one-thousandths of a Preferred Share (or, following a Triggering Event,
Common Shares, other securities, cash or other assets, as the case may be) as
the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the
<PAGE>
Rights Agent. Thereupon the Rights Agent shall, subject to Section 4(b), Section
7(e), Section 14 and Section 24, countersign and deliver to the Person entitled
thereto a Right Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue, execute and deliver
a new Right Certificate of like tenor to the Rights Agent for countersignature
and delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e), the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the office or
offices of the Rights Agent designated for such purpose, together with payment
of the Purchase Price for each one one-thousandth of a Preferred Share as to
which the Rights are exercised, at or prior to the earliest of (i) the Close of
Business on [TEN YEARS FROM EFFECTIVE DATE] (the "Final Expiration Date"), (ii)
the time at which the Rights are redeemed as provided in Section 23 (the
"Redemption Date") or (iii) the time at which such Rights are exchanged as
provided in Section 24 (the "Exchange Date").
(b) The Purchase Price for each one one-thousandth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $[XXX], shall
be subject to adjustment from time to time as provided in Sections 11 and 13 and
shall be payable in lawful money of the United States of America in accordance
with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Preferred Shares (or other shares,
securities, cash or other assets, as the case may be) to be purchased and an
amount equal to any applicable transfer tax required to be paid by the holder of
such Right Certificate in accordance with Section 9 by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent for
the Preferred Shares (or make available, if the Rights Agent is the transfer
agent for such shares) certificates for the number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company shall have elected to
deposit with a depository agent the total number of Preferred Shares issuable
upon exercise of the Rights hereunder, requisition from the depositary agent
depositary receipts representing such number of one one-thousandths of a
<PAGE>
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder, and (iv) when appropriate, after receipt,
deliver such cash to or upon the order of the registered holder of such Right
Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all of the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to
such holder's duly authorized assigns, subject to the provisions of Section 14.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
Beneficially Owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall become null and void without any further action and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or any of their respective
Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section unless such registered holder shall have (i) duly
completed and executed the form of election to purchase set forth on the reverse
side of the Right Certificate surrendered for such exercise and (ii) provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) of such Right Certificate or Affiliates or Associates thereof
as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for
<PAGE>
cancellation or in canceled form, or, if surrendered to the Rights Agent, shall
be canceled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Rights Plan
Agreement. The Company shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any other Right
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Right Certificates
to the Company, or shall, at the written request of the Company, and after any
Securities and Exchange Commission required retention period has elapsed,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued Preferred Shares, the
number of Preferred Shares that will be sufficient to permit the exercise in
full of all outstanding Rights.
(b) At such time, if any, as the Preferred Shares issuable upon the
exercise of Rights may be listed on any national securities exchange, the
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable (but only to the extent that it is reasonably likely
that the Rights will be exercised), all shares reserved for such issuance to be
listed on such exchange upon official notice of issuance upon such exercise.
(c) The Company will prepare and file, as soon as practicable after the
Distribution Date, a registration statement under the Securities Act of 1933, as
amended (the "Act"), with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, and use its best efforts to
cause such registration statement to (i) become effective as soon as practicable
after such filing, and (ii) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities or (B) the Final
Expiration Date. The Company will also take such action as may be appropriate
under, or to ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights. The Company
may temporarily suspend, for a period of time not to exceed 90 days after the
date the registration statement is filed, the exercisability of the Rights in
order to permit the registration statement to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained or the exercise thereof is not
permitted under applicable law.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares delivered upon exercise
of Rights shall, at the time of delivery of the certificates for such Preferred
Shares (subject to payment of the Purchase Price
<PAGE>
and any applicable transfer taxes), be duly and validly authorized and issued
and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates or
of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of the registered holder of the Right
Certificate evidencing Rights surrendered for exercise, or to issue or to
deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Shares Record Date. Each Person in whose name any
certificate for a number of one one-thousandths of a Preferred Share (or Common
Shares and/or other securities, as the case may be) is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Shares (or Common Shares and/or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the transfer books of the Company for the Preferred Shares are closed,
such Person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
such transfer books are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any rights
of a holder of Preferred Shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number and kind of shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11:
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e), the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled
<PAGE>
to receive the aggregate number and kind of shares of capital stock which, if
such Right had been exercised immediately prior to such date and at a time when
the Preferred Shares transfer books of the Company were open, such holder would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be made
prior to, any adjustment required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, other than pursuant to any transaction set forth in
Section 13(a), then proper provision shall be made so that each holder of a
Right (except as otherwise provided below and in Section 7(e)) shall thereafter
have a right to receive, upon exercise thereof at the then current Purchase
Price in accordance with the terms of this Agreement and in lieu of Preferred
Shares, such number of Common Shares of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event and
dividing that product by (y) 50% of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d)) on the date
of the occurrence of such event (such number of shares being referred to as the
"Adjustment Shares"). In the event that any Person shall become an Acquiring
Person and the Rights shall then be outstanding, the Company shall not take any
action which would eliminate or diminish the benefits intended to be afforded by
the Rights.
(iii) In the event that the number of Common Shares which are
authorized by the Company's Articles of Incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii) of this Section 11(a), the Company shall (A)
determine the value of the Adjustment Shares issuable upon the exercise of a
Right (the "Current Value"), and (B) with respect to each Right (subject to
Section 7(e) hereof), make adequate provision to substitute for the Adjustment
Shares, upon the exercise of a Right and payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price,
(3) Common Shares or other equity securities of the Company (including,
without limitations, shares, or units of shares, of preferred stock, such as the
Preferred Shares, which the Board has deemed to have essentially the same value
or economic rights as Common Shares (such shares of preferred stock being
referred to as "Common Share Equivalents")), (4) debt securities of the Company,
(5) other assets, or (6) any combination of the foregoing, having an aggregate
value equal to the Current Value (less the amount of any reduction in the
Purchase Price), where such aggregate value has been determined by the Board
based upon the advice of a nationally recognized investment banking firm
selected by the Board; provided, however, that if the Company shall not have
made adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the first occurrence of a Section 11(a)(ii) Event,
then the Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, Common Shares
(to the extent available) and then, if
<PAGE>
necessary, cash, which shares and/or cash have an aggregate value equal to the
Spread. For purposes of the preceding sentence, the term "Spread" shall mean the
excess of (i) the Current Value over (ii) the Purchase Price. If the Board
determines in good faith that it is likely that sufficient additional Common
Shares could be authorized for ISSUANCE upon exercise in full of the Rights, the
thirty (30) day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii) Event, in order
that the Company may seek shareholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is herein
called the "Substitution Period"). To the extent that action is to be taken
pursuant to the first and/or third sentences of this Section 11(a)(iii), the
Company (1) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek such shareholder approval for such authorization of additional
shares and/or to decide the appropriate form of distribution to be made pursuant
to such first sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iii), the value of each Adjustment Share shall be the
"current per share market price" (as determined pursuant to Section 11(d)(i))
per Common Share on the date of the first occurrence of Section 11(a)(ii) Event
and the per share or per unit value of any Common Share Equivalent shall be
deemed to equal the "current market price" per Common Share on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares (such shares are herein
called "preferred share equivalents")) or securities convertible into Preferred
Shares or preferred share equivalents at a price per Preferred Share or
preferred share equivalent (or having a conversion price per share, if a
security convertible into Preferred Shares or preferred share equivalents) less
than the then current per share market price (as such term is defined in Section
11(d)) of the Preferred Shares on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Preferred Shares outstanding on such
record date plus the number of Preferred Shares which the aggregate offering
price of the total number of Preferred Shares and/or preferred share equivalents
so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current market
price and the denominator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of additional Preferred Shares
and/or preferred share equivalents to be offered for subscription or purchase
(or into which the convertible securities so to be offered are initially
convertible); provided, however, that in no event shall the consideration to be
paid upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one Right. In
case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent
<PAGE>
and the holders of the Rights. Preferred Shares held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date is fixed;
and in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b)), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Preferred Shares on such record date,
less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share, and the denominator of which shall be such
current per share market price of the Preferred Shares; provided; however that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
immediately prior to such date; provided however, that in the event that the
current per share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-thecounter
<PAGE>
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or such other system then in use, or, if
on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of Directors
of the Company. If on any such day no market maker is making a market in the
Common Shares, the fair value of such share on such day as determined in good
faith by the Board of Directors of the Company shall be used in lieu of the
closing price for such day. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the Security
is not listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the "current per share market price" of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof), multiplied by one thousand. If neither the Common Shares
nor the Preferred Shares are publicly held or so listed or traded, "current per
share market price" of the Preferred Shares shall mean the fair value per share
as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) and
13(a), the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
<PAGE>
(h) Unless the Company shall have exercised its election as provided in
Section 11(i) below, subject to the provisions of Sections 11(a) and 13, upon
each adjustment of the Purchase Price as a result of the calculations made in
Sections 11(b) and (c), each Right outstanding immediately prior to the making
of such adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-thousandths of a Preferred Share
(calculated to the nearest one one-millionth of a Preferred Share) obtained by
(i) multiplying (x) the number of one one-thousandths of a share covered by a
Right immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-thousandths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14, the additional Rights to which such holders shall be entitled as
a result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein, may bear, at the option of
the Company, the adjusted Purchase Price, and shall be registered in the names
of the holders of record of Right Certificates on the record date specified in
the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-thousandths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
<PAGE>
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-thousandth of the then par value, if any, of
the Preferred Shares issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(1) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their sole discretion the Board of Directors of the Company
shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Shares, (ii) issuance wholly for cash of any
Preferred Shares at less than the current market price, (iii) issuance wholly
for cash of Preferred Shares or securities which by their terms are convertible
into or exchangeable for Preferred Shares, (iv) dividends on Preferred Shares
payable in Preferred Shares or (v) issuance of rights, options or warrants
referred to hereinabove in Section 11(b), hereafter made by the Company to
holders of its Preferred Shares shall not be taxable to such shareholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its subsidiaries in one or more transaction each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
<PAGE>
(o) The Company covenants and agrees that, after the Distribution Date,
it will not, except as permitted by Section 23, 24 or 27, take (or permit any
Subsidiary of the Company to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights unless
such action is approved by a majority of the Continuing Directors.
(p) Anything in this Agreement or the Rights to the contrary
notwithstanding, in the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (i) the
number of one one-thousandths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-thousandths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (ii) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(p) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected. If an event occurs which would require an adjustment under Section
11(a)(ii) and this Section 11(p), the adjustments provided for in this Section
11(p) shall be in addition and prior to any adjustment required pursuant to
Section 11(a)(ii).
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13, the Company
shall promptly (a) prepare a certificate setting forth such adjustment, and a
brief statement of the facts accounting for such adjustment, (b) file with the
Rights Agent and with each transfer agent for the Common Shares or the Preferred
Shares a copy of such certificate and (c) mail a brief summary thereof to each
holder of a Right Certificate in accordance with Section 25.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, on or following the Shares Acquisition Date,
directly or indirectly,
(w) the Company shall consolidate with, or merge with and into, any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o)) and the Company shall not be the continuing or
surviving corporation of such consolidation or merger,
(x) any Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(o)) shall consolidate with, or merge with and
into, the Company, the Company shall be the continuing or surviving corporation
of such consolidation or merger and, in connection with such consolidation or
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property,
<PAGE>
(y) the Company shall effect a statutory share exchange with the
outstanding Common Shares of the Company being exchanged for stock or other
securities of any other Person, cash or property, or
(z) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other Person
(other than the Company or one or more of its wholly owned Subsidiaries in a
transaction which complies with Section 11(o)),
then, and in each such case, except as contemplated by Section 13(e), proper
provision shall be made so that (i) each holder of a Right (except as otherwise
provided in Section 7(e)) shall thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price, in accordance with the
terms of this Agreement and in lieu of Preferred Shares, such number of validly
authorized and issued, fully paid, nonassessable and freely tradeable Common
Shares of the Principal Party, not subject to any liens, encumbrances, rights of
first refusal or adverse claims, as shall be equal to the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-thousandths
of a Preferred Share for which a Right is, immediately prior to the first
occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred
prior to the first occurrence of a Section 13 Event, multiplying the number of
such one one-thousandths of a shares for which a Right was exercisable
immediately prior to the first occurrence of the Section 11(a)(ii) Event by the
Purchase Price in effect immediately prior to the first occurrence), exercisable
and (y) dividing that product by 50% of the current per share market price of
the Common Shares of such Principal Party (determined pursuant to Section 11(d))
on the date of consummation of such Section 13 Event; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such merger,
consolidation, statutory share exchange, sale or transfer, all the obligations
and duties of the Company pursuant to this Agreement; (iii) the term "Company"
shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Shares to permit the exercise
of all outstanding Rights) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions of this Agreement
shall thereafter be applicable, as nearly as reasonably may be, in relation to
its Common Shares thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clauses (w), (x) or (y)
of the first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Company are converted in such merger,
consolidation or exchange, or if no securities are so issued, the Person that is
the other party to such merger, consolidation or exchange; and
<PAGE>
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions; provided, however, that in any such case, (1) if
the Common Shares of such Person are not at such time or have not been
continuously over the preceding 12-month period registered under Section 12 of
the Exchange Act, and such Person is a direct or indirect Subsidiary of another
Person the Common Shares of which are and have been so registered, "Principal
Party" shall refer to such other Person, and (2) in case such Person is a
Subsidiary, directly or indirectly, of more than one Person, the Common Shares
of two or more of which are and have been so registered, "Principal Party" shall
refer to whichever of such Persons is the issuer of the Common Shares having the
greatest aggregate market value.
(c) The Company shall not consummate any Section 13 Event unless the
Principal Party shall have a sufficient number of authorized, unreserved Common
Shares which have not been issued or are held in treasury to permit the exercise
in full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such Principal Party shall have executed and delivered
to the Rights Agent a supplemental agreement providing for the terms set forth
in paragraphs (a) and (b) of this Section 13 and further providing that, as soon
as practicable after the date of any Section 13 Event, the Principal Party will:
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of the
Rights, on an appropriate form, and use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after such
filing and (B) remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (1) the date as of which the
Rights are no longer exercisable for such securities or (2) the Final Expiration
Date;
(ii) take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights; and
(iii) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates which comply in all respects
with the requirements for registration on Form 10 under the Exchange Act.
(d) The Company shall not enter into any transaction of the kind
referred to in this Section 13 if at the time of such transaction there are any
rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights. Without limiting the generality of the preceding
sentence, in case the Principal Party which is to be a party to a transaction of
the kind referred to in this Section 13 has a provision in any of its authorized
securities or in its articles of incorporation or bylaws or other instrument
governing its corporate affairs, which provision would have the effect of (i)
causing such Principal Party to issue, in connection with, or as a consequence
of, the consummation of a transaction of the kind referred to in this Section
13, Common Shares of such Principal Party at less than the then current per
share market price (determined pursuant to Section 11(d)) or securities
exercisable for or convertible into Common Shares of such Principal Party at
less than
<PAGE>
such then current market price (other than to holders of Rights pursuant to this
Section 13) or (ii) providing for any special payment, tax or similar provisions
in connection with the issuance of Common Shares of such Principal Party
pursuant to the provisions of Section 13; then, in such event, the Company shall
not consummate any such transaction unless prior thereto the provision in
question of such Principal Party shall have been canceled, waived or amended so
as to avoid any of the effects referred to in clauses (i) and (ii) of this
paragraph, or the authorized securities shall have been redeemed, so that the
applicable provision will have no effect in connection with, or as a consequence
of, the consummation of the proposed transaction.
(e) Notwithstanding anything in this Agreement to the contrary, Section
13 shall not be applicable to a transaction described in clauses (w), (x) or (y)
of Section 13(a) if (i) such transaction is consummated with a Person or Persons
who acquired Common Shares pursuant to a Permitted Offer (or a wholly owned
Subsidiary of any such Person or Persons), (ii) the price per Common Share
offered in such transaction is not less than the price per Common Share paid to
all holders of Common Shares whose shares were purchased pursuant to such tender
offer or exchange offer and (iii) the form of consideration being offered to the
remaining holders of Common Shares pursuant to such transaction is the same as
the form of consideration paid pursuant to such tender offer or exchange offer.
Upon consummation of any such transaction contemplated by this Section 13(e),
all Rights hereunder shall expire.
(f) The provisions of this Section 13 shall similarly apply to
successive mergers, consolidations, statutory share exchanges or sale or other
transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a
<PAGE>
market in the Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the Rights, the fair
value of the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-thousandth of a Preferred
Share may, at the election of the Company, be evidenced by depositary receipts
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, however, that if the Company issues depositary
receipts pursuant to any such agreement, such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-thousandth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to
Section 11(d)) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives such
holder's right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in such holder's own behalf and
for such holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, such holder's right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
<PAGE>
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) subject to Section 6(a) and Section 7(f), the Company and the
Rights Agent may deem and treat the Person in whose name the Right Certificate
(or, prior to the Distribution Date, the associated Common Shares certificate)
is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right Certificates
or the associated Common Shares certificate made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to the contrary;
and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any holder of a
Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Shareholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions of
this Agreement.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without negligence, bad faith or
willful misconduct on the part of
<PAGE>
the Rights Agent, for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares (or for depositary receipts
evidencing fractional interests in Preferred Shares) or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties to this Agreement, provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
<PAGE>
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
President, any Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution of this Agreement by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights (including the Rights becoming void pursuant to Section 11(a)(ii)) or
any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the ascertaining
of the existence of facts that would require any such change or adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after receipt of actual notice from the Company stating that a change or
adjustment is required and specifying the manner and amount thereof); nor shall
it by any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any Preferred Shares to be issued pursuant
to this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
<PAGE>
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the President, any Vice President, the
Secretary or the Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer or for any delay in acting while waiting
for those instructions.
(h) The Rights Agent and any shareholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares and Preferred Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares and Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit such holder's Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a corporation organized and doing business under the laws of the
United States or of the State of Minnesota or New York (or of any other state of
the United States so long as such corporation is authorized to
<PAGE>
do business as a banking institution in the State of Minnesota or New York), in
good standing, having an office in the State of Minnesota or New York, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has or is a subsidiary of a corporation which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $100
million, or (b) an affiliate of a corporation described in clause (a) of this
sentence. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
and Preferred. Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement, granted or awarded as of the
Distribution Date, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (ii) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.
Section 23. Redemption.
(a) At least a majority of the Continuing Directors may, at their
option, at any time prior to the earlier of (i) the Shares Acquisition Date or
(ii) the Final Expiration Date, redeem all but not less than all of the then
outstanding Rights at a redemption price of $.0l per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date of this Agreement (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the Rights
by the Continuing Directors may be made
<PAGE>
effective at such time and on such basis and with such conditions as the
Continuing Directors in their sole discretion may establish. The Company may, at
its option, pay the Redemption Price in cash, Common Shares (based on the
"current market price", as defined in Section 11(d)(i), of the Common Shares at
the time of the redemption) or any other form of consideration deemed
appropriate by a majority of the Continuing Directors; provided, however, that
if the Company elects to pay the Redemption Price in Common Shares, the Company
shall not be required to issue any fractional Common Shares, and the number of
shares issuable to each holder of Rights shall be rounded down to the next whole
number.
(b) Immediately upon the action of the Continuing Directors ordering
the redemption of the Rights pursuant to paragraph (a) of this Section 23, and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within ten days after such action of the Board of Directors ordering the
redemption of the Rights, the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24, and other than in
connection with the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange.
(a) At least a majority of the Continuing Directors may, at their
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e)), for
Common Shares, with each Right to be exchanged for such number of Common Shares
as shall equal the result obtained by dividing (x) the Purchase Price by (y) the
current market price of the Common Shares (determined pursuant to Section 11(d)
(such number of shares being hereinafter referred to as the "Exchange Ratio").
The Exchange Ratio shall be appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date of this
Agreement. Notwithstanding the foregoing, the Continuing Directors shall not be
empowered to effect such exchange at any time after any Person (other than an
Exempt Person) together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Continuing Directors ordering
the exchange of any Rights pursuant to paragraph (a) of this Section 24 and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Common Shares equal to the number of
<PAGE>
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of outstanding and
exercisable Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii)) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
authorized but unissued and unreserved to permit any exchange of Rights as
contemplated in accordance with this Section 24, the Company shall take all such
action as may be necessary to authorize additional Common Shares for issuance
upon exchange of the Rights. In the event the Company shall, after good faith
effort, be unable to take all such action as may be necessary to authorize such
additional Common Shares, the Company shall substitute, for each Common Share
that would otherwise be issuable upon exchange of a Right, a number of Preferred
Shares or fraction thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal to the current
per share market price of one Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i)) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any dividend payable
in stock of any class to the holders of its Preferred Shares or to make any
other distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect
<PAGE>
any statutory share exchange with the outstanding Common Shares of the Company
being exchanged for stock or other securities of any other corporation or cash
or other property, (vi) to effect the liquidation, dissolution or winding up of
the Company, or (vii) to declare or pay any dividend on the Common Shares
payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26,
a notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, or distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) of this paragraph at least
ten days prior to the record date for determining holders of the Preferred
Shares for purposes of such action, and in the case of any such other action, at
least ten days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) shall occur, then
the Company shall as soon as practicable thereafter give to each holder of a
Right Certificate, in accordance with Section 26, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii).
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
MEDgenesis Inc.
5182 West 76th Street
Edina, MN 55439
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
Norwest Bank Minnesota, N.A.
Attention: Manager, Shareowner Services
161 North Concord Exchange Street
South St. Paul, MN 55075-1139
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
<PAGE>
Section 27. Supplements and Amendments. Prior to the Distribution Date
and subject to the penultimate sentence of this Section 27, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend any
provisions of this Agreement without the approval of any holders of certificates
representing shares of Common Stock; provided, this Agreement may not be
supplemented or amended without the approval of a majority of the Continuing
Directors. From and after the Distribution Date, the Company and the Rights
Agent shall, if the Company so directs, supplement or amend this Agreement
without the approval of any holders of Rights Certificates in order (i) to cure
any ambiguity, (ii) to correct or supplement or amend any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder or (iv) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person or an Affiliate
or Associate of an Acquiring Person); provided, this Agreement may not be
supplemented or amended without the approval of a majority of the Continuing
Directors. Upon delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section 27, the Rights Agent shall execute such
supplement or amendment. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the holders
of Common Shares.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Minnesota and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
<PAGE>
Section 32. 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 all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several Sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
MEDGENESIS INC.
By _________________________________
Maurice R. Taylor, II
Chief Executive Officer
NORWEST BANK MINNESOTA,
A NATIONAL ASSOCIATION
By__________________________________
Its
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
MEDGENESIS INC.
The undersigned hereby certifies that the Board of Directors of
MEDgenesis Inc. (the "Corporation"), a corporation organized and existing under
the Minnesota Business Corporation Act, duly adopted the following resolution on
______________, 2000:
RESOLVED, that a series of preferred stock of the Corporation is hereby
created, and the designation and amount thereof and the relative rights and
preferences of the shares of such series, are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Preferred
Shares") and the number of shares constituting the Preferred Shares shall be
200,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors and any necessary shareholder approval; provided,
however, that no decrease shall reduce the number of shares of Preferred Shares
to a number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Preferred Shares.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series of
preferred stock (or any similar stock) ranking prior and superior to the
Preferred Shares with respect to dividends, the holders of Preferred Shares, in
preference to the holders of Common Stock, par value $0.01 per share (the
"Common Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the first day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Preferred Shares, in an amount per share
(rounded to the nearest cent) equal to the greater of (i) $0.01 or (ii) subject
to the provision for adjustment hereinafter set forth, 1,000 times the aggregate
per share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all noncash dividends or other distributions, other
than a dividend payable in shares of Common Stock or a
<PAGE>
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Preferred Shares. In the event the Corporation shall at any time after
______________, 2000, declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each such
case the amount to which holders of shares of Preferred Shares were entitled
immediately prior to such event under clause (ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Preferred Shares as provided in paragraph (a) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
Common Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $0.01 per share on the Preferred Shares shall nevertheless be
payable, out of funds legally available for such purpose, on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Preferred Shares from their date of issue. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Preferred
Shares in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of Preferred
Shares entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights.
(a) Subject to the provision for adjustment hereinafter set forth, each
Preferred Share shall entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the shareholders of the Corporation. In the event the
Corporation shall at any time after ________________, 2000, declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per share to
which holders of shares of Preferred Shares were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
<PAGE>
(b) Except as otherwise provided herein or by law, the holders of
Preferred Shares and the holders of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of shareholders of the Corporation.
(c) Except as set forth herein or required by law, holders of Preferred
Shares shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Preferred Shares as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Preferred Shares outstanding shall have been paid
in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Preferred Shares;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Preferred Shares, except dividends paid
ratably on the Preferred Shares and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Preferred Shares; provided, however, that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Preferred Shares; or
(iv) redeem or purchase or otherwise acquire for consideration any
Preferred Shares, or any stock ranking on a parity with the Preferred Shares,
except in accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation
<PAGE>
could, under paragraph (a) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of preferred stock and
may be reissued as part of a new series of preferred stock subject to the
conditions and restrictions on issuance set forth herein, in the Articles of
Incorporation, or in any other certificate of designation creating a series of
preferred stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Preferred
Shares unless, prior thereto, the holders of Preferred Shares shall have
received the greater of (i) $1,000 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, or (ii) an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate amount to be distributed per share to holders of Common Stock, or (2)
to the holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Preferred Shares, except
distributions made ratably on the Preferred Shares and all such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time after _______________, 2000, declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Preferred Shares were entitled immediately prior to such
event under clause (1)(ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Preferred Shares shall at the same time be similarly exchanged or changed into
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 1,000 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after _____________, 2000, declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the
<PAGE>
exchange or change of shares of Preferred Shares shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The Preferred Shares shall not be redeemable.
Section 9. Rank. The Preferred Shares shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Corporation's preferred stock.
Section 10. Fractional Shares. Preferred Shares may be issued in
fractions of a share which are integral multiples of one one-thousandth of a
share which shall entitle the holder, in proportion to such holder's fractional
shares, to receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Preferred Shares.
Section 11. Amendment. The Articles of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or rights of the Preferred Shares so as to affect them
adversely without the affirmative vote of the holders of at least two-thirds of
the outstanding shares of Preferred Shares, voting together as a single class.
IN WITNESS WHEREOF, I have subscribed my name this _____ day of
_________, 2000.
MEDGENESIS INC.
By
Maurice R. Taylor, II
Chief Executive Officer
<PAGE>
EXHIBIT B
FORM OF RIGHT CERTIFICATES
Certificate No. R-_______ ____________Rights
NOT EXERCISABLE AFTER ________________, 2010 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT (SUBJECT
TO ADJUSTMENT) AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS PLAN
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS PLAN AGREEMENT,
RIGHTS BENEFICIALLY OWNED BY A PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON
OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS PLAN AGREEMENT) AND SUBSEQUENT HOLDERS OF SUCH RIGHTS MAY BECOME
NULL AND VOID.
RIGHT CERTIFICATE
MEDGENESIS INC.
This certifies that ________________,or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Plan Agreement, dated as of _________________, 2000 (the "Rights Plan
Agreement"), between MEDgenesis Inc., a Minnesota corporation (the "Company"),
and Norwest Bank Minnesota, National Association (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Plan Agreement) and prior to 5:00 P.M., Minneapolis
time, on ________________, 2010 at the office or offices of the Rights Agent
designated for such purpose, or of its successor as Rights Agent, one
one-thousandth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $120 (the "Purchase Price"),
upon presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandths of a Preferred Share which
may be purchased upon exercise hereof) set forth above, and the Purchase Price
set forth above, are the number and Purchase Price as of _____________, 2000,
based on the Preferred Shares as constituted at such date. As provided in the
Rights Plan Agreement, the Purchase Price and the number of one one-thousandths
of a Preferred Share which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.
<PAGE>
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Plan Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Plan Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates. Copies
of the Rights Plan Agreement are on file at the principal executive offices of
the Company and the above-mentioned office or offices of the Rights Agent and
will be mailed without charge by the Company or the Rights Agent to the holder
of this certificate promptly following receipt by the Company or the Rights
Agent of a written request therefor.
From and after the occurrence of a Section 11(a)(ii) Event (as such
term is defined in the Rights Plan Agreement), any Rights that are or were
acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) (as such terms are defined in the Rights
Plan Agreement) shall be void and any holder of such Rights shall thereafter
have no right to exercise such Rights under any provision of this Agreement.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or offices of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of Preferred Shares as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Plan Agreement, the Rights
evidenced by this certificate (i) may, but are not required to, be redeemed by
the Company at a redemption price of $.01 per Right, subject to adjustment as
provided in the Rights Plan Agreement, and (ii) may, but are not required to, be
exchanged by the Company in whole or in part for Common Shares.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Plan Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights Plan
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Plan Agreement), or to receive dividends or
<PAGE>
subscription rights, or otherwise, until the Right or Rights evidenced by this
Right Certificate shall have been exercised as provided in the Rights Plan
Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the manual or facsimile signature of the proper officer of the
Company.
Dated: _______________, 2000
MEDGENESIS INC.
By______________________________________
Maurice R. Taylor, II
Chief Executive Officer
Countersigned for purposes of authentication only:
NORWEST BANK MINNESOTA,
A NATIONAL ASSOCIATION
By________________________________________
Authorized Signature
<PAGE>
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED, _______________hereby sells, assigns and transfers
unto_____________________________ (PRINT NAME OF TRANSFEREE),
_______________________ ________________________________ (PRINT
ADDRESS OF TRANSFEREE), this Right Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Please insert social security number, taxpayer identification number or other
identifying number:
________________________________________________
Dated:___________________________________________
_________________________________________________
Signature
Signature Guaranteed:_______________________________________________
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE-CONTINUED
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To: [Name]
The undersigned hereby irrevocably elects to exercise _____________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security number,
taxpayer identification number or other identifying number:
____________________________________________________
____________________________________________________
(Please print name and address)
_____________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security number,
taxpayer identification number or other identifying number:
______________________________________________________
(Please print name and address)
Dated:_________________________________________________
Signature_________________________________________
Signature Guaranteed:______________________________________________
<PAGE>
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
EXHIBIT C
MEDGENESIS INC.
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On _____________________, 2000, the Board of Directors of MEDgenesis
Inc. (the "Company"), declared a dividend of one preferred share purchase right
(a "Right") per share for each outstanding share of Common Stock, par value $.01
(the "Common Shares"), of the Company. The dividend is payable on
______________, 2000 (the "Record Date") to shareholders of record on that date.
Each Right entitles the registered holder to purchase from the Company
one one-thousandth of a share of Series A Junior Participating Preferred Stock,
par value $.01 (the "Preferred Shares"), of the Company at a price of $120 per
one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Plan Agreement (the "Rights Plan Agreement"), dated as of ______________, 2000,
between the Company and Norwest Bank Minnesota, National Association, as Rights
Agent (the "Rights Agent").
Initially, the Rights will be evidenced by the certificates
representing Common Shares then outstanding and no separate Right Certificates
will be distributed. The Rights will separate from the Common Shares, and a
Distribution Date for the Rights will occur upon the earlier of: (i) the first
date of public announcement that a Person or group of affiliated or associated
Persons has become an "Acquiring Person" (i.e., has become, subject to certain
exceptions, the beneficial owner of 15% or more of the outstanding Common
Shares) (except pursuant to a Permitted Offer, as hereinafter defined) and (ii)
the 10th day following the commencement or public announcement of a tender offer
or exchange offer, the consummation of which would result in a Person or group
of affiliated or associated Persons becoming, subject to certain exceptions, the
beneficial owner of 15% or more of the outstanding Common Shares (or such later
date as may be determined by the Board of Directors of the Company prior to a
Person or group of affiliated or associated Persons becoming an Acquiring
Person) (the earlier of such dates being called the "Distribution Date").
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Share certificates and will be transferred with and only with the Common
Shares, (ii) new Common
<PAGE>
Share certificates issued after the Record Date upon transfer or new issuance of
the Common Shares will contain a notation incorporating the Rights Plan
Agreement by reference, and (iii) the surrender for transfer of any Common Share
certificate, even without such notation or a copy of this Summary of Rights
attached thereto, will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate.
As promptly as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date, and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on __________________, 2010, unless extended or earlier redeemed or
exchanged by the Company as described below.
The Purchase Price payable and the number of Preferred Shares or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution: (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain
rights, options or warrants to subscribe for or purchase Preferred Shares or
convertible securities at less than the then current market price of the
Preferred Shares, or (iii) upon the distribution to holders of the Preferred
Shares of evidences of indebtedness or assets (excluding regular periodic cash
dividends or dividends payable in Preferred Shares) or of subscription rights or
warrants (other than those described in clause (ii) of this paragraph). With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in the Purchase
Price.
No fraction of a Preferred Share (other than fractions in integral
multiples of one one-thousandth of a share) will be issued and, in lieu thereof,
an adjustment in cash will be made based on the closing price on the last
trading date prior to the date of exercise.
The number of outstanding Rights and the number of one one-thousandth
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $.0l per share but will be entitled to an
aggregate dividend of 1,000 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $.01 per share but will be entitled
to an aggregate payment of 1,000 times the payment made per Common Share. Each
Preferred Share will have 1,000 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share
<PAGE>
will be entitled to receive 1,000 times the amount received per Common Share.
These rights are subject to adjustment in the event of a stock dividend on the
Common Shares or a subdivision, combination or consolidation of the Common
Shares.
In the event that a person or group becomes an Acquiring Person (except
pursuant to a Permitted Offer (as defined below)), each holder of a Right, other
than the Acquiring Person or the affiliates, associates or transferees thereof
(whose Rights will thereafter be void), will thereafter have the right to
receive upon exercise thereof at the then current exercise price of the Right
that number of Common Shares having a market value of two times the exercise
price of the Right, subject to certain possible adjustments.
In the event that the Company is acquired in certain mergers or other
business combination transactions or 50% or more of the assets or earning power
of the Company and its subsidiaries (taken as a whole) are sold after a person
or group becomes an Acquiring Person (except pursuant to a Permitted Offer),
holders of the Rights will thereafter have the Right to receive, upon exercise
thereof at the then current exercise price of the Right, that number of Common
Shares of the acquiring company (or, in certain cases, one of its Affiliates)
having a market value of two times the exercise price of the Right.
A "Permitted Offer" is a tender offer or an exchange offer for all
outstanding Common Shares of the Company at a price and on terms determined by a
majority of the Board of Directors of the Company who are not officers of the
Company and who are not Acquiring Persons or affiliates or associates of an
Acquiring Person and after receiving advice from one or more investment banking
firms, to be (a) fair to shareholders (taking into account all factors which the
Board of Directors deems relevant) and (b) otherwise in the best interests of
the Company and its shareholders, employees, customers, suppliers and creditors
and the communities in which the Company does business, and which the Board of
Directors determines to recommend to the shareholders of the Company.
At any time after a Person becomes an Acquiring Person (subject to
certain exceptions), and prior to the acquisition by a Person of 50% or more of
the outstanding Common Shares, the Continuing Directors may exchange all or part
of the Rights for Common Shares at an exchange ratio per Right equal to the
result obtained by dividing the exercise price of a Right by the current per
share market price of the Common Shares, subject to adjustment.
At any time before a Person has become an Acquiring Person, the
Continuing Directors may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (the "Redemption Price"), subject to adjustment. The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as such Continuing Directors may, in their sole discretion,
establish.
A "Continuing Director" is a member of the Board of Directors who was a
member of the Board on _____________________, 2000, or who subsequently became
or becomes a member of the Board of Directors with the recommendation or
approval of a majority of the Continuing Directors. Continuing
<PAGE>
Directors do not include any Acquiring Person or affiliate or associate of an
Acquiring Person.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including without limitation, the right
to vote or to receive dividends.
A copy of the Rights Plan Agreement is available free of charge from
the Company by contacting the Secretary at MEDgenesis Inc., 5182 West 76th
Street, Edina, MN 55439. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights Plan
Agreement, which is hereby incorporated herein by reference.
EXHIBIT 10.1
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT, effective as of ________, 2000 (the
"Agreement") is by and between MEDgenesis Inc., a Minnesota corporation
("MEDgenesis"), and Chronimed Inc., a Minnesota corporation ("Chronimed").
RECITALS:
1. Chronimed has formed MEDgenesis as a wholly-owned subsidiary of
Chronimed, and contributed to MEDgenesis the business (the "Business") and
assets of Chronimed's Diagnostic Products Division.
2. Chronimed and MEDgenesis have entered into a Distribution and
Spin-Off Agreement dated as of the date hereof (the "Distribution Agreement")
under which Chronimed will distribute all of the outstanding stock of MEDgenesis
to the shareholders of Chronimed. The effective date of such distribution (the
"Effective Date") is the close of business on June 30, 2000.
3. The Distribution Agreement contemplates that Chronimed and
MEDgenesis shall enter into an agreement under which certain services will be
provided by Chronimed to MEDgenesis.
NOW, THEREFORE, the parties hereto agree as follows:
1. Services.
(a) Chronimed agrees to provide to MEDgenesis, during the term
provided in this Section 1, those Transition and other services with respect to
the MEDgenesis Business listed and described in Exhibit A hereto (the
"MEDgenesis Services"), at the rates specified in Exhibit A hereto. The
MEDgenesis Services are based on the parties' understanding of the support and
Transition services reasonably required by MEDgenesis at the date of this
Agreement. MEDgenesis shall pay Chronimed, for the MEDgenesis Services, on a
monthly basis, the amounts stated in Exhibit A hereto.
(b) Chronimed shall perform the Services in a timely,
efficient and workmanlike manner substantially consistent with the recent
historical practice of Chronimed.
