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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to ____________
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Commission File Number 0-18231
ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1043826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2579 MIDPOINT DRIVE FORT COLLINS, COLORADO 80525
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (970) 482-5868
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
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(Title of Class)
Series A Preferred Stock Purchase Rights
----------------------------------------
(Title of Class)
Indicate by check mark whether the registrant ( 1 ) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 19, 1999 was $144,102,697.
The number of shares outstanding of the registrant's common stock as of
February 19, 1999 was 11,414,075.
Documents incorporated by reference:
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the
definitive Proxy Statement for the Registrant's Annual Meeting of Shareholders
scheduled to be held on April 25, 1999.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Atrix Laboratories, Inc. (the "Company"), originally named Vipont Research
Laboratories, Inc., was formed in August 1986 as a Delaware corporation. The
Company is engaged primarily in the research, development and commercialization
of a broad range of dental, medical and veterinary products based on its
proprietary biodegradable polymer drug delivery systems. The Company's primary
focus to date has been the ATRIGEL(R) sustained release system. With the recent
acquisition of ViroTex Corporation (see "Recent Developments"), the Company is
also engaged in the research, development and commercialization of complementary
proprietary drug delivery systems that provide topical and transmucosal delivery
of medications requiring fast onset of action. Both ATRIGEL(R) and the topical
and transmucosal drug delivery systems can be engineered for either local or
systemic delivery of a variety of small molecules and peptides, proteins and
vaccines.
ATRIGEL(R) System
The Company's patented ATRIGEL(R) system is comprised of biodegradable
polymer formulations that are administered as flowable compositions (e.g.,
solutions, gels, pastes and putties), which solidify in situ upon contact with
body fluids to form biodegradable implants. The ATRIGEL(R) system is designed to
provide extended localized or systemic drug delivery in a single application,
without the need for surgical implantation or removal. Depending on the intended
use or the specific drug to be delivered via the ATRIGEL(R) system, the release
and degradation rates of the system can be customized. The Company's business
strategy is to develop and commercialize its proprietary ATRIGEL(R) system in
dental, medical and veterinary applications. Key elements of the Company's
business strategy are (i) to focus on the development and commercialization of
periodontal products, (ii) to leverage its proprietary technology, (iii) to
enhance development and commercialization efforts through third party
collaborations, (iv) to expand its product portfolio through the acquisition of
complementary technologies and/or products and (v) to retain manufacturing
control of the Company's proprietary ATRIGEL(R) system.
The Company currently markets two medical device products and two drug
products. The ATRISORB(R) GTR Barrier, a biodegradable film utilizing the
ATRIGEL(R) system, is a medical device used to aid in the guided tissue
regeneration ("GTR") of a tooth's support following periodontal surgery. An
improved version of the GTR barrier, the ATRISORB(R) FreeFlow GTR Barrier, was
introduced in 1998. The Company is also developing the ATRISORB(R)-DOXY product,
a second-generation GTR barrier that combines the benefits of the ATRISORB(R)
GTR Barrier with the antibiotic doxycycline for improved clinical outcomes
following periodontal surgery. The Company commenced pivotal trials for the
ATRISORB(R)-DOXY product in July 1998 and expects to file for regulatory
clearance in 1999. In September 1998, the Company received approval for its
ATRIDOX(R) product, a new minimally invasive pharmaceutical treatment for
periodontitis that employs the ATRIGEL(R) system containing the antibiotic
doxycycline. In the veterinary field, the Company developed a product utilizing
the ATRIGEL(R) system to treat periodontal disease in companion animals, which
is being marketed by Heska Corporation ("Heska").
In December 1996, the Company entered into a commercialization agreement
with Block Drug Corporation ("Block"), a leading marketer of oral healthcare
products. Under the current terms of the agreement (the "Block Agreement"),
Block has acquired the exclusive North American rights to market the ATRIDOX(R)
product, the ATRISORB(R) GTR Barrier and the ATRISORB(R)-DOXY product.
<PAGE> 3
Non-ATRIGEL(R) Systems
The proprietary drug delivery systems obtained in the acquisition of ViroTex
Corporation ("ViroTex") include three polymer-based drug delivery systems, a
solvent/microparticle drug delivery system and a topical anesthetic depot
delivery system. The polymer based drug delivery systems are the Bioerodible
Mucoadhesive (BEMA(TM)) film, which adheres to the mucosal tissue of the mouth
or vagina and allows the rapid or controlled delivery of medication through the
tissue as the film dissolves away; the Mucocutaneous Absorption (MCA(TM))
system, a moisture resistant, film-forming gel or aerosol that binds drugs to
the skin or mucosal tissue for more efficient drug delivery; and the
Biocompatible Polymer ("BCP(TM)") system, which delivers drug to a wound and
dries to a protective film to create an ideal moist environment for healing. The
Solvent/Microparticle (SMP(TM)) system combines dissolved drug compounds with a
microparticle suspension of the drug in a single formulation, allowing the
medication to be delivered in two stages to improve the absorption of relatively
insoluble active compounds. The Topical Anesthetic Depot ("TAD(TM)") delivery
system is an anesthetic depot that enhances antiviral efficacy to provide
prolonged relief from numbing, pain and itching through sustained delivery of a
local anesthetic. ViroTex's first product, Viractin(R) Cold Sore & Fever Blister
Medicine ("Viractin(R)"), launched in 1996, was developed using this system.