(c) The employees or agents of Chronimed providing such
services shall remain employees or agents of Chronimed. Chronimed shall use its
discretion in performing the Services, subject to the general direction of
MEDgenesis and subject to compliance with applicable law. Chronimed shall
determine its work location, hours and rules. However, to the extent employees
of Chronimed shall be on the premises of MEDgenesis, they shall observe the
-1-
<PAGE>
working hours and working rules of such premises.
(d) Charges for the MEDgenesis Services shall be invoiced on
or about the twentieth business day of the calendar month next following the
calendar month in which the Services have been performed, and such invoice shall
be payable net 30 days following receipt thereof.
2. Occupancy of Facilities.
(a) If requested in writing by MEDgenesis, Chronimed shall
give MEDgenesis the right, as of the Effective Date, to have access to, occupy
and use the portions of the Chronimed facilities described in Exhibit B, which
are presently occupied and used to conduct the Business (such portions, the
"Facilities"), on a basis substantially consistent with the recent historical
practice of the Business, for the term set forth in Exhibit B hereto. Prior to
the first of each month, MEDgenesis shall pay the monthly fee set forth in
Exhibit B hereto for the Facility.
(b) The access, occupancy and use by MEDgenesis of the
Facilities following the date hereof shall be at the expense and risk of
MEDgenesis. MEDgenesis shall indemnify and hold harmless Chronimed, its
subsidiaries and its and its subsidiaries' employees and agents (the "Chronimed
Group") from and against any loss, expense, damage, liability or claim
(including reasonable attorneys' fees) arising from any negligence or misconduct
of or on behalf of MEDgenesis, or its employees or agents (the "MEDgenesis
Group"), and Chronimed shall indemnify and hold harmless the MEDgenesis Group
from and against any loss, expense, damage, liability or claim (including
reasonable attorneys' fees) arising from any negligence or misconduct of or on
behalf of members of the Chronimed Group, during such access, occupancy or use.
3. Termination.
(a) Termination Without Prior Notice. Chronimed and MEDgenesis
may each immediately terminate this Agreement by written notice to the other (i)
in the event of the other's voluntary bankruptcy or insolvency, (ii) in the
event that the other shall make an assignment for the benefit of creditors, or
(iii) in the event that a petition shall have been filed against the other under
any bankruptcy law, corporate reorganization law or other law for relief of
debtors (or any other law similar in purpose or effect), which has caused the
other to have its business effectively discontinued in its then present form.
(b) Termination With Notice. If either Chronimed or MEDgenesis
(the "Defaulting Party") shall fail adequately to perform in any material
respect any of its material obligations under this Agreement, whether
voluntarily or involuntarily or as a result of any law or regulation or
otherwise, the other may terminate this Agreement upon 10 days' written notice
in the event of failure of Chronimed or MEDgenesis to make payment in accordance
with this Agreement and upon thirty (30) days' written notice otherwise, to the
Defaulting Party specifying the respects in which the Defaulting Party has so
failed to perform its obligations under this Agreement, unless during such
period the Defaulting Party shall have remedied such failure.
-2-
<PAGE>
(c) Termination of Services. MEDgenesis may terminate any of
the MEDgenesis Services being provided by Chronimed or MEDgenesis's use of the
Facilities at any time during the term of the Agreement by written notice to
Chronimed sixty (60) days prior to the requested termination date. Chronimed may
terminate its provision of any of the MEDgenesis Services or MEDgenesis's use of
the Facilities by written notice to MEDgenesis sixty (60) days prior to the
requested termination date, provided that such termination date shall not be
before December 31, 2000, without the consent of MEDgenesis.
4. Limitation of Liability. Neither Chronimed nor MEDgenesis shall be
liable for any indirect, special or consequential damages in connection with, or
arising out of, this Agreement or the Services provided under this Agreement.
5. Disclaimer of Warranties. Except as expressly set forth in this
Agreement or in any other agreement between the parties modifying or
supplementing this Agreement, neither Chronimed nor MEDgenesis makes any
representation or warranty whatsoever, express or implied, including, but not
limited to, any representation or warranty as to merchantability or fitness for
a particular purpose, arising out of this Agreement or the Services provided
under this Agreement.
6. Notices. All notices, requests, demands and other communications
under this Agreement shall be given in accordance with the Distribution
Agreement.
7. General.
(a) Except as otherwise provided in this Agreement, neither
Chronimed nor MEDgenesis shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other, which
consent shall not be unreasonably withheld, and any such attempted assignment
without such prior written consent shall be void and have no force or effect.
This Agreement shall inure to the benefit of, and shall be binding upon, the
successors and permitted assigns of Chronimed and MEDgenesis.
(b) Each of Chronimed and MEDgenesis agrees that it shall take
appropriate action by instruction of or agreement with its personnel, to ensure
that all personnel performing Services under this Agreement shall be bound by
and comply with all of the terms and conditions of this Agreement.
(c) Each of Chronimed and MEDgenesis shall be responsible for
its actions in the performance of the Services and shall indemnify, hold
harmless and defend (upon request) the other from and against all claims and
losses of any type, but subject to the limitations of Section 4, (including
reasonable attorneys' fees) in connection with, in whole or in part, any
negligent act or omission, willful misconduct, or failure to comply with
federal, state or local law, in the performance of the Services.
(d) No person providing Services shall be liable for any
failure of, or delay in
-3-
<PAGE>
the performance of, Services under this Agreement for the period that such
failure or delay is due to acts of God, public enemy, civil war, strikes or
labor disputes, or any other cause beyond its reasonable control. Each of
Chronimed and MEDgenesis agrees to notify the other hereto promptly of the
occurrence of any such cause and to carry out this Agreement as promptly as
practicable after such cause is terminated.
(e) This Agreement and the Distribution Agreement constitutes
the entire agreement of Chronimed and MEDgenesis with respect to the Services.
This Agreement may be amended or modified, and any of the terms or conditions
hereof may be waived, only by a written instrument executed by Chronimed and
MEDgenesis, or in the case of a waiver, by the party waiving compliance. Any
waiver by either Chronimed or MEDgenesis of any condition, or of the breach of
any provision or term in any one or more instances, shall not be deemed to be
nor construed as a further or continuing waiver of any such condition, or of the
breach of any other provision or term of this Agreement.
(f) Nothing in this Agreement is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other than
Chronimed or MEDgenesis and their respective successors and permitted assigns.
Nothing in this Agreement is intended to relieve or discharge the obligations or
liability of any third persons to Chronimed or MEDgenesis. No provision of this
Agreement shall give any third persons any right of subrogation or action over
or against Chronimed or MEDgenesis.
(g) This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Minnesota without
reference to principles of conflicts of law.
(h) The section headings in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(i) This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
CHRONIMED INC. MEDGENESIS INC.
By:_______________________ By:__________________________
Its:_______________________ Its:__________________________
-4-
<PAGE>
EXHIBIT A
Services Rate Scope
- - - - - - -------- ---- -----
1. Information Services Per attached Per attached
consulting Schedule A-1 Schedule A-1
2. Accounting consulting $10,000 To include general
per month ledger, accounts payable,
and payroll support
consistent with historic
levels for the Diagnostic
Products unit
3. Legal consulting $4,000 per Up to 8 hours
per week of general legal
support
Services provided after December 31, 2000, if any, shall be subject to
renegotiation of rates. Accounting and legal services shall consist of personal
services only, with MEDgenesis to be responsible for providing all office
facilities, equipment and supplies necessary to support such services.
-5-
<PAGE>
SCHEDULE A-1
INFORMATION SYSTEMS
<TABLE>
<CAPTION>
- - - - - - ------------------- -------------------------------------------------------------------------------------------------
Telephone System(s)
-------------------
<S> <C>
$5,000/mth A monthly fee of $5,000/month will be charged for
Chronimed Telecommunication's support of the Red Circle,
Edina and Bury Drive PBX, ACD, and Voicemail systems.
Chronimed will also manage both local and long distance
carriers for MEDgenesis. This is contingent upon the
build out of a switch room at the Edina facility, so it
is unlikely that the following will be completed prior
to Fall 2000;
a) Purchase and install a Nortel Option 11 PBX telephone switch.
b) Install Voicemail software on the new Option 11.
c) Install the Option 11 at Edina (contingent upon having a switch room built).
d) Connect the Edina and Bury Drive facilities via a T1 so that Bury drive gets its
voicemail service from Edina instead of Red Circle.
e) Connect Bury Drive facilities security to a new
system to be installed at Edina. Disconnect Bury
Drive security from the Red Circle security system.
f) Secure local and long distance service for MEDgenesis at Edina.
g) Move the MEDgenesis 1-800 numbers to Edina.
$1,000/mth The monthly telecommunications support fee will be
reduced to $1,000/month after the Edina and Bury Drive
phone systems are fully operational (see above a-g), and
while MEDgenesis still has employees located at Red
Circle using the Red Circle PBX and Voicemail resources.
It is thought this service would not be needed after
December 30, 2000.
Chronimed IS Telecommunication staff will handle adds/moves/changes and service calls for
$75/hr telephone support for MEDgenesis on a per call basis of
$75/hour, in 15 minute increments and with a 15 minute
minimum. This service will not be offered after the
Edina and Bury Drive phone systems are fully operational
(see above a-g).
- - - - - - ------------------- -------------------------------------------------------------------------------------------------
Servers, Networks and Desktops
------------------------------
$18,000/mth A monthly fee of $18,000/month will be charged for Chronimed IS support of the MEDgenesis
local area networks at Edina, Bury Drive and Red Circle as well as the wide area network
connecting the three facilities, and the virtual private network supporting the traveling
sales force. This fee also includes support of all the MEDgenesis application and file
servers (CAMELOT, Visual Manufacturing, ADP, E-Time, etc.), as well as providing Level 1
Help Desk support. This fee will remain in place until the chosen Application Service
Provider (ASP) takes over this responsibility. It is anticipated that this service will
not be needed after August 1, 2000.
Chronimed IS technical staff will handle PC adds/moves/changes and service calls for PC
$75/hr support for MEDgenesis on a per call basis of $75/hour,
in 15 minute increments and with a 15 minute minimum.
This service will not be offered after the ASP has taken
over support of the networks, servers and desktops -
anticipated to be by August 1, 2000.
- - - - - - ------------------- -------------------------------------------------------------------------------------------------
-6-
<PAGE>
- - - - - - ------------------- -------------------------------------------------------------------------------------------------
Data General Support
--------------------
$6,300/mth A monthly fee of $6,300/month will be charged for
Chronimed IS support of the Data General system located
at Red Circle.
$3,000/mth The monthly Data General fee will be reduced to
$3,000/month once the Lilly Visual Manufacturing System
has been up and running for thirty days - anticipated to
be September 1, 2000. Through the end of the calendar
year the system will be used primarily for A/R and
historical look-ups. This reduced rate is reflective of
the anticipated reduced DG usage. It is anticipated that
this service will be available through December 31,
2000, after which the Data General will no longer be
accessible to MEDgenesis
- - - - - - ------------------- -------------------------------------------------------------------------------------------------
Transition Planning, Consultation and Support
---------------------------------------------
$115/hr Chronimed IS transition planning and consultation (Pat
Taffe, Michael Hanson, Lauri Burmeister) will be billed
at a rate of $115/hour.
$90/hr Chronimed IS technical consulting (Chris Casper) will be billed at a rate of $90/hour.
- - - - - - ------------------- -------------------------------------------------------------------------------------------------
</TABLE>
Specific "out of pocket expenses" such as outside consultants, small equipment
or software purchases, etc. will be billed directly to MEDgenesis. Chronimed
will bill MEDgenesis a fixed monthly charge and people's time PLUS materials.
-7-
<PAGE>
EXHIBIT B
FACILITIES AND RATES
Upon written request by MEDgenesis, Chronimed will sublease to
MEDgenesis and MEDgenesis will sublease from Chronimed approximately 2,364
square feet of general office space (the "Sublease Premises") located within
Chronimed's Office Facility at 10900 Red Circle Drive, Minnetonka, Minnesota
(the "Office Facility"). The Sublease Premises will consist of the area or areas
in use by employees of Chronimed's Diagnostic Products division on the date of
the spin-off.
Chronimed will charge and MEDgensis will pay sublease base rent,
utility and operating expenses for the Sublease Premises in the amount of $24.32
per square foot (annualized). MEDgenesis shall pay Chronimed such sublease
payments on or before the first day of each month of occupancy.
MEDgenesis' sublease rights and obligations shall be subordinate to all
Chronimed rights and obligations under its master lease with the Office Facility
landlord. MEDgenesis shall receive all reasonable rights of ingress and egress,
use of common area space, and use of parking facilities presently afforded
Chronimed under its master lease for the office space. MEDgenesis shall bear all
responsibility for damage caused by its employees, agents, or invitees to the
Sublease Premises and Office Facility common or parking areas, ordinary wear and
tear excepted.
The sublease rights and occupancy granted herein shall terminate
December 31, 2000.
-8-
EXHIBIT 10.2
PURCHASE AND PRICE AGREEMENT
THIS AGREEMENT is entered into by and between MEDgenesis Inc.
("Seller"), having its principal place of business at 5182 W. 76th Street,
Edina, Minnesota 55439 and Home Service Medical & Pharmacy, Inc. ("Buyer"),
whose mailing address is 10900 Red Circle Drive, Minnetonka, Minnesota 55343.
This Agreement sets forth the terms and conditions for the sale of the
products set forth in the attached price list by Seller and the purchase of the
Products by Buyer.
1. Exclusive Purchase Terms. During the term of this Agreement, Buyer
agrees to use Seller as a source of Seller-branded blood glucose meters, urine
strips, infusion sets, and lancets according to the terms of this Agreement.
Buyer shall purchase such quantities of the Products as it desires by issuing
individual purchase orders to Seller as authorization to ship Products.
To continue receiving the pricing provided in this Agreement, Buyer
must continue to purchase a minimum of $300,000 of MEDgenesis proprietary
products annually beginning with the effective date of this Agreement. Buyer's
purchase orders shall specify the products ordered, the quantity, purchase
price, destination and method of shipment, in accordance with the terms of this
Agreement.
Purchase orders are subject to written acceptance by the Seller
according to the terms of this Agreement. No term or condition stated in the
purchase order shall add to, modify or otherwise alter the terms and conditions
of this Agreement. Buyer's shall resell the Products direct to individual
consumers only.
2. Payment Terms Payment terms for all Products ordered under this
Agreement shall be 2% 20 / Net 30 days. Buyer shall pay all invoices within 30
days of invoice date. Without affecting any other Seller remedy, Seller may
apply a late charge of one and one-half percent per month (or the maximum amount
allowed by law, if less), commencing on the date due of any past due invoice and
until paid in full.
3. Shipping Terms. All orders greater than $2500.00 shall be FOB
Destination to the Buyer's distribution centers in the continental United
States. Buyer shall not require the Seller to engage in any drop shipments of
the Products. Shipments shall be made by regular courier unless Buyer, in
writing, so requests special delivery in which case Buyer shall be responsible
for the costs of such special delivery.
4. Term of Agreement. This Agreement shall commence on the effective
date of the MEDgenesis spin-off from Chronimed Inc. and continue for a period of
three years thereafter, unless sooner terminated in accordance with the terms
hereof or by the mutual written consent of the parties (the "Term").
<PAGE>
5. Product Delivery. Seller agrees to deliver the Products specified in
Buyer's purchase orders to Buyer's distribution centers within seven (7) working
days after receipt of the purchase order.
6. Pricing. During the term of this Agreement, the Products shall be
sold to Buyer at the prices listed on the attachment hereto, subject to Buyer
meeting the minimum purchase requirements listed in Paragraph 1 above. Seller's
invoice to Buyer shall accurately list prices for such order in accordance with
the terms of this Agreement.
7. Seller's Representations. During the Term of this Agreement, Seller
agrees to:
(a) provide and maintain a toll free customer and technical
service telephone number, and
(b) provide Buyer with product information for marketing purposes
and product samples for evaluation purposes in reasonable
quantities at no charge to Buyer.
8. Buyer's Representations. During the Term of this Agreement, Buyer
agrees to:
(a) provide monthly sales tracing reports for all customer sales,
(b) promote MEDgenesis proprietary products in product catalogs,
internal promotions and training meetings, and
(c) not re-label, modify, combine or in any other manner tamper
with any of the Products without the express written consent
of Seller.
9. Product Quality and Warranties. Seller warrants that it has good
title to the Products sold to Buyer and the Products are free and clear from all
liens and encumbrances. No substitution of Products may be made by Seller
without the express written consent of Buyer. Seller warrants that the Products
are free from defects in material and workmanship at the time of shipment from
Seller's facility. Seller further warrants that the Products will, as of the
date of shipment by Seller, be properly manufactured, processed, blended,
branded and labeled within the meaning of the federal Food, Drug and Cosmetic
Act, and therefore may be introduced into interstate commerce. Seller's
obligations under this limited warranty are limited to replacement of the
Product. Buyer must notify Seller within 30 days of physical receipt of the
Product of nonconformance with this limited warranty. As an alternative to
replacement, Seller may, in its sole discretion, refund the invoice cost of the
returned Product.
THE FOREGOING SHALL BE THE SOLE AND EXCLUSIVE REMEDY WHETHER IN
CONTRACT, TORT OR OTHERWISE. THERE ARE NO
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WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS SPECIFICALLY SET FORTH HEREIN.
10. Purchase Commitments. Buyer reserves the right to increase,
decrease or maintain its purchase levels of the Products as needed. As specified
in Paragraph 1 hereof, if Buyer does not meet the $300,000 per annum, Seller has
the right to renegotiate the pricing levels.
11. Return of Goods. The Buyer may, in its sole discretion, return any
Products to Seller. If the Product returned is undamaged, in its original
unopened container and has more than nine months of shelf life remaining when
received by Seller, Seller will refund 100 % of the purchase price of the
Product, less actual shipping costs and a standard restocking fee, to Buyer. If
the Product returned has less than nine months of shelf life remaining, no
refund will be given to Buyer.
12. Confidentiality. Seller and Buyer may exchange information in the
performance of this Agreement which is confidential or proprietary to the
disclosing party. Seller and Buyer agree that each will maintain as confidential
the disclosed confidential or proprietary in formation of the other. This pledge
of confidentiality will survive the termination of this Agreement for any
reason. Upon termination of this Agreement, each party will promptly return to
the other all original or duplicate sets of disclosed confidential or
proprietary information.
13. Insurance. During the term of this Agreement, Seller shall, at its
own expense, maintain comprehensive general liability insurance in the minimum
amount of $1,000,000 per occurrence for bodily injury and property damage. Upon
Buyer's request Seller shall furnish to Buyer a certificate of insurance
evidencing such coverage.
14. Indemnity. Seller shall indemnify and hold harmless Buyer, its
successors, assigns, directors, officers, agents, employees, parent and
affiliate corporations and their directors, officers, agents and employees, from
and against any and all losses, damages or expenses, including court costs and
reasonable attorneys' fees, resulting from or arising out of any breach of
representation, warranty, covenant or obligation of Seller contained in this
Agreement. Buyer shall indemnify and hold harmless Seller, its successors,
assigns, directors, officers, agents and employees, from and against any and all
losses, damages or expenses, including court costs and reasonable attorneys'
fees, resulting from or arising out of any breach of representation, warranty,
covenant or obligation of Buyer contained in this Agreement. In the event that
any demand or claim is made or suit is commenced against an indemnified party,
the indemnified party shall give prompt written notice to the indemnifying party
and the indemnifying party shall have the right to compromise such claim to the
extent of its own interest and shall undertake the defense of any such suit. If
any loss, damage, death or injury ("Damages") is caused by the negligence, act,
omission or willful misconduct of both Buyer and Seller, the
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apportionment of the Damages shall be shared by the parties based upon the
comparative degree of each party's fault.
15. Termination. Either party may terminate this Agreement immediately
and cancel any purchase orders hereunder if the other party breaches any term of
this Agreement and such breach is not remedied within sixty (60) days after
written notice thereof has been given to the breaching party. Furthermore,
Seller may terminate this Agreement immediately upon notice to Buyer if Buyer
does not meet minimum annual requirements. Upon termination of this Agreement in
accordance with its terms, the rights of each party hereunder shall terminate.
Any such termination, however, shall not release Seller or Buyer from
obligations arising under this Agreement prior to the effective date of
termination.
16. Limitation of Liability. Neither Buyer nor Seller shall be liable
to the other for any indirect, incidental, special or consequential damages,
including, but not limited to, loss of profits or revenue, loss of use of any
Products purchased hereunder, or cost of substituted product which arise out of
the performance of or the failure to perform any obligation contained within
this Agreement, including negligence in the course of such performance or
failure to perform.
17. Force Majeure. Neither party hereto shall be considered in default
in performance of its obligations hereunder if performance of such obligations
is prevented or delayed by acts of God or government, labor disputes, failure or
delay of transportation, or by vendors or subcontractors, or any other similar
cause or causes beyond its reasonable control. Time of performance of either
party's obligations hereunder shall be extended by the time period reasonably
necessary to overcome the effects of such force majeure occurrences.
18. Entire Agreement. This Agreement sets forth the entire and only
agreement between Buyer and Seller concerning the subject matter hereof. No
provision of this Agreement can be modified or amended except by an explicit
written amendment signed by both Buyer and Seller.
19. Taxes. The charges for the products set forth in the attached
pricing do not include taxes. Buyer agrees to pay any tax for which it is
responsible hereunder, which may be levied on or assessed against Buyer
directly, and, if any such tax is paid by Seller, to reimburse Seller therefor
upon receipt by Buyer of proof or payment acceptable to Buyer. If Seller is
required to pay sales or use taxes imposed with respect to this Agreement,
Seller shall collect such taxes from Buyer and remit to the proper taxing
authority and shall include a separate line item for said sales and use tax on
the invoice to Buyer. Any other taxes imposed with respect to this Agreement
shall be the responsibility of Seller.
20. Prior Agreements. This Agreement supersedes any and all other or
prior agreements between Seller and Buyer regarding the subject matter hereof.
Any prior
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agreement between Seller and Buyer regarding the subject matter hereof, oral or
written, is void and unenforceable as of the effective date of this Agreement.
21. Amendments. Neither this Agreement, nor any Exhibit hereto, may be
amended or modified without the express written consent of Seller and Buyer.
22. Assignment. Neither party shall assign this Agreement in whole or
in part without the prior written consent of the other party; provided, however,
that either party may assign this Agreement and its rights and obligations
thereunder, without prior written consent of the other party, to any successor
corporation resulting from a merger or consolidation of such party. Subject to
the foregoing, all the terms, conditions, covenants and agreements contained
herein shall inure to the benefit of, and be binding upon, any such successor
corporation and any permitted assignees of the respective parties hereto. It is
further understood and agreed that consent by either party to such assignment in
one instance shall not constitute consent by that party to any other assignment.
23. Notices. Any notices or other communications required or permitted
to be given or delivered under this Agreement, with the exception of invoices,
shall be in writing (unless otherwise specifically provided herein), signed by
or on behalf of the party giving such Notice and shall be hand-delivered or
sent, postage prepaid, by Federal Express or similar overnight delivery, or by
registered or certified mail, return receipt requested, addressed as follows:
If to Seller:
MEDgenesis Inc.
5182 W. 76th Street
Edina, MN 55439
Attn: President
If to Buyer:
Home Service Medical
10900 Red Circle Drive
Minnetonka, MN 55343
Attn: Divisional Vice President
Either party may change its address set forth in this Section by giving
notice to the other party in accordance with this Section. Notice shall be
effective upon hand delivery or, if by registered or certified mail or Federal
Express or similar overnight delivery, the date of receipt of rejection
evidenced on the return receipt or, if no return receipt, three (3) business
days from posting.
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24. Exhibits. The Exhibits attached hereto are a part of this Agreement
and their terms shall supersede those of other parts of this Agreement in the
event of a conflict.
25. Governing Law; Venue. This Agreement shall be construed and all the
rights, powers and liabilities of the parties hereunder shall be determined in
accordance with the laws of the State of Minnesota. Jurisdiction of any suit
instituted to enforce any provision of this Agreement shall be brought in
Minnesota.
THIS AGREEMENT is agreed to and accepted by:
SELLER: BUYER:
MEDgenesis Inc. Home Service Medical & Pharmacy, Inc.
_______________________________ _______________________________
By: By: Bill Ciora
Its: Its: Divisional Vice President
Date: ______________________ Date: ______________________
EXHIBIT 10.3
MEDGENESIS INC.
2000 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT.
MEDgenesis Inc., a Minnesota Corporation ("Company"), hereby
establishes a stock option plan for employees and others providing services to
the Company, as described herein, which shall be known as the "2000 STOCK OPTION
PLAN" ("Plan"). The Plan permits the granting of Nonstatutory Stock Options and
Incentive Stock Options.
1.2 PURPOSE.
The purposes of this Plan are to enhance shareholder investment by
attracting, retaining, and motivating employees and consultants of the Company
and to encourage stock ownership by such employees and consultants by providing
them with a means to acquire a proprietary interest in the Company's success.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS.
Unless the context clearly requires otherwise, the following terms
shall have the respective meanings set forth below, and when said meaning is
intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee, as specified in Article
IV hereof, appointed by the Board to administer the Plan, or
the Board if no Committee is appointed.
(d) "Company" means MEDgenesis Inc., a Minnesota corporation
(including any and all subsidiaries).
(e) "Consultant" means any person or entity, including an officer
or director of the Company who provides consulting or advisory
services (other than as an Employee) to the Company.
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(f) "Date of Exercise" means the date the Company receives notice
by an Optionee of the exercise of an Option pursuant to
Section 8.1 of this Plan. Such notice shall indicate the
number of shares of Stock as to which the Optionee intends to
exercise an Option.
(g) "Employee" means any person, including an officer or director
of the Company, who is employed by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Exercise Price" means the amount for which one share of Stock
may be purchased upon exercise of an Option, as specified in
the applicable Option Agreement.
(j) "Fair Market Value" means the closing price of the Stock as
reported by NASDAQ on the applicable day, or if there has been
no sale on that date, on the last preceding date on which a
sale occurred, or such other value of the Stock as shall be
specified by the Committee.
(k) "Incentive Stock Option" means an Option granted under this
Plan which is designated as an Incentive Stock Option and is
intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
(1) "Nonstatutory Option" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Except as
otherwise specified herein, Nonstatutory Options may be
granted at such times and subject to such restrictions as the
Board shall determine without conforming to the statutory
rules of Section 422 of the Code applicable to incentive stock
options.
(m) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the Exercise Price for a specified
period of time. For purposes of this Plan, an Option may be
either an Incentive Stock Option or a Nonstatutory Option.
(n) "Optionee" means a person to whom an Option has been granted
under the Plan.
(o) "Parent Corporation" shall have the meaning set forth in
Section 424(e) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(p) "Subsidiary Corporation" shall have the meaning set forth in
Section 424(f) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
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(q) "Significant Shareholder" means an individual who, within the
meaning of Section 422(b)(6)of the Code, owns Stock possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or of any Parent
Corporation or Subsidiary Corporation of the Company. In
determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning Stock
owned by certain relatives of the individual and certain Stock
owned by corporations in which the individual is a
shareholder, partnerships in which the individual is a
partner, and estates or trusts of which the individual is a
beneficiary, all as provided in Section 424(d) of the Code.
(r) "Stock" means the common stock of the Company.
2.2 GENDER AND NUMBER.
Except when otherwise indicated by the context, any masculine
terminology when used in this Plan also shall include the feminine gender, and
the definition of any term herein in the singular also shall include the plural.
2.3 SEVERABILITY.
In the event any provision of the Plan shall be held illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
parts of the Plan, and the Plan shall be construed and enforced as if the
illegal or invalid provision had not been included.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY.
All Employees are eligible to participate in this Plan and receive
Incentive Stock Options and/or Nonstatutory Options hereunder. All Consultants
are eligible to participate in this Plan and receive Nonstatutory Options
hereunder.
3.2 ACTUAL PARTICIPATION.
Subject to the provisions of the Plan, the Committee may, from time to
time, select from all Employees and Consultants those to whom Options shall be
granted and shall determine the nature of and number of shares of Stock subject
to each such Option.
ARTICLE IV
ADMINISTRATION
4.1 THE COMMITTEE.
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The Plan shall be administered by the Committee. If the entire Board of
Directors is not serving as the Committee, the Committee appointed by the Board
shall consist of two or more directors of the Company, as selected by the Board.
The Board may also authorize one or more officers or directors of the Company to
administer the plan, acting as a secondary committee within guidelines
established from time to time by the Board. Within the limitations of this
Section 4.1, any reference in the Plan to the Committee shall include such
secondary committee.
4.2 AUTHORITY OF THE COMMITTEE.
The Committee shall have full power except as limited by law or by the
Articles of Incorporation or Bylaws of the Company, and subject to the
provisions herein, to determine the size and types of Options; to determine the
terms and conditions of such Options in a manner consistent with the Plan; to
construe and interpret the Plan and any agreement or instrument entered into
under the Plan; to establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article XII herein) to
amend the terms and conditions of any outstanding Option to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. Further, the Committee shall make all other determinations which may
be necessary or advisable for the administration of the Plan. As permitted by
law, the Committee may delegate its authorities as identified hereunder.
4.3 DECISIONS BINDING.
All determinations and decisions made by the Committee pursuant to the
provisions of the Plan and all related orders or resolutions of the Board of
Directors shall be final, conclusive, and binding on all persons, including the
Company, its shareholders, Employees, Consultants, Optionees, and their
respective successors.
ARTICLE V
STOCK SUBJECT TO THE PLAN
5.1 NUMBER.
Subject to adjustment as provided in Section 5.3 below, the total
number of shares of Stock hereby made available for grant and reserved for
issuance under the Plan shall be One Million (1,000,000) shares. The aggregate
number of shares of Stock available under this Plan shall be subject to
adjustment as provided in Section 5.3 below. The total number of shares of Stock
may be authorized but unissued shares of Stock, or shares acquired by purchase
as directed by the Board from time to time in its discretion, to be used for
issuance upon exercise of Options granted hereunder.
5.2 LAPSED OPTIONS.
If an Option shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares of Stock subject thereto shall
(unless the Plan shall have terminated) become available for other Options under
the Plan.
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5.3 ADJUSTMENT IN CAPITALIZATION.
In the event of any change in the outstanding shares of Stock by reason
of a stock dividend or split, recapitalization, reclassification, or other
similar corporate change, the aggregate number of shares of Stock set forth in
Sections 5.1 and 7.1 below shall be appropriately adjusted by the Committee,
whose determination shall be conclusive; provided, however, that fractional
shares shall be rounded to the nearest whole share. In any such case, the number
and kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Exercise Price per share
shall be proportionately and appropriately adjusted without any change in the
aggregate Exercise Price to be paid therefor upon exercise of the Option.
ARTICLE VI
DURATION OF THE PLAN
6.1 DURATION OF THE PLAN.
Subject to shareholder approval, the Plan shall be in effect for ten
years from the date of its adoption by the Committee. Any Options outstanding at
the end of said period shall remain in effect in accordance with their terms.
The Plan shall terminate before the end of said period if all Stock subject to
it has been purchased pursuant to the exercise of Options granted under the
Plan.
ARTICLE VII
TERMS OF STOCK OPTIONS
7.1 GRANT OF OPTIONS.
Subject to Section 5.1, Options may be granted to Employees or
Consultants at any time and from time to time as determined by the Committee;
provided, however, that Consultants may receive only Nonstatutory Options, and
may not receive Incentive Stock Options. The Committee shall have complete
discretion in determining the recipient of options among the Employees or
Consultants, the number of shares of Stock subject to an Option and the number
of Options granted to each Optionee. In making such determinations, the
Committee may take into account the nature of services rendered by such
Employees or Consultants, their present and potential contributions to the
Company, and such other factors as the Committee in its discretion shall deem
relevant. The Committee also shall determine whether an Option is to be an
Incentive Stock Option or a Nonstatutory Option.
The aggregate Fair Market Value (determined at the date of grant) of
shares of Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year under all plans of
the Company under which Incentive Stock Options may be granted (and all such
plans of any Parent Corporations and any Subsidiary Corporations of the Company)
shall not exceed $100,000.
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The preceding paragraph shall not be deemed to prevent the grant of
Options in excess of the maximums established by the preceding paragraph and any
such excess will be treated as a Nonstatutory Option; provided, however, no
Optionee may be granted Options in any fiscal year to purchase an aggregate
number of shares of Stock in excess of 250,000 shares per Optionee, subject to
adjustment under Section 5.3 above.
The Committee is expressly given the authority to issue amended Options
with respect to shares of Stock subject to an Option previously granted
hereunder. An amended Option amends the terms of an Option previously granted
and thereby supersedes the previous Option.
No Options granted under the Plan may be exercisable before the
approval of the Plan by the shareholders of the Company pursuant to the Bylaws
of the Company ("Shareholder Approval").
7.2 NO TANDEM OPTIONS.
Where an Option granted under this Plan is intended to be an Incentive
Stock Option, the Option shall not contain terms pursuant to which the exercise
of the Option would affect the Optionee's right to exercise another Option, or
vice versa, such that the Option intended to be an Incentive Stock Option would
be deemed a tandem stock option within the meaning of the regulations under
Section 422 of the Code. Option Agreement. As determined by the Committee on the
date of grant, each Option shall be evidenced by an Option agreement (the
"Option Agreement") that includes the non-transferability provisions of Section
10.2 hereof and specifies: whether the Option is an Incentive Stock Option or a
Nonstatutory Option; the Exercise Price; the duration of the Option; the number
of shares of Stock to which the Option applies; any vesting or serial exercise
restrictions which the Committee may impose; and any other terms or conditions
which the Committee may impose. The Committee may require an Optionee to sign
the Option Agreement.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 EXERCISE PRICE.
No Incentive Stock Option granted pursuant to this Plan shall have an
Exercise Price that is less than the Fair Market Value of Stock on the date the
Option is granted. Incentive Stock Options granted to Significant Shareholders
shall have an Exercise Price of not less than 110 percent of the Fair Market
Value of Stock on the date of grant. The Exercise Price for Nonstatutory Options
shall be equal to the Fair Market Value of Stock on the date the Option is
granted and shall not be subject to the restrictions applicable to Incentive
Stock Options.
7.5 TERM OF OPTIONS.
Each Option shall expire at such time as the Committee shall determine
when it is granted, provided however that no Option shall be exercisable later
than the tenth anniversary
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date of its grant. By its terms, an Incentive Stock Option granted to a
Significant Shareholder shall not be exercisable after five years from the date
of grant.
7.6 EXERCISE OF OPTIONS.
Options granted under the Plan shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for all Optionees.
7.7 PAYMENT.
Payment for all shares of Stock shall be made at the time that an
Option, or any part thereof, is exercised, and no shares shall be issued until
full payment therefor has been made. Payment shall be made in cash, cash
equivalents, or other form acceptable to the Committee, including without
limitation, in Stock having a Fair Market Value at the time of the exercise
equal to the Exercise Price; provided, however, in the case of an Incentive
Stock Option, that said other form of payment does not prevent the Option from
qualifying for treatment as an "incentive stock option" within the meaning of
the Code. In addition, the Company may establish a cashless exercise program in
accordance with Federal Reserve Board Regulation T.
ARTICLE VIII
WRITTEN NOTICE, ISSUANCE OF
STOCK CERTIFICATES, SHAREHOLDER PRIVILEGES
8.1 WRITTEN NOTICE.
An Optionee wishing to exercise an Option shall give written notice to
the Chief Financial Officer of the Company, in the form and manner prescribed by
the Committee. Except for approved "cashless exercises," full payment for the
shares exercised pursuant to the Option must accompany the written notice.
8.2 ISSUANCE OF STOCK CERTIFICATES.
As soon as practicable after the receipt of written notice and payment,
the Company shall deliver to the Optionee or to a nominee of the Optionee a
certificate or certificates for the requisite number of shares of Stock. Such
certificate may bear a legend restricting transfer if required under Article XVI
below.
8.3 RIGHTS OF A SHAREHOLDER.
An Optionee or any other person entitled to exercise an Option under
this Plan shall not have dividend rights, voting rights or other rights or
privileges of a shareholder with respect to any Stock covered by an Option until
the date of issuance of a stock certificate for such Stock. No adjustment shall
be made for cash dividends or other rights for which the record date is prior to
such date of issuance, except as expressly provided in the Plan.
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ARTICLE IX
TERMINATION OF EMPLOYMENT
9.1 DEATH.
Unless otherwise determined by the Committee, if an Optionee's
employment in the case of an Employee, or provision of services as a Consultant,
in the case of a Consultant, terminates by reason of death, the Option may
thereafter be exercised at any time prior to the expiration date of the Option
or within 12 months after the date of such death, whichever period is the
shorter, by the person or persons entitled to do so under the Optionee's will
or, if the Optionee shall fail to make a testamentary disposition of an Option
or shall die intestate, the Optionee's legal representative or representatives.
The Option shall be exercisable only to the extent that such Option was
exercisable as of the date of death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH.
Unless otherwise determined by the Committee, in the event of an
Optionee's termination of employment, in the case of an Employee (except when an
Employee becomes a Consultant), or termination of the provision of services as a
Consultant, in the case of a Consultant, other than by reason of death or for
cause (as defined in Section 9.3 below), the Optionee may exercise such portion
of his Option as was exercisable by the Optionee at the date of such termination
(the "Termination Date") at any time within three (3) months after the
Termination Date; provided, however, when the termination occurs due to
disability, as defined in the Code, such Optionee may exercise such portion of
any Option as was exercisable by such Optionee on Optionee's Termination Date
within one year after such Termination Date. In any event, the Option cannot be
exercised after the expiration of the term of the Option. Options not exercised
within the applicable period specified above shall terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Committee shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 TERMINATION FOR CAUSE.
In the event of an Optionee's termination of employment, in the case of
an Employee, or termination of the provision of services as a Consultant in the
case of a Consultant, which termination is by the Company for cause (as defined
below), any Option or Options held by such Optionee under the Plan, to the
extent not exercised before such termination, shall terminate immediately.
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The term "cause" means: (i) Optionee's conviction of a felony which
would materially damage the reputation of the Company, (ii) material
misappropriation by Optionee of the Company's property or other material acts of
dishonesty by Optionee against the Company or (iii) Optionee's gross negligence
or willful misconduct in the performance of Optionee's duties, which has a
material adverse effect on the Company.
ARTICLE X
RIGHTS OF OPTIONEES
10.1 SERVICE.
Nothing in this Plan shall interfere with or limit in any way the right
of the Company to terminate any Employee's employment, or any Consultant's
services, at any time, nor confer upon any Employee any right to continue in the
employ of the Company, or upon any Consultant any right to continue to provide
services to the Company.
10.2 RESTRICTIONS ON TRANSFER.
Except as otherwise provided by this Section 10.2, all Options granted
under this Plan shall be nontransferable by the Optionee, other than by will or
the laws of descent and distribution, and shall be exercisable during the
Optionee's lifetime only by the Optionee. The Committee may, in its sole
discretion and with the consent of the Optionee: (i) grant Nonstatutory Options
which are transferable within the restrictions of this Section 10.2, (ii) amend
a then existing Nonstatutory Option to allow for transferability of such Option
within the restrictions of this Section 10.2 or (iii) amend a then existing
Incentive Stock Option (whereby such Option will become a Nonstatutory Option)
to allow for transferability of such Option within the restrictions of this
Section 10.2 (collectively, the "Transferable Options").
The Committee may, in its sole discretion, authorize all or a portion
of the Transferable Options to be on terms which permit transfer of such Option
by the initial Optionee of such Option (the "Initial Optionee") to (i) the
spouse, children, step-children, grandchildren, stepgrandchildren, siblings or
parents of the Initial Optionee ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, (iii) a
partnership or other entity in which such Immediate Family Members are the only
partners or equity owners (iv) a former spouse of the Initial Optionee pursuant
to a qualified domestic relations order (collectively, a "Permitted
Transferee"), provided that:
(1) there may be no consideration for any such transfer;
(2) the stock option agreement pursuant to which such Options are
granted, or any amendment thereto, must be approved by the
Committee, and must expressly provide for transferability in a
manner consistent with this Section 10.2;
(3) any option or portion thereof transferred by an Initial
Optionee to a Permitted Transferee may be exercised by the
Permitted Transferee only to the same extent as the Initial
Optionee would have been entitled to exercise it, and shall
remain
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subject to all of the terms and conditions that would have
applied to such Option under the provisions of the Plan and
option agreement, if the Initial Optionee had not transferred
such option or portion thereof to the Permitted Transferred;
(4) subsequent transfers of transferred Options (including sale,
assignment, pledge or other transfer) shall be prohibited
except by will or the laws of descent and distribution;
(5) the Initial Optionee shall remain subject to applicable
withholding taxes upon exercise of options transferred to a
Permitted Transferee;
(6) the Company shall have no obligation to notify the Permitted
Transferee of the expiration or early termination of any
option;
(7) the Committee may, in its sole discretion, require as a
condition to the transfer of an option, that the Permitted
Transferee execute an agreement under which the Permitted
Transferee would become a party to the applicable option
agreement and agree that in the event the Company merges into
or consolidates with another entity, the Company sells all or
a substantial part of its assets, or the Company's common
stock is subject to a tender or exchange offer, the Permitted
Transferee will consent to the transfer or assumption of the
option, or accept a new option in substitution therefor, if
the Company requests the Permitted Transferee to do so; and
(8) such transfer shall not be effective unless and until the
Initial Optionee has furnished the Committee written notice of
the transfer, copies of all requested documents evidencing the
transfer, and such other agreements as may be required by the
Committee.
ARTICLE XI
OPTIONEE-EMPLOYEE'S
TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE-EMPLOYEE'S TRANSFER OR LEAVE OF ABSENCE.
For Plan purposes:
(a) A transfer of an Optionee who is an Employee from the Company
to a Subsidiary Corporation or Parent Corporation, or from one
such corporation to another, or
(b) a leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company, and (ii) if the Optionee
holds an Incentive Stock Option, which qualifies under the
applicable regulations under the Code which apply in the case
of incentive stock options,
10
<PAGE>
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Committee.
ARTICLE XII
AMENDMENT, MODIFICATION, AND
TERMINATION OF THE PLAN
12.1 AMENDMENT MODIFICATION, AND TERMINATION OF THE PLAN.
The Board may at any time terminate, and from time to time may amend or
modify the Plan, provided, however, that no such action of the Board, without
approval of the shareholders, may:
(a) increase the total amount of Stock that may be purchased
through Options granted under the Plan, except as provided in
Section 5.1 above; or
(b) change the class of Employees or Consultants eligible to
receive Options; or
(c) change the provisions of Section 7.1 above to allow an
Optionee to be granted Options in any fiscal year to purchase
an aggregate number of shares of Stock in excess of 250,000
shares per Optionee, subject to adjustment under Section 5.3
above.
12.2 OPTIONS PREVIOUSLY GRANTED.
No amendment, modification, or termination of the Plan shall in any
manner adversely affect any outstanding Option under the Plan without the
consent of the Optionee holding the Option.
ARTICLE XIII
MERGER, CONSOLIDATION OR ACCELERATION EVENT
13.1 MERGER, CONSOLIDATION.
(a) Subject to any required action by the shareholders, if the
Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to
and apply to the securities to which a holder of the number of
shares of Stock subject to the Option would have been entitled
in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving
corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of such dissolution,
liquidation, merger or
11
<PAGE>
consolidation. However, unless the Optionee is offered a firm
commitment whereby the resulting or surviving corporation in a
merger or consolidation will tender to the Optionee an option
(the "Substitute Option") to purchase its shares on terms and
conditions as to number of shares, exercisability and
otherwise, which will substantially preserve to the Optionee
the rights and benefits of the Option outstanding hereunder
granted by the Company, then the Optionee shall have the right
immediately prior to such merger, or consolidation to exercise
any unexercised Options whether or not then exercisable,
subject to the provisions of this Plan. The Board shall have
absolute and uncontrolled discretion to determine whether the
Optionee has been offered a firm commitment and whether the
tendered Substitute Option will substantially preserve to the
Optionee the rights and benefits of the Option outstanding
hereunder. In any event, any Substitute Option for an
Incentive Stock Option shall comply with the requirements of
Code Section 424(a).
13.2 IMPACT OF ACCELERATION EVENT.
Subject to Shareholder Approval of the Plan, Options granted hereunder
will become fully exercisable and vested in the event of a "Acceleration Event"
as defined in Section 13.3 or a "Potential Acceleration Event" as defined in
Section 13.4.,
13.3 DEFINITION OF "ACCELERATION EVENT."
For purposes of Section 13.2, an "Acceleration Event" means the
happening of any of the following:
(a) When any "person" as defined in Section 3(a) (9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Company or any subsidiary or
parent or any employee benefit plan sponsored or maintained by
the Company or any subsidiary or parent (including any trustee
of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities
of the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
(b) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning
of such period, constitute the Board ("Incumbent Directors")
cease for any reason other than death to constitute at least a
majority thereof; provided, however, that a Director who was
not a Director at the beginning of such 24month period will be
deemed to have satisfied such 24-month requirement (and be an
Incumbent Director) if such Director was elected by, or on the
recommendation or, or with the approval of, at least 60% of
the Directors who then qualified as Incumbent Directors either
actually (because they were Directors at the beginning of such
24-month period) or by prior operation of this Section
13.3(b); or
(c) The approval by the shareholders of any sale, lease, exchange,
or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the
12
<PAGE>
assets of the Company or the adoption of any plan or proposal
for the liquidation or dissolution of the Company.
13.4 DEFINITION OF "POTENTIAL ACCELERATION EVENT."
For purposes of Section 13.2, a "Potential Acceleration Event" means
the approval by the Board of an agreement by the Company the consummation of
which would result in an Acceleration Event of the Company as defined in Section
13.3.
ARTICLE XIV
SECURITIES REGISTRATION
In the event that the Company shall deem it necessary or desirable to
register under the Securities Act of 1933, as amended, or any other applicable
statute, any Options or any Stock with respect to which an Option may be or
shall have been granted or exercised, or to qualify any such Options or Stock
under the Securities Act of 1933, as amended, or any other statute, then the
Optionee shall cooperate with the Company and take such action as is necessary
to permit registration or qualification of such Options or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he or she is
acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof,
(b) that before any transfer in connection with the resale of such shares, he or
she will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing. The Company will only require the foregoing investment
representation from an Optionee, inscription of a legend on the Optionee's share
certificate and placement of a stop order with the Company's transfer agent if a
registration statement is not in effect with respect to the shares issued
pursuant to the Plan at the time the Optionee exercises the Option.
ARTICLE XV
TAX WITHHOLDING
15.1 TAX WITHHOLDING.
The Company shall have the power and the right to deduct or withhold,
or require an Optionee to remit to the Company, an amount sufficient to satisfy
Federal, state, and local taxes (including the Optionee's FICA obligation)
required by law to be withheld with respect to any grant, exercise, or payment
made under or as a result of the Plan. The Company shall not be required to
issue any Stock under the Plan until such obligations are satisfied.
13
<PAGE>
15.2 SHARE WITHHOLDING.
With respect to withholding required upon the exercise of Options, or
upon any other taxable event hereunder, Optionees may elect, subject to the
approval of the Committee and compliance with applicable laws and regulation, to
satisfy the withholding requirement, in whole or in part, by having the Company
withhold shares having a Fair Market Value, on the date the tax is to be
determined, equal to the minimum marginal tax which could be imposed on the
transaction.
ARTICLE XVI
INDEMNIFICATION
16.1 INDEMNIFICATION.
To the extent permitted by law, each person who is or shall have been a
member of the Committee or of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's articles of incorporation or bylaws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.
ARTICLE XVII
REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW.
The granting of Options and the issuance of shares of Stock upon the
exercise of an Option shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.2 GOVERNING LAW.
To the extent not preempted by federal law, the Plan, and all
agreements hereunder, shall be construed in accordance with and governed by the
laws of the State of Minnesota.
17.3 COMPLIANCE WITH THE CODE.
14
<PAGE>
Incentive Stock Options granted hereunder are intended to qualify as
"incentive stock options" under Code Section 422. If any provision of this Plan
is susceptible to more than one interpretation, such interpretation shall be
given thereto as is consistent with Incentive Stock Options granted under this
Plan being treated as incentive stock options under the Code.
ARTICLE XVIII
EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE.
Subject to Shareholder Approval of the Plan, the Plan shall be
effective as of _____________, 2000, the date of its adoption by the Board.
ARTICLE XIX
NO OBLIGATION TO EXERCISE OPTION
19.1 NO OBLIGATION TO EXERCISE.
The granting of an Option shall impose no obligation upon the holder
thereof to exercise such Option.
15
EXHIBIT 10.4
CHRONINIED INC.
EMPLOYEE STOCK PURCHASE PLAN OF 1995
Section 1. Purpose: This Employee Stock Purchase Plan ("Plan") is
intended to advance the interests of CHRONINIED INC. ("Company") and its
shareholders by enabling the Company attract and retain in its employ men and
women of training, experience and ability. The Plan will give employees an
opportunity to acquire a proprietary interest in the success of the Company the
purchase of Common Stock on a favorable basis and thereby furnish an additional
incentive to such employees in the successful conduct and development of the
business .;!- ?~-:.: Company. It is intended that options issued pursuant to
this Plan shall constitute options issued pursuant to an "employee stock
purchase plan" within the meaning of Section 423 of the Code as defined below.
Section 2. Definitions: For purposes of the Plan, the terms set forth
below shall have the following respective meanings:
2.01 Common Stock - "Common Stock" shall mean the Company's
common stock, S.01 par value per share.
2.02 Offering - "Offering" shall mean a payroll deduction
period of fixed duration (not to exceed two years), at the beginning of
which Options are granted by the Company to eligible employees under a
set of terms established for such Offering pursuant to Section 5. A
document adopted by the Board of Directors setting forth the duration
of an Offering and the terms of Options granted during the Offering is
referred to herein as an Offering Statement.
2.03 Option - "Option" shall mean the right to purchase Common
Stock granted pursuant to the terms of an Offering and the Plan.
2.04 Optionee - "Optionee" shall mean the person to whom an
Option has been granted.
2.05 Code - "Code" shall mean the Internal Revenue Code of
1986, as amended, and the governmental rules and regulations issued
thereunder.
Section 3. Authorized Stock and Term of Plan: The aggregate number of
shares of Common Stock that may be optioned and sold under one or more Offerings
to be made under this Plan by the Board of Directors shall be 300,000 shares;
such shares may be either authorized and unissued or reacquired shares,
including shares purchased in the open market. The Plan shall continue until the
maximum number of authorized shares of Common Stock has been issued pursuant to
one or more
<PAGE>
Offerings, or until prior termination of the Plan by action of the Board of
Directors or shareholders.
Section 4. Eligibility: Any Offering under the Plan may be made to
employees of the Company and employees of its majority owned subsidiaries
(including companies that become subsidiaries after the effective date of this
Plan), subject to the right of the Board of Directors of the Company to limit
any Offering to employees of a particular company or companies or to particular
categories or groups of employees, within the limits permitted by the Code. The
status of a person as an employee shall be determined in accordance with the
rules contained in Section 3401(c) of the Code.
No employee shall be granted an Option if immediately after
such Option is granted, he or she owns stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of the
Company or any parent corporation or subsidiary corporation of the Company, as
the terms "parent corporation" and "subsidiary corporation" are defined in
Section 424(e) and (f) of the Code. In determining whether the stock ownership
of an employee equals or exceeds this five percent (5%) limit, the rules of
Section 424(d) of the Code shall apply, and stock that the employee may purchase
under outstanding options (whether or not such options qualify for the special
tax treatment afforded by Section 421 (a) of the Code) shall be treated as stock
owned by the employee.
Section 5. Terms and Conditions of Offerings: Each Offering under the
Plan shall be established pursuant to an Offering Statement, which shall contain
such terms and conditions as the Board of Directors may determine, consistent
with the terms of the Plan, provided that all employees granted Options under a
particular Offering shall have the same rights and privileges, and provided
further, that each Offering shall comply with and be subject to the following
terms and conditions:
5.01 Number of Shares: The Board of Directors shall specify
the total number of shares available for purchase under each Offering
and the maximum number of shares, proportionate to total compensation,
or basic or regular rate of compensation, that any employee may elect
to purchase under such Offering. If the total number of shares that
employees elect to purchase under an Offering exceeds the shares
available, the Board of Directors of the Company shall allocate the
shares among such employees in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable. In that event an
employee's election shall be canceled with respect to any shares in
excess of the number of shares allocated to him or her.
5.02 Option Price: The option price under any Offering may be
a percentage (not less than 85% nor more than 100%) of (a) the fair
market value of the Common Stock on the day the Option is exercised;
(b) the fair market value on the day the Option is granted; or (c) the
lesser of (i) the fair market value of the Common Stock on the day the
Option is exercised or (ii) the fair market value on the day the Option
is granted. In conjunction with one of the foregoing methods of
determining the option price, the Board of Directors may also specify a
fixed minimum price per share.
<PAGE>
The Board of Directors shall determine the fair market value
or provide the procedures for determining the fair market value in
accordance with the Code.
5.03 Pavment: Pavment for shares by an employee participating
in an Offering shall be made on an installment basis by payroll
deductions over the period of the Offering. The payroll deduction
contributions shall be credited to an account maintained by the Company
for each Optionee.
At the end of an Offering. the contributions credited to an
Optionee's account will be used. unless the Optionee has withdrawn from
the Offering as provided below, to purchase the greatest possible
number of whole shares of Common Stock at the option price (but not in
excess of the number of shares for which Options have been granted to
the Optionee pursuant to Section 5.01). Any remaining balance in the
account shall be carried over to the next Offering; provided, however,
that if no more Offerings will be made under this Plan or if the
Committee determines that amounts will not be carried over. the
remaining balance shall be refunded to the Optionee. An Optionee may
withdraw from the Offering by providing written notice to the Committee
at least 10 days prior to the last day of the Offering and, if such
notice is timely given, the full amount credited to the Optionee's
account will be paid to the Optionee in cash within 15 days after the
last day of the Offering. An Optionee who withdraws from an Offering in
accordance with this paragraph may not participate in the immediately
following Offering, if any, under this Plan.
The Company shall have the power and the right to deduct or
withhold. or require an Optionee to remit to the Company. an amount
sufficient to satisfy Federal. state, and local taxes (including the
Optionee's FICA obligation, if any), required by law to be withheld
with respect to any grant, exercise, or payment made under or as a
result of the Plan.
5.04 Term of Option: No Option may be exercised after the
expiration of the Offering to which it relates; except, however, that
an Option granted to an Optionee who dies prior to the expiration of an
Offering may be exercised at any time within 27 months from the date
the Option is =ranted, or such shorter period as the Board of Directors
may specify.
5.05 Accrual Limitation: No Option shall permit the rights of
an Optionee to purchase stock under all "employee stock purchase plans"
of the Company and any parent corporation or subsidiary corporation (as
the terms "parent corporation" and "subsidiary corporation" are defined
in Section 424(e) and (f) of the Code) to accrue at a rate that exceeds
$25,000 in fair market value of such stock (determined at the time the
Option is granted) for each calendar year in which the Option is
outstanding at any time. This limitation shall be interpreted in
accordance with the Code.
<PAGE>
5.06 Termination of Employment Except Death: In the event that
an Optionee shall cease to be employed by the Company or a subsidiary
for any reason other than his or her death, retirement or disability
and shall be no longer in the employ of any of them, the Optionee's
participation in the Plan shall terminate immediately and the amount
credited to the Optionee's account shall be paid to the Optionee in
cash within 1 5 days after the date of termination. Whether authorized
leaves of absence for military or governmental service or otherwise
shall constitute termination of employment, for purposes of the Plan,
shall be determined by the Committee.
If the Optionee~s employment terminates due to retirement or
disability, the Optionee's payroll deduction contributions shall cease,
but participation in the Plan shall continue until the last day of the
Offering during which the termination occurs or, if earlier, the date
three months after the termination of employment. The provisions of
Section 5.03 relating to the purchase of Common Stock shall continue to
apply to the Optionee to the extent of the contributions accumulated in
the Optionee's account at the time employment terminates. In applying
the provisions of Section 5.03 to a retired or disabled Optionee, the
date that participation terminates under this paragraph shall be
treated as the last day of the Offering with respect to the Optionee.
5.07 Death of Optionee and Transfer of Option: If an Optionee
shall die while in the employ of the Company or a subsidiary and shall
not have exercised an outstanding Option issued under an Offering, such
Option may be exercised (to the extent that the Optionee's right to
exercise such Option had accrued pursuant to this Plan at the time of
his or her death) by the beneficiaries designated by the Optionee or,
if none, by the executors or administrators of the Optionee's estate or
by any person or persons who shall have acquired the Option directly
from the Optionee by bequest or inheritance, within such period after
the Optionee's death as may be determined by the Committee; provided,
however. that no Option shall be exercisable more than 27 months from
the day it is granted.
No Option granted hereunder shall be transferable by the
Optionee otherwise than by a beneficiary designation filed with the
Committee, by will or by the laws of descent and distribution.
5.08 Adjustments: In the event there are any changes in the
Common Stock of the Company through merger, consolidation,
recapitalization, stock dividend, stock split or other increase or
reduction of the number of shares of Common Stock outstanding for which
compensation in the form of money, services or property is not
received, the Board of Directors in its discretion may proportionately
increase or decrease the aggregate number of shares of Common Stock
subject to the Plan and the number of shares and the price per share of
stock subject to outstanding Options.
In the event that the Company is the surviving corporation in
any merger car consolidation, each outstanding Option shall pertain to
and apply to the securities t:)
<PAGE>
which a holder of the number of shares of Common Stock subject to the
Option would have been entitled. A dissolution or liquidation of the
Company, or a merger or consolidation in which the Company is not the
surviving corporation, shall cause each outstanding Option to
terminate, provided that each Optionee shall, in such event, have the
right immediately prior to such dissolution or liquidation, of the
Company, or consolidation in which the Company is not the surviving
corporation, to exercise the Option.
Notwithstanding the foregoing, Options granted pursuant to
this Plan shall not be adjusted in a manner that causes the Options to
fail to continue to qualit~i as options issued pursuant to an "employee
stock purchase plan" within the meaning of Section 423 of the Code.
The granting of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make
adjustments, reclassifications. reorganizations or changes in its
capital or business structure or to merge or to consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business
or assets.
5.09 Rights as a Shareholder: No person shall have any rights
as a shareholder with respect to any shares covered by an Option owned
by him or her until the date of valid exercise of such Option, together
with payment of the full purchase price for such shares to the Company.
Section 6. Amendment of the Plan: The Board of Directors may suspend o
terminate the Plan or any portion thereof at any time and the Board may amend
the Plan from time to time as may be deemed to be in the best interests of the
Company provided however, that shareholder approval shall be required for any
amendment, alteration, or discontinuation (a) that increases the number of
shares subject to the Plan (other than an increase reflecting a change in
capitalization pursuant to Subsection 5.08), (b) that causes Options issued
under the Plan to fail to meet the requirements of employee stock purchase
options under Section 423 of the Code, or (c) is necessary to comply with any
legal. tax. or regulatory requirement, including any approval requirement that
is a prerequisite for exemptive relief from Section 16(b) of the Securities and
Exchange Act of 1934, as amended.
Section 7. Application of Funds: Proceeds received by the Company from
the sale of Common Stock pursuant to Options may be used for general corporate
purposes.
Section 8. Approval of Shareholders: The Plan shall become effective
upon approval by the holders of a majority of the shares of Common Stock of the
Company voting in person or by proxy at a duly held shareholders' meeting, which
approval must occur within the period ending twelve months after the date the
Plan is adopted by the Board of Directors.
Section 9. Employment: Nothing in the Plan or in any Offering under the
Plan shall confer on any employee any right to continue in the employ of the
Company or subsidiary or
<PAGE>
affect in any way the right of the Company or subsidiary to terminate his or her
employment at any time.
Section 10. Committee: The Plan shall be administered by the
Compensation Committee, or a duly appointed subcommittee thereof, (collectively,
the "Committee"), which shall be appointed by, and serve at the pleasure of, the
Board of Directors. The Committee shall supervise the administration and
enforcement of the Plan and, subject to the provisions of the Plan, shall have
all powers necessary to discharge its duties hereunder, including, but not
limited to, the power to (i) employ and compensate agents of the Committee for
the purpose of administering the accounts of participating employees. (ii)
construe and interpret the provisions of the Plan, (iii) determine all questions
of eligibility under the Plan. and (iv) establish, amend or waive rules and
regulations for the administration of the Plan. All the determinations by the
Committee and/or the Board of Directors under the Plan shall be in its sole
discretion and shall be binding upon all Optionees and employees.
A Committee shall consist of not fewer than two persons, all of whom shall be
officers, employees or directors of the Company. The Board of Directors may from
time to time remove members from or add members to the Committee. Vacancies on
the Committee, howsoever caused, shall be filled by the Board of Directors. The
Committee shall select one of its members as Chairman. and shall hold meetings
at such times and places as it may determine. A majority of the Committee at
which a quorum is present. or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
Section 11. Interpretation of Plan: The interpretation and construction
by the Committee of any provisions of the Plan, of an Offering statement, or of
any Option shall be final. No member of the Board of Directors or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option.
Section 12. Indemnification and Expenses: The members of the Board of
Directors or of the Committee shall be indemnified by the Company, except to the
extent indemnification is specifically prohibited by the Company's Articles of
Incorporation, By-Laws or applicable law, for any action or failure to act under
or in connection with the Plan or any Option. The Company shall pay all of the
expenses of the Plan.
____________________________________
Secretary
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made effective as of the first day of July, 1999,
entered into by and between CHRONIMED INC, a Minnesota corporation (the
"Company") and MAURICE R. TAYLOR, II (the "Employee").
WHEREAS, the Company desires to employ the Employee as its Chairman and
Chief Executive Officer (CEO) in accordance with the following terms, conditions
and provisions; and
WHEREAS, the Employee desires to perform such services for the Company,
all in accordance with the following terms, conditions and provisions;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
1. EMPLOYMENT AND DUTIES.
The Company hereby continues Employee's employment, and Employee hereby
accepts and agrees to serve the Company as the Company's Chairman and CEO,
consistent with the job description for this position, and with duties subject
to review and modification from time to time at the direction of the Company's
Board of Directors (the "Board"). The Employee shall remain a member of the
Company's Board of Directors, subject to election by the shareholders of the
Company. The Employee shall apply his best efforts and devote substantially all
of his time and attention to the Company's affairs.
2. TERM.
The term of this Agreement and Employee's employment under this
Agreement shall commence on July 1, 1999, and shall continue thereafter for a
period of three years. Upon the expiration of the original term of this
Agreement, this Agreement shall automatically renew for successive two-year
terms, subject to termination as provided in Section 7.
3. COMPENSATION.
The Company shall compensate the Employee for his services at the
following salary, bonus, and benefits:
A. Base Salary
The Employee shall be paid a base salary of $325,800 per year,
payable on the Company's normal payroll cycle. This base salary is the
minimum salary during the term of this Agreement, and may be increased
from time to time at the discretion of the Board of Directors. Employee
shall receive an annual performance review, and, contingent upon
satisfactory review results, shall be eligible for increase of such
base salary at the direction of the Board of Directors.
<PAGE>
B. Bonus.
The Employee shall continue to participate in a Company
Management Incentive Plan, as approved and amended by the Board of
Directors from time to time, and which is designed to deliver an annual
bonus consistent with current levels established for this position by
the Board of Directors. Employee shall periodically meet with the Board
of Directors, to establish quantitative and qualitative initiatives and
objectives for the purpose of assessing the amount of bonus to be paid
to Employee at the end of the associated bonus period.
C. Stock Options.
The Employee shall be eligible to participate in the annual
grant of the Company's Stock Option Plan, consistent with its terms and
conditions, and with amounts of options, including exercise price and
vesting provisions determined by the Board of Directors from time to
time. Provisions under this item 3C, stock options, are also subject to
the provisions found in Section 7, under termination of Agreement.
D. Employee Benefits Plans.
The Employee shall be entitled to participate in any and all
Company employee benefit plans, in accordance with the eligibility
requirements and other terms and provisions of such plan or plans.
E. Insurance.
The Employee agrees that the Company, at the discretion of its
Board of Directors, may apply for and procure on its own behalf, life
insurance on the life of the Employee, for the purpose of protecting
the Company against loss caused by the death of the Employee (commonly
referred to as "Key" insurance). Employee agrees to cooperate and
submit to medical examination, and to execute or deliver any
documentation reasonably required by the Company's insurer in order to
effectuate such insurance.
1. VACATION AND TIME OFF.
The Employee shall be entitled to four weeks of paid vacation in each
year of employment under the terms of this Agreement, without reduction of
salary. Unused vacation time may be carried over to future years of employment,
consistent with Company policy affecting use of employee vacation time. In
addition, Employee shall be entitled to such additional time off from work,
without loss of compensation, for attendance at professional meetings,
conventions, approved "other business activities", as per Section 10, and
educational
2
<PAGE>
courses in accordance with the Company's general policies in this regard, and as
from time to time determined by its Board of Directors.
2. EXPENSES.
The Company will reimburse Employee for reasonable expenses incurred by
the Employee in connection with the business of the Company, according to
policies promulgated from time to time by the Board of Directors, and upon
presentation by Employee of appropriate substantiation for such expenses.
Further, the Company will reimburse Employee for Employee's monthly dues for
country club or private club membership. Also, the Company will provide
reimbursement under its published policies for tax/financial planning assistance
and preparation, as well as supplemental medical examinations.
A. Automobile Allowance.
During the term of this Agreement, Employee shall
receive an automobile allowance of $800.00 per month.
1. DISABILITY.
Not withstanding any other provision of this Agreement, if employee is
totally disabled, as defined below, for an aggregate of 180 calendar days in any
one calendar year of employment, the company shall not be obligated to pay
employee the compensation provided in this contract for any period of total
disability during such year in excess of 120 days. In such event, Employee's
salary under Section 3 shall be prorated for such year of employment in the same
manner as if this Agreement had been terminated at the end of such 120th day.
The Company agrees that, while on disability leave of absence, and for
the duration of such disability, Employee may continue to receive Employer's
group insurance plan coverage by compliance with the provisions of the
Consolidated Omnibus Budget Reconciliation Act ("COBRA"), until the end of such
disability leave, or upon attainment of the age of 65, whichever is earlier.
For purposes of this Agreement, Employee shall be considered to be
totally disabled when he is considered to be as such by any insurance company
used by the Company to provide disability benefits for the Employee, and
Employee shall continue to be considered totally disabled until such insurance
company ceases to recognize him as totally disabled for purposes of disability
benefits. If no such disability policies are in effect for the benefit of the
Employee or for any reason an insurance company fails to make a determination of
the question of whether Employee is totally disabled, Employee shall be
considered to be totally disabled if, because of mental or physical illness or
other cause, he is unable to perform the majority of his usual duties on behalf
of the Company. The existence of a total disability of the Employee, the date it
commenced, and the date it ceases, shall be determined by the Board of Directors
and the Employee, under these circumstances. If the parties cannot agree on the
foregoing questions of disability, then any such determination shall be made
after examination of Employee by medical
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doctor selected by the Board of Directors, and a medical doctor selected by the
Employee. If the medical doctor so selected cannot agree on the foregoing
questions of disability, a third medical doctor shall be selected by the two and
the opinion of a majority of all three shall be binding.
2. TERMINATION.
This Agreement shall terminate upon the occurrence of any of the
following:
A. Mutual agreement, in writing, of the parties to
terminate;
A. Employee's death. Under circumstance of Employee's death,
Company agrees to make termination payments to Employee's
designated beneficiaries, in the amount of one year of base
salary, and annual bonus payment for bonus payable in the
fiscal year in which Employee's death occurred. Additionally,
any unexercised, vested stock options which were available to
Employee immediately prior to date of death shall be
exercisable by beneficiaries in accordance with the Company's
stock option plan. In addition, Employee's designated
beneficiaries may, at their option, continue to pay and to
receive insurance coverage under the COBRA provisions, and
beyond, for a period of up to two years following death, or
upon attainment of age 65 of beneficiary, whichever is
earlier.
B. Upon the expiration of the initial or any renewal term of
this Agreement, following 120 days of written notice by one
party to the other indicating the party's intention not to
renew;
C. At the Company's option, if Employee shall be totally
disabled, as defined above for a continuous period in excess
of nine months. The Company's option to terminate in such
event shall be exercised upon at least 30 days written notice
to Employee;
D. Termination by the Company for cause.
For purposes of this provision of this Agreement,
cause shall be defined as:
1. Failure of the Employee to substantially perform
any duties reasonably required by the Company that
are consistent with Employees position (except as a
result of any disabling injury for which Employee has
been receiving benefits under a short term or long
term disability program);and
2. The commission by Employee of any criminal act, or
act of fraud or dishonestly by Employee related to or
in connection with his Employment by
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the Company; or
3. Employee breaches Employee's other covenants
contained in this Agreement.
A. Change of employment or termination without cause by the
Company.
A Change in Employment shall be deemed to have occurred if,
without Employee's consent,
1. Employee's position, duties, or title are
materially and adversely changed without cause: or
2. Employee's salary or benefits are reduced without
cause, or
3. The location of performance of most of Employee's
duties is moved from the general geographic location
in which Employee performed such duties prior to the
move.
The effective date of a change in employment shall be the date
Employee elects, by written notice to the Company, to treat such action
as termination due to change in employment, provided it occurs within
90 days of the date Employee is notified of the change in employment.
Failure to treat a particular change in employment as a termination of
employment shall not preclude Employee from treating a subsequent
change of employment as a termination of employment.
A. Termination Payments.
In the event Employee's employment with the Company is
terminated without cause, or a change in employment occurs and employee
elects to treat the change in employment as a termination of employment
and so notifies the Company of such election within 90 days following
the change of employment (with a date of notice to be deemed the
effective date of termination) or the geographic location changes as
defined above, or upon non-renewal of this agreement by the Company,
then:
(a) Employee shall receive payment equal to 12 months of
Employee's then current annualized salary; plus the average of
any bonus or incentive compensation paid or payable for the
most recent two fiscal years, or other period generally used
by the Company to determine such bonus or incentive
compensation , and at Employee's election, may pay out such
salary and bonus or incentives over a period of one year
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consistent with the Company's routine employee payment
schedules, or in a lump sum; and all unvested stock options
held by Employee shall immediately vest.
(b) Employee shall be entitled to continue participation in
the healthcare coverage, life insurance and general employee
benefit plans of the Company. The Company shall for two years
following the effective date of the termination under this
Section 7G, or until Employee becomes eligible for such
insurance coverages with another employer, continue to provide
such coverage for Employee and his dependents to the same
extent and cost the Company is then providing for other
employees with comparable coverage during this two year
period.
(c) In the event of a termination of employment under this
Section 7G, the Company agrees that in the event of a dispute
by the executive over any terms or provisions contained in
this agreement, or interpretation thereof, the Company will
pay all reasonable legal expenses incurred by Employee as a
result of Employee's efforts to resolve the dispute.
A. Termination due to change in control.
For purposes of this provision, a change in control
will be defined as follows:
(a) When any "person" as defined in Section 3(a)(9)
of the Securities Exchange Act as used in sections
13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the Securities Exchange
Act, but excluding the Company or any subsidiary or
parent or any employee benefit plan sponsored or
maintained by the Company or any subsidiary or parent
(including any trustee of such plan acting as
trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act, as amended from time to
time), of securities of the Company representing
greater than 50 (fifty) percent of the combined
voting power of the Company's then outstanding
securities; or
(b) When, subsequent to the effective date of this
agreement, the individuals who, at the beginning of
such period, constitute the Board ("Incumbent
Directors") cease for any reason other than death to
constitute at least a majority thereof; provided
however that a Director who was not a Director at the
beginning of this period will be deemed to have
satisfied the definition of "Incumbent Director" if
such Director was elected by, or with the approval of
at least 60% (sixty percent) of the Directors who
then qualified as Incumbent Directors; or
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(c) The approval by the shareholders of any sale,
lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or
substantially all of the assets of the Company or the
adoption of any plan or proposal for the liquidation
or dissolution of the Company.
If during a two year period subsequent to a change in
control, Employee is terminated without cause, or Employee is
asked by the Board to assume a position, duties, or level of
responsibility which are unacceptable to the Employee, or
Employee is asked by the Board to relocate geographically to a
location which is unacceptable to the Employee, the then
controlling Company agrees to pay Employee base salary equal
to 36 months of Employee's then current annualized salary;
plus the average of any bonus or incentive compensation paid
or payable for the most recent three calendar years, in
aggregate, and at Employee's election, may be paid out
consistent with Company's routine employment payment schedule
over a period of three years, or in a lump sum. Additionally,
unvested stock options will vest according to the terms of the
Company's Stock Option Plan in effect at the time of the
change in control, or as defined in Section 7G(a).
In the event of termination of this Agreement due to
change in control, Company agrees to provide for reasonable
expenses incurred on Employee's behalf in the event of a legal
action or dispute in connection with the change of control, or
termination of employment caused by such change in control.
8. POOLING CONTINGENCY.
In the event a possible acquirer ("Acquirer") notifies the Company's
Board of Directors (the "Board") in writing, in conjunction with the Acquirer's
proposal to merge with or purchase all or part of the Company, that the Acquirer
has determined that any element of Section 7C, 7F, 7G, or 7H would prevent the
Acquirer from applying pooling accounting to the acquisition or merger, and the
Board agrees with the Acquirer's assessment of the risk to pooling availability,
then the Board may strike the Section 7C, 7F, 7G or 7H that the Acquirer and the
Board deem to constitute a pooling risk. The Acquirer's written notice must
state that the Acquirer's public accounting firm has advised the Acquirer that
it may apply pooling accounting except solely for the existence or operation of
the Section(s) of this Agreement subject to deletion. If the Board strikes
Section 7F and the corresponding severance elements of Section 7G, then Section
11(e) of the parties' July 1, 1996 Employment Agreement shall be deemed to
remain in effect and become a part of this Agreement. In the event the Board
strikes Section 7H, or Section 7C and the corresponding severance element of
Section 7G, then the remainder of the Agreement shall remain in effect without
addition, modification, or reference to the July 1, 1996 Employment Agreement.
Any modification or deletion of Section 7 shall be contingent upon and deemed
effective as of the closing of the Acquirer's acquisition or merger.
9. COVENANT NOT TO COMPETE.
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Employee hereby covenants and agrees that during the initial and any
renewal term of this Agreement, and for a period of one year following the
termination of this Agreement, Employee shall not be engaged within the United
States, either directly or indirectly, in any matter or capacity, whether as an
advisor, principal, agent, partner, officer, director, employee, member of an
association, or otherwise, in any business or activity, or own beneficially or
of record, five percent or more of the outstanding stock of any class of equity
securities in any corporation in competition with the business then being
conducted by the Company. If Employee should breach the foregoing covenant, the
Company will cease making payments described in the previous section regarding
Termination of Agreement, and any associated payments contained therein; and
remaining unexercised stock options shall immediately be cancelled and benefit
plan provisions described in the Termination Section 7 shall be immediately
discontinued.