ViroTex subsequently sold all of the rights to Viractin(R) to CEP Holdings, Inc.
in July 1997.
RECENT DEVELOPMENTS
Acquisition of ViroTex Corporation. On November 24, 1998, the Company
acquired ViroTex through the merger of its wholly owned subsidiary, Atrix
Acquisition Corporation, with and into ViroTex. Upon consummation of the
transaction, ViroTex became a wholly owned subsidiary of the Company. ViroTex
commenced operations in May 1988 and developed over-the-counter and prescription
products based on its proprietary drug delivery systems.
Under the Agreement and Plan of Reorganization dated November 24, 1998 (the
"Merger Agreement"), the stockholders of ViroTex received $6,351,867 in cash and
37,860 shares of the Company's common stock, $.001 par value (the "Common
Stock"), valued at $389,958. In addition, the ViroTex stockholders are entitled
to receive additional consideration of up to $3,000,000, payable in shares of
Common Stock or cash, upon satisfaction of certain earn-out events set forth in
the Merger Agreement related to the performance of certain products of ViroTex.
The Company also issued a warrant to purchase 6,750 shares of Common Stock in
replacement of a warrant to purchase shares of ViroTex common stock, and issued
113,229 stock options to purchase shares of Common Stock to replace certain
options held by employees of ViroTex who became employees or consultants of the
Registrant. Only stockholders of ViroTex who beneficially owned more than 1% of
the total outstanding shares of ViroTex, on a fully diluted basis, as of
November 24, 1998, are entitled to receive Common Stock. All other stockholders
received cash in lieu of Common Stock. The consideration paid under the Merger
Agreement was determined through arms-length negotiations between the parties
and the cash portion of the purchase price was funded through the Company's cash
on hand.
In February 1999, the Company completed the transfer of certain equipment
and personal property from ViroTex's facilities in The Woodlands, Texas to the
Company's facilities in Fort Collins, Colorado. The Company closed the Woodland
facility in March 1999.
The foregoing summary of the Merger Agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Merger Agreement filed as an exhibit to this Report.
New Drug Application. On September 4, 1998, the United States Food and Drug
Administration (the "FDA") approved the Company's New Drug Application ("NDA")
for its lead product ATRIDOX(R), a minimally invasive subgingival antibiotic
therapy for chronic adult periodontitis employing the ATRIGEL(R) system with the
antibiotic doxycycline.
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ATRIX TECHNOLOGY
ATRIGEL(R) System. The Company believes the ATRIGEL(R) system addresses many
of the limitations associated with traditional drug delivery technologies. Most
drugs are administered orally or by injection at intermittent and frequent
doses. These routes of administration are not optimal for several reasons,
including difficulty in maintaining uniform drug levels over time, problems with
toxicity and side effects, high costs due to frequent administration and poor
patient compliance. Furthermore, innovations in biotechnology have led to an
increase in the number of protein and peptide drugs under development. These
therapeutics, because of their larger molecular size and susceptibility to
degradation in the gastrointestinal tract, often are required to be administered
by multiple injections, usually in a hospital or other clinical setting. The
ATRIGEL(R) system is compatible with a broad range of pharmaceutical compounds,
including water soluble and insoluble compounds and high and low molecular
weight compounds. In preclinical trials, the Company has demonstrated the
ability of the ATRIGEL(R) system to deliver, both systemically and locally,
various proteins and peptides, including hormones and growth factors. There can
be no assurance, however, that products using the ATRIGEL(R) system will be
successfully developed and approved or cleared for commercial use.
The Company believes that the ATRIGEL(R) system may provide benefits over
traditional methods of drug administration such as tablets or capsules,
injections and continuous infusion as a result of the following properties:
o Safety. All current components of the ATRIGEL(R) system are biocompatible
and have independently established safety and toxicity profiles. The
polymers used in the system are members of a class of polymers some of
which have previously been approved by the FDA for human use in other
applications. The Company has also conducted toxicological studies on the
ATRIGEL(R) system to develop a safety and toxicological profile.
o Broadly Applicable. The ATRIGEL(R) system is compatible with a broad range
of pharmaceutical compounds, including water soluble and insoluble
compounds and high and low molecular weight compounds. In preclinical
models, the Company has demonstrated the ATRIGEL(R) system can be used to
deliver proteins, peptides and other compounds that have formulation
stability issues or short in-vivo half-lives.
o Site Specific Drug Delivery. The ATRIGEL(R) system can be delivered
directly to a target area, thus potentially achieving higher drug
concentrations at the desired site of action and potentially minimizing
systemic side effects. For example, the ATRIDOX(R) product delivers high
concentrations of the antibiotic doxycycline to periodontal pockets with
minimal systemic concentrations of the drug. In preclinical models, the
Company has delivered several cancer drugs directly to tumors, achieving
high local concentrations of the drugs with minimal systemic toxic side
effects.
o Systemic Drug Delivery. The ATRIGEL(R) system also can be used to provide
sustained drug release into the systemic circulation for certain drugs. In
these applications, for example, the entire body requires treatment, and
the drug may not be active when given orally. For example, the Company is
developing an ATRIGEL(R) formulation containing the hormone peptide
leuprolide acetate as a systemic therapy for prostate cancer. In
preclinical models, the Company has demonstrated the systemic delivery of
peptides at therapeutic levels for up to 110 days from a single depot
injection.
o Customized Continuous Release and Degradation Rates. The ATRIGEL(R) system
can be designed to provide continuous release of incorporated
pharmaceuticals over a targeted time period so as to reduce the frequency
of drug administration. In addition, the ATRIGEL(R) system can be designed
to degrade over weeks, months, or even one year.
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o Biodegradability. The ATRIGEL(R) system will biodegrade and is not
expected to require removal when the drug is depleted.
o Ease of Application. The ATRIGEL(R) system can be injected or inserted as
flowable compositions (e.g., solutions, gels, pastes, and putties) by
means of ordinary needles and syringes, or can be sprayed or painted onto
tissues.
In addition to the delivery of drugs, the ATRIGEL(R) system without a drug
has potential uses as a biomaterial for use in medical devices, in which case
the ATRIGEL(R) system has all of the properties described above except those
dependent on the release of a drug.
The Company, through ViroTex, is developing or has developed the following
proprietary drug delivery systems not based on the ATRIGEL(R) system.
Other Polymer-Based Drug Delivery Systems. The Company is developing three
polymer-based drug delivery systems: the Bioerodible Mucoadhesive ("BEMA(TM)")
film, which delivers drug to the mucosal tissue (mouth and vagina) for localized
drug delivery or through buccal tissue for systemic drug delivery; the
Mucocutaneous Absorption ("MCA(TM)") system, which binds a drug to the skin and
mucosal tissue; and the Biocompatible Polymer ("BCP(TM)") system, which forms a
non-constricting, protective film for wound healing and delivers drug to a wound
and the surrounding tissue. The polymers used in the BEMA(TM), MCA(TM) and
BCP(TM) delivery systems are members of a class of polymers which have been
previously approved by the FDA for human use in other applications.
The BEMA(TM) film consists of a bi-layer or multi-layer film that adheres to
mucosal surfaces with little or no foreign body sensation. The BEMA(TM) film is
bioerodible with naturally occurring fluids and can provide drug delivery
through the backing or the adhesive layer. The Company believes the BEMA(TM)
delivery system represents a highly versatile delivery system for both systemic
and localized delivery of drugs, peptides and proteins. The BEMA(TM) film can be
cut into any shape or size, and its set-up time, biodegradability, taste and
thickness all can be modified.
The MCA(TM) delivery system delivers a resilient, strong bonding, moisture
resistant film that can be applied in the form of a gel or aerosol spray. The
Company believes the advantages of the MCA(TM) drug delivery system include its
ability to bind a drug to the skin or mucosal surfaces, to adhere to dry, moist
and wet surfaces, and preferred aesthetics when used on the skin or in the
mouth.
The BCP(TM) delivery system can be applied in liquid or gel form. The
Company believes the advantage of the BCP(TM) delivery system is its ability to
deliver locally a drug or compound to a wound or surrounding tissue, and then
dry to a protective film, creating an ideal environment for wound healing and
protecting against contamination and irritation.
Solvent/Microparticle Drug Delivery System. The Company is developing a
solvent/microparticle ("SMP(TM)") drug delivery system that provides controlled
delivery of a pharmaceutical compound to the skin, even where the skin barrier
is compromised or completely absent, such as in the case of a wound or lesion.
The SMP(TM) delivery system is applied in a gel form and enhances solubility
of relatively water-insoluble compounds. The SMP(TM) delivery system combines
dissolved drug with a microparticle suspension of the drug in a single
formulation. This formulation provides a two staged topical delivery in which
the dissolved drug readily enters the skin while the microparticle drug is
maintained above the top layer of the skin for later (sustained) delivery. The
ratio of dissolved to microparticle drug is adjustable, depending on the drug to
be delivered.