Additionally, at the option of the Board of Directors, the Company may
choose to extend the covenant not to compete set forth herein for a period of up
to an additional twelve months, beyond the initial twelve month period already
stipulated herein. In consideration for such election, the Company agrees to
make payment to the Employee the annualized salary and bonus equal to that in
effect during the fiscal year at the time of termination.
During this additional period of extension and payment, Employee agrees
not to solicit, directly or indirectly, any current employee of the Company for
employment or engagement in any capacity outside of the Company, its
subsidiaries or affiliates.
10. CONFIDENTIALITY.
Employee will, in the course of his employment with the Company have
access to confidential and proprietary data or information belonging to the
Company. Employee will not at any time divulge or communicate to any person
(other than to a person bound by confidentiality obligations to the Company
similar to those contained in this Agreement) or use to the detriment of the
Company, or for the benefit of any other person such data or information. The
provisions of this section shall survive Employee's employment hereunder
regardless of the cause of termination of employment or this Agreement. The
phase "confidential or proprietary data or information" shall mean information
not generally available to the public, including, but not limited to, personnel
information, financial information, customer lists, supplier lists, trade
secrets, secret processes, computer data and programs, pricing, marketing and
advertising data. Employee acknowledges and agrees that any confidential or
proprietary information that Employee has already acquired was in fact received
in confidence in Employees fiduciary capacity with respect to the Company.
All written materials, records and documents made by Employer or coming
into Employee's possession during the term of employment concerning any product,
processes, information or services used, developed, investigated or considered
by the Company, or otherwise concerning the business or affairs of the Company,
shall be the sole property of the Company and upon termination of Employee's
employment for any reason, or upon request of the Board of Directors during
Employee's employment, Employee shall promptly deliver the same to the Company.
In addition, upon termination of Employee's employment for any reason, or upon
request of the Board of Directors during Employee's employment, Employee shall
deliver to the Company all of the property of the Company in Employee's
possession or under
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Employee's control, including, but not limited to, financial statements,
marketing and sales data, computers, and Company credit cards.
11. OTHER BUSINESS ACTIVITIES.
Employee shall not serve as an officer of another company, whether for
compensation or otherwise, requiring more than nominal duties by the Employee,
during the term of this contract without the express prior written consent of
the Company's Board of Directors. Employee may not serve as a Director of any
other organization without express prior written approval by the Company's Board
of Directors.
12. INVENTIONS AND PATENTS.
Employee agrees to assign all rights, ownership and related privileges
and benefits associated with inventions and patents to the Company. Employee
agrees that any inventions or patents obtained in association with ideas or
concepts initiated by Employee related to the Company's business are deemed to
be Company property. This includes but is not limited to product ideas, changes
or improvements; process ideas, changes or improvements; pertinent intellectual
property, or other pertinent information.
13. ARBITRATION/DISPUTE RESOLUTION.
The Company and the Employee agree that as a first option prior to any
legal action arising out of the dispute over provisions in this agreement,
parties may seek arbitration, and submit to authority of binding arbitration.
14. COOPERATION IN CLAIMS.
Both during employment and post employment, Employee agrees that in the
event of a legal action against the Company, or legal action initiated by the
Company against another party, in which Employee is deemed by the Company to be
a material witness or affiant, Employee agrees to make reasonable and best
efforts to cooperate with the Company in such matters. If Employee is no longer
employed, Company will reimburse Employee for time and expenses incurred as a
result of cooperation for this purpose.
15. INDEMNIFICATION.
The Company agrees to make its best efforts to indemnify and hold
harmless the Employee from liability incurred as a result of performance of
duties as an Officer and member of the Board of Directors. This includes but is
not limited to applicable statute, as well as efforts to secure coverage under
pertinent insurance policies.
16. NOTICES.
All notices, requests, demands and other communications
provided for by this Contract shall be in writing and shall be deemed
to have been given when mailed at any general or branch United States
Post Office enclosed in a certified postpaid envelope,
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return receipt requested, and addressed to the address of the
respective party stated below or to such changed address as the party
may have fixed by notice:
If to the Employee:
Maurice R. Taylor, II
550 E. Long Lake Road
Wayzata, MN 55391
If to the Company:
Chairman of The Board of Directors
Chronimed Inc.
10900 Red Circle Drive
Minnetonka, MN 55343
Any notice of change of address shall only be effective, however, when
received.
17. SUCCESSORS AND ASSIGNS.
This Contract shall inure to the benefit of, and be binding
upon, the Company, its successors and assigns, including, without limitation,
any corporation which may acquire all or substantially all of the Company's
assets and business or into which the Company may be consolidated or merged, and
the Employee, his heirs, executors, administrators and legal representatives.
The Employee may assign his right to payment, and his obligations, under this
Contract.
18. APPLICABLE LAW.
This Contract shall be governed by the laws of the State of
Minnesota.
19. OTHER AGREEMENTS
This Contract supersedes all prior understandings and
agreements between the parties. It may not be amended orally, but only
by a writing signed by the parties hereto.
20. NON-WAIVER.
No delay or failure by either party in exercising any right
under this Contract, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right.
21. HEADINGS.
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Headings in this Contract are for convenience only and shall not be
used to interpret or construe its provisions.
22. COUNTERPARTS.
This Contract may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
CHRONIMED INC.
By____________________________
Its____________________________
AND__________________________
Its Chairman, Compensation Committee
EMPLOYEE
______________________________
Maurice R. Taylor, II
11
EXHIBIT 10.8.1
LEASE
THIS LEASE, made and entered into this 10th day of June 1997, by and
between JORANDCOR, INC., a Minnesota corporation (hereinafter referred to as
"Landlord"), and CHRONIMED, INC., a Minnesota corporation (hereinafter referred
to as "Tenant");
WITNESETH:
1. LEASED PREMISES. In consideration of the rents, terms, provisions
and covenants of this Lease, Landlord hereby leases, lets and demises to Tenant
that portion of the following described premises outlined in red on Exhibit A
attached hereto, and designated "leased premises" (hereinafter referred to as
the "Leased Premises"), and containing 18,040 square feet, situated in the
building located at 6214-6222 Bury Drive, including the nonexclusive right to
use the common areas identified on Exhibit A.
2. TERM. Subject to and upon the conditions set forth below, the term
of this Lease shall commence on September 1, 1997 ("Commencement Date"), and
shall terminate on August 31, 2002.
3. RENT. Landlord reserves and Tenant covenants to pay the Landlord,
without demand at its offices at 6250 Bury Drive, or at such other address as
the Landlord may from time to time designate in writing, in advance, rent as
follows:
(a) From September 1, 1997 to August 31, 1999, Tenant shall pay
base rent for the Leased Premises of $XXX per square foot
($XXX per month); and
(b) From September 1, 1999 to August 31, 2000, Tenant shall pay
base rent for the Leased Premises of $XXX per square foot
($XXX per month); and
(c) From September 1, 2000 to August 31, 2001, Tenant shall pay
base rent for the Leased Premises of $XXX per square foot
($XXX per month); and
(d) From September 1, 2001 to August 31, 2002, Tenant shall pay
base rent for the Leased Premises of $XXX per square foot
($XXX per month).
<PAGE>
The total base rent for the five year lease term will be $XXX.
The base rent includes the payment on Landlord's Work based on an
amortization schedule of $XXX over five years at X% interest ("Amortization
Schedule") for past work completed on the Leased Premises.
4. ADDITIONAL RENT. As additional rental for the entire term of this
Lease, Tenant agrees to pay to the Landlord its pro-rata share of the operating
expenses of the building, as herein defined. If this Lease commences or
terminates on a day other than the first or last day of a calendar year, the
amount of additional rent payable by Tenant applicable to the year in which such
commencement or termination occurs shall be pro-rated in accordance with the
number of days during such year this Lease was in effect. Landlord shall invoice
Tenant for estimated operating costs for each calendar year at the beginning of
such calendar year, and Tenant agrees to prepay monthly, due at the same time as
and together with the Base Rent above provided, one-twelfth of such estimated
amount. Within a reasonable time after the end of each calendar year, Landlord
will provide Tenant with an accounting showing the operating expenses for such
year and Tenant's share thereof. Tenant shall have the right, at its sole
expense and at a reasonable time convenient to Landlord, no more frequently than
once each year, to audit Landlord's books relevant to the additional rent due
hereunder. In the event that the estimated amount paid for such year exceeds the
amount due for such year based on such accounting, Landlord agrees to return
such amount to the Tenant, together with said accounting. In the event that the
estimate is less than the operating expenses for such calendar year, Tenant
agrees to reimburse Landlord for such amount within thirty (30) days of receipt
of the above-referenced accounting.
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The term "operating expenses" as used in this paragraph includes all
expenses incurred with respect to the ownership, repair, maintenance and
operation of the building of which the Leased Premises are a part, and
underlying land and other improvements thereon excluding repair and maintenance
of sewer and water to the building, but including, without limitation, snow
removal, reasonable internal management costs, fees, costs of cleaning exterior
of building and grounds, the cost of any common utilities, costs of maintaining
and repairing the building and all fixtures therein, all insurance premiums
provided for in Paragraph 12(a) hereof, and all real property taxes and
installments of special assessments which accrue against the building of which
the Leased Premises are a part during the term of this Lease and all other costs
of any nature which for federal income tax purposes may be expensed rather than
capitalized. Notwithstanding the foregoing, whether "capitalized" or "expenses",
operating expenses shall also include the yearly amortization of capital costs
incurred by the Landlord for improvements or structural repairs to the building
required to comply with any change in the laws, rules or regulations of any
governmental authority having jurisdiction. In addition, if any increase in the
fire and extended coverage insurance premiums paid by Landlord for the building
in which Tenant occupies space is caused by Tenant's use and occupancy of the
Leased Premises, or if Tenant vacates the Leased Premises and causes an increase
in such premiums, then Tenant shall pay as additional rent the amount of such
increase. Except as provided above, the term "operating expenses" does not
include any capital improvement to the building, outside management fees, any
expenses incurred in leasing to or procuring tenants for the building, or any
costs of renovating space for new tenants. For purposes of this paragraph, the
building in which the Leased Premises are a part is 50,200 square feet, and
Tenant's pro-rata share shall be 35.94%.
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The operating costs for the Lease Premises have been estimated at $XXX
per square foot. True operating expenses will be calculated pursuant to the
terms of this Section.
5. LATE PENALTY AND WAIVER OF SETOFF. Tenant waives and disclaims any
present or future right to apply any payment or part payment of rent, including
additional rent, or to set-off or counterclaim in any action for rent, including
additional rent, against any obligation of Landlord, however incurred, and
agrees that it will not claim or assert such right, set-off or counterclaim.
Other remedies for non-payment of rent notwithstanding, if the monthly rental
payment, including both Base Rent and additional rent, is not received by
Landlord on or before the tenth (10th) day of the month for which such rent is
due, or if any other payment due Landlord by Tenant is not received by Landlord
on or before ten (10) days after the due date thereof, a service charge of five
percent (5%) of such past due amount shall become due and payable in addition to
and together with such amounts owed under this Lease. In addition, interest at
the rate of twelve percent (12%) per annum shall be added to all amounts which
are over thirty (30) days past due and shall be due together therewith.
6. USE OF PREMISES.
(a) The Leased Premises shall be used and occupied by Tenant for
the purposes of distribution of pharmacy and related products
and to manufacture and sell products and services to the
medical industry, and for no other purposes whatsoever without
the written consent of Landlord. Such use and occupancy shall
be in compliance with all applicable laws, ordinances and
governmental regulations. The Leased Premises shall not be
used in such a manner that, in accordance with any requirement
of law or of any public authority, the Landlord shall be
required to make any additions or alterations to or in the
building.
(b) Tenant shall promptly comply with all laws, ordinances and
regulations affecting the Leased Premises and promulgated by
duly constituted
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governmental authorities affecting the cleanliness, safety,
use and occupation of the Leased Premises.
(c) Tenant shall promptly comply with and use the Leased Premises
and the common areas serving or within the building, including
parking facilities, in accordance with such rules and
regulations as may from time to time be made by the Landlord
for the general safety, comfort and convenience of the
Landlord, the occupants and tenants of the building, and
Tenant agrees to cause its customers, employees and invitees
to abide by such rules and regulations.
(d) Tenant shall not perform any acts or carry on any practices
which may injure the improvements on the property, and shall
keep the property in clean, safe, sanitary and first class
condition, and clean and free from rubbish and dirt at all
times, and shall store all trash and garbage in the agreed
upon designated common area. In addition, Tenant agrees to
occupy the Leased Premises, conduct its business and control
its agents, employees, invitees and visitors so as not to
create any nuisance or otherwise interfere with, annoy or
disturb any other tenant in its normal business operations.
7. UTILITIES. Tenant agrees to procure and promptly pay all bills for
electricity, gas, heat, fuel oil, and any and all other utilities used in the
Leased Premises during the term of this Lease, except water, which shall be
billed to Tenant as a portion of the operating expenses. Landlord agrees to use
its best efforts to restore any interrupted utility service, but shall not be
responsible or liable for any interruption in the supply of any utilities to the
Leased Premises beyond Landlord's reasonable control.
8. REPAIRS AND MAINTENANCE.
(a) Landlord shall maintain and keep in good order and repair only
the exterior portions of the building of which the Leased
Premises are a part (excluding all windows, window glass,
plate glass and doors serving or allowing access solely to any
leased portion of the building), the common areas of the
building and fixtures and equipment located therein and the
parking areas and other common areas serving the building.
Tenant agrees to immediately give written notice to Landlord
of the need for repairs of which Tenant has knowledge, for
which Landlord may be responsible under this paragraph.
Landlord agrees to make such repairs within a reasonable time
after receiving such notice. Landlord shall not be liable to
Tenant except as expressly provided in this Lease for any
damage or inconvenience, and
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Tenant shall not be entitled to any abatement or reduction of
rent by reason of any repairs made by Landlord under this
Lease. In addition, Landlord shall have no responsibility for
the maintenance of any fixtures or other improvements
installed or made by or at the request of Tenant. In addition,
Tenant shall be liable for the cost of any repairs required by
reason of the negligence or misuse of Tenant, its agents,
employees and invitees which are not covered by the fire and
extended coverage insurance maintained by Landlord pursuant to
this Lease.
(b) Except as provided in Subparagraph (a) above, Tenant shall, at
its own cost and expense, maintain the Leased Premises
including doors and windows serving or allowing access solely
to such Leased Premises and improvements and all equipment and
fixtures in or on the Leased Premises in good repair and
condition, including all necessary replacements and replace
all glass which is broken by Tenant with glass of comparable
quality. Tenant shall not allow any damage to be committed on
any portion of the Leased Premises, and at termination of this
Lease, by lapse of time or otherwise, Tenant shall deliver the
Leased Premises to Landlord in as good a condition as existed
at the commencement or completion date of this Lease, ordinary
wear and tear excepted. The cost and expense of any repairs
necessary to restore the condition of the Leased Premises
shall be borne by Tenant, and if Landlord undertakes to
restore the Leased Premises, it shall have a right of
reimbursement against Tenant. Should Tenant neglect to keep
and maintain the Leased Premises as required herein, then
Landlord shall have the right, but not the obligation, to have
the work done and to charge the cost thereof to Tenant as
additional rent, which shall become payable by Tenant with the
payment of the rent next due hereunder. All materials and
workmanship in such maintenance or replacement shall be of
comparable quality to the initial materials and workmanship
and shall be compatible with the building and the Leased
Premises.
9. INSTALLATION AND ALTERATIONS.
(a) Tenant shall have the right to install its own trade fixtures
and equipment, which shall at all times remain its property,
and, on condition that it is not in default hereunder, shall
have the right to remove the same immediately upon the
expiration or earlier termination of this Lease, provided that
it repairs any damage occasioned by the removal thereof.
(b) Tenant shall not make any repairs, alterations or additions to
the Leased Premises, including alterations prior to the
commencement of this Lease, or make any contracts therefor,
without first procuring Landlord's written consent, which the
Landlord agrees not to unreasonably withhold, and delivering
to Landlord any plans and specifications and copies of
proposed
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contracts and necessary permits, including the alterations
which Tenant shall, at Tenant's expense, cause to be performed
on the Leased Premises more fully described as "Tenant's
Work," if any, in Exhibit B attached hereto. Notwithstanding
anything to the contrary, Tenant may make alterations or
repairs to the Leased Premises if said alterations or repairs
cost less than Five Thousand and No/100 Dollars ($5,000.00);
and if prior to said alteration or repair, Tenant notifies
Landlord in writing the identity (including names and
addresses) of all contractors, subcontractors and/or material
suppliers providing labor and/or materials to the Leased
Premises. Prior to Tenant's commencement of any repairs,
alterations or additions to the Leased Premises, including
Tenant's Work described in Exhibit B, Tenant shall furnish
such indemnification against liens, costs, damages and
expenses as may be required by the Landlord including, without
limitation, a payment or performance bond. All alterations,
additions, improvements and fixtures, other than trade
fixtures, which may be made or installed by either of the
parties hereto upon the Leased Premises, and which are in any
manner attached to the floors, walls or ceilings at the
termination of this Lease shall become the property of
Landlord and shall remain upon and be surrendered with the
Leased Premises as a part thereof, without damage or injury
unless Landlord requests that such alterations or improvements
be removed, in which event the same shall be removed by the
Tenant at the expiration of the term of this Lease at its own
expense, and it shall be obligated to repair any damages
occasioned thereby. Tenant shall not place any signs on the
exterior of the Leased Premises or the building of which the
Leased Premises are a part without the Landlord's written
consent, which Landlord agrees not to unreasonably withhold.
(c) In the event that the alteration or improvement of the Leased
Premises by Tenant results in any increase in the assessed
value of the building for real estate tax purposes, and such
amount can be ascertained, the Tenant shall pay the increase
in real estate taxes resulting therefrom as and together with
additional rent due hereunder.
(d) Tenant shall pay when due, and indemnify, defend and hold
Landlord harmless from, all claims for labor or materials
furnished or alleged to have been furnished to Tenant for use
in the Leased Premises, which claims are or may be secured by
any lien against the Leased Premises, or any interest therein.
Tenant may, at its sole cost and expense, contest a mechanics
lien; provided, however, that during such contest the Tenant
shall, at the request of Landlord, provide security
satisfactory to the Landlord, including but not limited to
satisfaction of the requirements of Minn. Stat.ss.514.10. If
at any time payment of the mechanics lien or any other
obligation becomes necessary to prevent the foreclosure of the
Leased Premises, the Tenant shall pay the same in sufficient
time to prevent such foreclosure.
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10. INDEMNITY.
(a) Tenant accepts the Leased Premises in its present condition as
of the completion of Landlord's Work and without any
representation or warranty by Landlord as to the condition of
said Leased Premises or its suitability to Tenant's use or
occupancy and the taking of possession of the Leased Premises
by Tenant shall be conclusive evidence that it was in good and
satisfactory condition at such time.
(b) Tenant agrees to indemnify and save the Landlord, its
successors and assigns, harmless against any and all claims,
demands, damages, and costs and expenses, including reasonable
attorneys' fees, for the defense thereof, arising from the
conduct of or management of the business being conducted by
Tenant in the Leased Premises, or from any breach or default
on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to
the terms of this Lease, or from any act or negligence of
Tenant, its agents, contractors, servants, employees,
sublessees, in or about the Leased Premises, the sidewalks
adjoining the same, and the loading docks adjacent to the
Leased Premises. In case of any action or proceeding by or
against the Landlord by reason of any such claims, upon notice
from Landlord, Tenant covenants to defend such action or
proceeding with counsel reasonably satisfactory to Landlord.
Landlord shall not be liable to Tenant, and Tenant waives all
claims for damages to person or property sustained by Tenant
or Tenant's employees, agents, servants, invitees and
customers or to any other person resulting from the Leased
Premises or any equipment or appurtenances thereto becoming
out of repair or resulting from any accident or occurrence in
or about the Leased Premises, or the building in which they
are situated. This shall apply especially, but not
exclusively, to the flooding of the basement or any surface
areas, and the damage caused by refrigerators, sprinkling
devices, air conditioning apparatus, if any, water, snow,
frost, steam, excessive heat or cold, falling plaster, broken
glass, sewage, gas odors or noise, or the bursting or leaking
of pipes or plumbing fixtures. All property belonging to
Tenant or any other occupant of the Leased Premises shall be
there at the sole risk of Tenant or of any other such person
only, and Landlord shall not be liable for any damages
thereto, or for theft or misappropriation thereof.
11. MUTUAL WAIVER OF RIGHT OF SUBROGATION. Each party hereto expressly
waives any and all claims which arise or may arise in his or its favor and
against the other party hereto, or its respective agents, servants or employees,
during the term of this Lease hereinabove provided, or any extension thereof,
for any and all loss of or damage to any of his or its property located within
or upon or constituting a part of the building of which
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the Leased Premises are a part or underlying land, resulting from any peril or
risk customarily covered by standard Minnesota fire insurance policy with
extended coverage provisions (whether such insurance is in effect or not),
notwithstanding said injury or damage is caused by the negligence of either of
the parties hereto, their agents, servants or employees. Each of the parties
agrees to look to his or its own insurance carrier for recovery of any damages
sustained to his or its property, hereby waiving any rights of subrogation
against the other.
12. INSURANCE.
(a) Landlord shall, at all times during the term of this Lease,
maintain a policy or policies of insurance issued by and
binding upon some solvent insurance company insuring the
building against all risk of direct physical loss in an amount
equal to 100% of the full replacement cost of the building
structure and its improvements as of the date of the loss;
provided that Landlord shall not be obligated in any way or
manner to insure any personal property or fixtures of Tenant
or which Tenant may have upon, within or installed within the
Leased Premises, or any additional improvements which Tenant
may construct on the Leased Premises. Tenant agrees that the
cost of maintaining such insurance shall be an operating
expense within the meaning of Paragraph 4 hereof, and it
shall, therefore, reimburse Landlord for its pro-rata share of
such insurance premiums.
(b) Tenant agrees to procure and maintain a policy or policies of
insurance at its own cost and expense, insuring the Landlord,
its successors and assigns, as well as Tenant, from all
claims, demands or actions for injury or death to any person,
or property damage, in an amount reasonably agreed to by
Landlord. Said insurance shall not be subject to cancellation
except after thirty (30) days prior written notice to
Landlord. The policy or policies, or duly executed
certificate(s) for same, together with satisfactory evidence
of the payment of the premium thereof, shall be deposited with
the Landlord at the commencement of the term and renewals
thereof not less then thirty (30) days prior to the expiration
of the term of such insurance. If Tenant fails to comply with
such requirements, Landlord may obtain such insurance and keep
the same in effect, and Tenant shall pay Landlord the premium
cost thereof upon demand as a part of the additional rent due
hereunder.
(c) In addition, Tenant agrees to procure and maintain at its own
cost and expense all risk fire and extended coverage insurance
for the full
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replacement value of Tenant's leasehold improvements, fixtures
and furnishings.
13. DAMAGE BY FIRE OR OTHER CASUALTIES.
(a) In case the Leased Premises shall be partially or totally
destroyed by fire or other casualty so as to render fifty
percent (50%) or more of the Leased Premises untenantable or
fifty percent (50%) or more of the building of which the
Leased Premises are a part untenantable, either the Landlord
or Tenant may terminate this Lease by notice in writing within
sixty (60) days after such destruction or damage. In the event
that the Landlord does not terminate this Lease as above
provided, or the damage or destruction does not exceed the
percentage of the Leased Premises or building above set forth,
the Landlord shall rebuild or otherwise restore the building
to good condition and fit for occupancy within a reasonable
period of time after such destruction or damage, and a just
and proportionate part of the rent shall be abated until so
repaired, based upon the time and to the extent the Leased
Premises are rendered untenantable. In any event, if the
repair or restoration of the Leased Premises is not
substantially completed within 180 days after the damage or
destruction, Tenant may, at its option, terminate this Lease
by delivering a written notice of termination to Landlord,
whereupon all rights and obligations under this Lease shall
cease to exist.
(b) Under no circumstances shall the Landlord be obligated to
repair or replace any of Tenant's betterments or leasehold
improvements, or any of its personal property or fixtures.
Tenant shall be obligated to repair and/or restore the same at
its own expense.
14. EMINENT DOMAIN. In the event of the acquisition of the Leased
Premises, or any part thereof, by eminent domain proceedings, or negotiated sale
in lieu thereof, the following provisions shall apply:
(a) Total Condemnation of Leased Premises. If the whole of the
Leased Premises shall be so acquired, then the term of this
Lease shall cease and terminate as of the date possession
shall be taken in such proceeding or sale, and all rentals
shall be paid up to that date.
(b) Partial Condemnation. If only part of the Leased Premises
shall be so acquired, and such partial acquisition shall
render the Leased Premises unsuitable for the purposes of the
business of Tenant, then the term of this Lease shall cease
and terminate as of the date of possession, and rent shall be
adjusted to the date of such termination. In the event of a
partial taking or
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condemnation which is not extensive enough to render the
premises unsuitable for the business of Tenant, then Landlord
may, at its option, promptly restore the Leased Premises so as
to constitute the remaining premises a complete architectural
unit, and this Lease shall continue in full force and effect
with a proportionate abatement of the rent, based upon the
portion of the Leased Premises taken, or terminate this Lease
by written notice to Tenant. The rent shall also abate during
the restoration as to the portion of the Leased Premises
rendered untenantable.
(c) Landlord's Damages. In the event any condemnation or taking as
aforesaid, whether whole or partial, the Tenant shall not be
entitled to any part of the award paid for such condemnation
and Landlord shall receive the full amount of such award.
Tenant hereby expressly waives any right or claim to any part
thereof and,' by this Lease, does hereby assign and transfer
to Landlord such award or payment as may be made therefor, and
does hereby further agree to execute such documents of
assignment and transfer as may be required by Landlord.
(d) Tenant's Damages. Tenant shall be entitled to seek and recover
from the condemning authority only the damages to which Tenant
is separately entitled by Minnesota Statutes for damages to
Tenant's business and removal of Tenant's fixtures and
equipment, and this shall be Tenant's sole remedy.
15. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign or in any manner transfer this Lease
or any interest therein, nor sublet the Leased Premises or any
part or parts thereof, or permit occupancy by anyone with,
through or under it, without the previous written consent of
the Landlord, which the Landlord agrees not to unreasonably
withhold. Consent by Landlord to one or more assignments of
this Lease, or to one or more sublettings of the Leased
Premises shall not operate as a waiver of Landlord's rights
under this section to any subsequent assignment or subletting.
No assignment or subletting shall release Tenant of any of its
obligations under this Lease, or be construed or taken as a
waiver of any of Landlord's rights or remedies hereunder.
Every assignee or sublessee of this Lease shall be subject to
and be bound by all of the covenants, provisions and
conditions of this Lease to the same extent as the original
tenant. Tenant agrees to notify Landlord in writing of its
desire to assign this Lease or sublease all or a portion of
the Leased Premises at least thirty (30) days prior to such
proposed assignment or subletting.
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(b) Neither this Lease nor any interest therein, nor any estate
thereby created, shall pass to any trustee or receiver in
bankruptcy, or any assignee for the benefit of creditors, or
by operation of law.
(c) In lieu of granting its consent to any proposed assignment or
subletting of this Lease, Landlord may, in its discretion,
terminate and cancel this Lease upon thirty (30) days written
notice to Tenant, whereupon this Lease shall terminate and
Tenant shall be released from all liabilities hereunder,
except for all accrued liabilities.
16. ACCESS TO PREMISES. Landlord shall have the right to enter upon the
Leased Premises during business hours or upon twenty-four (24) hours notice,
except in emergencies when no notice is required, for the purposes of inspecting
the same or making any alterations or additions thereto, or to the building in
which the same are located, or for the purposes of exhibiting the same to
prospective tenants, purchasers or others, and shall have the right to place a
"For Rent" sign or signs upon the Leased Premises during the last 120 days of
the Lease term or any renewal thereof. Landlord shall not be liable to Tenant in
any manner for any expense, loss or damage by reason thereof (unless caused in
connection with alterations or additions), nor shall the exercise of such right
be deemed an eviction or disturbance of Tenant's use or possession.
17. DEFAULT BY TENANT AND LANDLORD'S REMEDIES.
(a) The following shall be Events of Default by Tenant under this
Lease:
(1) The failure of Tenant to pay an installment, or any
portion thereof, of base or additional rent within
ten (10) days after the due date thereof;
(2) The continued default by Tenant in any of its other
covenants or conditions under this Lease after thirty
(30) days written notice of such default to Tenant;
(3) The making by Tenant of an assignment for the benefit
of its creditors;
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(4) The Tenant ceases the conduct of active business
operations in, or abandons, the Leased Premises;
(5) In the event proceedings are instituted by or against
Tenant for the reorganization, liquidation or
involuntary dissolution of Tenant, for its
adjudication as a bankrupt or insolvent or under
Chapter XI of the Bankruptcy Act, or for the
appointment of a receiver of the property of Tenant,
if involuntary, and said proceedings are not
dismissed, and any receiver, trustee or liquidator
appointed therein, discharged within thirty (30) days
after the institution of said proceedings;
(6) The doing or permitting to be done by Tenant of any
act which creates a mechanic's lien or claim therefor
against the land or building of which the Leased
Premises are a part, except pursuant to Section 9(d).
(b) Upon the occurrence of any Event of Default set forth above,
Landlord, in addition to any of the remedies available at law
or equity, shall have the option to pursue any one or more of
the following remedies without any notice or demand:
(1) Terminate this Lease and recover possession of the
Leased Premises in accordance with Minnesota law, in
which event Tenant shall immediately surrender the
Leased Premises to Landlord and, if Tenant fails to
surrender the Leased Premises, Landlord may, without
prejudice to any other remedy which it may have for
possession or recovery of rent, enter upon and take
possession of the Leased Premises, and lock out,
expel or remove Tenant and any other person who may
be occupying all or any part of the Leased Premises
without being liable for prosecution for any claim
for damages. Tenant agrees to pay on demand the
amount of all loss and damage which Landlord may
suffer by reason of the termination of the Lease
under this subsection, whether through the inability
to relet the Leased Premises on satisfactory terms or
otherwise. Upon termination of this Lease, the
Landlord shall be entitled to recover from Tenant
forthwith as its damages, the sum of money equal to a
total of (i) all costs of recovering the Leased
Premises, (ii) the unpaid rent owed at the time of
termination, plus interest thereon from the due date
at the maximum rate permitted by applicable law,
(iii) an amount equal to the balance of the rent for
the remainder of the terms, discounted to present
value, utilizing an eight percent (8%) discount
favor, and (iv) any other sum of money and damages
owed by Tenant to Landlord;
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(2) Recover possession of the Leased Premises in
accordance with Minnesota law without termination of
the Lease and, if necessary, expel or remove the
Tenant, and lock out, expel or remove Tenant and any
other person that may be occupying all or any part of
the Leased Premises without being liable for
prosecution for any claim for damages, and relet the
Leased Premises on behalf of Tenant, and receive
directly the rent by reason of subletting. Tenant
agrees to pay Landlord on demand any deficiency that
may arise, by reason of any reletting of the Leased
Premises and any expenditures made by Landlord for
remodeling or repairing in order to relet the Leased
Premises. No such re-entry or taking of possession of
the Leased Premises by Landlord shall be construed as
an election on its part to terminate this Lease
unless a written notice of such intention be given to
Tenant, or unless the termination thereof be decreed
by a court of competent jurisdiction;
If the default can be cured by the expenditure of money, Landlord may,
at its option, cure such default, and Tenant shall be obligated to reimburse
Landlord upon demand, as additional rent hereunder, for all such expenditures,
together with interest, at the rate of twelve percent (12%) per annum or, if
lesser, the maximum rate permitted by law, and costs and reasonable attorneys'
fees incurred in connection with such cure and collecting such amounts from
Tenant.
In the event that Tenant defaults in the performance of any of the
terms, covenants, agreements or conditions contained in this Lease, and Landlord
successfully enforces all or any part of this Lease or recovers possession of
the Leased Premises, Tenant agrees to pay or reimburse Landlord for all costs
and expenses incurred in connection therewith, including reasonable attorneys'
fees.
ll rights and remedies of Landlord and Tenant herein shall be
cumulative and none shall exclude any right or remedy allowed by law, and said
rights and remedies may be exercised and enforced concurrently, and whenever and
as often as the occasion therefore arises.
18. SURRENDER OF POSSESSION.
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(a) At the expiration of the tenancy created hereunder, whether by
lapse of time or otherwise, Tenant shall promptly remove all
personal property belonging to Tenant or persons claiming
through Tenant and surrender the Leased Premises in good
condition and repair, broom-clean, reasonable wear and tear
and loss by fire or unavoidable casualty excepted.
(b) In the event Tenant remains in possession of the Leased
Premises after the expiration of the tenancy created
hereunder, and without the execution of a new lease, it shall
be deemed to be occupying the Leased Premises from
month-to-month, subject to all of the conditions, provisions
and obligations of this Lease insofar as the same are
applicable to a month-to-month tenancy, except that the base
rent payable shall be increased to 125% of the base rent
provided in Paragraph 3 hereof.
(c) Upon the expiration of the tenancy hereby created, if the
Landlord has requested Tenant to remove all of the additions,
fixtures and installations placed upon the Leased Premises by
Tenant and designated in said request, and to repair any
damage occasioned by such removal, and if Tenant fails to
remove the same or make such repairs, Landlord may effect such
removals and repairs, and Tenant shall pay to Landlord the
cost thereof, with interest at the rate of eight percent (8%)
per annum from the date of payment by Landlord.
19. SUBORDINATION. Tenant agrees that this Lease shall be subordinate
to any mortgage currently or hereafter placed upon the building of which the
Leased Premises are a part by the Landlord, and agrees to execute any and all
documents necessary to indicate that this Lease is subordinate to any such
mortgage; provided, however, Tenant shall not be disturbed in its possession of
the Leased Premises by any mortgagee or purchaser at a mortgage foreclosure
sale, so long as Tenant is not in default under the terms hereof. Tenant shall
execute and deliver whatever instruments may be required for the above purposes,
and, failing to do so within ten (10) days after demand in writing, does hereby
make, constitute and irrevocably appoint Landlord as its attorney-in-fact and in
its name, place and stead so to do. Tenant further agrees to furnish within ten
(10) days of receipt of the form, from time to time upon request of Landlord or
Landlord's mortgagee
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an estoppel certificate on the form prepared by Landlord and delivered to
Tenant, containing items customarily certified to therein. Tenant further agrees
to execute and deliver to Landlord within ten (10) days of receipt of the form
thereof, a memorandum or short form lease in recordable form, containing such
items of this Lease as Tenant shall request.
20. NOTICES. Wherever under this Lease a provision is made for notice
of any kind, such notice shall be in writing and signed by or on behalf of the
party giving or making the same, and it shall be deemed sufficient notice and
service thereof if such notice is to Tenant and sent by registered or certified
mail, postage prepaid, to the address of Tenant at: Attention: Chronimed, Inc.,
Vice President of Finance, 13911 Ridgedale Drive, Minnetonka, Minnesota 55305
and Chronimed, Inc., 6214 Bury Drive, Eden Prairie, Minnesota 55346, and to the
Landlord for such purpose, at the place then fixed for payment of rent, or at
such other address as may be furnished by Landlord. By notice in the manner
above set forth, either party may designate a different location to which notice
shall be sent.
21. COMMISSIONS. Landlord agrees to indemnify and hold Tenant harmless
against all claims, damages, costs or expenses (including costs incurred in
defending any claim) for any leasing fees or commissions resulting from the
execution of this Lease.
22. GENERAL.
(a) The various rights and remedies herein contained and reserved
to each of the parties hereto shall not be considered as
exclusive of any other right or remedy of such party, but
shall be construed as cumulative and shall be in addition to
every other remedy now or hereafter existing at law, in
equity, or by statute. No delay or omission of the right to
exercise any power by either party shall impair any such right
or power, or shall be construed as a waiver
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of any default, or as acquiescence therein. One or more
waivers of any covenant, term or condition of this Lease by
either party shall not be construed by the other party as a
waiver of any subsequent breach of the same covenant, term or
condition. The consent or approval by either party to or of
any act by the other party of a nature requiring consent or
approval shall not be deemed to waive or render unnecessary
consent or approval of a subsequent similar act.
(b) Tenant shall give written notice to Landlord in case of fire
or accidents in the Leased Premises, or of defects therein, or
in any fixtures or equipment.
(c) The headings of the several articles contained herein are for
convenience only and do not define, limit or construe the
contents of such articles.
(d) The covenants, agreements and obligations herein contained
shall extend to, bind or inure to the benefit of not only of
the parties hereto, but their respective personal
representatives, heirs, successors and assigns.
(e) Whenever a period of time is herein provided for the Landlord
to do or perform any act or thing, Landlord shall not be
liable or responsible for any delays due to strikes, riots,
acts of God, shortages of labor or materials, national
emergency, acts of a public enemy, governmental restrictions,
laws or regulations, or any other cause or causes whatever,
whether similar or dissimilar to those enumerated, beyond its
reasonable control.
(f) Tenant shall not record this Lease without the written consent
of Landlord.
(g) The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Lease.
(h) The invalidity or enforceability of any provision of this
Lease shall not affect or impair the validity of any other
provision.
(i) Landlord further covenants that Tenant, upon paying the
rentals provided for herein, and upon performing the covenants
and agreements to be performed by it, will have, hold and
enjoy quiet possession of the Leased Premises.
(j) This Lease constitutes the entire agreement of the parties in
respect of the Lease by Tenant of the Leased Premises and
there are no understandings or agreements not incorporated in
this Lease. Any other written agreements by and between the
parties are terminated upon the commencement of the term of
this Lease. This Lease may not be modified except in a writing
executed by all parties hereto, or their permitted assignees.