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Topical Anesthetic Depot Delivery System. The proprietary topical anesthetic
depot ("TAD(TM)") delivery system enhances antiviral efficacy and creates a
prolonged anesthetic effect (i.e., numbing, pain and itching relief) through
sustained delivery of a local anesthetic to the skin. The TAD(TM) delivery
system creates a depot of drug at the basal cell layer of the skin, the site at
which the nerve endings interact with the epidermis and the primary site of
viral replication. A double-blinded, placebo-controlled clinical study for the
treatment of recurrent herpes labialis lesions (cold sores and fever blisters)
exhibited a 30% reduction in healing time with an active formulation that
incorporated the TAD(TM) delivery system versus a placebo. The Viractin(R)
product was developed using this delivery system. In connection with the sale of
Viractin(R) to CEP Holdings, Inc., ViroTex transferred all rights, title and
interest to the TAD(TM) delivery system and received an exclusive license to use
the technology in the topical treatment of diseases other than oral herpes
lesions.
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table sets forth certain information about the Company's
products and products under development based on the ATRIGEL(R) system.
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS(1)
------- ---------- ---------
<S> <C> <C>
Periodontal Applications:
ATRIDOX(R) Antibiotic therapy for chronic Marketed
periodontitis Launched November 1998
ATRISORB(R)GTR Barrier Tissue regeneration following periodontal Marketed
surgery Launched 1996
ATRISORB(R) Free Flow Tissue regeneration following periodontal Marketed and launched in November
GTR Barrier surgery 1998
ATRISORB(R)-DOXY Tissue regeneration and infection Pivotal clinical trials commenced
reduction following periodontal surgery July 1998
ATRIGEL(R) system with Periodontal regeneration Preclinical development
growth factors
Oncology Applications:
ATRIGEL(R) system with leuprolide Prostate cancer Phase I/II clinical trials began
acetate in 1999
Orthopedic Applications:
ATRIGEL(R) system with growth Tissue and bone regeneration Preclinical development
factors
Veterinary Applications:
Heska Periodontal Therapeutic Periodontitis in companion animals Marketed & launched December 1997
</TABLE>
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(1) See "Government Regulation."
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The following table provides a summary of the Company's products and
products under development not based on the ATRIGEL(R) system, including drug
class, anticipated year of introduction and corresponding delivery systems.
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS(1)
------- ---------- ---------
<S> <C> <C>
Dermatological Treatment
SMP(TM) topical dapsone Treatment of acne Phase I clinical trials
Commenced May 1998
BCP(TM) topical antibiotic Infection protection Future OTC product
BCP(TM) wound wash Minor cuts and abrasions Future OTC product
Viractin(R) cream and gel Cold sores and fever blisters OTC, sold to JB Williams July
1997, royalty through July 2002
Mucosal Applications
BEMA(TM) Dyclonine Canker sores and dental pain Future OTC product
MCA(TM) Benzocaine Canker sores Future OTC product
General Applications
BEMA(TM) systemic delivery Several drugs under evaluation Preclinical
MCA(TM) external analgesic Arthritis, muscle pain, bursitis Future OTC product
</TABLE>
(1) See "Government Regulation."
PERIODONTAL APPLICATIONS
Periodontal disease is an infection caused by plaque build up on the teeth
and gums. The severity of the disease varies from the mildest cases, clinically
termed gingivitis (bleeding gums) to more severe cases, clinically termed
periodontitis. When gingivitis is not controlled, the disease progresses into
periodontitis, a condition characterized by the progressive, chronic infection
and inflammation of the gums and surrounding tissue. This chronic infection and
inflammation causes destruction of a tooth's supporting structure (bone and
periodontal ligament) and results in the formation of periodontal pockets
(spaces between the gum and tooth). If left untreated, periodontitis will
continue to progress and eventually lead to tooth loss.
Based on published industry reports, the Company believes there are in
excess of 50 million Americans with periodontal disease, and this number is
increasing as a result of the increasing average age of the U.S. population. The
Company believes that only a small percentage of Americans are now being treated
for periodontal disease. In its early stages, progression of the disease is
usually painless, allowing the condition to become advanced before treatment is
sought by the patient. Periodontal disease has no known cure, and effective
treatment is possible only through periodic professional intervention. The most
common treatment, scaling and root planing, requires the dental professional to
anesthetize the gums and then scrape away accumulated plaque and calculus above
and below the gumline. For more serious cases, various forms of gum surgery are
the primary treatment. The Company believes that many individuals do not seek
treatment due to a number of factors including cost, pain, potential medical
complications associated with current therapies, and because the disease is
asymptomatic in its early stages. The Company believes, based on published
industry reports, that over $6.5 billion is spent annually on the treatment of
periodontal disease.
The ATRIDOX(R) Product. The ATRIDOX(R) product employs the ATRIGEL(R) system
and the antibiotic doxycycline to form a product designed to control the
bacteria that cause periodontal disease. The ATRIDOX(R) product is intended to
add a new, minimally invasive pharmaceutical maintenance procedure to current
periodontal treatment. The ATRIDOX(R) product is administered by a periodontist
or a general dentist by inserting the liquid ATRIDOX(R) product into the
periodontal pocket through a cannula. The liquid ATRIDOX(R) product solidifies
in the periodontal pocket and then biodegrades as it releases doxycycline over a
period of seven to ten days. On September 4, 1998 the Company received notice
that the FDA had approved the NDA for the ATRIDOX(R) product.
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In connection with the Block Agreement, Block has the exclusive rights to
market the ATRIDOX(R) product in North America. Block began introducing
ATRIDOX(R) at dental professional meetings in October 1998, and began detailing
ATRIDOX(R) to the U.S. dental profession in November 1998. The Company is
currently considering various arrangements with respect to the marketing of the
ATRIDOX(R) product in Europe.
ATRISORB(R) GTR Barrier. The ATRISORB(R) GTR Barrier is a biodegradable,
liquid polymer product that utilizes the ATRIGEL(R) system to aid in the
regeneration of a tooth's support following osseous flap surgery or other
periodontal procedures. Osseous flap surgery, a common treatment for severe
cases of periodontal disease, involves cutting a flap of gum tissue to expose
and debride areas not reachable by conventional scaling and root planing
procedures. The Company estimates that there are currently over 2 million flap
surgeries performed each year in the United States. Published research has shown
that to obtain optimal healing following flap surgery, it is necessary to
isolate the wound healing site from the adjacent gum tissue. The placement of a
barrier that isolates the surgical site from the gum tissue has been shown to
selectively facilitate growth of the periodontal ligament cells, leading to
connective tissue and bone regeneration at the base of the periodontal defects.
The ATRISORB(R) GTR Barrier is formed outside of the mouth using a sterile,
single-use barrier forming kit. Once placed in the mouth over the periodontal
defect, the semi-solid ATRISORB(R) GTR Barrier further solidifies upon contact
with oral fluids to form a solid barrier that isolates the healing site in order
to promote guided tissue regeneration. Sutures are not required to hold the
barrier in place, which allows the ATRISORB(R) GTR Barrier to be placed in a
shorter time relative to existing guided tissue regeneration barrier products.
In addition, periodontists have the potential for treatment of multiple diseased
sites in one surgical session and can form multiple barriers from a single kit,
thereby reducing the inventory requirements and costs. Since the ATRISORB(R) GTR
Barrier is biodegradable, a second surgery to remove the barrier is unnecessary.
On March 22, 1996, the Company received a 510(k) premarket notification
clearance from the FDA to market the ATRISORB(R) GTR Barrier in the United
States. The Company received the CE Mark for the ATRISORB(R) product in December
1997, increasing from eight to seventeen countries in Europe where the product
is cleared for sale. The CE Mark approval included a new in situ application
technique allowing the direct placement of the liquid on bone graft material. On
September 9, 1998 the Company received a 510(k) premarket notification clearance
from the FDA to market this improved version of the ATRISORB(R) GTR Barrier in
the United States, where it is being sold by Block as the ATRISORB(R) FreeFlow
GTR Barrier. As of December 31, 1998 the Company had received clearance to
market the ATRISORB(R) GTR Barrier in 29 foreign countries, with 3 applications
pending. The Company expects to market the product in additional foreign
countries; however, there can be no assurance that additional regulatory
approvals or clearances will be obtained.
The Company commenced commercial sales of the Atrisorb(R) GTR Barrier in the
United States in the third quarter of 1996. Under the Block Agreement, Block has
the exclusive rights to market the ATRISORB(R) GTR Barrier in North America. The
Company currently markets the ATRISORB(R) GTR Barrier in Europe through
independent distributors and is considering various marketing arrangements at
this time. See "Collaborations."
The ATRISORB(R)-DOXY Product. The ATRISORB(R)-DOXY product is under
development by the Company to address infections following periodontal surgery.
It has been shown clinically that post operative infections often lead to less
than optimum healing. Medicinal agents such as doxycycline can be incorporated
into the ATRISORB(R) GTR Barrier, which the Company believes could provide a
drug delivery capability not feasible with other barriers currently on the
market. As a result, the Company believes the ATRISORB(R)-DOXY product will
contribute to better healing of the surgical site. The Company commenced a
pivotal clinical trial of the ATRISORB(R)-DOXY product in July 1998. If clinical
trials are successful, and if the ATRISORB(R)-DOXY product is approved for sale
by the FDA, Block has the exclusive rights to market this product in North
America.
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ATRIGEL(R) System with Growth Factors. The Company is currently
investigating the use of the ATRIGEL(R) system with a variety of growth factors
to treat periodontal defects where there exists no current effective therapy. In
preclinical studies, the ATRIGEL(R) system demonstrated that certain growth
factors could be delivered during periodontal osseous flap surgery to regenerate
periodontal attachment in a manner superior to controls.