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(k) Tenant has no right to light or air over the building or
underlying land.
(l) The word "Tenant" wherever used in this Lease shall be
considered to mean tenants in all cases where there is more
than one tenant and the necessary grammatical changes required
to make provisions hereof applicable to corporations,
partnerships or individuals shall in all cases be assumed as
though in each case fully expressed.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands
as of the date and year first above written.
LANDLORD: TENANT:
JORANDCOR, INC. CHRONIMED, INC.
By: By:
Its: Its:
EXHIBIT 10.8.2
LEASE AGREEMENT
THIS LEASE (the "Lease") is executed this 27th day of October, 1998, by
and between DUKE REALTY MINNESOTA, LLC, a Minnesota limited liability company
("Landlord"), and CHRONIMED, INC., a Minnesota corporation ("Tenant")
WITNESSETH:
ARTICLE I - LEASE OF PREMISES
Section 1.01. Basic Lease Provisions and Definitions.
A. Leased Premises (shown outlined on Exhibit A attached hereto): Edina
Interchange V, 5182 West 76(degree)' Street, Edina, Minnesota 55435;
B. Rentable Area: approximately 25,420 square feet
Landlord shall use commercially reasonable standards, consistently
applied, in determining the Rentable Area and the rentable area of the
Building. Landlord's determination of Rentable Area shall conclusively
be deemed correct for all purposes hereunder.
C. Tenant's Proportionate Share: 18.27%0
D. Minimum Annual Rent:
11/15/98 -07/14/99 $ XXX
07/ I 5/99 - 07/ 14/01 $XXX
07/15/01 - 11/14/01 $ XXX
E. Monthly Rental Installments:
11/15/98-07/14/99 $ XXX per month
07/15/99- 11/14/01 $ XXX per month
F. Landlord's Share of Expenses: N/A
G. Lease Term: Three (3) years
H. Commencement Date: November 15, 1998
1. Security Deposit: None
J. Guarantor: None
K. Broker: Duke Really Services Limited Partnership representing Landlord
L. Permitted Use: Office, laboratory and warehouse use
M. Address for notices:
Landlord: Duke Realty Minnesota, LLC Tenant: Chronimed, Inc.
856 Fifth Street South 10900 Red Circle Drive
Hopkins, MN 55343-7750 Minnetonka, MN 55343
<PAGE>
Address for rental and other payments:
Duke Realty Minnesota, LLC
NW 7210
P.O. Box 1450
Minneapolis, MN 55485-7210
Section 1.02. Leased Premises. Landlord herebv leases to Tenant and Tenant
leases from Landlord, under the terms and conditions herein, the Leased
Premises.
ARTICLE 2 -TERM AND POSSESSION
Section 2.01. Term. The term of this Lease ("Lease Term") shall be for the
period of time set forth in Item G of the Basic Lease Provisions and shall
commence on the Commencement Date. Upon delivery of possession of the Leased
Premises toTenant,Tenant shall execute a letter of understanding acknowledging
(i) the Commencement Date of this Lease, and (ii) that Tenant has accepted the
Leased Premises. If Tenant takes possession of and occupies the Leased Premises,
Tenant shall be deemed to have accepted the Leased Premises and that the
condition of the Leased Premises and the Building was at the time satisfactory
and in conformity with the provisions of this Lease in all respects.
Section 2 02. Construction of Tenant Improvements. Tenant has personally
inspected the Leased Premises and accepts the same "AS IS" without
representation or warranty by Landlord of any kind and with the understanding
that Landlord shall have no responsibility with respect thereto except to
construct in a good and workmanlike manner the improvements designated as
Landlords obligations in the attached Exhibit B in an amount not to exceed XXXX
XXXXXXXX XXX XXXXXXX XXX XXXXXXX ($X,XXX.XX) ("Landlord's Allowance"). Tenant
hereby agrees at Tenant's option, that all costs in excess of Landlord's
Allowance shall be either (i) amortized over the term of the Lease at eleven
percent (11%) per annum; or (ii) paid directly to Landlord by Tenant within
thirty (30) days of Landlord's request therefor.
Section 2.03. Surrender of the Premises. Upon the expiration or earlier
termination of this Lease, Tenant shall immediately surrender the Leased
Premises to Landlord in broom-clean condition and in good condition and repair.
Tenant shall also remove its personal properly, trade fixtures and any of
Tenant's alterations designated by Landlord, promptly repair any damage caused
by such removal, and restore the Leased Premises to the condition existing prior
to the installation of such items. If Tenant fails to do so, Landlord may
restore the Leased Premises to such condition at Tenant's expense, Landlord may
cause all of said property to be removed at Tenant's expense, and Tenant hereby
agrees to pay all the costs and expenses thereby reasonably incurred. All Tenant
property which is not removed within ten (10) days following Landlord's written
demand therefor shall be conclusively deemed to have been abandoned by Tenant,
and Landlord shall be entitled to dispose of such property without thereby
incurring any liability to Tenant. The provisions of this section shall survive
the expiration or other termination of this Lease.
Section 2.04. Holding-Over. If Tenant retains possession of the Leased Premises
after the
<PAGE>
expiration or earlier termination of this Lease, Tenant shall become a tenant
from month to month at 200% of the Monthly Rental Installment in effect at the
end of the Lease Term. and otherwise upon the terms, covenants and conditions
herein specified, so far as applicable. Acceptance by Landlord of rent in such
event shall not result in a renewal of this Lease, and Tenant shall vacate and
surrender the Leased Premises to Landlord upon Tenant being given thirty (30)
days' prior written notice from Landlord to vacate. This Section 2.04 shall in
no way constitute a consent by Landlord to any holding over by Tenant upon the
expiration or earlier termination of this Lease, nor limit Landlord's remedies
in such event.
ARTICLE 3 - RENT
Section 3.01. Base Rent. Tenant shall pay to Landlord the Minimum Annual Rent in
the Monthly Rental Installments, in advance, without deduction or offset,
beginning on the Commencement Date and on or before the first day of each and
every calendar month thereafter during the Lease Term. The Monthly Rental
Installment for partial calendar months shall be prorated.
Section 3.02. Additional Rent. In addition to the Minimum Annual Rent Tenant
shall pay to Landlord for each calendar year during the Lease Term, as
"Additional Rent," "Tenant's Proportionate Share or ,if costs and expenses
incurred by Landlord during the Lease Term for Real Estate Taxes and Operating
Expenses for the Building and common areas (collectively "Common Area Charges")
to the extent such Common Area Charges exceed Landlord's Share of Expenses.
"Operating Expenses" shall mean all of Landlord's expenses for
operation, repair, replacement and maintenance to keep the Building and common
areas in good order, condition and repair, including, but not limited to,
service and other charges incurred in the operation and maintenance of the
electrical systems, heating, ventilation and air conditioning systems and
sprinkler and plumbing systems; management fees; utilitities; stormwater
discharge fees; license, permit, inspection and other fees; fees and assessments
imposed by any covenants or owners, association; security services; insurance
premiums; and maintenance, repair and replacement of the driveways, parking
areas (including snow removal), exterior lighting, landscaped areas, walkways,
curbs, drainage strips, sewer lines, exterior walls, foundation, structural
frame, roof and gutters.
"Real Estate Taxes" shall include any form of real estate tax or
assessment or service payments in lieu thereof, and any license fee, commercial
rental tax, improvement bond or other similar charge or tax (other than
inheritance, personal income or estate taxes) imposed upon the Building or
common areas (or against Landlord's business of leasing the Building) by any
authority having the power to so charge or tax, together with costs and expenses
of contesting the validity or amount of Real Estate Taxes.
Section,3.03. Payment of Additional Rent. Landlord shall estimate the total
amount of Additional Rent to be paid by Tenant during each calendar year of the
Lease Term, pro-rated for any partial years. Commencing on the Commencement
date. Tenant shall pay to Landlord each month, at the same time the Monthly
Rental installment is due, an amount equal to one-twelfth (1/12) of the
estimated Additional Rent for such year. Within a reasonable time after the end
of each calendar year, Landlord shall submit to Tenant a statement of the actual
<PAGE>
amount of such Additional Rent and within thirty (30) days after receipt of such
statement, Tenant shall pay any deficiency between the actual amount owed and
the estimates paid during such calendar year. In the event of overpayment,
Landlord shall credit the amount of such overpayment toward the next
installments of Minimum Rent.
Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur
certain additional additional unanticipated administrative and legal costs and
expenses if Tenant fails to timely pay any payment required hereunder.
Therefore, in addition to the other remedies available to Landlord hereunder, if
any payment required to be paid by Tenant to Landlord hereunder shall become
overdue, such unpaid amount shall bear interest from the due date thereof to the
date of payment at the Prime Rate of interest plus six percent (6%) per annum.
ARTICLE 4 - SECURITY DEPOSIT - Intentionally Omitted
ARTICLE 5 - USE
Section 5.01. Use of Leased Premises. The Leased Premises are to be used by
Tenant solely for the Permitted Use and for NO other purposes without the prior
written consent of Landlord.
Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use and
maintain the Leased Premises and conduct its business (hereon in a safe,
careful, reputable and lawful manner, (ii) comply with all laws, rules,
regulations, orders, ordinances, directions and requirements of any governmental
authority or agency, now in force or which may hereafter be in force, including
without limitation those which shall impose upon Landlord or Tenant any duty
with respect to or triggered by change in the use or occupation of, or any
improvement or alteration to, the Leased premises, and (iii) comply with and
obey all reasonable directions of the Landlord, including :my rules and
regulations that may be adopted by Landlord from time to time. Tenant shall not
(do or permit anything to be done in or about the Leased Premises or common
areas which constitutes a nuisance or which interferes with the rights of other
tenants or injures or annoys them. Landlord shall not be responsible to Tenant
for the nonperformance by any other tenant or occupant of the Building of its
lease or of any rules and regulations. Tenant shall not overload the floors of
the Leased Premises. All damage to the floor structure or foundation of the
Building due to improper positioning or storage of items or materials shall be
repaired by Landlord at the sole expense of Tenant, who shall reimburse Landlord
immediately therefor upon demand. Tenant shall not use the Leased Premises, or
allow the Leased Premises to be used, for any purpose or in any manner which
would invalidate any policy of insurance now or hereafter carried on the
Building or increase the rate of premiums payable on any such insurance policy
unless Tenant reimburses Landlord its Additional Rent for any increase in
premiums charged.
Section 5.03. Landlords Rights Regarding Use. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the common areas, each of which may
be exercised without notice or liability to Tenant, (a) Landlord may install
such signs, advertisements, notices or tenant identification information as it
shall deem necessary or proper; (b) Landlord shall have the right at any time to
control, change or otherwise alter the common areas as it shall deem necessary
or proper; and (c) Landlord or Landlord's agent shall be permitted to inspect or
examine the Leased Premises at any reasonable time, and Landlord shall have the
right to make any repairs to the Leased Premises which are necessary for its
preservation; provided, however, that any repairs made by
<PAGE>
Landlord shall be at Tenant's expense, except as provided in Section 7.02
hereof. Landlord shall incur no liability to Tenant for such entry, nor shall
such entry constitute an eviction of Tenant or a termination of this Lease, or
entitle Tenant to any abatement of rent therefor.
ARTICLE 6 - UTILITIES AND SERVICES
Tenant shall obtain in its own name and pay directly to the appropriate
supplier the cost of all utilities and services serving the Leased Premises.
However, if any services or utilities are jointly metered with other property,
Landlord shall make a reasonable determination of' Tenant's proportionate share
of the cost of such utilities and services and Tenant shall pay such share to
Landlord within fifteen (15) days after receipt of Landlord's written statement.
Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service and no such failure or interruption shall
entitle Tenant to terminate this Lease or withhold sums due hereunder. In the
event of utility "deregulation", Landlord shall choose the service provider.
ARTICLE 7 - MAINTENANCE AND REPAIRS
Section 7.01. Landlord's Responsibility. During the term of this Lease, Landlord
shall maintain in good condition and repair, and replace as necessary, the
electrical systems, healing and air conditioning systems, sprinkler and plumbing
systems, roof, exterior walls, foundation and structural frame of the Building
and the parking and landscaped areas, the costs of which shall he included in
Operating Expenses; provided, however, that to the extent any of the foregoing
items require repair because of the negligence, misuse, or default of Tenant,
its employees, agents, customers or invitees, Landlord shall make such repairs
solely at Tenant's expense.
Section 702. Alterations. Tenant shall not permit alterations in or to the
Leased Premises unless and until the plans have been approved by Landlord in
writing. As a condition of such approval, Landlord may require Tenant to remove
the alterations and restore the Leased Premises upon termination of this Lease;
otherwise, all such alterations shall at Landlord's option become a part of the
realty and the property of Landlord, and shall not be removed by Tenant. Tenant
shall ensure that all alterations shall be made in accordance with all
applicable laws, regulations and building codes, in a good and workmanlike
manner and of quality equal to or better than the original construction of the
Building. No person shall be entitled to any lien derived through or under
Tenant for any labor or material furnished to the Leased Premises, and nothing
in this Lease shall be construed to constitute a consent by Landlord to the
creation of any lien. If any lien is filed against the Leased Premises for work
claimed to have been done for or material claimed to have been furnished to
Tenant, Tenant shall cause such lien to be discharged of record within thirty
(30) days after filing. Tenant shall indemnify Landlord from all costs, losses,
expenses and attorneys' fees in connection with any construction or alteration
and any related lien.
ARTICLE 8 - CASUALTY
Section 8.01. Casually. In the event of total or partial destruction of the
Building or the Leased Premises by fire or other casualty, Landlord agrees to
promptly restore and repair the Leased Premises; provided, however, Landlord's
obligation hereunder shall be limited to the reconstruction of such of the
tenant finish improvements as were originally required to be made by Landlord,
if any. Rent shall proportionately abate during the time that the leased
Premises or
<PAGE>
part thereof are unusable because of any such damage. Notwithstanding the
foregoing, if the Leased Premises are (i) so destroyed that they cannot be
repaired or rebuilt within one hundred eighty (180) days from the casualty date;
or (ii) destroyed by a casualty which is not covered by the insurance required
hereunder or, if covered, such insurance proceeds are not released by any
mortgagee entitled thereto or are insufficient to rebuild the Building and the
Leased Premises; then, in case of a clause (i) casualty, either Landlord or
Tenant may, or, in the case of a clause (ii) casualty, then Landlord may, upon
thirty (30) days' written notice to the other party, terminate this Lease with
respect to matters thereafter accruing.
Section 8 02. Fire and Extended Coverage Insurance. During the Lease Term,
Landlord shall maintain fire and extended coverage insurance on the Building,
but shall not protect Tenant's property on the Leased Premises; and,
notwithstanding the provisions of Section 9.01, Landlord shall not be liable for
any damage to Tenant's property, regardless of cause, including the negligence
of Landlord and its employees, agents and invitees. Tenant hereby expressly
waives any right of recovery against Landlord for damage to any property of
Tenant located in or about the Leased Premises, however caused, including the
negligence of Landlord and its employees, agents and invitees; and,
notwithstanding the provisions of Section 9.01 below, Landlord hereby expressly
waives any rights of recovery against Tenant for damage to the Leased Premises
or the Building which is insured against under Landlord's fire and extended
coverage insurance. All insurance policies maintained by Landlord or Tenant as
provided in the Lease shall contain an agreement by the insurer waiving the
insurer's right of subrogation against the other party to this Lease.
ARTICLE 9 - LIABILITY INSURANCE
Section 9.01. Tenant's Responsibility. Landlord shall not be liable to Tenant or
to any other person for (i) damage to property or injury or death to persons due
to the condition of the Leased Premises, the Building or the common areas, or
(ii) the occurrence of any accident in or about the Leased Premises or the
common areas, or (iii) any act or neglect of Tenant or any other tenant or
occupant of the Building or of any other person, unless such damage. injury or
death is directly and solely the result of Landlord's negligence; and Tenant
hereby releases Landlord from any and all liability for the same. Tenant shall
be liable for, and shall indemnify and defend Landlord from, any and all
liability for (i) any act or neglect of Tenant and any person coming on the
Leased Premises or common areas by the license of Tenant, express or implied,
(ii) any damage to the Leased Premises, and (iii) any loss of or damage or
injury to any person (including death resulting therefrom) or property occurring
in, on or about the Leased Premises, regardless of cause, except for any loss or
damage from fire or casualty insured as provided in Section 8.02 and except for
that caused solely and directly byLandlord's negligence.
Section 9.02. Tenants Insurance. Tenant shall carry general public liability and
property damage insurance, issued by one or more insurance companies acceptable
to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Commercial General Liability Insurance, including blanket, contractual
liability, broad form property damage, personal injury, completed
operations, products liability, and fire damage: Not less than
$5,000,000 Combined Single Limit for both bodily injury and property
damage.
<PAGE>
C. Fire and Extended Coverage, Vandalism and Malicious Mischief, and
Sprinkler Leakage insurance, if applicable, for the full cost of
replacement of Tenants property.
D. Business interruption insurance.
The insurance policies shall protect Tenant and Landlord as their interests may
appear, naming Landlord and Landlord's managing agent and mortgagee as
additional insureds, and shall provide that they may not be canceled on less
than thirty (30) days' prior written notice to Landlord. Tenant shall furnish
Landlord with Certificates of Insurance evidencing all required coverage. If
Tenant fails to carry such insurance and furnish Landlord with such Certificates
of Insurance after a request to do so, Landlord may obtain such insurance and
collect the cost thereof from Tenant.
ARTICLE 10 - EMINENT DOMAIN
If all or any substantial part of the Building or common areas shall be acquired
by the exercise of eminent domain, Landlord may terminate this Lease by giving
written notice to Tenant within fifteen (15) days after possession thereof is so
taken. If all or any part of the Leased Premises shall be acquired by the
exercise of eminent domain so that the Leased Premises shall become unusable by
Tenant for the Permitted Use, Tenant may terminate this lease by giving written
notice to Landlord within fifteen (15) days after possession thereof is so
taken. All damages awarded shall belong to Landlord, provided, however, that
Tenant may claim dislocation damages if such amount is not subtracted from
Landlord's award.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
Tenant shall not assign this Lease or sublet the Leased Premises in whole or in
part without Landlord's prior written consent which consent shall not be
unreasonably withheld, delayed or conditioned. In the event of any assignment or
subletting, Tenant shall remain primarily liable hereunder. The acceptance of
rent from any other person shall not be deemed to be a waiver of any of the
provisions of this Lease or to be a consent to the assignment of this Lease or
the subletting of the Leased Premises. Without in any way limiting Landlord's
right to refuse to consent to any assignment or subletting of this Lease,
Landlord reserves the right to refuse to give such consent if in Landlord's
reasonable opinion (i) the Leased Premises are or may be in any way adversely
affected; (ii) the business reputation of the proposed assignee or subtenant is
unacceptable; Landlord further expressly reserves the right to refuse to give
its consent to any subletting if the proposed rent is publicly advertised to be
less than the then current rent for similar premises in the Park. Tenant agrees
to reimburse Landlord for reasonable accounting and attorneys' fees incurred in
conjunction with file processing and documentation of any such requested
assignment, subletting or any other hypothecation of this Lease or Tenant's
interest in and to the Leased Premises.
ARTICLE. 12- TRANSFERS BY LANDLORD
Section 12.01. Sale of the Building. Landlord shall have the right to
sell the Building at any time during the Lease Term, subject only to the rights
of Tenant hereunder; and such sale shall operate to release Landlord from
liability hereunder after the date of such conveyance.
Section 12.02. Subordination and Estoppel Certificate. Landlord shall
have the right to
<PAGE>
subordinate this Lease to any mortgage presently existing or hereafter placed
upon the Building by so declaring in such mortgage. Within ten (10) days
following receipt of a written request from Landlord, Tenant shall execute and
deliver to Landlord, without cost, any instrument which Landlord deems necessary
or desirable to confirm the subordination of this Lease and an estoppel
certificate in such form as Landlord may reasonably request certifying (i) that
this Lease is in full force and effect and unmodified or stating the nature of
any modification, (ii) the date to which rent has been paid, (iii) that there
are not, to Tenant's, knowledge, any uncured defaults or specifying such
defaults if any are claimed, and (iv) any other matters or state of facts
reasonably required respecting the Lease. Such estoppel may be relied upon by
Landlord and by any purchaser or mortgagee of the Building. Tenant's failure to
deliver such statement within such period shall be conclusive upon Tenant that
this Lease is in full force and effect and unmodified and that there are no
uncured defaults in Landlord's performance hereunder, Notwithstanding the
foregoing, if the mortgagee shall take line to tile leased Premises through
foreclosure or deed in lieu of foreclosure, Tenant shall be allowed to continue
in possession of the Leased Premises as provided for in this Lease So long as
Tenant shall not be in default.
ARTICLE' 13 - DEFAULT AND REMEDY
Section 13.01. Default. The occurrence of any of the following shall be
a "Default":
(a) Tenant fails to pay any Monthly Rental Installment or Additional
Rent within five (5) days after the same is due, or Tenant fails to pay any
other amounts due Landlord from Tenant within tell (10) days after the same is
due.
In the event of a default under subparagraph (a) above. Landlord shall
provide Tenant with written notice of such default one ( I) time during each
successive twelve (12) month period of the Lease Term and Tenant shall have all
additional five (5) days to cure such default before Landlord shall declare a
default or exercise its remedies herein.
(b) Tenant fails to perform or observe any other term, condition,
covenant or obligation required under this Lease for a period of ten (10) days
after notice thereof from Landlord: provided, however, that if the nature of
Tenant's default is such that more than ten days are reasonably required to
cure, then such default shall be deemed to have been cured if Tenant commences
such performance within said ten-day period and thereafter diligently completes
the required action within a reasonable time.
(c) All or substantially all of Tenant's assets in the Leased Premises
or Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60) days thereafter); it
petition in bankruptcy, insolvency or for reorganization or arrangement is filed
by or against Tenant (and Tenant fails to secure a stay or discharge thereof
within sixty (60) days thereafter); Tenant is insolvent and unable to pay its
debts its they become due; Tenant makes a general assignment for the benefit of
creditors; Tenant takes the benefit of any insolvency action or law; the
appointment of a receiver or trustee in bankruptcy for Tenant or its assets if
such receivership has not been vacated or set aside within thirty (30) days
thereafter; or, dissolution or other termination of Tenant's corporate charter
if Tenant is a corporation.
<PAGE>
Section 13.02. Remedies. Upon the occurrence of any Default, Landlord
shall have the following rights and remedies, in addition to those allowed by
law, any one or more of which may be exercised without further notice to Tenant:
(a) Landlord may apply the Security Deposit or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as
additional rent for any costs and expenses which Landlord thereby incurs; and
Landlord shall not be liable to Tenant for any loss or damage which Tenant may
sustain by reason of Landlord's action.
(b) Landlord may terminate this Lease or, without terminating (his
Lease, terminate Tenant's right to possession of the Leased Premises as of (lie
date of such default, and (hereafter (i) neither Tenant nor any person claiming
under or through Tenant shall be entitled to possession of the Leased Premises,
and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove their
effects, without prejudice to any other remedy which Landlord may have. Upon the
termination of this Lease, Landlord may declare the present value (as determined
by Landlord) of all rent which would have been due under this Lease for the
balance of the Lease Term to be immediately due and payable, whereupon Tenant
shall be obligated to pay the same to Landlord, together with all loss or damage
which Landlord may sustain by reason of' Tenant's Default ("Default Damages"),
which shall include without limitation expenses of preparing the Leased Premises
for re-letting, demolition, repairs, tenant finish improvements and brokers' and
attorneys' fees, it being expressly understood and agreed that the liabilities
and remedies specified in this subsection (b) shall survive the termination of
this Lease.
(c) Landlord may, without terminating this Lease, re-enter (lie Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay to Landlord as liquidated damages (lie
difference between the rent provided for herein and that provided for in any
lease covering a subsequent re-letting of (lie Leased Premises, for the period
which would otherwise have constituted the balance of the Lease Term, together
with all of Landlord's Default Damages.
(d) Landlord may sue for injunctive relief or to recover damages for
any loss resulting from the breach.
(e) In addition to the defaults and remedies described above, the
parties agree that if Tenant defaults in the performance of any (but not
necessarily the same) term or condition of this Lease three (3) or more times
during any twelve (12) month period, regardless of whether such defaults are
ultimately cured, then such conduct shall, at Landlord's option, represent a
separate Default.
Section 13.03. Landlord's Default and Tenant's Remedies. Landlord shall
be in default if it fails to perform any term, condition, covenant or obligation
required under this Lease for a period of thirty (30) days after written notice
thereof from Tenant to Landlord: provided, however, that if the term, condition,
covenant or obligation to be performed by Landlord is such that it cannot
reasonably be performed within thirty (30) days, such default shall be deemed to
<PAGE>
have been cured if Landlord commences such performance within said thirty-day
period and thereafter diligently undertakes to complete the same. Upon the
occurrence of any such default, Tenant may sue for injunctive relief or to
recover damages for any loss resulting from the breach, but Tenant shall not be
entitled to terminate this Lease or withhold, offset or abate any sums due
hereunder.
Section 13.04. Limitation of Landlord's Liability. If Landlord shall
fail to perform any term, condition, covenant or obligation required to be
performed by it under this Lease and if Tenant shall, as a consequence thereof,
recover a money judgment against Landlord, Tenant agrees that it shall look
solely to Landlord's right, title and interest in and to the Building for the
collection of such judgment; and Tenant further agrees that no other assets of
Landlord shall be subject to levy, execution or other process for the
satisfaction of Tenant's judgment.
Section 13.05. Nonwaiver-of Defaults. Neither party's failure or delay
in exercising any of its rights or remedies or other provisions of this Lease
shall constitute a waiver thereof or affect its right thereafter to exercise or
enforce such right or remedy or other provision. No waiver of any default shall
be deemed to be a waiver of any other default. Landlord's receipt of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, nor shall any statement of Tenant's check or any letter
accompanying Tenant's check be deemed an accord and satisfaction. No act or
omission by Landlord or its employees or agents during the term of this Lease
shall be deemed as acceptance of a surrender of the Leased Premises, and no
agreement to accept such a surrender shall be valid unless in writing and signed
by Landlord.
Section 13.06. Attorneys' Fees. If either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the non-defaulting party obtains a
judgment against the defaulting party, then the defaulting party agrees to
reimburse the non-defaulting party for the attorneys' fees incurred thereby.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT
Landlord shall have the right upon at least thirty (30) days' prior
written notice to Tenant to relocate Tenant and to substitute for the Leased
Premises other space in the Building or in the Park containing at least as much
rentable area as tile Leased Premises. Such substituted space shall be improved
by Landlord, at its expense, with improvements at least equal in quantity and
quality to those in the Leased Premises and shall be approved by the Federal
Drug Administration prior to Tenant's relocation. Landlord shall reimburse
Tenant for all reasonable expenses incurred with and caused by such relocation.
In no event shall Landlord be liable to Tenant for any consequential damages as
a result of any such relocation, including, but not limited to, loss of business
income or opportunity.
ARTICLE 15 - TENANT'S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.
Section 15.01. Definitions.
a. "Environmental Laws" - All federal, state and municipal laws,
ordinances, rules and regulations applicable to the environmental and ecological
condition of the Leased Premises,
<PAGE>
the rules and regulations of the Federal Environmental Protection Agency or any
other federal, state or municipal agency or governmental board or entity having
jurisdiction over the Leased Premises.
b. "Hazardous Substances" - Those substances included within the
definitions of "hazardous substances," "hazardous materials;" "toxic substances"
"solid waste" or "infectious waste" under present or future Environmental Laws
or other federal, state or local laws or regulations.
Section 15.02. Compliance. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws including any notice from any source
issued pursuant to the Environmental Laws or issued by any insurance company
which shall impose any duty upon Tenant with respect to the use, occupancy,
maintenance or alteration of the Leased Premises whether such notice shall be
served upon Landlord or Tenant.
Section 15.03. Restrictions on Tenant.
a. Tenant shall operate its business and maintain the Leased Premises
in compliance with all Environmental Laws.
b. Tenant shall not cause or permit the use, generation, release,
manufacture, refining, production, processing, storage or disposal of any
Hazardous Substances on, under or about the Leased Premises, or the
transportation to or from the Leased Premises of any Hazardous Substances,
except as necessary and appropriate for its Permitted Use in which case the use,
storage or disposal of such Hazardous Substances shall be performed in
compliance with the Environmental Laws and the highest standards prevailing in
tile industry.
Section 15.04. Notices, Affidavits, Etc.
a. Tenant shall immediately notify Landlord of (i) any violation by
Tenant, its employees, agents, representatives, customers, invitees or
contractors of the Environmental Laws on, under or about the Leased Premises, or
(ii) the presence or suspected presence of any Hazardous Substances on, under or
about the Leased Premises and shall immediately deliver to Landlord any notice
received by Tenant relating to (i) and (ii) above from any source.
b. Tenant shall execute affidavits, representations and the like within
five (5) days of Landlord's request therefor concerning Tenant's best knowledge
and belief regarding the presence of any Hazardous Substances on, under or about
the Leased Premises.
Section 15.05. Landlord's Rights. Landlord and its agents shall have
the right, but not the duty, upon advance notice (except in the case of
emergency when no notice shall be required) to inspect the Leased Premises and
conduct tests thereon to determine whether or the extent to which there has
been) a violation of Environmental Laws by Tenant or whether there are Hazardous
Substances on, under or about the Leased Premises. In exercising its rights
herein, Landlord shall use reasonable efforts to minimize interference with
Tenant's business but such entry shall not constitute an eviction of' Tenant, in
whole or in part, and Landlord shall not be liable for any interference, loss,
or damage to Tenant's property or business caused thereby.
<PAGE>
Section 15.06. Tenant's Indemnification. Tenant shall indemnify
Landlord and Landlord's managing agent from any and all claims, losses,
liabilities, costs, expenses and damages, including attorneys' fees, costs of
testing and remediation costs, incurred by Landlord in connection with any
breach by Tenant of its obligations under this Article 15. The covenants anti
obligations under this Article 15 shall survive the expiration or earlier
termination of this Lease.
Section 15.07. Landlords Representation. Notwithstanding anything
contained in this Article 15 to the contrary, Tenant shall not have any
liability to Landlord under this Article 15 resulting from any conditions
existing, or events occurring, or any Hazardous Substances existing or
generated, at, in, on, under or in connection with the Leased premises prior to
the Commencement Date of this Lease except to the extent Tenant exacerbates the
same.
ARTICLE 16 -MISCELLANEOUS
Section 16.01. Benefit of Landlord and Tenant. This lease shall inure
to the benefit of and be binding upon Landlord and Tenant and their respective
successors and assigns.
Section 16.02. Governing-Law. This Lease shall be governed in
accordance with the laws of the State of Minnesota.
Section 16.03. Guaranty. In consideration of Landlord's leasing the
Leased Premises to Tenant, Tenant shall provide Landlord with a Guaranty of
Lease executed by the guarantor(s) described in the Basic Lease Provisions, if
any.
Section 16.04. Force Maieure. Landlord and Tenant, except for the
payment of rent, shall be excused for the period of any delay in the performance
of any obligation hereunder when such delay is occasioned by causes beyond its
control, including but not limited to work stoppages, boycotts, slowdowns or
strikes; shortages of materials, equipment, labor or energy; unusual weather
conditions; or acts or omissions of governmental or political bodies.
Section 16.05. Examination of Lease. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
Section 16.06. Indemnification for Leasing Commissions. The parties
hereby represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are the Brokers. Each party shall
indemnify the other from any and all liability for the breach of this
representation and warranty on its part and shall pay any compensation to any
other broker or person who may be entitled thereto.
Section 16.07. Notices. Any notice required or permitted to be given
under this Lease or by law shall be deemed to have been given if it is written
and delivered in person or by overnight courier or mailed by certified mail,
postage prepaid, to the party who is to receive such notice at the address
specified in Article I. When so mailed, the notice shall be deemed to have been
given as of the date it was mailed. Either party may change its address by
giving written notice thereof to the other party.
<PAGE>
Section 16.08. Severability of_Invalid_Provisions. If any provision of
this Lease shall he held to be invalid, void or unenforceable, the remaining
provisions shall remain in full force and effect.
Section 16.09. Financial Statements. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's
most recent certified and audited financial statements prepared as of the end of
Tenant's fiscal year. Such financial statements shall be prepared in conformity
with generally accepted accounting principles, consistently applied.
Section 16.10. Tenant's Representations and Warranties. The undersigned
represents and warrants to Landlord that (i) Tenant is duly organized, validly
existing and in good standing in accordance with the laws of the stale under
which it was organized; and (ii) the individual executing and delivering this
Lease on behalf of Tenant has been properly authorized to do so, and such
execution and delivery shall bind Tenant. Tenant, at Landlord's request, shall
provide Landlord with evidence of such authority.
Section 16.11. Option to Extend.
A. Grant and Exercise of Option. Provided that (i) Tenant has not been
in default hereunder at any time during the Term of this Lease (the "Original
Ternr"), (ii) the creditworthiness of Tenant is then acceptable to Landlord,
(iii) Tenant originally named herein remains in possession of and has been
continuously operating in the entire Leased Premises throughout the Original
Term and (iv) the current use of the Leased Premises is acceptable to Landlord,
Tenant shall have one (1) option to extend the Original Term for one (1)
additional period of three (3) years (the "Extension Term"). The Extension Term
shall be upon the same terms and conditions contained in the Lease for the
Original Term except (i) Tenant shall not have any further option to extend and
(ii) the Minimum Annual Rent shall be adjusted as set forth herein ("Rent
Adjustment"). Tenant shall exercise such option by delivering to Landlord, no
later than October 31, 2000, written notice of Tenant's desire to extend the
Original Term. Tenant's failure to properly exercise such option shall waive it.
If Tenant properly exercises its option to extend, Landlord shall notify Tenant
of the Rent Adjustment no later than ninety (90) days prior to the commencement
of the Extension Term. Tenant shall be deemed to have accepted the Rent
Adjustment if it fails to deliver to Landlord a written objection thereto within
five (5) business days after receipt thereof. If Tenant properly exercises its
option to extend, Landlord and Tenant shall execute an amendment to the Lease
(or, at Landlord's option, a new lease on the form then in use for the Building)
reflecting the terms arid conditions of the Extension Term.
B. Market Rent Adjustment. The Minimum Annual Rent for the Extension
Term shall be an amount equal to the Minimum Annual Rent then being quoted by
Landlord to prospective new tenants of the Building for space of comparable size
and quality and with similar or equivalent improvements as are found in the
Building, and if none, then in similar buildings in the vicinity, excluding free
rent and other concessions; provided. however, that in no event shall the
Minimum Annual Rent during the Extension Term be less than the highest Minimum
Annual Rent payable during the 0riginalTerm. The Minimum Monthly Rent shall be
an amount equal to one-twelfth (I/12) of the Minimum Annual Rent for the
Extension Term and shall be paid at the same time and in the same manner as
provided in the Lease.
<PAGE>
Section 16.12. Option to Terminate. Provided Tenant is not in default
hereunder, Tenant shall have the option to terminate this Lease effective on
October 31, 2000. Such option shall be exercised by (i) Tenant's giving written
notice to Landlord of its intention to terminate on or before May 1, 2000, and
(ii) Tenant's payment to Landlord of an amount equal to XXXX Dollars ($XXX),
which payment shall accompany the notice provided in (i) above. Such payment is
trade in consideration for Landlord's grant of this option to terminate, to
compensate Landlord for rental and other concessions given to Tenant, and for
other good and valuable consideration. Such payment shall not in any manner
affect Tenant's obligations to pay Minimum Annual Rent and Additional Rent or to
perform its obligations under the Lease up to and including the date of
termination. Failure to timely and properly exercise this option shall forever
waive and extinguish it. If such option is validly exercised, then upon such
termination, Tenant shall surrender the Leased Premises to Landlord in
accordance with the terms of this Lease and each party shall be released from
further liability hereunder; provided, however, that such termination shall not
affect any right or obligation arising prior to termination or which survives
termination of the Lease.
Section 16.13. Ongoing Option to Terminate. Provided Tenant is not in
default hereunder and provided Tenant enters into an agreement with Landlord to
expand its business operations in another building which is owned by Landlord,
Tenant shall have the option to terminate this Lease effective as of the
commencement of rent under the new lease. If such option is validly exercised,
then upon such termination, Tenant shall surrender the leased Premises to
Landlord in accordance with the terms of this Lease and each party shall be
released from further liability hereunder; provided, however, that such
termination shall not affect any right or obligation arising prior to
termination or which survives termination of the Lease. Landlord hereby agrees
to use commercially reasonable efforts to accommodate Tenant's expansion needs
by locating space in another building owned by Landlord, if available.
Section 16.14. Contingency. This Lease is contingent upon Landlord
entering into a lease termination agreement for the Leased Premises with Tenant.
In the event this contingency is not satisfied, upon written notice from
Landlord, this Lease shall be void and of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
LANDLORD:
DUKE REALTY MINNESOTA, LLC,
Minnesota limited liability company
By: _
Robert H. Johnson
Chief Manager
TENANT:
CHRONIMED, INC., a Minnesota corporation
<PAGE>
By:
Printed:
Title:
STATE OF
SS:
COUNTY OF
Before me, a Notary Public in and for said County and State, personally
appeared ________________________, by me known and by me known to be the
________________ of Chronimed, Inc., a Minnesota corporation, who acknowledged
the execution of the above and foregoing Lease Agreement for and on behalf of
said corporation.
WITNESS my hand and Notarial Seal this 12TH day of , October, 1998
Notary Public
(Printed Signature)
My Commission Expires: 1/31/2000
My County of Residence: Ramsey
EXHIBIT 10.8.3
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made and entered into by and between
XXX, with the postal address XXXX, Marketing company for XXX, with the postal
address XXXX, hereafter to be referred to as the Vendor,
and
CHRONIMEB INC, with the postal address 13911 Ridgedale Drive, Minnetonka,
Minnesota 55305, USA, hereafter to be referred to as the Distributor.
WHEREAS, the Vendor is engaged in manufacturing, distributing and sales of
certain Products, for which the Vendor desires an assured market opportunity;
and
WHEREAS, the Vendor recognizes that the execution of this Agreement with the
Distributor will enable the Vendor to effectively distribute these Products in
due Territory specified herein and which should increase its share in
MARKETPLACE; and
WHEREAS, the Distributor has familiarized itself with and has determined the
clinical performance and sales potential of the Vendor's Products and now wishes
to utilize its special knowledge, expertise, and contacts to establish itself as
a Distributor of the Products and specially desires to engage in sale and
distribution with the Vendor in order to assure itself an adequate supply;
NOW, THEREFORE, the Vendor and Distributor ENTER INTO this Agreement and agree
as follows:
ARTICLE I DEFINITIONS
In this Agreement each of the terms listed below has the following meaning:
1.1 The term "Product" (or "Product") shall mean the US Products and the
Haemofix Blood Lancet Products and all modifications, improvements and additions
thereof.
1.2 The term "US Products" (or "US Product") shall mean the Haemofix Blood
Lancet Product line as specified in Appendix 1 of this Agreement.
1.3 The term "Haemofix Blood Lancets Products" (or "Haemofix Blood Lancet
Product") shall mean all goods in the Haemofix Lancet Product line as specified
in Appendix 1 of this Agreement.
1.4 The term "Trade Mark" (or "Trade Marks") shall mean the intellectual
property rights including patents, trade names, trade marks and logotypes and so
on of the Vendor related to or used in connection with the Products.
<PAGE>
1.5 The terns "Territory" shall mean North America. (USA, Canada and Mexico).
The Vendor will not operate in Central and South America the first six (6)
months. After six (6) months will tire Distributor have a right to market the
product in Central and South America, but not exclusive.
1.6 "Appendix" incites any agreed appendix of this Agreement necessary for
understanding this Agreement arid its effectiveness. All appendices shall be
deemed to be incorporated into and form part of this Agreement.
ARTICLE 2. GRANTS OF RIGHTS
2.1 The Vendor grants to the Distributor and the Distributor hereby accepts the
exclusive rights to sell the Products within the Territory to Sub Distributors
and end users, with the exceptions stated in thus Agreement.
2.2 The exclusive right to sell the Haemofix Blood Lancet in the Territory is
granted to the Distributor on the Effective Date of this Agreement. The Parties
agree that the first twelve (12) month minimum quantity period, as described in
Appendix 2, will commence ninety (90) days after receiving of the first
shipment.
ARTICLE 3. CONDITIONS PRECEDENT
3.1 The right to obtain the exclusive distribution right and the right to sell
the US Products in the Territory will be available to the Distributor upon the
effective termination of the existing distribution contract of Haemofix Lancets
type for the US Products which is in EFFECT WITH the Vendor's current
distributor. All terms and conditions regarding the US Products referenced in
this Agreement are contingent upon termination of the existing distribution
contract.
3.2 THE EXCLUSIVE right to sell means, except as otherwise stated in any
compulsory law applicable to this Agreement, that the Vendor will refrain from
- - - - - - - selling the Products in the Territory
- - - - - - - granting to any other person the representation of the Products in the
Territory
3.3 The Distributor shall refrain, outside the Territory, from seeking customers
for the Products, from establishing any branch, or from maintaining any
distribution depot for the Products. Any orders outside the Territory shall be
SENT to the Vendor.
3.4 The Vendor will not sell the Products to customers outside the Territory who
Vendor has reason to believe exports or intends to export the Products to the
Territory.
3.5 The Vendor shall be free to extend its assortment of US Products to be sold
in the Territory and, if necessary, to discontinue the manufacture of any US
Products.
<PAGE>
3.6 The Distributor shall have the right to sell to Original Equipment
Manufacturers, (OEM) in the Territory, but the Vendor will have the right to
sell to other OEM company in rest of the world, even if the product should be
included in a kit sold to the Territory.
ARTICLE 4. NON-COMPETITION
4.1 Except as otherwise stated in any compulsory law applicable to this
Agreement, the Distributor shall refrain from selling products that are
identical or similar to the Products in the Territory, unless prior written is
given by the Vendor.
4.2 The Distributor shall give reasonable notice to the Vendor if the
Distributor directly or indirectly, enters into, or becomes engaged in any
business or undertaking WHICH compete an any matter with the Vendor in
connection with the marketing, distribution, or sale of the Products in the
Territory. Such action will grant the Vendor the option to terminate this
Agreement.
ARTICLE 5. RELATIONSHIPS
5.1 At all times during the duration of this Agreement shall the Distributor act
as an independent contractor and neither shall the making of this Agreement nor
the performance of any of the provisions thereof be corm to constitute
Distributor as agent or legal representative of Vendor for any purpose, nor
shall this Agreement be deemed to establish a Joint Venture or Partnership or
Franchise Arrangement. Each purchase of tiny Products by the Distributor from
the Vendor pursuant to this Agreement, each sale of the Products made by the
Distributor, and each Agreement or commitment made by the Distributor to arty
person, firm or corporation with respect thereto shall made by Distributor for
its cum account as principal and its own expense.
5.2 Neither Party has authority to make any agreements on behalf of or in any
way binding opt the other Party.
ARTICLE 6. SUB REPRESENTATIVES
6.1 The Distributor acknowledges that it will primarily use its own sales
representatives or Sub Distributors to market and promote the Products. Vendor
acknowledges that in limited cases, at the request of a customer, Distributor
may sell the Products through sub-distributors who will perform routine
distributor tasks only. This has to be agreed with the Vendor.
ARTICLE 7. MARKETING AND SALES
7.1 The Distributor shall actively market and promote the sales of the Products
through the efforts of its Management, regional sales manager mud staff of sales
representatives within the Territory by
<PAGE>
advertising, distribution of technical and sales matters, personal calls upon
prospective customers and other activities, all of which shall be undertaken by
the Distributor at its sole cost and expense. The target shall be to reach the
best result as possible.
ARTICLE 8. MINIMUM QUANTITY
8.1 The Distributor shall buy US Products for at least eighty (80) per cent of
the total value of the agreed forecast as mentioned in Appendix 2.
8.2 If the Distributor does not comply with its obligation in this Article 8,
Clause 8.1 above, the Vendor shall be entitled to convert the exclusive rights
for the US Products as mentioned under Article 2 ABOVE TO A NONexclusive right
by registered letter within ninety (90) days after each forecasting period on
giving thirty (30) days notice. Failure to comply with the obligations in
Article 8, Clause 8.1 shall not be a material breach of this Agreement and the
Vendor sole and exclusive remedy for such failure is set forth in this Clause
8.2.
8.3 The Distributor shall purchase Haemofix Blood Lancet within the term of this
Agreement an accordance to the schedule in Appendix 2. At no time during the
first two twelve (12) month time periods, as stipulated in Appendix 2, can the
order quantities of the Products fall below the minimum quantities set forth in
the APPENDIX 2. AT NO TIME during the twelve months periods, three (3) through
four (4) inclusive, as stipulated an Appendix 2, can the order QUANTITIES OF the
Products fall more than twenty (20) per cent below the minimum quantities set
forth in Appendix 2.
ARTICLE 9. MINIMUM STOCK
The Distributor shall maintain at its own cost a stock of the Products
responding to no less than twenty (20) per cent of the volume of the annual
total volume of the forecast according to Article 12, Clause 12.2. However, if
the Vendor tai has been able to deliver in time, the Parties should discuss this
Article.
ARTICLE 10. ADVERTISING AND FAIRS
10.1 The Distributor shall advertise the Pmts within the Territory at its own
cost.
10.2 Participation in fairs or exhibitions shall be the subject of prior
consultation between the Parties. All expenses and costs associated with
Distributor's participation in fairs an exhibitions within the Territory shall
be the sole responsibility of the Distributor.
10.3 if not otherwise agreed, arty artwork or printed matters regarding the
Products, that is produced by the Distributor shall be in conformity with the
Vet's recommended fonts, printing colors and general cline for artwork. Vendor
agrees to allow the Distributor to use its current labeling practices.
<PAGE>
ARTICLE 11. TRADE MARKS
11.1 If not otherwise agreed the Distributor shall sell the Products with the
Trade Mark.
11.2 The Distributor shall not use any registered or any unregistered Trade mark
owned by the Vendor at any time during the term of this Agreement except in
connection with the Products.
11.3 After termination of this Agent the Distributor shall not use the Vendor's
name or any of the Vendor's Trade Marks in any manner, except to sell remaining
Products in inventory.
11.4 The Distribute pray put trade mark of its own on any Product label or
advertising, in accordance with Vendor's agreement.
11.5 The Distributor shall have no rights under this Agreement in, or to, the
Trade Marks and shall not, during the term of the Agreement, or theta, represent
that it is the owner of the True Marks, whether or not tire Trade Marks are
registered, nor at any time register, or cause to be registered, any of the
Trade Marks in its name, or in name of another, except on behalf of and with
written instructions from the Vendor.
ARTICLE 12. REPORTS AND FORECASTS
12.1 The Distributor shall with due diligence keep the Vendor informed of market
conditions and the state of competition and shall supply a general report as
frequently as may be required but in no event less than every three (3) months.
Such report shall always include the number (and names or coded names) of
customers to whom the Products have been sold.
12.2 The Distributor shall submit to the Vendor, prior to the end of October
every year, a forecast for all Products for the following twelve (12) month
period.
ARTICLE 13. PURCHASE ORDER
13.1 The Distributor shall provide the Vendor with rolling purchase orders for
the Products. Each purchase order shall list three (3) separate calendar month
delivery dates for each respective Product. Each desired quantity FOR a given
Product, for each calendar month, shall be listed on the purchase order as a
separate "Line Item", even if the purchase quantity is zero (0). The Distributor
shall have no less than (3) such consecutive purchase orders placed with the
Vendor at all times. Each purchase order shall not be considered binding until
the Distributor has notified with a written order acknowledgement from the
Vendor.
13.2 The Distributor shall confirm to the Vendor in writing, no later than the
20th of each calendar month, to desired quantity of all not yet delivered Line
Items on any and all purchase orders scheduled
<PAGE>
for delivery for the following third rolling calendar month. If confirmation
from the Distributor is not received by the 20th of a calendar month, the
quantity last submitted for that Line Item on any purchase order for delivery in
that following third rolling calendar month, shall automatically be considered
binding.
13.3 The Vendor may at any time make changes in, or discontinue the manufacture
of any US Product without any liability whatsoever to the Distributor. Tire
Vendor shall promptly notify the Distributor of any discontinuance or
significant change in the US Products. If the Vendor instructs the Distributor
not to sell a certain Product, the Distributor may return remaining inventory of
tier Product for credit by the Vendor.
ARTICLE 14. FORMS AND FORECASTS AND ORDERS
If agreed by the Parties, the Distributor shall use forms submitted by the
Vendor for the above reports, forecasts. Orders have to written on Distributors
own forms.
ARTICLE 15. TIME OF DELIVERY
The Vendor shall deliver the ordered Products within plus/minus ten (+/- 20)
days from acknowledged date of delivery, in accordance with Article 13.
ARTICLE 16. TERMS OF DELIVERY
16.1 The Products shall be delivered by the Vendor to the Distributor FOB (free
on board) XXX.
ARTICLE 17. PRICES
17.1 If not otherwise agreed, THE Distributor shall pay the prices for US
Products in accordance with the latest price-list in Appendix 3.
17.2 if the Vendor decides to change the said price-list, the Vendor shall
notify the Distributor of such change sixty (60) days in advance The Vendor will
honor the prices on orders placed prior to, or written that sixty (60) days
period, at the previously stated prices. Provided that the delivery is requested
by the Distributor within eighty (80) days from the effective date of prices
change. The prices shall be firm for a minimum of twelve (12) months.
17.3 The Distributor shall be free to determine the prices and other conditions
to the customers and should on request inform the Vendor about the contents of
these.
<PAGE>
17,4 The Distributor shall at all times pay the prices listed in Appendix 3 for
the Haemofix Blood Lancet.
17.5 All Product price lists will be quoted in United States US dollars (USD).
17.6 A relation of USD 1/XXX is set. If the value will change more than +-15% ,
the Parties have the right to take up negotiations.
17.7. The Distributor will every year receive 1% of the total VOLUME free, to be
use! for exhibitions e.t.a. The Distributor agrees however that these samples
shall be used for promotion only, and not for sales.
ARTICLE 18. TERMS OF PAYMENT
18.1 The Distributor shall pay to the aunt and bank per 34 days net. However, if
FDA will delays a shipment, the Distributor has the right to delay the payment
with a time as long as FDA has delayed the shipment.
18.2 If not otherwise agreed all payments relating to this Agreement shall be
made in XXX and in US dollars (USD).
ARTICLE 19. INSPECTION OF PRODUCTS
The Distributor shall thoroughly inspect the Products within 30 days from the
date of landing at the port designated by him and will lodge, within SUCH period
any claim in respect of any deliveries, found to be deficient or damaged. Within
10 days from the date on which the above mentioned period of time for inspection
has expired, the Distributor shall submit to the Vendor a report concerning all
warranty claims based on that delivery. The claim will not prejudice or suspend
the Vendor's right to receive payment in full for such delivered Products.
Failure by the Distributor to submit any such Warranty claims within the
specified period shall constitute a waiver of any such claim which could be
found at an inspection arid shall be deemed as an unconditional acceptance of
the Products by the Distributor which may not thereafter be revoked.
ARTICLE 20. WARRANTY
20.1 The Vendor warrants that the Products are free from faults in material in
that the Products correspond to the Product specification as set cant in
Appendix 4. and as set out below THE VENDOR agrees to remedy such faults. The
warranty is contingent upon proper use, handling and service of the Product and
does not apply to damage which has been caused, for example by misuse,
negligence, alteration or tampering, to damage incurred in transit, by normal
wear and tear, improper or unauthorized use or storage of the Product by the
Distributor or customer, causes external to the Products or resulting from the
Distributor's incorrect implementation or interpretation of the Vendor's advice.
The warranty is made directly by the Vendor to the Distributor and Sub
Distributors is not applicable or transferable to other purchasers of the
Product or any other party.
<PAGE>
20.2 The Vendor will in no case warrant the Products at a date past the
expiration date of three (3) years or more from date of packaging, ref to Lot.
no. written on the package of the Products.
20.3 The Distributor shall take complete responsibility, including but not
limited to all claims four third parties, arising from the Distributor's
activities concerning the Products and the Distributor hereby undertakes to hold
the Vendor harmless from any responsibility, liability and expense ton. In case
of claims from third parties or customers the Dish agrees to provide the Vendor
with all information available to the Distributor relating to any complaint from
or dispute with such parties and to notify the Vendor immediately in writing of
any faults or defects that have appeared or will appear and also inform the
Vendor as to the progress of such complaints or disputes. All such notifications
shall contain reference to Lot. no. , and the full name and address of the party
making the complaints. The Distributor shall at all times keep a record of any
defective Products old other data as mentioned above.
20.4 As the Distributor's only remedy is to have defective Product replaced or a
refund of the purchased price it is a condition for the Vendor's warranty that
the Distributor return. a referee of the defective Products to the Vendor at the
Distributor's risk and expense. If, after examination of the defective Product,
the Vendor decides that the claim is not justified, the Vendor will at the risk
and expense of the Distributor return the defective Product to the Distributor.
However, if the Vendor decides that the claim is justified the Vendor will a)
without clay credit the invoiced cost of the defective Product together with the
Distributor's expense for the transport of the defective Product, provided that
the Distributor has claimed reimbursement for transport costs before the credit
is made or b) return a new Product to the Distributor. After the Vendor has
taken the measures described in this paragraph the Vendor shall be deemed to
have fulfilled all its obligations in respect of a defective
ARTICLE 21. LIMITATION OF LIABILITY
21.1 The Vendor's sole obligation and the Distributor's sole remedy under this
warranty shall be reps of defective Products or refined of the purchase price
including transport costs, as provided above in Article 20. THE WARRANTY GIVEN
IN ARTICLE 20 IS THE ONLY WARRANTY BY THE VENDOR WITH RESPECT TO THE PRODUCTS.
UNDER NO CIRCUMSTANCES SHALL VENDOR BE LIABLE FOR LOSS OF BUSINESS, OR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THE SALE OR USE OF THE
PRODUCTS, UNDER THIS WARRANTY OR OTHERWISE. THIS LIMITATION OF LIABILITY APPLIES
EVEN IF THE VENDOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ALL OTHER WARRANTIES INCLUDING THE IMPLIED WARRANTIES OR MERCHANT ABILITY AND
FITNESS FOR PARTICIPATION PURPOSE ARE DISCLAIMED. This warranty is provided
solely to the Distributor. The Distributor shall be responsible for providing
its own warranty to its customers. The Parties agree on the importance of the
Distributor adapting the conditions it grants to its own customers to the
condition it is granted by the Vendor, especially as far as the warranty are
concerned. The Distributor assumes all risks and liabilities for and agrees to
indemnify and hold the Vendor harmless from and against any claims, demands,
liabilities, and expenses arising out of or accruing from the unauthorized acts,
negligence, or omissions of the Distributor or any breach of this Agreement by
the Distributor.
<PAGE>
21.2 The Distributor shall immediately notify the Vendor of any claims under any
foregoing warranties. The Distributor shall also immediately notify the Vendor
of any likelihood of a claim by a third Party under any of the foregoing
warranties. No adjustment, settlement, or payment of such claim made by the
Distributor to a third Party shall be binding on the Vendor, or obligate the
Vendor to compensate the Distributor for such adjustment, settlement, or
payment, unless final authorization thereto was given in writing by the Vendor.
21.3 As regards Product liability the Vendor warrants that it will be liable in
respect of death, personal injury or damaged property (other than product
itself) if it is shown that Vendor has been guilty of gross negligence or
misconduct. In no case is the Vendor responsible for Product Liability above
what is covered by the world wide liability policy taken for the Vendor's
Products which amounts to XXX per single occurrence and XXX in total aggregated
amount per policy period. The Distributor can be included and named as insured
for an "additional names fee if and for as long as, the Distributor desires.
ARTICLE 22. 1NFRINGEMENT
22.1 If a third Party mates any claim for compensation towards the Vendor or the
Distributor, the Party who receives the claim shall without delay notify the
other Party in writing. The Parties shall be obligated to assist each other in
such claim from a third Party in means of information and defense. No Party
shall have the right to settle or compromise any such claim or to enter any
judgement without the other Party's approval.
22.2 The Distributor shall report to the Vendor any infringement of Trade Marks,
or imitation of the Trade Marls and/or the Products, of WHICH IT may learn and
shall assist the Vendor in protecting its right in and to the Trade Marks and/or
the Products; but the Distributor shall not initiate any protective action WITH
respect td the Trade Marks and/or the Products WITHOUT the Vendor's prior
written authorization.
22.3 The Distributor shall assist the Vendor to the best of its ability to
protect the Vendor against such acts and. infringements of the Trade Marks
and/or the Products.
22.4 The Distributor's obligations under Article 7 and Article 8, shall be
temporarily suspended in the event that either Party, receives notification from
third Party of patent infringement regarding the Product until such claim is
mutually deemed unfound, settled or withdrawn.
ARTICLE 23. LIMITATIONS OF DAMAGES
The Party who is subject to breach of the Agreement shall be under a duly to
take all necessary measures to mitigate the loss which has occurred provided
that it can do so without unreasonable inconvenience or cost. Should it fail to
do so, the Party guilty of breach tray claim a reduction in damages.
In no case shall either Party be liable to the other for losses in profit and
other consequential losses, provided that the foregoing (a) shall not apply in
case of willful or grossly negligent breach by a Party, and (b) shall BE without
prejudice to the provisions of Articles 19 through 22.
<PAGE>
ARTICLE 24. FORCE MAJEURE
If the performance of any obligation under this Agreement, other than payment of
money, is prevented or impaired for any cue beyond the reasonable control of the
defaulting Party, such Party shall be excused from performance AS LONG as such
cause continues to prevent or impair performance, provided the Party claiming
such excuse shall promptly notify the other Party of the existence of such cause
aril shall at all times use its best efforts to resume and complete the
performance.
ARTICLE 25. NON-DISCLOSURE
25.1 The Vendor and Distributor will not disclose to any third Party any
confidential information relating to each other's business or methods of caring
on business, or to technology related to the Products. Such coal information
("Trade Secrets") includes, but is not limited to poses, techniques, research,
technology, pricing, cost data, knowhow suppliers anti customers of a Party
which the other Party knows, or hereafter tomes TO know, unless and until such
Trade Secrets are in the public domain.
25.2 In so far as officers and employees of Party, who come into contact with
Trade Secrets of the other Party, are corm, this Party shall impose on such
officers and employees a corresponding obligation to confidential treatment of
the other Party's Trade Sets to the extent set forth in this Article and
covering the time both during anti after their employment with the Party
concerned.
25.3 The duty of non-disclosure of Trade Secrets shall not cease with the
termination of this Agreement but shall survive such termination TO the full
extent.
ARTICLE 26. ASSIGNMENT
26.1 Neither Party may assign this Agreement or any interest herein without
prior written consent of the other Party such consent may not be unreasonably
withheld by either Party.
26.2 Subject to the provisions of this Article this Agreement shall inure to the
benefit of, and binding upon the Parties hereto, and their respective assigns.
ARTICLE 27. SEVERABILITY
Should any part of this Agreement for any reason be invalid or unenforceable,
such invalidity or unenforceability shall not affect the validity of the
remaining portion which remaining portion shall continue in full force and
effect. In such case, the parties agree that they will, in good faith, negotiate
with one another to replace such in valid provision with a valid provision, as
similar as possible to that which has been held to be invalid. All in accordance
with this Agreement.
<PAGE>
ARTICLE 28. DEFAULT AND OTHER CONTINGENCY
28.1 Without prejudice to airy remedy either Party may be against the other for
breach or non-performance of this Agreement, both Parties shall have the right:
- - - - - - - to terminate this Agreement by giving the other Party two month's notice in
writing if the other should violate any of provisions or conditions of this
Agreement and such Party fails to discontinue and make good such violation
within ninety (90) days after receipt of notice in writing with reference to
this Article from the complaining Party.
- - - - - - - to terminate this Agreement immediately if the other Party should enter into
liquidation or go into bankruptcy or become insolvent or make composition with
its creditors.
28.2 If the Distributor has not fulfilled any payment within thirty (30) days
after fallen due and if the Distributor still act made the payment of such
amount despite two reminders from the Vendor with at least fourteen(14) days
between each reminder, the Vendor is entitled to terminate this Agreement
immediately.
28.3 Failure of either Party to terminate this Agreement following any breach
hereof by the other Party shall not be deemed a waiver of the Party not in
breach of rights arising from any future breach.
ARTICLE 29. RIGHTS AND LIABILITES AFTER TERMINATION
29.1 Termination of this Agreement shall not release either Party from any
obligation or liability incurred prior to the effective date of such
termination, to include Vendor's obligations to indemnify the Distributor.
29.2 If the Vendor terminates this Agreement for any reason, the vendor will
allow the Distributor to sell all existing inventories of Product in stock at
the time of termination.
29.3 The Distributor shall, at its sole costs and expense, promptly return to
Vendor all advertising matter and other property or equipment of the Vendor then
in the possession of the Distributor.
29.4 In event the business transactions between the Parties subsequent to the
serving of notice of, or subsequent to the date of, termination of this
Agreement, such relations shall not constitute a renewal of this Agreement or
waiver of termination, but all such transactions shall governed by terms
identical to the applicable provisions of this Agreement unless the Parties
execute a new agreement superseding this Agreement.
ARTICLE 30. NO LICENSE
No license, express or implied, is granted by this Agreement by the Vendor under
any Trademarks.
<PAGE>
ARTICLE 31. NOTICES
Any notice or recast given under this Agreement shall be deemed to have been
sufficiently given or directly to either Party at the address shown on page one
of this Agreement, five (5) days after having been sent by registered mail, or
two (2) days after having been sent by telecopy and confirmed in writing, unless
expressly stated in this Agreement. Either Party may give written notice of a
charge of address, which shall be given as above per.
ART1CLE 32. TAXES
All prices or other payments mentioned in or sting from this Agreement shall
always be exclusive of any indirect taxes or turnover taxes (e.g. value added
tax), custom duties or similar charges. All such taxes, duties or charges shall
be borne by Distributor if levied by authorities in tire Distributor's country.
ARTICLE 33. DURATION AND EFFECTIVE DATES
33.1 The term of this Agreement shall begin on the Effective date and shall be
intact for a time period of 48 months, pursuant to Article 2, Clause 2.2, and
shall be automatically extended for successive twelve (12) month periods, unless
either Party notifies the other party by red mail at least ninety (90) days
before the respective expiration date, of each desire of either Party to
terminate this Agreement earlier under any of its other provisions.
ARTICLE 34. PERMITS
34.1 The vendor acknowledges that it is a registered Device Manufacturer with
the FDA anti that the Products are manufactured in accordance with FDA/GMP and
quality standards are in line with ISO 9001.
34.2 The Vendor agrees to undergo a vendor audit performed by the Distributor.
34.3 Vendor agrees to permit a duly authorized representative of the Distributor
to enter and inspect, during normal business hours, the establishments in which
any of the Products are manufactured, packaged, labeled or held in order to
DETERMINE whether said Products one manufactured, packed, labeled or held in
conformity with the terms of this Agreement, and further agrees to provide
Distributor with such documents at it may ready require to determine whether the
Products are being manufactured, packaged, labeled or held in accordance with
the provisions of this Agreement.
<PAGE>
ARTICLE 35. GOVERNING LAW
This Agreement shall be governed by and shall be construed AND enforced in
acordance with laws of the XXX, without giving effect to the conflict of laws
provisions thereunder.
ARTICLE 36. ARBITRATION
36.1 The arbitral shall be composed of a sole arbitrator. The place of
Arbitration shall be XXX.
36.2 The language to be used in arbitral proceedings shall be English.
36.3. The award of the arbitrator shall be the sole and exclusive remedy between
the Parties regarding any claims and counter-claims presented to the arbitrator.
The Parties undertake to fully and punctually abide by the award rendered by the
arbitrator. Failing such voluntary compliance, judgement upon the award or any
other appropriate procedures may be entered or sought in any court having
jurisdiction thereof to segue enforcement of said award.
The Parties have caused this Agreement to be executed in three (3) copies, each
of which shall be considered an original.
Date Date
CHRONIMED INC. XXX
By By
Its Its
EXHIBIT 10.8.4
Date: 18th February 19XX
PARTIES:
1. THE LICENSOR: XXXXXXXX whose registered office is at XXXXXXXXXXX
2. THE LICENSEE: CHRONIMED INC. whose place of business is at 13911
Ridgedale Drive, Minnetonka, Minnesota 55305, USA.
RECITALS:
(A) The Licensor has developed and is the beneficial owner of a substantial body
of valuable Technical Information as defined below relating to the manufacture
assembly, and commercial operation of the Supreme System and is the registered
proprietor of the Patent Rights relating thereto as defined below
(B) The Licensee wishes to receive and the Licensor is willing to grant a
license on the terms set out below and to work under the said Patent Rights in
order to manufacture, use, sell or otherwise deal in the Products
OPERATIVE PROVISIONS:
1. DEFINITIONS
1.1 In this Agreement the following terms shall have the following meanings
unless the context otherwise requires:
"Copyright": all copyright and rights in the nature of copyright to which either
party may now be or may subsequently become entitled in or in respect of all
drawings and other documents, recordings in any form and all other' articles
bearing or embodying any part of the Technical Information;
"Effective Date": XXXXXXXXX;
"Improvements": all improvements, modifications or adaptations to any part of
the Technical Information which might reasonably be of commercial intent to the
Licensor or the Licensee in the design manufacture use or supply of the Products
or in the operation of the Process and which may be made or acquire by either
party during the term of this Agreement;
"the Minimum Royalty": the annual sum of XXXXXXXXX, or such greater sum as shall
equal XXXXXX compounded at an annual rate so as to reflect the change in the
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<PAGE>
US Producer Price Index (excluding energy and food) between the date of this
Agreement and the first day of the relevant Year of the Agreement. No Minimum
Royalty will be due until the first day of the month ("Commencement Date")
following the date when Licensee is producing with FDA approval at the rate of
XXXX Reagent Strips per month for three consecutive months. The Minimum Royalty
will be payable for five years following the COMMENCEMENT DATE. In the event the
Commencement Date is other than the first day of a Year of the Agreement, the
Minimum Royalty will be prorated for the first and last year of the five year
period. After five years, no Mimimum Royalty will be required so long as
Licensee is not manufacturing a competitive product.
"Net Sales Value": the invoiced ex-works sales value of the Reagent Strips
manufactured and sold pursuant to this Agreement in an arm's length transaction
exclusively for money after deduction of normal trade discounts actually granted
and of any credits actually given by the Licensee (or in the case of Clause 6.3
by Licensor) for defective goods and excluding or making proper deductions for
any costs of packing, insurance, carriage and freight and other sales tax and,
in the case of export orders, any import duties or similar applicable
governmental levies or export insurance costs subject in all cases to the same
being separately charged on customer invoices. In any sale or other disposal of
any Reagent Strips or part thereof otherwise than in any arm's length
transaction exclusively for money, (other than samples made available for
marketing purposes) the fair market price (if higher) in the relevant country of
disposal shall be substituted for the Net Sales Value;
"Patent Rights":
(i) the patents and applications short particulars of which are set out in
Schedule B hereto;
(ii) all patent applications that may hereafter be filed by or on behalf of the
Licensor which either are based on or claim priority from any of the foregoing
patents and applications or which are in respect of any Improvements to which
either party is exclusively entitled; and
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<PAGE>
(iii) all patents which may be granted pursuant to any of the foregoing patent
applications;
"Process": the technical process required to manufacture the Products;
"Products": Supreme meter and strip system details of which are set out in
Schedule A hereto;
"Technical Information": all know-how, experience, drawings, designs, circuit
diagrams, computer programs and all other technical information relating to the
Products or the Process and which might reasonably be of commercial interest to
the Licensor or the Licensee in the design manufacture use or supply of the
Products or in the operation of the Process;
"The Territory": Territory A and Territory B;
"Territory A": North America (including any US territories wherever located) and
Mexico;
"Territory B" Central America, South America, Taiwan, Hong Kong, Singapore,
The Philipines, Korea;
"Year of the Agreement" the period commencing on the Effective Date and
ending XXXXXXXX 1993 and each subsequent calendar year during the term of this
Agreement;
2. TECHNICAL INFORMATION
2.1 Forthwith on receipt from the Licensee of the initial sum due pursuant to
clause 6.1 below the Licensor will supply the Licensee with all Technical
Information in its possession that has not previously been disclosed that is
reasonably necessary or desirable to enable the Licensee to operate the Process
and to design, manufacture on a commercial scale and sell Products of a quality
at least equivalent to those being produced by the Licensor at the Effective
Date;
2.2 The Licensor shall if requested within 12 months from the Effective Date or
such other period as may be mutually agreed provide technical assistance at the
Licensor's premises in XXXXXXXX or, if so requested by the Licensee, provide
suitably trained technical assistants to attend the premises of the Licensee in
XXXXXXXXX for such period as may be necessary to assist in
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<PAGE>
the transfer of the Technical Information to the Licensee. The Licensee shall be
responsible for all travel and incidental costs associated with the provision of
such services and the Licensor shall make no other charge in connection with
such services, provided always that they do not exceed a maximum of 90 man days
in total. For the purpose of this sub-paragraph a man day means a day of 8
working hours during which one member of the Licensor's staff is made available
to the Licensee.
2.3 If the Licensee requires additional assistance to that provided under
subclause 2.2 the Licensor will use his reasonable endeavours to provide it at
the Licensee's cost.
2.4 The Licensor warrants that all Technical Information disclosed or to be
disclosed to the Licensee hereunder is or will be accurate to the best of the
Licensor's knowledge and belief; provided always that the Licensor will promptly
correct any errors in the Technical Information subsequently discovered by him.
2.5 With respect to any Products manufactured pursuant to this Agreement the
Licensee shall be exclusively responsible for the technical and commercial
operation of the Process and for incorporating any modifications or developments
thereto that might be necessary or desirable and for all Products sold or
supplied by the Licensee and accordingly the Licensee shall indemnify the
Licensor in respect of all costs damages and expenses incurred as a result of
any claims by third parties in tort or otherwise against the Licensor arising in
any way out of the use of any of the Technical Information by the Licensee save
that the Licensee shall not be liable in any way in respect of claims by third
parties arising as a result of the Licensor's actions, designs or Technical
Information.
2.6 The Licensee undertakes that for so long as any part of the Technical
Information remains subject to the obligations of confidence in clause 4 hereof
it will not use the same for any purpose except as expressly licensed hereby and
in accordance with the terms of this Agreement.
<PAGE>
3. IMPROVEMENTS
3.1 Each party shall forthwith disclose to the other in confidence and in such
detail as that other may reasonably require all Improvements or discoveries
resulting from application of the Process or Products that it may develop or
acquire during the term of this Agreement except insofar as such disclosure
would disclose information derived from and subject to confidentiality
obligations in favor of a third party.
3.2 Improvements that the Licensor is due to disclose to the Licensee under
clause 3.1 above shall be deemed to be part of the Technical Information for the
purposes of the rights granted to the Licensee under clause 5 hereof.
3.3 Subject to Licensee's exclusive rights hereunder the Licensor shall have a
non-exclusive irrevocable world-wide royalty-free license without limit of time
with the right to grant sub-licenses thereunder to use all Improvements the
Licensee is due to disclose to the Licensor under clause 3.1 hereof and to work
under all intellectual property rights in respect thereof owned by the Licensee
or any successors in title of the Licensee.
3.4 Save as otherwise provided therein, Improvements arising from work carried
out by the Licensor alone shall remain the exclusive property of the Licensor
and Improvements arising from work carried out by the Licensee alone shall
remain the exclusive property of the Licensee.
3.5 Improvements arising from work carried out jointly shall belong to the
parties equally unless they shall otherwise agree. Each party shall have the
irrevocable right to use such joint Improvements independently of the other and
to the extent necessary for such use a license under all jointly held
intellectual property rights relating thereto including the right to grant
sub-licenses thereunder. Each party hereby undertakes that on request it will
confirm to any prospective licensee of the other the right of that other
pursuant to this paragraph to grant such a license.
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<PAGE>
4. CONFIDENTIALITY
4.1 Each party agrees to maintain secret and confidential all Technical
Information obtained from the other both pursuant to this Agreement and prior to
and in contemplation of it and all other information that it may acquire from
the other in the course of this Agreement, to respect the other's proprietary
rights therein, to use the same exclusively for the purposes of this Agreement
and to disclose the same only to those of its employees and sub-licensees
pursuant to this Agreement (if any) to whom and to the extent that such
disclosure is necessary for the purpose of this Agreement.
4.2 The foregoing obligations of clause
4.1 above shall not apply to Technical Information or other information which:
4.2.1 prior to receipt thereof from one party was in the possession of the other
and at its free disposal;
4.2.2 is subsequently disclosed to the recipient party without any obligations
of confidence by a third party who has not derived it directly or indirectly
from the other,
4.2.3 is or becomes generally available to the public through no act or default
of the recipient party or its agents or employees.
4.3 Notwithstanding the foregoing provisions the parties and any sub-licensees
pursuant to this Agreement shall be entitled to disclose Technical Information
of the other to actual or potential customers for Products insofar as such
disclosure is reasonably necessary to promote the sale or use of Products.
4.4 Each party shall procure that all its employees and sub-licensees pursuant
to this Agreement (if any) who have access to any information of the other to
which the obligations of clause 4.1 apply shall be made aware of and subject to
these obligations and shall further procure that so far as is reasonably
practicable all of such employees and sub-licensees shall enter into written
undertakings in favor of the other party to this end in a form previously
approved by the Licensor.
5. Grant of rights
5.1 The Licensor hereby grants to the Licensee:
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<PAGE>
5.1.1 an exclusive license to use the Technical Information and under the
Licensor's copyright to use the Process in Territory A to manufacture
Products;
5.1.2 an exclusive license to use sell or otherwise deal in Products
manufactured under the license of clause 5.1.1. in Territory A; and
5.1.3 subject always to the provisions of clause 5.3, an exclusive license to
use sell or otherwise deal in Products manufactured under the license
of clause 5.1.1 in Territory B.
5.2 The Licensor hereby agrees to grant to the Licensee:
5.2.1 an exclusive license under the Patent Rights to use the Process in
Territory A to manufacture Products; and
5.2.2.1 an exclusive license to use sell or otherwise deal in Products
manufactured under the license of clause 5.2.1 in Territory A;
5.2.22 subject always to the provisions of clause 5.3, an exclusive license to
use sell or otherwise deal in Products manufactured under the license
of clause 52.1 in Territory B.
5.3 During the period of 12 months following the Effective Date the Licensor and
the Licensee will use all reasonable endeavors to establish reasonable objective
performance standards for Territory B and if, after a period of 18 months from
the Effective Date, such standards have not been established or the Licensor is
of the opinion that the Licensee has failed to attain the said standards then
the exclusive rights granted to the Licensee under clauses 5.12 and 522 shall
cease and thereafter the Licensee shall have only non-exclusive rights to use
sell or otherwise deal in the Products manufactured under the licenses of
clauses 5.1.1 and 5.2.1 in Territory B. In the event of the exclusive right
ceasing in respect of Territory B, the Licensor shall provide the Licensee with
notice in writing thereof within 6 months of the expiry of the said 18 month
period and the Licensor shall not use the Licensee's distributors thereafter. In
the absence of any such notice the exclusive rights shall continue until
terminated in accordance with clause 10.1.