ONCOLOGY APPLICATIONS
The Company believes the ATRIGEL(R) system is well suited for the local
delivery of certain anti-cancer agents and has the potential to capitalize on
the potency of these drugs while diminishing the systemic side effects
associated with them. The Company believes that the ATRIGEL(R) system can
release active drug agents into solid tumors at higher concentrations and for
extended periods of time while maintaining lower systemic levels of drug than
generally can be achieved with injection or intravenous delivery.
The Company also believes that there are a number of potential systemic
cancer therapies that are compatible with the ATRIGEL(R) technology. The
Company's first such systemic application for the ATRIGEL(R) system in oncology
is prostate cancer.
ORTHOPEDIC APPLICATIONS
The Company is pursuing the use of its ATRIGEL(R) system to deliver tissue
growth factors for a variety of product applications, including the healing of
bone fractures and defects and the treatment of dermal ulcers and other soft
tissue wounds. In the area of orthopedics, the Company is initially focusing on
the development of the ATRIGEL(R) system for bone regeneration and orthopedic
post-operative pain.
In 1996, the Company conducted preclinical trials which showed that a
combination of tissue growth factors could be incorporated into the ATRIGEL(R)
system and released at controlled rates for extended periods of time. For
example, when the ATRIGEL(R) formulation containing bone growth factors was
applied to a bone defect in preclinical studies, the amount of new bone formed
was increased significantly over that obtained in control groups. The Company
continues to evaluate a number of different growth factors.
VETERINARY APPLICATIONS
In 1995, the Company signed an exclusive worldwide license agreement with
Heska to develop a product to treat periodontal disease in companion animals.
Under the terms of the agreement, the Company developed a subgingival therapy
for periodontal disease in dogs and cats, comprised of the antibiotic
doxycycline and the ATRIGEL(R) system. A New Animal Drug application ("NADA")
was approved for this product on November 19, 1997 and the product was launched
in December 1997. Heska has the worldwide rights to market this product, which
is manufactured exclusively by the Company.
DERMATOLOGY
The Company is currently developing a proprietary prescription acne product
that incorporates the novel anti-inflammatory and antimicrobial drug dapsone
into the SMP(TM) drug delivery system. The Company has completed product
formulation and stability studies, GMP manufacturing, preclinical irritation and
toxicity studies, and in vitro skin permeation studies for such product. Phase I
clinical trials of this product commenced in the second quarter of 1998.
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COLLABORATIONS
Block Drug Agreement. On December 17, 1996, the Company entered into the
Block Agreement pursuant to which Block acquired exclusive rights to market the
ATRISORB(R) GTR Barrier products and the ATRISORB(R)-DOXY product, when and if
approved, in North America, and the rights to market the ATRIDOX(R) product in
the United States, with an option to acquire the rights to market the ATRIDOX(R)
product in Canada and certain European countries. On September 12, 1997, Block
exercised its option to market the ATRIDOX(R) product in Canada, but let its
option lapse with respect to Europe.
Under the Block Agreement, Block is responsible for sales and marketing for
the products and will advise, consult and may financially support various
aspects of the Company's dental research and development program. The Company
also has the right to co-market the products if certain annual sales levels are
not met. The Block Agreement provides for both milestone and royalty payments to
the Company. The Block Agreement expires on a product-by-product and a
country-by-country basis upon the expiration of the last applicable patent or
loss of patent protection for a product in a given country. The first patent
will expire in 2012. In addition, Block may terminate the Block Agreement at any
time without cause upon 12-months written notice to the Company, if the Company
commits a willful and material breach of the Block Agreement, or if the Company
ceases to manufacture or supply the product to Block pursuant to the Block
Agreement. The Company may terminate the Block Agreement if Block fails to make
any required payment, if Block commits a willful and material breach of the
Block Agreement, if Block ceases to offer the product for distribution, or if
Block markets, distributes or sells a competitive product.
PATENTS AND TRADEMARKS
The Company considers patent protection and proprietary position to be
materially significant to its business. As of December 31, 1998, the Company
maintained 30 United States patents and 18 foreign patents, and has 25 United
States and 40 foreign patent applications pending. A total of 3 U.S. patents and
14 U.S. pending patent applications are attributed to the acquisition of ViroTex
during 1998. Claims contained in these patents and pending patent applications
protect the Company's drug delivery technology and products based upon these
technologies. These include the ATRIGEL(R) system developed by the Company, the
BEMA(TM), MCA(TM), BCP(TM), and SMP(TM) technologies acquired through the
acquisition of ViroTex, and the ATRISORB(R) GTR Barrier, ATRISORB(R) FreeFlow,
and the ATRIDOX(R) products currently manufactured by the Company.