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<PAGE>
5.4 The parties hereto agree to execute a formal license agreement substantially
as set out in Schedule C hereto for the purposes of registering any patent
license (in the relevant territories) granted pursuant to clause 3.3 and 5.1
above. The parties agree to co-operate in the preparation of any additional
documentation necessary for the registration.
5.5 The Licensee shall be entitled to sub-license:-
5.5.1 any subsidiary of the Licensee (this being a company in which Licensee
controls a majority of the voting power of the issued shares) for so long as it
is such a subsidiary; and
5.5.2 any third party whom the Licensor has accepted by prior notice in writing,
such acceptance not be unreasonably withheld, provided always that the said
third party has entered into a confidentiality agreement in a form acceptable to
the Licensor, under the rights granted or to be granted under clauses 5.1 and
5.2 hereof provided that the Licensee shall remain responsible for all acts and
omissions of such sublicenses as though they were by the Licensee. The Licensee
shall forthwith notify the Licensor of any sub-license granted pursuant to this
clause.
5.6 If the Licensor develops new products connected with the treatment of
diabetes which are based upon the Technical Information, the Licensor shall
offer the Licensee an exclusive license to manufacture, sell and deal in the
said products on terms no less favorable than those offered to other third
parties.
6. PAYMENT
6.1 Forthwith after the execution of this Agreement the Licensee shall pay
to the Licensor an initial sum of XXX.
6.2 The Licensee shall during the continuance of this Agreement pay to the
Licensor the following royalties on the Net Sales Value of the Reagent Strips
sold or otherwise disposed of for money or money's worth by the Licensee or any
sublicensee it may appoint hereunder, save that where the total sums payable by
way of royalty in any Year of this Agreement are less than the Minimum Royalty
applicable to such Year the Licensee shall pay to the Licensor, in addition to
such
<PAGE>
royalties, a sum equal to the difference between the Minimum Royalty and the
actual royalty payments made during the relevant Year of the Agreement or part
thereof:
XXX% until such time as the total number of Reagent Strips sold in any Year
of the Agreement have an aggregate Net Sales Value in excess of
XXXXX;
XXX%on all Reagent Strips sold after the aggregate Net Sales Value of the
Reagent Strips sold in any Year of the Agreement has exceeded XXXXX but
is less than XXXXX;
XXX%on all Reagent Strips sold after the aggregate Net Sales Value of the
Reagent Strips sold in any Year of the Agreement is XXXXX or greater.
Notwithstanding the foregoing, if as of 31st December 1995 at least two of the
three United States Patent applications have not been approved or if before such
date two of such applications have been denied or withdrawn, Minimum Royalty
Payments due hereunder after December 31st 1995 (or if earlier, the date the
second application is denied or withdrawn) will be XXXXX and the maximum
percentage royalty will be XXX%.
6.3 When calculating the total sums payable by way of royalty in any Year of the
Agreement for the purposes of determining whether the Minimum Royalty has been
exceeded there shall be deemed to be included in the total of the royalties so
payable the sum of XXX for every XXX Reagent Strips sold to the Licensee by the
Licensor during such Year of Agreement (or part thereof if the Minimum Royalty
commencement date is other than January lst Product will be supplied by Licensor
to Licensee in accordance with the pricing schedule attached.
6.4 Payments due under clause 6.2 shall be made within thirty days of the end of
each calendar quarter in respect of royalties accruing on Products invoiced in
that calendar quarter and within 30 days of the end of the relevant Year of the
Agreement in respect of any sum payable due to royalty payments being less than
the Minimum Royalty and the Licensor reserves the right (without prejudice to
any
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<PAGE>
other rights it may have) to charge interest at the rate of 12% per amum on any
sums more than 30 days past overdue.
6.5 All sums due under this Agreement:
6.5.1 shall be made in sterling to the credit of a bank account to be designated
in writing by the Licensor.
6.5.2 shall be paid in full save for any deduction of taxes charges end other
duties payable by the Licensor that the Licensee is required to withhold under
applicable law. The parties agree to co-operate in all respects necessary to
take advantage of such double taxation agreements as may be available.
7. RECORDS AND REPORTS
7.1 The Licensee agrees to keep true and accurate records end books of account
containing all data necessary for the determination of royalties payable under
clause 6.2 which records and books of account shall upon reasonable notice of
the Licensor be open at all reasonable times during business hours for
inspection by the Licensor or a certified public accountant retained by Licensor
for the purpose of verifying the accuracy of the Licensee's reports hereunder.
7.2 The Licensee shall submit to the Licensor within thirty days of the end of
each calendar quarter a statement setting forth with respect to the operations
of the Licensee hereunder during that period the quantity of Products made used
or sold and the Net Sales Value of Products.
7.3 The Licensor agrees to maintain confidential all financial information
received with respect to the Licensee's operations pursuant to the foregoing
clauses 7.1 and 7.2 and to make no use of such information other than for
purposes of verifying the accuracy of royalty payments.
8. PERFORMANCE
8.1 During the continuance of this Agreement the Licensee shall:
8.1.1 use all reasonable endeavors to promote the distribution and sale of
Products throughout the Territory as widely as its resources reasonably permit
and will make available all necessary selling and manufacturing facilities to
meet all reasonable demands for Products throughout the
<PAGE>
Territory. The Licensee shall seek to maximize such demand, consistent only with
the Licensee obtaining a reasonable rate of return on its assets employed in
making and selling Products;
8.1.2 ensure that all Products manufactured pursuant to this Agreement meet all
such reasonable specifications as the Licensor may from time to time apply
thereto and satisfy in performance quality construction and use the reasonable
requirements of the Licensor end shall upon reasonable notice from the Licensor
give the Licensor or its authorized representative free access at any reasonable
time to the premises of the Licensee for the purpose of ensuring that the
Licensee is observing these obligations;
8.1.3 sell Products to any suitable buyer independently of any other product of
the Licensee if so required;
8.1.4 ensure that all literature prepared by the Licensee and relating to
Products bears an acknowledgement to the effect that they are subject to a
license from the Licensor, and attach to all products a label quoting relevant
patent numbers and stating that such Products are made under license from the
Licensor,
8.1.5 include in the terms and conditions of sale or other supply of the
Products manufactured pursuant to this Agreement (exclusive of Reagent Strips) a
guarantee to the effect that the Licensee will during at least the period of
twelve months from the date of such sale or supply replace at its own expense
and free of charge any Products supplied by it that are defective by reason of
faulty manufacture or through inadequate workmanship or materials;
8.1.6 provide adequate servicing facilities for any Products manufactured and/or
supplied by the Licensee;
8.1.7 not act as agent of the Licensor and specifically not give any indication
that it is acting otherwise than as principal and in advertising or selling
Products not make any representation or give any warranty on behalf of the
Licensor,
8.1.8 have a non-exclusive license to use the name Supreme in the Territory or
in relation to the Products;
<PAGE>
8.1.9 hold in trust for the Licensor any governmental approvals for the Products
obtained by the Licensee.
8.2 The Licensee shall forthwith inform the Licensor if for any reason it is
unable to meet any reasonable market demand giving sufficient information to
enable the Licensor to supply the customers itself if appropriate or to pass the
requirements to another licensee.
8.3 The Licensee shall at its own expense register or procure the registration
of any license agreement executed under clause 5.5 hereof.
9. PATENTS
9.1 The Licensor shall at the Licensee's cost make such other applications in
respect of the Products as the Licensee shall reasonably require and do all
things ancillary thereto.
9.2 The Licensor undertakes to take all steps (including any proceedings) as may
be necessary to halt any infringement by a third party of any of the Patent
Rights in the Territory on such a scale as to affect prejudicially the
Licensee's business in the Products to a substantial extent wherever there is a
reasonable chance of such steps being successful. The Licensee shall give the
Licensor all such assistance as the Licensor may reasonably request, and the
Licensor will bear the cost of any such proceedings reasonably incurred by the
Licensee by reason of such infringement and account to the Licensee for any
damages awarded, after the deduction of the Licensor's costs of the proceedings.
If the Licensor fails to halt any infringement by a third party and such failure
results in the Licensee's business being adversely effected to a material extent
then there will be a corresponding reduction in the royalty payments due with
respect to Products sold in the country where the said infringement occurs.
9.3 To the best of the Licensor's knowledge and belief the exercise of the
rights granted or to be granted to the Licensee hereunder will not result in the
infringement of valid patents of third parties. If any claim, demand, suit,
action or proceeding is brought against Licensor and/or Licensee, by any person,
firm or corporation, alleging or claiming that the Products or Technical
Information
<PAGE>
Infringes on any patent or other proprietary right of such claimant, the
Licensor will at its own expense, settle or defend, on behalf of itself and the
Licensee, its agents, employees and authorized assigns such suit or action, and
in the event any judgement is rendered against the Licensor and/or the Licensee,
its agents, employees and authorized assigns for damages in any such suit,
action or proceeding in which final judgement has been rendered from which no
appeal is or can be taken, the Licensor shall indemnify and hold harmless the
Licensee, its agents, employees and authorized assigns from all such costs and
damages.
9.4 If at any time during this Agreement the Licensee directly or indirectly
opposes or assists any third party to oppose the grant of letters patent on any
patent application with the Patent Rights or disputes or directly or indirectly
assists any third party to dispute the validity of any patent within the Patent
Rights or any of the claims thereof the Licensor shall be entitled at any time
thereafter to terminate all or any of the licenses granted hereunder forthwith
by notice thereof to the Licensee.
9.5 Where one party hereto has developed or acquired an Improvement to which
clause 3.1 above applies it shall not publish the same or do anything that might
prejudice the validity of any patent that might subsequently be granted on it
until the other party has had at least thirty working days from disclosure in
writing of all information relating to it to consider whether patent or other
protection should be applied for. The first party will on request notify the
other whether it intends to seek any relevant protection. If it does not wish to
do so and if the other party within the thirty working day period notifies the
first party that it would like to seek patent or other protection, and if it is
agreed between the parties that the other party may do so, then this obligation
shall continue for such time as may be reasonably required to prepare and file
an application for patent or other protection.
9.6 The Licensor shall at the Licensee's request pursue further an application
for patent protection in respect of an Improvement and maintain any such patent
protection
<PAGE>
9.7 Subject to the foregoing EACH party shall BE free to apply for patent
protection for any invention not made in whole or in part by an employee of the
other provided however that the specification in support thereof does not
disclose any confidential information of the other.
9.8 The Licensor and the Licensee shall share equally the costs of filing and
prosecuting any future joint patent applications to grant and of maintaining
such granted patents in all countries.
10. WARRANTIES
10.1 The Licensor warrants that:
10.1.1 it owns all Technical Information used by it in the manufacture and
sale of the Products. The use by the Licensor of any such Technical ;
Information, and the manufacture by the Licensor of the Products, does
not to the best of its knowledge and belief, infringe the rights of any
third party, and no claim has been asserted to such effect or otherwise
affecting any Technical Information of the Licensor. The Technical
Information and the Patent Rights to be licensed to the Licensee
hereunder constitutes all the intellectual property used by the
Licensor in the manufacture and sale of the Products;
10.1.2 it is the owner of the Patent Rights in the Products end that to the
best of its knowledge and belief the manufacture and sale of the
Products will not infringe the right of any third party;
10.13 the granting of all or any of the licenses hereunder will not result in
a breach of any of the terms and conditions of, or constitute a default
under any charge, license, or other agreement to which the Licensor is
a party or infringes the terms of any order of any Court,
administrative agency or governmental body;
10.1.4 the Licensor is not engaged in any litigation or arbitration
proceedings relating to the Products and to the best of its knowledge
no litigation or arbitration proceedings are pending or threatened
against the Licensor in respect thereof.
<PAGE>
10.1.5 All Products sold to Licensee by Licensor will conform to Licensor's
specifications and standard warranty.
10.2 In the event of the Licensee having a valid claim against the Licensor
arising from a breach of this Agreement, including a breach of the warranties
set out in this Agreement, the Licensee shall be entitled in addition to any
other remedies to off-set the amount of such valid claim against amounts owed by
the Licensee to the Licensor under separate agreements between them.
11. TERM AND TERMINATION
11.1 Subject as provided herein, this Agreement shall continue in force in each
country in the Territory until expiry of the last to expire of the Patent Rights
in such country unless earlier terminated in accordance with the following
provisions of this clause.
11.2 If either party is in breach of any obligation on it hereunder and, in the
case of a breach capable of remedy, it shall not have been remedied by the
defaulting party within fourteen days of written notice specifying the breach
and requiring its remedy, or if the Licensee becomes insolvent, has an
administrative receiver appointed over the whole or any part of its assets,
enters into any compound with creditors, or has an order made or resolution
passed for it to be wound up (otherwise than in furtherance of a scheme for
amalgamation or reconstruction) or if any similar occurrence takes place under
some foreign jurisdiction, then the Licensor or in the case of breach the party
not in breach of the obligation or condition may forthwith terminate this
Agreement by notice without prejudice to any other rights of either party
arising from the breach.
11.3 The Licensee may terminate this Agreement by serving not less than six
months nonce m writing on the Licensor which notice shall expire at the end of a
Year of the Agreement.
11.4 Termination of this Agreement for any reason shall not bring to an end:
11.4.1 the secrecy obligations on the parties hereto;
<PAGE>
11.4.2 the Licensee's obligations to pay royalties or other sums which have
accrued due or which will become due in respect of sales under clause 11.5:
11.43 the obligations (if any) on the Licensee under clause 11.5;
11.4.4 the licenses (if any) under clauses 3.3, 3.5 and 9.6.
11.5 On termination of this Agreement for any reason the Licensee shall continue
to have the right for a period of twenty four months from the date of
termination to complete deliveries on contracts in force at that date and to
dispose of Products already manufactured subject to payment to the Licensor of
royalties thereon in accordance with clause 6 above.
12. FORCE MAJEURE
12.1 If either party to this Agreement is prevented or delayed in the
performance of any of its obligations under this Agreement by force majeure, and
if such party gives written notice thereof to the other party specifying the
matters constituting force majeure, together with such evidence as it reasonably
can give and specifying the period for which it is estimated that such
prevention or delay will continue then the party in question shall be excused
the performance or the punctual performance as the case may be as from the date
of such notice for so long as such cause of prevention or delay shall continue.
12.2 For the purpose of this Agreement "force majeure" shall be deemed to be any
cause affecting the performance of this Agreement arising from or attributable
to acts, events, omissions or accidents beyond the reasonable control of the
party to perform and without limiting the generality thereof shall include the
following:
12.2.1 strikes, lock-outs or other industrial action;
12.2.2 civil commotion, riot, invasion, war threat or preparation for war,
12.2.3 fire, explosion, storm, flood, earthquake, subsidence, epidemic or other
natural physical disaster,
12.2.4 political interference with the normal operations of any party.
<PAGE>
13. GENERAL
13.1 This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective legal successors but shall not otherwise be
assignable by the Licensee without the written consent of the Licensor which
consent shall not be unreasonably withheld.
13.2 This Agreement shall be made in duplicate with both copies being executed
by both parties.
13.3 No variation or amendment of this Agreement shall bind either party unless
made in writing and agreed to in writing by duly authorized officers of both
parties.
13.4 If any provision of this Agreement is agreed by the parties to be illegal
void or unenforceable under any law that is applicable hereto or if any court of
competent jurisdiction in a final decision so determines this Agreement shall
continue in force save that such provision shall be deemed to be exercised
herefrom with effect from the date of such agreement or decision or such earlier
date as the parties may agree.
13.5 The headings in this Agreement are for convenience only and are not
intended to have any legal effect.
13.6 A failure by either party hereto to exercise or enforce any rights
conferred upon it by this Agreement shall not be deemed to be a waiver of any
such rights or operate so as to bar the exercise or enforcement thereof at any
subsequent time or times.
14. Notices
14.1 Any notice required to be given hereunder by either party to the other
shall be in writing and shall be served by sending the same by registered or
recorded delivery post to the address of the other party as given herein or to
such other address as that party may have previously notified to the party
giving notice as its address for such service.
14.2 All notices documents communications and any other data to be provided
under this Agreement shall be in the English language unless otherwise agreed.
<PAGE>
15. GOVERNING LAW AND DISPUTES
15.1 The construction validity and performance of this Agreement shall be
governed in all respects by XXXXXXX Law and the parties hereto submit to the non
exclusive jurisdiction of the XXXXXXXXXX Courts.
IN WITNESS WHEREOF the duly authorized representatives of the parties have
executed this Agreement the day and year first before written.
SIGNED BY
for and on behalf of
XXXXXXXXXXXXXXXXXX
in the presence of:
SIGNED BY
for and on behalf of
CHRONIMED INC
in the presence of:
EXHIBIT 10.8.5
AGREEMENT
AGREEMENT entered by and between Chronimed Inc., a Minnesota
corporation ("CHMD") and XXX Corporation, a _____________ corporation ("XXX")
executed and deemed effective_____________, ________ (the "Effective Date").
WHEREAS, XXX is the owner of certain proprietary know-how, technology
and patent rights ("Proprietary Technology," as defined in more detail below)
relating to blood glucose test strips and meters, and
WHEREAS, CHMD desires to obtain a worldwide, non-exclusive, license to
manufacture, distribute, market and sell a blood glucose test embodying the
Proprietary Technology developed by XXX, all on the terms and conditions set
forth herein below;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereby agree as
follows:
1. DEFINITIONS
1.1 "PROPRIETARY TECHNOLOGY" shall mean the technology embodied in that
certain blood glucose test strip and glucose test algorithm of the XXX meter as
the same exists in the current XXX Glucose Control System commercially provided
by XXX as of the Effective Date.
1.2 "LICENSED PRODUCT (s)" shall mean any glucose Test System or
glucose Test Strip marketed by CHMD which embodies, is made using, or otherwise
incorporates the Proprietary Technology (a "Proprietary Test System" or
"Proprietary Test Strip," respectively). For purposes of this Agreement, "Test
System" shall mean any device capable of measuring analyte in a sample (I.E.,
blood or other bodily material), but not including a Test Strip; and "Test
Strip" shall mean any device containing chemical reagents to which a sample is
applied which allows analysis of an analyte by a Test System.
1.3 "NET REVENUES" shall mean CHMD's gross revenues for sales of
Proprietary Test Strips by CHMD or its Affiliates to non-affiliated third
parties, less any separately itemized shipping charges, sales or exercise taxes
paid directly by CHMD, normal and customary trade discounts, returns, rebates
and allowances.
1.4 "ROYALTY YEAR" shall mean annual periods commencing Ninety (90)
days from the date of the Food and Drug Administration (FDA) registration (I.E.,
clearance by the FDA of a 510(k) application for a Proprietary Test Strip) or
April 1, 2000 whichever occurs first and continuing each year thereafter during
the term of this Agreement.
1.5 "DOLLAR(S) shall mean United States Dollars. All royalty due for
sales in countries foreign to the United States shall be converted (for the
purpose of calculation only)
<PAGE>
into equivalent United States funds at the rate set forth in The Wall Street
Journal (U.S., Eastern Edition) for the last business day of the calendar
quarter for which such royalties are owed.
1.6 "AFFILIATE(S)" shall mean any corporation or other business entity
controlled or under common control with CHMD for so long as such control exists.
For this purpose "control" shall mean direct and indirect beneficial ownership
of at least fifty one percent (51 % ) of the voting stock of, or at least a
fifty one percent (51 %) interest in the income of such corporation or other
business entity.
2. GRANT OF LICENSE
2.1 Subject to the terms and conditions stated herein, XXX grants to
CHMD and CHMD accepts a non-exclusive, worldwide non-transferable (except as set
forth in Section 9.1 below) right and license under the Proprietary Technology
to make, have made, use, distribute, market and sell Licensed Product(s)
including the right to have any or all of the foregoing performed by an
Affiliate.
2.2 During the first four years of this Agreement, XXX shall not grant
to a third party rights with respect to the Licensed Product(s) royalty
structures more favorable to such third party than as provided to CHMD under
this Agreement without first offering such more favorable royalty structure to
CHMD.
2.3 Subject to CHMD's performance of its obligations under this
Agreement and upon XXX's prior written approval, not to be unreasonably
withheld, CHMD may assign any CHMD rights licensed or granted in Section 2.1;
provided, however, that such assignment shall be solely for the purpose of
permitting CHMD to engage the services of Licensed Product(s) manufacturers,
sales representatives, dealers and other persons to assist CHMD in its
performance under this Agreement and the same shall not alleviate CHMD of its
obligations hereunder.
2.4 XXX and CHMD agree that CHMD receives no licenses or rights
whatsoever, by implication or otherwise, with respect to any other XXX patents,
patent applications, trademarks, technology or other intellectual property
except for the rights to the Proprietary Technology as specifically granted
herein; and upon termination of this Agreement, other than as to inventory in
CHMD's possession at the time of termination, CHMD shall have no further right
to use XXX Proprietary Technology, distribute, market or sell the Licensed
Product(s). Upon termination of this Agreement, CHMD shall retain the sole
ownership of and rights to any manufacturing technologies, know-how, processes,
or devices related to the Licensed Product(s) production or design independently
developed by MM during the term of this Agreement. XXX may not, during the term
of this Agreement nor after its expiration, duplicate any Licensed Product(s)
design feature, technology, or formula enhancement developed by CHMD in each
case to the extent such duplication would infringe the valid claim of an issued
patent without the express written consent of CHMD.
2.5 In consideration for the license and other rights conveyed herein,
and in addition to the royalties identified below, CHMD shall pay XXX Dollars
($XXX) to XXX on or before December 15, 1998.
<PAGE>
2.6 CHMD shall notify XXX on or before June 1, 1999, whether CHMD, in
its sole discretion, elects to manufacture, have made, market or sell a blood
glucose Proprietary Test System. In the event CHMD elects to manufacture, have
made, market or sell such a Proprietary Test System, CHMD shall pay to XXX, at
the time of CHMD's notice, an additional lump sum payment of XXX Dollars ($XXX).
In the event CHMD elects not to manufacture, have made, market or sell such
Proprietary Test Systems, the license granted under Section 2.1 above shall be
limited to Proprietary Test Strips and CHMD shall have no license with respect
to Proprietary Test Systems or Proprietary Technology related thereto (i.e., the
subject matter claimed in that certain U.S. Patent Application number #####) and
the remaining terms of this Agreement shall remain intact and fully in force.
2.7 In consideration of the rights granted and other obligations of the
parties herein, the parties agree that during the term of this Agreement that
neither party shall directly or indirectly make, have made, market, sell, have
sold or otherwise distribute any Test Strip (including without limitation a
Proprietary Test Strip) which at the time of the first commercial sale of such
Test Strip is compatible and could be used with a Test System then being
distributed commercially by or on behalf of the other party hereto.
3. LICENSED PRODUCTS) ROYALTIES
3.1 CHMD shall pay to XXX royalties on all CHMD sales of Proprietary
Test Strips during the first five Royalty Years as follows payable in Dollars:
(a) XX percent (XX%) of Net Revenues on all Proprietary Test
Strip sales up to $XX million during a Royalty Year;
(b) XX percent (XX%) of Net Revenues on all Proprietary Test
Strip sales between $XX million and $XX million during a Royalty Year;
and
(c) XX percent (XX%) of Net Revenues on all Proprietary Test
Strip sales exceeding $XX million during a Royalty Year.
3.2 CHMD shall pay to XXX royalties on all CHMD sales of Proprietary
Test Strips occurring after the first five Royalty Years as follows:
(a) XX percent (XX%) of Net Revenues on all Proprietary Test
Strip sales up to $XX million during a Royalty Year;
(b) XX percent (XX%) of Net Revenues on all Proprietary Test
Strip sales between $XX million and $XX million during a Royalty Year;
and
(c) XX percent (XX%) of Net Revenues on all Proprietary Test
Strip sales exceeding $XX million during a Royalty Year.
3.3 CHMD shall pay to XXX, upon the commencement of the first Royalty
Year (as defined herein), a lump sum payment of XX Dollars ($XX). The advance of
XX Dollars ($XX) shall off-set dollar-for-dollar the first XX ($XX) in royalties
to become due and payable to XXX based on Net Revenues generated during the
first Royalty Year.
3.4 In addition to the guaranteed royalty to be paid upon commencement
of the first Royalty Year, CHMD guarantees payment to XXX of XX Dollars ($XX) in
minimum royalties each of the
<PAGE>
second, third and fourth Royalty Years. If the total royalties paid to XXX
during one of the foregoing Royalty Years are less than the minimum guaranteed
royalty, then, together with the last royalty payment for such Royalty Year
pursuant to Section 3.5 below, CHMD shall pay to XXX an amount equal to the
difference of the minimum guaranteed royalty and the royalties paid or payable
to XXX pursuant to Section 3.1 above.
3.5 CHMD shall pay all royalties on Net Revenues due XXX, on a calendar
quarterly basis in Dollars within 45 days following the quarter for which
royalties are paid. CHMD shall furnish XXX, with each royalty payment, a
statement specifying total Licensed Product(s) sales for which royalties have
been earned during the royalty quarter and the corresponding royalties paid.
CHMD will at all times during the term of this Agreement and two (2) years
thereafter keep and maintain complete and accurate books of accounting
containing records of Licensed Product(s) sales, billing, and accounts
receivable data in sufficient detail to enable royalties payable to be computed
and verified. CHMD will permit XXX or its representatives to audit such records
at XXX's expense upon reasonable notice to CHMD; provided, however, if a
variation or error producing an underpayment in amounts payable hereunder
exceeding five percent (5%) of the amount paid for any period covered by the
audit is established in the course of any such audit, whereupon all costs
relating to the audit and any unpaid amounts that are discovered shall be paid
by CHMD, together with interest on such unpaid amounts at the rate set forth in
Section 3.7(a) below.
3.6 In the event CHMD shall fail to pay a minimum royalty as required
under Sections 3.3 or 3.4, XXX's exclusive remedy with respect to such
non-payment of a minimum royalty shall be to terminate the license granted under
this Agreement, and XXX shall have no other remedy or claim of damages of any
nature with respect to such non-payment of minimum royalty. The restriction of
remedy provided in this Section 3.6 shall not preclude any other remedy XXX may
have with respect to any other possible non-performance or breach by CHMD.
3.7 In the event CHMD's non-performance or breach, XXX shall be
entitled to the following remedies:
(a) Subject to Section 3.6, if CHMD is in default on any
payment due under this Agreement, the amount in arrears will bear the
interest from the date of the default until the amount is paid in full,
at a rate equal to the maximum rate allowed by the State of XXX. This
interest will be compounded annually from the date of default and shall
be payable on demand.
(b) XXX may terminate this Agreement, and such termination
will be without prejudice to any other rights or claims XXX may have
against CHMD.
(c) Because CHMD's breach of this Agreement may cause XXX
irreparable harm for which money is inadequate compensation,
XXX will be entitled to injunctive relief to enforce this
Agreement, in addition to damages and other available
remedies.
4. XXX COVENANTS, REPRESENTATIONS, AND WARRANTIES
4.1 XXX hereby represents and warrants that to the best of its
knowledge it owns all the Proprietary Technology and has all rights necessary to
grant the license described in Section 2.1 under the terms contained herein.
4.2 Nothing in this Agreement shall be construed as:
<PAGE>
(a) A warranty or representation by XXX as to the scope or
validity or enforceability of any Proprietary Technology; or
(b) A warranty or representation that anything made, use, sold
under the license granted will be free from infringements of patents or
other rights of any third parties; or
(c) An obligation or requirement that XXX file or prosecute
any patents applications or secure or maintain any intellectual
property rights in the Proprietary Technology; or
(d) Conferring any right on CHMD or its Affiliates, to use in
advertising, publicity, or any other manner any trademark or trade name
of XXX without prior written consent; or
(e) A warranty or representation that any product sold or
services performed by CHMD, or its Affiliates, whether embodying, made
using or otherwise incorporating by Proprietary Technology or not, is
safe, efficacious, or in compliance with any law or regulations.
4.3 XXX represents that it will make appropriate technical personnel
available for two (2) day meetings in Minnesota, to review the technology
involved in the Proprietary Technology and discuss ways of facilitating its use
by CHMD.
4.4 The execution and delivery by XXX of this Agreement and any other
documents contemplated hereby, and the performance by XXX of any of its
obligations herein will not conflict with, result in a breach or violation of
the terms or conditions of, or constitute a default under any contract or
agreement of XXX, its Articles of Incorporation or By-laws, or any order,
judgment, statute, rule or regulation to which XXX is subject.
4.5 The execution, delivery, and performance of this Agreement have
been duly authorized and approved by the board of directors of XXX and this
Agreement constitutes a valid and binding agreement of XXX in accordance with
its terms.
5. CHMD COVENANTS, REPRESENTATIONS, AND WARRANTIES
5.1 CHMD has or will have the ability to manufacture, distribute,
market and sell the Licensed Product(s) worldwide and will diligently pursue it.
5.2 The Licensed Product(s) shall be (i) manufactured in accordance
with high quality control standards and procedures appropriate for medical
devices of this nature, (ii) free from all defects in workmanship, of
merchantable quality, fit for the particular purpose intended, and (Ili)
manufactured in accordance with all applicable federal, state, laws, rules, or
regulations including, but not limited to, FDA requirements.
5.3 The execution and delivery by CHMD of this Agreement and any other
documents contemplated hereby, and the performance by CHMD of any of its
obligations herein will not conflict with, result in a breach or violation of
the terms or conditions of, or constitute a default under any contract or
agreement of CHMD, its Articles of Incorporation or By-laws, or any order,
judgment, statute, rule or regulation to which CHMD is subject.
<PAGE>
5.4 The execution, delivery, and performance of this Agreement have
been duly authorized and approved by the board of directors of CHMD and this
Agreement constitutes a valid and binding Agreement of CHMD in accordance with
its terms.
6. INDEMNIFICATION
6.1 Subject to Section 6.4, below XXX shall indemnify and hold CHMD
harmless from and against any and all liabilities, losses, damages, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorney fees and other costs and expenses) incident to any suit, action or
proceeding brought by a third party arising out of or resulting from:
(a) The breach or inaccuracy of any warranty or representation
by XXX herein;
(b) Any breach or failure to perform by XXX of any material
term, covenant, or condition herein;
(c) Any act or omission of XXX, its officers, employees, or
agents in the performance of its obligations or conduct of its business
under this Agreement.
6.2 In the event CHMD incurs any damage, judgment or expense, including
but not limited to attorneys fees or additional license or royalties fees,
arising out of any third party claim alleging that CHMD's exploitation of the
Proprietary Technology or exercise of the license granted herein constitutes
infringement of third party proprietary or intellectual property rights, CHMD
shall have the night to off-set any sums due or coming due XXX under this
Agreement by the amount of such CHMD damages, judgment or expense, without loss
of the license granted by XXX to CHMD herein. Notwithstanding the foregoing,
CHMD shall have no right of off-set under this Section 6.2 or otherwise with
respect to any infringement or alleged infringement arising out of or resulting
from: (i) use of intellectual property or technologies other than the
Proprietary Technology, including in completed products or equipment or any
assembly, combination, method or process in which the Proprietary Technology is
used when the infringement would not result when the Proprietary Technology is
used alone, or (ii) use of the Proprietary Technology in applications or for
purposes not licensed or contemplated under this Agreement.
6.3 Subject to Section 6.4 below, CHMD shall indemnify and hold XXX
harmless from and against any and all liabilities, losses, damages, claims,
deficiencies, costs and expenses (including" without limitation, reasonable
attorney fees and other costs and expenses) incident to any suit, action or
proceeding brought by a third party arising out of or resulting from:
(a) The breach or inaccuracy of any warranty or representation
by CHMD herein;
(b) Any breach or failure to perform by CHMD of any material
term, covenant, or condition herein;
(c) Any act or omission of CHMD, its officers, employees, or
agents in the performance of its obligations or conduct of its business
under this Agreement; or
(d) The manufacture, sale or use of the Licensed Product(s) by
or on behalf of CHMD, including products liability.
<PAGE>
6.4 A party (the "Indemnitee") that intends to claim indemnification
under Section 6.1 or 6.3 above, as applicable, shall: (i) promptly notify the
indemnifying party (the "Indemnitor") in writing of any suit, action, or other
proceeding brought by third parties in respect of which the Indemnitee intends
to claim such indemnification hereunder, (ii) provide the Indemnitor sole
control over the defense and settlement of such suit, action, or other
proceeding, and (iii) provide Indemnitor, at Indemnitor's expense and request,
with reasonable assistance and full information with respect to such suit,
action or other proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this Article 6 but the
omission so to deliver written notice to the Indemnitor shall not relieve the
Indemnitor of any liability that it may have to any Indemnitee otherwise than
under this Article 6. Notwithstanding the foregoing, the Indeninitor shall have
no obligations for any suit, action or other proceeding if the Indemnitee
seeking indemnification makes any admission, settlement or other communication
regarding the same without the prior written consent of Indemnitor, which
consent shall not be unreasonably withheld. Without limiting the foregoing, the
Indemnitee shall have the right to participate in any such suit, action or other
proceeding with counsel of its own choice at its expense; and in all cases,
Indemnitor shall keep the Indemnitee fully infori-ned of the progress of any
suit, action, or other proceeding it controls under this Section 6.4. For
purposes of the indemnification obligations to a party pursuant to this Article
6, such party shall be deemed to include its directors, officers and employees.
7. TERM & TERMINATION
7.1 This Agreement shall have an initial term of ten (10) years
following the Effective Date, unless otherwise earlier terrninated as set forth
herein. This Agreement shall renew for successive one year terms only by a
written agreement executed by the Parties.
7.2 Either party shall have the right to terminate this Agreement in
the event of any of the following:
(a) A party breaches the Agreement and does not cure such
breach within (30) days after notice from the non-breaching party
specifying, the nature of such breach, including failure by CHMD to
make timely royalty payments to XXX as specified herein.
(b) The dissolution, insolvency, bankruptcy or appointment of
a trustee or receiver for a party, whether voluntary or involuntary.
7.3 Termination of this Agreement for any reason shall not relieve a
party of any obligation owing at the time of termination. In the event this
Agreement is terminated for any reason, CHMD shall provide XXX with a written
inventory of all Licensed Products that CHMD and its Affiliates have in
inventory and CHMD and its Affiliates shall have the right to sell or otherwise
dispose of such Licensed Products, all subject to the payment to XXX royalties
pursuant to Article 3 hereof Articles 1, 8 and 9 and Sections 3.5, 6.1, 6.3 and
6.4 shall survive the expiration and any termination of this Agreement. In
addition, in the event of termination of this Agreement for breach pursuant to
Section 7.2(a) above, the obligations of the breaching party (but not the
terminating party) under Section 2.7 shall continue for a period of one (I)year
after the effective date of such termination. Except as otherwise provided in
this Article 7, all rights and obligations of the parties under this Agreement
shall terminate upon the expiration or termination of this Agreement.
<PAGE>
8. CONFIDENTIALITY
8.1 The parties acknowledge that the transactions herein will require
the exchange of information which is or may be confidential or proprietary. As
used herein, the term "Confidential Information" shall mean (i) proprietary
information of any of the parties; (11) information marked or designated by any
of the parties as confidential; (iii) information, whether or not in written
form and whether or not designated as confidential, which is known to a party as
being treated as confidential by the other party; and (iv) information provided
to any party by third parties which any party is obligated to keep as
confidential. Confidential Information includes, but is not limited to,
discoveries, ideas, designs, specifications, drawings, techniques, models, data,
programs, documentation, processes, know-how, customer lists, marketing plans,
and financial and technical information. Confidential Information shall not
include any information of a party now or hereafter (i) voluntarily disseminated
by that party to the public, or (ii) which otherwise becomes part of the public
domain through lawful means.
8.2 Each party hereby acknowledges that each party's Confidential
Information is and shall continue to be the exclusive property of such party,
whether or not disclosed or entrusted to the under this Agreement. Each party
agrees to exercise the highest degree of care in safeguarding the Confidential
Information of the other party against loss, theft, or other inadvertent
disclosure, and agrees generally to take all steps necessary to ensure the
maintenance of confidentiality.
8.3 Upon termination of this Agreement, or as otherwise reasonably
requested, each party agrees to deliver promptly to the owning party all
Confidential Information of the owning party, in all forms and copies, that may
be in the non-owning party's possession or under its control.
8.4 Each party acknowledges that any disclosure of Confidential
Information in violation of this Agreement will cause irreparable harm to the
owning party. If a party fails to abide by the requirements of this Section 8,
the other party will be entitled to specific performance immediate issuance of a
temporary restraining order or preliminary injunction, and to judgment for any
damages caused by such breach, as well as expenses and reasonable attorneys fees
incurred in enforcement of these rights, in addition to and not to the exclusion
of any other remedies provided in equity or at law.
8.5 The terms of this Section 8, and the rights and obligations created
herein, shall survive the termination of this Agreement for any reason.
8.6 Any written communication, including press releases, regarding the
fact of this Agreement or any terms hereunder shall be mutually approved in
writing prior to its publication.
9. MISCELLANEOUS
9.1 This Agreement shall be binding upon and inure to the benefit of
the parties and their legal representatives, successors, and assigns. This
Agreement and the various rights and obligations herein may not be assigned
without the mutual written consent of the parties. Notwithstanding the
foregoing, either party shall have the right to assign this Agreement to a party
that succeeds to all or substantially all of the assigning party's business or
assets relating to this Agreement whether by sale, merger, operation of law or
otherwise; provided that such assignee or transferee promptly agrees in writing
to be bound by the terms and conditions of this Agreement.