Notwithstanding the Company's pursuit of patent protection, there is no
assurance that others will not develop delivery systems, compositions and/or
methods that infringe the Company's patent rights resulting from outright
ownership or non-revocable exclusive licensure of patents that relate to the
Company's delivery systems, composition and/or methods. In that event, such
delivery systems, compositions and methods may compete with the Company's
systems, compositions and methods and may adversely affect the operations of the
Company. Further, there is no assurance that patent protection will afford
adequate protection against competitors with similar systems, composition or
methods, nor is there any assurance that the patents will not be infringed or
circumvented by others. Moreover, it may be costly to pursue and to prosecute
patent infringement actions against others, and such actions could hamper the
business of the Company. The Company also relies on its unpatented proprietary
knowledge. No assurance can be given that others will not be able to develop
substantially equivalent proprietary knowledge or otherwise obtain access to the
Company's knowledge, or that the Company's rights under any patents will afford
sufficient protection.
In addition to patents, the Company also maintains several U.S. and numerous
foreign trademark and service mark applications for registrations of its name,
logo, drug delivery systems and products. These include 7 U.S. and 16 foreign
issued trademarks with 3 U.S. and 22 foreign applications pending. The 3 U.S.
pending trademark applications are attributed to the ViroTex purchase.
9
<PAGE> 11
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. The Company's competitors include
major pharmaceutical, chemical and specialized biotechnology companies, many of
which have financial, technical and marketing resources significantly greater
than those of the Company. In addition, many specialized biotechnology companies
have formed collaborations with large, established pharmaceutical companies to
support research, development and commercialization of products that may be
competitive with those of the Company. Moreover, from time to time, there have
been research reports from various sources describing other sustained release
drug delivery systems for use in treating periodontal disease. Further, the
Company is aware that other companies are developing products that may compete
with the Company's products. There can be no assurance that product
introductions or developments by others will not render the Company's products
or technologies obsolete or place them at a competitive disadvantage.
Products utilizing the Company's proprietary drug delivery systems are
expected to compete with other products for specified indications, including
drugs marketed in conventional and alternative dosage forms. New drugs or
further developments in alternative drug delivery methods may provide greater
therapeutic benefits for a specific drug or indication, or may offer comparable
performance at lower cost, than those offered by the Company's drug delivery
systems. The Company expects proprietary products approved for sale to compete
primarily on the basis of product safety, efficacy, patient convenience,
reliability, availability and price. There can be no assurance that product
introductions or developments by others will not render the Company's expected
products or technologies noncompetitive or obsolete.
GOVERNMENT REGULATION
The research and development, preclinical studies and clinical trials, and
ultimately, the manufacturing, marketing and labeling of the Company's products,
are subject to extensive regulation by the FDA and other regulatory authorities
in the United States and other countries. The United States Food, Drug and
Cosmetic Act ("FD&C Act") and the regulations promulgated thereunder govern,
among other things, the testing, manufacturing, safety, efficacy, labeling,
storage, record keeping, approval, clearance, advertising and promotion of the
Company's products. Preclinical study and clinical trial requirements and the
regulatory approval process typically take years and require the expenditure of
substantial resources. Additional government regulation may be established that
could prevent or delay regulatory approval or clearance of the Company's
products. Delays or rejections in obtaining regulatory approvals or clearances
would adversely affect the Company's ability to commercialize any product the
Company develops and the Company's ability to receive product revenues. If
regulatory approval or clearance of a product is granted, the approval or
clearance may include significant limitations on the indicated uses for which
the product may be marketed.
FDA REGULATION -- APPROVAL OF THERAPEUTIC PRODUCTS
The Company's ATRIDOX(R) product is regulated in the United States as a
drug. The steps ordinarily required before a drug may be marketed in the United
States include (a) preclinical and clinical studies, (b) the submission to the
FDA of an Investigational New Drug Application ("IND"), which must become
effective before human clinical trials may commence, (c) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug, (d) the submission to the FDA of an NDA, and (e) FDA approval of the
application, including approval of all labeling. Preclinical tests include
laboratory evaluation of product chemistry and formulation, as well as animal
studies to assess the potential safety and efficacy of the product. Preclinical
tests must be conducted in compliance with Good Laboratory Practice regulations.
The results of preclinical testing are submitted to the FDA as part of an IND. A
30-day waiting period after the filing of each IND is required prior to the
commencement of clinical testing in humans. In addition, the FDA may, at any
time during this 30-day period, or anytime thereafter, impose a clinical hold on
proposed or ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence without FDA authorization.
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<PAGE> 12
Clinical trials to support NDAs are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of the
drug into healthy human subjects or patients, the drug is tested to assess
metabolism, pharmacokinetics and pharmacology and safety, including side effects
associated with increasing doses. Phase II usually involves studies in a limited
patient population to (i) assess the efficacy of the drug in specific, targeted
indications, (ii) assess dosage tolerance and optional dosage and (iii) identify
possible adverse effects and safety risks. If a compound is found to be
potentially effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to further demonstrate clinical
efficacy and to further test for safety within an expanded patient population at
several study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed successfully within any specified time period, if
at all, with respect to any of the Company's products subject to such testing.