<PAGE>
9.2 Any notices permitted or required under this Agreement shall be
deemed given upon the date of personal delivery, 24 hours after deposit with an
overnight express delivery service, or 72 hours after deposit in the United
States mail, postage fully prepaid, addressed to the respective party:
IF TO CHMD:
Chronimed Inc.
10900 Red Circle Drive
Minnetonka, NIN 55343-9126
Attn: President
With copy to:
Chronimed Inc.
10900 Red Circle Drive
Minnetonka, MN 55343-9126
Attn: General Counsel
If to XXX:
XXX
With copy to:
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section.
9.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Minnesota without regard to its choice of law
provisions.
9.4 This Agreement contains the entire understanding between the
parties with respect to the subject matter herein and supercedes any prior
understandings and agreements among them regarding the same.
9.5 In the event of any action by a party under this Agreement to
enforce any of its terms, it is agreed that the prevailing party shall be
entitled to recovery of its costs and reasonable attorneys fees in bringing or
defending such action.
9.6 This Agreement or any section hereof shall not be construed against
a party due to the fact that the Agreement or any section was drafted by that
party.
9.7 If any provision of this Agreement or application of a provision is
held to be invalid or unenforceable, the remainder of this Agreement and the
enforceability thereof shall not be affected by such determination.
9.8 Any failure or delay by a party to enforce this Agreement or any
right herein shall not constitute in any instance a waiver of such right or
ability to obtain a permitted remedy.
<PAGE>
9.9 This Agreement may not be amended or supplemented except by a
written instrument signed by the parties. Any action by a party contrary to or
in modification of the terms of this Agreement shall not create a new agreement
among the parties unless specifically consented to in writing by the non-acting
parting.
9.10 Any dispute that arises between the parties with respect to the
performance of this Agreement shall be submitted to binding arbitration by the
American Arbitration Association (or such other arbitration agreed to in writing
by the Parties) to be determined and resolved by said association under its
rules and procedures in effect at the time of the submission. The final
arbitration decision shall be enforceable throughout the courts of the State of
Minnesota and the State of XXX.
9.11 CHMD agrees to mark, and require its Affiliates to mark, all
Licensed Products sold with all applicable patent numbers or otherwise conform
to patent laws and practices of the country in which such Licensed Products are
sold.
9.12 The relationship of CHMD and XXX established by this Agreement is
that of independent contractors. Nothing in this Agreement shall be construed to
create any other relationship between CHMD and XXX. Neither party shall have any
right, power or authority to assume, create or incur any expense, liability or
obligation, express or implied, on behalf of the other.
9.13 Except as expressly provided herein, each party agrees not to
disclose any terms of this Agreement to any third party without the consent of
the other party, except as required by securities or other applicable laws, to
prospective and other investors and such party's accountants, attorneys and
other professional advisors.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION, WHICH MAY BE ENFORCED
BY THE PARTIES.
CHRONIMED INC. XXX
By By
Its Its
EXHIBIT 10.8.6
EXCLUSIVE DISTRIBUTOR AGREEMENT
This AGREEMENT is made this 20th day of November, 1996, by and between:
XXX
XXXX
XXXXXXX
CHRONIMED INC.
13911 Ridgedale Drive
Minnetonka, MN 55305, USA
(hereinafter called "DISTRIBUTOR" )
WITNESSETH
WHEREAS XXX is the manufacturer of the product (hereinafter called "THE
PRODUCT"), and desires competent assistance in distribution of THE PRODUCT in
"THE TERRITORY" as described below
WHEREAS DISTRIBUTOR represents its capabilities of rendering such assistance;
NOW THEREFORE, in consideration of the cooperation of both parties, agree as
follows:
ARTICLE 1: DEFINITIONS
1-1 "THE PRODUCT" shall mean the product to be manufactured under "XXX"
label, or under the distributor designated private label and
exclusively supplied by XXX to DISTRIBUTOR with specifications as
described in Exhibit A attached hereto, and made a part hereof this
Agreement. The product would include current chemistry tests for
glucose, and future chemistry tests including cholesterol and lactate.
"THE TERRITORY" shall mean, and be limited to the United States of
America, Canada, and Mexico. South America and Latin America will be
reviewed for approval on a separate proposal.
ARTICLE 2: APPOINTMENT AND OBLIGATIONS
2-1 XXX hereby appoints DISTRIBUTOR as a sole, and exclusive distributor
for sales of THE PRODUCT in THE TERRITORY under the terms and
conditions of this Agreement.
<PAGE>
2-2 XXX shall not during the term of this Agreement appoint any other party
regarding the distribution of THE PRODUCT in THE TERRITORY unless with
the written consent of the DISTRIBUTOR.
2-3 XXX shall hereinafter during the terms of this Agreement refer all
inquiries and business proposals relating to THE PRODUCTS from THE
TERRITORY to DISTRIBUTOR. As soon as advised, DISTRIBUTOR shall pay
immediate attention to the inquiries as to look for business
establishment.
2-4 DISTRIBUTOR shall not during the term of this Agreement sell THE
PRODUCT to areas other than THE TERRITORY, unless with the written
consents of XXX.
2-5 DISTRIBUTOR shall do its best to promote, maintain, and increase the
sales of THE PRODUCT in THE TERRITORY, and shall provide XXX with
quarterly reports of update information regarding the sales of THE
PRODUCT, user's reaction, competitor's activities, as well as other
relevant information.
2-6 DISTRIBUTOR shall help XXX to apply for Food and Drug Administration of
the United States (FDA) 510K registration and with obligations to
facilitate FDA requirements during the application processes. The 510K
application shall appear under the XXX and DISTRIBUTOR's respective
names. XXX agrees to reimburse DISTRIBUTOR for its equal share of
related costs associated with the FDA, 510K registration.
2-7 In the event that XXX does not wish to have the DISTRIBUTOR's name
appear on the 510K registration, DISTRIBUTOR agrees to manage up front
costs, and pay for expenses related to 510K submission. XXX agrees to
reimburse DISTRIBUTOR 100% for related costs in 510K submission.
ARTICLE 3: PRICE AND PAYMENT
3-1 DISTRIBUTOR shall pay for THE PRODUCT purchased hereunder at XXX'S
distributor prices in effect at the time of ordering.
3-2 XXX'S prices in effect at the time of this Agreement are as set forth
in Exhibit B attached hereto and made a part hereof.
3-3 In the event of a price change, XXX shall provide DISTRIBUTOR with
written notice of the revised prices to be effective in sixty (60) days
from the date of which the notice was forwarded by express airmail and,
or facsimile transmission to DISTRIBUTOR. XXX agrees that there will
not exist a price change for at least twelve (12) months following the
receipt of the first shipment of product from XXX which has been
purchased for the sole purposes of resale by DISTRIBUTOR.
Furthermore, XXX agrees that price increases will not exceed a
percentage rate of five (5) percent during any twelve month period of
time, and justification for this annual increase must be tied to local
inflation rate and, or, changes in production componentry.
<PAGE>
3-4 Alternatively, XXX agrees that DISTRIBUTOR will receive a price
decrease in the event that purchased quantities by the DISTRIBUTOR
afford XXX with production efficiencies which provide a decrease in
production costs. XXX and DISTRIBUTOR agree to negotiate various levels
of volume price discount in the period of (12) months after the first
shipment.
3-5 Unless otherwise agreed, DISTRIBUTOR shall establish an irrevocable /
confirmed letter of credit at sight in favor of XXX payable in U.S.
dollars in terms acceptable to XXX after first order shipment. After
the performance of 1st order shipment, DISTRIBUTOR shall establish
letter of credit at 30 days for subsequent orders.
3-6 In the event that DISTRIBUTOR fails to fulfill the terms of payment,
XXX may treat such a default as a breach of this entire Agreement and
terminate this Agreement unless DISTRIBUTOR shall in good faith proceed
to cure such default. The DISTRIBUTOR shall not be deemed to have
breached this agreement if non-payment is related to a failure by XXX
to fulfill any part of "Section 4.4."
ARTICLE 4: PURCHASE AND DELIVERY
4-1 After filing the application for FDA, 510K registration the DISTRIBUTOR
shall issue an initial purchase order for no less than XX meters and XX
packs (50's) of electrodes. Delivery will be subject to the successful
completion of the 510K registration. A "proforma forecast" with
subsequent quarterly revisions, and delivery schedule for initial
purchase, and the remainder of 1996 shall be provided when initial
order is shipped.
4-2 DISTRIBUTOR shall submit its firm purchase order in writing sixty (60)
days prior to desired delivery time for XXX'S confirmation and
preparation of the shipment accordingly.
4-3 XXXshall ship the goods in accordance with the terms as specified and
agreed in the purchase order as acknowledged by DISTRIBUTOR, and shall
advise in writing details of shipment as soon as shipment effected.
4-4 After receipt of the PRODUCT, DISTRIBUTOR may reject or return any of
the aforementioned PRODUCT which fails to be in salable condition, or
which customers return due to the PRODUCT not meeting DISTRIBUTOR and,
or, XXX'S performance standards. It is expected that the PRODUCT shall
meet or exceed those performance standards which have been specified in
the 510K registration with the FDA. DISTRIBUTOR will notify XXX of
problems within 30 days of receipt that product does not meet
standards.
DISTRIBUTOR will send XXX notice of the lot, or serial numbers of
rejected, or returned PRODUCT, together with an indication of the
specified basis for rejection. Promptly after receiving any such notice
of rejection, XXX shall cause the rejected PRODUCT to be inspected, and
issue a return authorization number. DISTRIBUTOR shall return to XXX,
at XXX'S expense, any properly rejected PRODUCT. XXX will respond
within ten (10) days with a return authorization number, or with a
written statement that details their contested position regarding the
rejection. DISTRIBUTOR shall not be required to pay XXX for such
rejected PRODUCT, however, agrees to accept either a replacement
shipment or refund of the same dollar amount of rejected PRODUCT with,
or from subsequent shipments or payments to XXX.
<PAGE>
ARTICLE 5: QUALITY AND WARRANTY
5-1 XXX shall manufacture THE PRODUCT in compliance with specifications as
set forth in Exhibit A, or with that as may be required by DISTRIBUTOR
and agreed upon by XXX itself, and shall warrant THE PRODUCTS are free
from defects in workmanship and materials at the time of shipment. XXX
warrants that operation manuals, log books and printings on kit cases
shall be in proper English and accurately describe the correct
operation of THE PRODUCT, subject to review by DISTRIBUTOR.
5-2 XXX shall subsequently provide four (4) years warranty unless otherwise
specified for quality in normal operation of THE PRODUCT from that the
date shipment is made, for which XXX shall be responsible for providing
replacement, or repair for the defective parts and materials as
informed by DISTRIBUTOR in writing
5-3 XXX agrees to indemnify, defend and hold harmless DISTRIBUTOR, its
successors, subcontractors, agents, employees, officers and directors,
from and against any and all claims, costs, demands, liabilities,
losses, damages (including consequential damages) and expenses of
whatever nature, including reasonable attorney's fees (collectively
"Losses") arising out of or due to a failure of PRODUCTS manufactured
by XXX to conform to the Specifications; provided, however, that such
indemnification shall not apply to the extent the Losses are due to
DISTRIBUTOR's negligence or intentional misconduct.
5-4 XXX warrants that it has all rights, title and interest in all Patents
and trademarks relating to THE PRODUCT, and agrees to indemnify,
defend, and hold harmless the DISTRIBUTOR, its successors, agents,
employees, officers, and directors from, and against any and all
claims, costs, demands, liabilities, losses, damages, (including
consequential damages) and expenses of whatever nature, including
reasonable attorney's fees, arising out of or in any way related to a
claim that the technical design of the XXX Product infringes upon or
violates the patent, trade secret or other rights of any third party.
ARTICLE 6: TRADEMARKS AND CONFIDENTIALITY
6-1 Trademarks and trade names of THE PRODUCT used by XXX shall remain the
property of XXX.
6-2 Display of the XXX trade mark and name shall remain on all packaging
and promotional materials used by the DISTRIBUTOR for the marketing of
THE PRODUCT; however, DISTRIBUTOR will have the right to promote THE
PRODUCT under a brand name which is suitable to the DISTRIBUTOR, but
also denotes that the product is manufactured for DISTRIBUTOR by XXX.
6-3 DISTRIBUTOR and XXX'S shall treat all technical and business
information as confidential, and shall not disclose such information to
any third parties, or utilize as for any purpose, unless with the
consent of XXX or DISTRIBUTOR either before or after the termination of
this Agreement. "Confidential Information" shall mean any confidential
information or trade secrets disclosed to the other party and
designated confidential in writing. Items of information that are not
written or physical, such as, but not limited to disclosed orally, by
demonstration,
<PAGE>
or by observation, shall be designated as confidential at the time of
disclosure. All topics considered Confidential shall be so stamped.
6-4 The obligations imposed by Section 6-3 shall not apply with respect to
any CONFIDENTIAL INFORMATION or part thereof which is in the public
domain at the time of disclosure, which is known to the recipient at
the time of disclosure, which becomes known to the recipient from a
source other than the party disclosing the CONFIDENTIAL INFORMATION
without breach of this Agreement by the recipient and provided that
such source is not known by the recipient to be bound by a
confidentiality agreement with the party disclosing the Confidential
Information, or which is developed by the recipient independently of
the disclosing party's CONFIDENTIAL INFORMATION.
6-5 In case of action against such confidentiality breach, DISTRIBUTOR or
XXX shall indemnify the afflicted party from potential damage or loss
(including reasonable attorney's fees which may arise).
ARTICLE 7: DURATION
7-1 This Agreement shall be valid for two (2) years effective from the
execution dated herein stated before.
7-2 After the first twelve month period of distribution, the targeted
quantities for the second twelve month period of time will be proposed
by the DISTRIBUTOR for mutual agreement ninety (90) days before the end
of the calendar year and acknowledged in writing by XXX.
7-3 The minimum targeted quantities of each year should be no less than the
previous calendar year for the first three years of distribution, or in
the event of XXX manufacturing issues which cause a PRODUCT short fall.
After the first three years of distribution, it is understood that
product / market maturation may prohibit additional market growth, and
therefore, annual sales targets beginning in year four (4) do not
necessarily need to reflect PRODUCT growth forecasts.
7-4 In the event that the DISTRIBUTOR has successfully achieved the sales
and marketing expectations of THE PRODUCT in THE TERRITORY in
compliance with terms and conditions of this Agreement, both parties
agree to automatically renew this Agreement for an additional two (2)
year period, with ninety (90) days prior written notice, and agreement
either in the same terms or revised terms of this Agreement as both
shall agree.
ARTICLE 8: SUPPORT
8-1 XXX will provide DISTRIBUTOR with one (1) procedure and correction at
no charge. These testing stations will consist of the necessary
equipment (excluding personal computers) to facilitate a quality check
of THE PRODUCT, and monitor the performance of blood glucose sensors
provided to DISTRIBUTOR by XXX.
<PAGE>
ARTICLE 9: TERMINATION
9-1 Both parties shall hereto have the right to terminate this Agreement by
written notice to the other, if the other party commits or suffers any
act of bankruptcy or insolvency; or fails in performance of this
Agreement and does not cure any breach within ninety (90) days after
receipt of written notice of such action by the other party.
9-2 Upon termination of this Agreement, DISTRIBUTOR shall be liable to
settle any outstanding payment due on the date of termination, and as
may be requested, shall immediately return at its own cost, all
information received from XXX. However, XXX will at the request of
DISTRIBUTOR agrees to still supply DISTRIBUTOR with the quantities of
sensor electrodes requested by DISTRIBUTOR for one year providing that
the DISTRIBUTOR makes a formal announcement of its discontinuation of
this product line when termination is effected. XXX agrees to provide
the DISTRIBUTOR with the same prices which it will supply to the new
distributor, and the DISTRIBUTOR agrees not to lower the selling prices
as executed during the prior year.
ARTICLE 10: ASSIGNMENT
10-1 Any right or obligation under this Agreement shall be not assignable or
transferable by any party unless with prior written consents of the
other party.
ARTICLE 11: FORCE MAJEURE
11-1 Neither party shall be responsible for the failure or delay in
performance of any of its obligations hereunder due to force majeure
such as war, insurrection, strikes, acts of God, governmental action,
or any other contingency beyond control.
ARTICLE 12: APPLICABLE LAW
12-1 This Agreement shall be governed by and pursuant to the laws of XXX.
ARTICLE 13: OTHER CONDITIONS
13-1 This Agreement shall be effected, and interpreted with the plain
meaning of English language.
13-2 All expressions of intention and notices of both parties shall be made
in English in written form.
13-3 The addresses first above referred to shall be the registered addresses
of respective offices of both parties; any change of such address shall
be notified to the other in writing.
13-4 Any matters not sufficiently provided herein shall be subject to a
revision by both parties in writing to be attached hereto and made a
part hereof this Agreement.
<PAGE>
ARTICLE 14: ENTIRE AGREEMENT
This Agreement represents the entire understanding, as of the effective date
hereof, between the parties with respect to the subject matter hereof and shall
supersede all previous agreements, negotiations, understandings,
representations, statements, and writings between the parties relating thereto,
and shall be controlling over terms and conditions contained in any purchase
order, acknowledgment form or any attachment thereto or any other document
issued by the parties which are in conflict with this Agreement.
No modification, alteration, waiver, or change in any of the terms of this
Agreement shall be valid or binding upon the parties hereto unless made in
writing and duly agreed and signed by both parties hereto.
IN WITNESS WHEREOF, the parties have made this Agreement in duplicate, of which
each party shall hold one copy to be deemed as an original as of the day and
year first above written.
CHRONIMED INC. XXX
<PAGE>
EXCLUSIVE DISTRIBUTOR AGREEMENT
ADDENDUM
This AGREEMENT ADDENDUM is made this 13"' day of June, 1997, by and between:
XXX
XXXXX
XXXXXXX
CHRONIMED INC.
13911 Ridgedale Drive
Minnetonka, MN 55305, USA
(hereinafter called "DISTRIBUTOR ")
ARTICLE 1: DEFINITIONS
"THE TERRITORY" shall mean, and be limited to the United States of America,
Canada, Mexico, South America and Latin America.
All other aspects of the EXCLUSIVE DISTRIBUTOR AGREEMENT made on the 20" day of
November, 1996, remain unchanged.
IN WITNESS WHEREOF, the parties have made this Agreement Addendum in duplicate,
of which each party shall hold one copy to be deemed as an original as of the
day and year first above written.
CHRONIMED INC. XXX
EXHIBIT 10.8.7
MANUFACTURING AGREEMENT
AGREEMENT, made as of this 26th day of September, 1996, between
XXXXXXXXXXXX CORPORATION, a corporation organized and existing under the laws of
the State of Delaware, United States of America ("XXX"), and CHRONIMED, INC., a
corporation with a principal place of business at 13911 Ridgedale Drive, Suite
250, Minnetonka, Minnesota 55305 ("CHRONIMED").
WHEREAS, CHRONIMED desires XXX to manufacture these certain blood
glucose meters known as the CHRONIMED Supreme II System (including subsequent
revisions of the Supreme II System) subject to the terms and conditions set
forth herein; and
WHEREAS, XXX is in the business of manufacturing certain blood glucose
meters; and
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties hereto agree as follows:
SECTIONS 1: DEFINITIONS
When used in this Agreement, the following terms will have the respective
meanings stated below:
1.1 "Product(s)" means the CHRONIMED Supreme II System (including subsequent
revisions of the Supreme II System) designed to read certain strips and
determine blood glucose levels, to be manufactured by XXX or its subcontractors
in accordance with the design developed by XXX and CHRONIMED.
1.2 "Dollar or $" means U.S. dollars, unless specifically indicated
otherwise.
1.3 "Specifications" are attached as Amendment II
SECTION II: MANUFACTURE SALE AND DESIGN
2.1 CHRONIMED hereby retains XXX as its exclusive manufacturer of the
Product during the Term of this agreement. During the term of this
Agreement and subject to the terms and conditions hereof, XXX agrees to
manufacture and sell to CHRONIMED and CHRONIMED agrees to purchase from
XXX, such Products as CHRONIMED may order pursuant to this Agreement.
2.2 XXX shall manufacture all Products in a good and workmanlike manner in
accordance with the Specifications, and consistent with all applicable
guidelines, laws, ordinances, rules, and regulations including, without
limitation, those relating to Good Manufacturing Practices by the
United States Food and Drug Administration (FDA). CHRONIMED shall have
the full right to review XXX compliance with such applicable
guidelines, laws, ordinances, rules, and regulations.
<PAGE>
2.3 XXX shall maintain records in accordance with the applicable
guidelines, laws, rules, and regulations of the FDA relative to the
manufacture, storage, and shipping of the Product, and any batch
processing of the Products or Product components for a period of not
less than two (2) years after the date of manufacture of the applicable
Product or component
2.4 XXX shall not implement any change in the Products, components
therefor, processes for producing Products or components, or design
thereof without the prior written consent of CHRONIMED. In the case of
immaterial changes or the substitution of components with equivalent or
better performance, CHRONIMED's consent shall not be unreasonably
withheld or delayed. In all other cases, CHRONIMED can withhold its
consent in its sole discretion. To implement this Section, XXX shall
inform CHRONIMED in writing of any change it desires to make involving
the Product. CHRONIMED accept or reject such change and shall notify
XXX of its decision within thirty (30) days of receipt of such
notification. Failure to so inform XXX within forty-five (45) days of
request shall constitute a default approval on behalf of CHRONIMED.
2.5 XXX shall be responsible for procuring, purchasing, and inventorying
all such raw material, components, and spare parts and for inventorying
Products produced therefrom, provided however that XXX shall not be
held responsible for shortages of components from XXX vendors
occasioned by circumstances beyond XXX control.
2.6 The design of the Product is a derivative of a design by XXX of several
commercially available blood glucose meters not exclusive to CHRONIMED
but proprietary to XXX. The algorithms as they relate to the look up of
CHRONIMED standard curves are exclusive to CHRONIMED and owned by
CHRONIMED. The case design as embodied in the Supreme II System
(including subsequent revisions of the Supreme II System) and as
detailed in the case drawings is owned by CHRONIMED. The tools owned by
CHRONIMED are on the attached Appendix I. CHRONIMED shall be entitled
to obtain the tools that it owns upon CHRONIMED's written request. In
the event that the tools are not delivered to CHRONIMED within thirty
(30) days of such request, CHRONIMED shall have the right to withhold
royalties as described in Section 11.2, unless both parties agree that
best efforts have been made to secure the tools and have been
unsuccessful, or if both parties mutually agree that the related wear
of the tools make the retrieval of such, financially unnecessary. The
algorithms, the case design and any other aspects of the Supreme II
System which are proprietary to CHRONIMED, as well as CHRONIMED's
tooling, shall not be provided to or disclosed to any third party or
used on behalf of any third party without the consent of CHRONIMED.
SECTION III: PURCHASE PRICE
3.1 The purchase price for the first XXXXXX (XXX) Products will be built
with OTP versions of the microprocessor and the purchase price will be
XXX and XX/100 Dollars ($XXX) each. The next XXXXXX (XXX) Units
purchased will have the purchase price of XXX and XX/100 ($XXX)
provided that for these XXXXXX (XXX) units CHRONIMED orders at least
XXXXXX (XXX) units per month.
<PAGE>
3.2 Provided that CHRONIMED gives orders sufficient to maintain an average
monthly volume of at least XXXXX (XXX) Units per month, any units after
the initial purchase of the aforementioned (Section 3.1) XXXXXX (XXX)
units will be purchased at XXX and XX/100 Dollars ($XXX). If the Unit
Volume is less than the XXXXXX (XXX) Units per month, then XXX and
CHRONIMED will negotiate a price for applicable units above XXXXXXX
(XXX) units based upon the estimated unit volume of the product to be
manufactured. If the annual volume (using the calendar year) exceeds
XXXXXX (XXX) Units per year, XXX and CHRONIMED will negotiate a new
price reflecting a larger discount based upon the higher volume for
future production forecasts and schedules.
3.3 In the event XXX and CHRONIMED are unable to reach an agreement in
connection with any revised pricing, then the parties agree to be bound
by arbitration as set forth in Section Twenty Two (XXII) of this
agreement.
3.4 Notwithstanding the above, however, prices may be increased or
decreased on a semi annual basis, based upon XXX or its subcontractors
substantiated documentation of actual increase or decrease in
materials, labor and overhead costs at the end of any given six months
(6) period over the prices of the previous six months (6) period,
provided, however, that in no event shall prices increase more than ten
percent (10%) during any 12-month period. The parties will commence
discussions for any such pricing increase or decrease within the thirty
(30) day period preceding the end of the appropriate period.
SECTION IV: DELIVERY
4.1 XXX will deliver Products to a carrier on CHRONIMED's behalf, F.O.B.
XXXXX, within thirty (30) days after the end of the month forecasted in
CHRONIMED's relevant forecast set forth in Section VII. XXX will give
CHRONIMED not less than twenty-four (24) hours prior notice of the date
of each delivery of Products hereunder. XXX will also use its best
commercially reasonable efforts to make weekly, or biweekly or monthly
shipments of Products as requested by CHRONIMED.
4.2 XXX will, if requested by CHRONIMED, procure insurance on all shipments
of Product to CHRONIMED and may, at its option, bill CHRONIMED
separately or add the insurance to CHRONIMED's invoice. CHRONIMED shall
pay all charges for shipping, freight, tariff, import duties, and
delivery in the manner set forth in Section 6.1 a.
SECTION V: OUALITY ASSURANCE
5.1 XXX shall deliver to CHRONIMED, with each shipment of the Product,
written certification that it has tested such shipment for Product
compliance with Specifications and that each unit included in such
shipment complies with such Specifications. CHRONIMED shall have thirty
(30) calendar days from the date of receipt of each shipment of the
Product to confirm conformity with the design and operating
specifications. Any notice of rejection of any shipment of the Product
or portion thereof must by given in writing and received by XXX within
said thirty (30) day period or such shipment will be deemed to have
been accepted.
5.3 In the event that any Product supplied is determined by or on behalf of
CHRONIMED to fail to conform to the design per specifications in
Amendment II, or to be in breach of the
<PAGE>
warranty of Section 8.1, XXX agrees to provide CHRONIMED, at its
discretion, with the following options to resolve the breach of
warranty: non-payment for portion of shipment determined to be
non-conforming, a credit on the next invoice for such defective
Product, or to replace an equal amount of Product in the next shipment.
5.4 CHRONIMED agrees to comply with the disposition of Product as described
in Section 5.3 at the advise and expense of XXX.
SECTION VI: PAYMENT
6.1 The purchase price referred to herein shall be due and payable in U.S.
dollars to XXX within thirty (30) days after receipt of the Product
shipment at CHRONIMED's Eden Prairie, MN distribution center. All
amounts due past the due date shall carry interest at the rate of one
percent (1%) per month. Failure to pay amounts due within ninety (90)
days after the first due date shall constitute a material breach of
this Agreement. In the event CHRONIMED fails to make any payment in
accordance with this agreement, then CHRONIMED shall be responsible for
all collections costs, including reasonable attorney fees.
SECTION VII: FORECASTS AND PRODUCTION TERMINATION
7.1 CHRONIMED shall provide XXX monthly with a rolling six (6) month pro
forma forecast of its expected orders of Product for purposes of XXX
inventory control. It is understood, and agreed to by CHRONIMED that
subsequent monthly forecasts may change previously stated six (6) month
forecasts. The aforementioned six month pro forma forecasts shall
constitute a firm purchase order. All pro forma forecasts will be
formalized sixty (60) days prior to execution date of the purchase
order.
7.2 CHRONIMED reserves the right to cancel or stop production for any
reason during the term of this Agreement provided CHRONIMED shall be
responsible for the actual cost of all inventory, including components
and sub-assemblies, fully assembled units, and for parts on order that
cannot be terminated, unless the reason for termination of the
Agreement is a result of the incoming quality control (IQC) production
quality level (not field returns) being received by CHRONIMED. The IQC
production quality control is a measure of the quality of received new
product from XXX.
SECTION VIII: WARRANTY
8.1 XXX warrants that all Products will strictly conform to the design
specifications, be free of defects, be in compliance with all
applicable legal requirements and approvals, and be in good operating
condition for a period of fifteen (15) months from the date of product
receipt at CHRONIMED's distribution facility, and that CHRONIMED will
receive good title thereto, free of all liens and encumbrances of any
kind. This warranty will survive any delivery, acceptance, inspection
or payment by CHRONIMED.
XXX will replace defective Products or credit CHRONIMED for units which
are defective and returned within the warranty period. In addition, XXX
warrants that the facility and processes and other aspects of the
manufacture of the Products now meet FDA's Good Manufacturing Practices
(GMP) and will continue to fulfill FDA's GMP throughout the
<PAGE>
term of this Agreement.
SUPPLIER HEREBY DISCLAIMS ANY OTHER WARRANTIES. EXPRESS OR IMPLIED,
WITH RESPECT TO THE QUALITY OF PRODUCT, INCLUDING WARRANTIES AS TO ITS
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. XXX SHALL NOT BE
RESPONSIBLE FOR ANY CONSEQUENTIAL DAMAGES IN CONNECTION WITH THE USE OF
THE PRODUCTS.
SECTION IX: RISK OF LOSS
9.1 CHRONIMED will bear the risk of damage or deterioration loss of
Products from the time Products are properly delivered by XXX into the
possession of a carrier on CHRONIMED's behalf, F.O.B. XXX.
SECTION X: TERM AND EFFECTIVE DATE
10.1 This agreement is effective as of the date first above written and
shall apply only to Products manufactured and shipped to CHRONIMED
after its effective date. Unless earlier terminated in accordance with
Section VII or XI, this Agreement will continue in effect for a term of
three (3) years from the date hereof, and will automatically renew
annually, unless notification of termination is provided by either side
not less than forty-five (45) days before this Agreement would
otherwise expire. In the event CHRONIMED terminates production in
accordance with Section VII hereof, XXX's rights as exclusive
manufacturer shall continue for the balance of the three (3) year term
should CHRONIMED desire to purchase or have manufactured additional
products.
SECTION XI: BREACH
11.1 Either party may terminate this agreement upon written notice to the
other party if such other party fails to cure a material breach hereof
within thirty (30) days after written notice thereof. or if said breach
cannot be reasonably cured within thirty (30) days in which event the
defaulting party shall have commenced to cure within such thirty (30)
day period and shall diligently pursue such cure thereafter, the
defaulting party shall have such additional time as me be reasonably
required to cure such default. If CHRONIMED terminates this Agreement
pursuant to this Section, CHRONIMED will be entitled to cancel all
other orders for Products outstanding as of the date of termination
upon notice to XXX provided, however, CHRONIMED shall be responsible
for the actual cost for all inventory, components and sub-assemblies,
fully assembled units, components and for parts on order that cannot be
terminated unless XXX has materially breached thisAgreement by
providing CHRONIMED with Product that does not meet IQC production
quality level, and fails to correct or resolve production performance
issues in an appropriate period of time as agreed upon by both parties.
11.2 In the event of a termination of this Agreement, CHRONIMED may at its
option, manufacture or have manufactured by a third party, the Supreme
II product or a derivative thereof. In such event, CHRONIMED agrees to
pay XXX a royalty of XXX Dollars ($XXX) per unit for the first XXX
years after termination, and then XXX dollars ($XXX) in the XXX year,
XXX dollars ($XXX) in the XXX year, XXX dollars ($XXX) in the XXX year,
XXX dollars ($XXX) in the XXX year and XXX dollars ($XXX) per unit
royalty thereafter.
<PAGE>
Under the conditions expressed in Section 2.6, XXX will transfer all
tool and assembly techniques to CHRONIMED.
SECTION XII: SUPPORT
12.1 XXX will provide CHRONIMED with XX (XX) Calibrations Stations free of
charge. These Calibrations Stations will consist of a test platform and
conditioning electronics. CHRONIMED must supply the personal computers
to operate the calibrators. XXX will also supply calibration equipment
as described above to large customers of CHRONIMED when agreed upon
between XXX and CHRONIMED.
SECTION XIII: SURVIVAL OF OBLIGATIONS
13.1 The expiration or earlier termination of this agreement will not
operate to release either party hereto from any liability which has
already accrued to the other party as of the date of expiration or
termination or which may thereafter accrue in respect of an act or
omission occurring prior to expiration or termination.
SECTION XIV: INDEMNIFICATION
14.1 CHRONIMED agrees to indemnify, defend and hold harmless XXX, its
successors, assigns, subcontractors, agents, employees, stockholders,
officers, directors, affiliates and subsidiary corporations
(collectively the "Indemnified Parties") from and against any and all
claims, costs, demands, liabilities, judgments, losses, damages
(including consequential damages) and expenses of whatever nature,
whether brought against XXX, CHRONIMED or both, including reasonable
attorney's fees arising out of CHRONIMED's sale, use manufacture,
assembly, use or application of the Product, except in the event of
litigation against CHRONIMED concerning the Product, then XXX will
provide to CHRONIMED expert witness testimony, documentation and such
support, as may be reasonably within XXX's control.
Without limiting the foregoing, CHRONIMED's indemnity shall include any
types of actions brought, whether against XXX or CHRONIMED, including
any product liability claims, patent or similar type infringement
claims or for violation of any Federal, State or local law, statute or
regulation, including those yet to be enacted, relative to the Supreme
II product or a derivative thereof.
14.2 XXX agrees to indemnify, defend and hold harmless CHRONIMED, its
successors, subcontractors, agents, employees, officers and directors,
from and against any and all claims, costs, demands, liabilities,
losses, damages (including consequential damages) and expenses of
whatever nature, including reasonable attorney's fees {collectively
"Losses") arising out of or due to latent defects of the Product which
XXX knowingly manufactured for financial gain, or other reasons.
SECTION XV: FORCE MAJEURE
15.1 No party hereto will be liable to any other party for any failure or
delay of performance or other consequence which is due to any act of
God, act of government, war, civil disturbance or other cause beyond
such party's reasonable control and power to remedy, or any strike or
labor dispute or disruption of transportation, whether or not such
party is capable of resolving the problem by the payment of money.
<PAGE>
SECTION XVI: NON-WAIVER
16.1 The waiver, express or implied, by either party of any right hereunder,
will not constitute a waiver of any other right.
SECTION XVII: AMENDMENT
17.1 No amendment of this agreement will be effective unless reduced to a
writing executed by the duly authorized representatives of both parties
hereto.
SECTION XVIIL ASSIGNMENT
18.1 The rights and liabilities of the parties shall bind and inure to the
benefit of their respective successors and assigns provided, however,
XXX may not assign its rights or delegate its obligations hereunder
without the prior consent of CHRONIMED (which consent shall not be
unreasonably withheld) and any such purported assignment or delegation,
in the absence of such consent, will be void and without effect.
CHRONIMED agrees, however, that the assembly or manufacture of the
Product may be performed by subcontractors of XXX provided that any
such subcontractors must meet all GMP standards, and design
specifications as set forth in Amendment II.
SECTION IXX: SEVERABILITY
19.1 Any provision of this agreement which is finally determined by a
competent court or governmental agency to be prohibited or
unenforceable in any jurisdiction will, as to such provision and
jurisdiction only, be deemed severed to the extent of such prohibition
and unenforceability and, subject to such severance, this agreement
will continue in effect in accordance with its other terms and
conditions.
SECTION XX: NOTICES
20.1 Any notice or other communications required or permitted hereunder
shall be sufficiently given if delivered in person or sent by facsimile
transmission or telex (promptly confirmed by registered or certified
mail as provided herein) or by registered or certified mail, postage
prepaid, addressed as follows:
If to CHRONIMED:
---------------
13911 Ridgedale Drive
Suite 250
Minnetonka, Minnesota 55305
Attention: Medical Products Division - Sr. Vice President
Fax No.: (612) 541-4969
If to XXX:
---------
XXX
XXXXXXXXXX
XXXXXXXXXXXX
<PAGE>
Attention: President Fax No.: XXXXXXXX
or such address as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to
have been given as of the date so delivered, sent by facsimile
transmission or telex and shall be deemed to have been given
on the date so mailed.
SECTION XXI: GOVERNING LAW
21.1 The validity, construction and performance of this agreement will be
governed by and interpreted in accordance with the laws of the State of
XXXXXXXXX, United States of America (excluding its law of conflict of
laws).
SECTION XXII: ARBITRATION
22.1 Any controversy or claim arising out of or relating to this agreement
or any claimed breach thereof shall be settled by arbitration in
accordance with the rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered by
any court having jurisdiction thereof. The arbitration proceedings
shall take place in the State of XXXXXXXXXXX, United States of America.
SECTION XXIII: RELATIONSHIP OF PARTIES
23.1 XXX is an independent contractor and has and shall have no power to
bind CHRONIMED or to assume or create any obligation or responsibility,
express or implied, on behalf of CHRONIMED or in its name. Nothing
herein contained shall be construed as constituting, either party the
agent, partner or co-venturer of the other party.
SECTION XXIV: ENTIRE AGREEMENT
24.1 This agreement and its Exhibits incorporates all prior oral and written
communications between the parties with respect to the subject matter
hereof and, as such, supersedes all such prior oral and written
communications concerning, and constitutes the sole and exclusive
understanding between the parties with respect to, the subject matter
hereof, except to the extent that the First Manufacturing Agreement
applies to Products shipped before the effective date hereof.
IN WITNESS WHEREOF, CHRONIMED and XXX have caused this agreement to be
executed by their duly authorized representatives as of the date first
above written.
XXXXXXXXXXX CHRONIMED INC.
By By
Its Its
Date Date
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the use of our report dated May 1, 2000 in the Registration
Statement on Form 10 of MEDgenesis Inc.
/s/ Ernst & Young LLP
Minneapolis, MN
May 4, 2000
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