After successful completion of the required clinical testing, generally an
NDA is submitted. Once the submission is accepted for filing, the FDA begins an
in-depth review of the NDA. Under the FD&C Act, the FDA has 180 days in which to
review the NDA and respond to the applicant. The review is often significantly
extended by FDA requests for additional information or clarification regarding
information already provided in the submission. The FDA may refer the
application to an appropriate advisory committee, typically a panel of
clinicians, for review, evaluation and a recommendation as to whether the
application should be approved. The FDA is not bound by the recommendation of an
advisory committee. If the FDA evaluations of the NDA and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contains a number of conditions that must be
met in order to secure final approval of the NDA. When and if those conditions
have been met to the FDA's satisfaction, the FDA will issue an approval letter.
If the FDA's evaluation of the NDA or manufacturing facility is not favorable,
the FDA may refuse to approve the NDA or issue a not approvable letter, and
often requiring additional testing or information. Even if regulatory approval
is obtained, a marketed product and its manufacturing facilities are subject to
continual review and periodic inspections. In addition, identification of
certain side effects after a drug is on the market or the occurrence of
manufacturing problems could cause subsequent withdrawal of approval,
reformulation of the drug, additional preclinical testing or clinical trials and
changes in labeling.
In March 1997, the Company submitted an NDA with the FDA for the ATRIDOX(R)
product. The Company's NDA was accepted for filing by the FDA in June 1997. The
Company filed the NDA based on the results of pivotal Phase III trials, which
were completed in May 1996 and included data from 822 patients at 20 study
sites. The Company received approval of the NDA on September 4, 1998.
Failure to comply with FDA or other applicable regulatory requirements may
subject a company to administrative sanctions or judicially imposed sanctions
such as civil penalties, criminal prosecution, injunctions, product seizure or
detention, product recalls, or total or partial suspension of production. In
addition, noncompliance may result in the FDA's refusal to approve pending NDAs
or supplements to approved NDAs, premarket approval application ("PMA") or PMA
supplements and the FDA's refusal to clear 510(k)s.
FDA REGULATION -- APPROVAL OF MEDICAL DEVICES
The Company's ATRISORB(R) GTR Barrier product is regulated in the United
States as a medical device. New medical devices are generally introduced to the
market based on a premarket notification or 510(k) submission to the FDA in
which the sponsor establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or Class II medical device or to a
Class III device for which the FDA has not required premarket approval. If the
sponsor cannot demonstrate substantial equivalence, the sponsor will be required
to submit a PMA, which generally requires preclinical and clinical trial data,
to prove the safety and effectiveness of the device. The Company has received
510(k) clearances from the FDA for the ATRISORB(R) GTR Barrier and the
ATRISORB(R) FreeFlow GTR Barrier, and is currently marketing these products in
the United States.
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<PAGE> 13
FDA REGULATION -- POST-APPROVAL REQUIREMENTS
Even if regulatory clearances or approvals for the Company's products are
obtained, its products and the facilities manufacturing the Company's products
are subject to continued review and periodic inspection by the FDA. Each U.S.
drug and device manufacturing establishment must be registered with the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the
FDA and must comply with the FDA's current Good Manufacturing Practices ("cGMP")
regulations if the facility manufactures drugs, and Quality System Regulations
("QSR") regulations if the facility manufactures devices. In complying with cGMP
and QSR, manufacturers must expend funds, time and effort in the area of
production and quality control to ensure full technical compliance. The FDA
stringently applies regulatory standards for manufacturing.
Labeling and promotional activities are regulated by the FDA. The Company
must also report certain adverse events involving its drugs and devices to the
FDA under regulations issued by the FDA.
EUROPEAN REGULATION -- APPROVAL OF MEDICINAL PRODUCTS
In 1993, legislation was adopted which established a new and amended system
for the registration of medicinal products in the European Union ("EU"). A
significant purpose of this system is to prevent the existence of essentially
separate national approval systems which have been a major obstacle to
harmonization. One of the most significant features of this new system is the
establishment of a new European Agency for the Evaluation of Medicinal Products
("EMEA"). Under this new system, marketing authorization, broadly speaking, may
be submitted at either a centralized, a decentralized or a national level.
The centralized procedure is administered by the EMEA; this procedure is
mandatory for the approval of biotechnology products and available at the
applicant's option for other products. The centralized procedure provides for
the first time in the EU for the grant of a single marketing authorization which
is valid in all EU Member States.
A mutual recognition procedure is available at the request of the applicant
for all medicinal products which are not subject to the centralized procedure,
under the so-called "decentralized procedure." The decentralized procedure
creates a new system for mutual recognition of national approvals and
establishes procedures for coordinated EU action on product suspensions and
withdrawals. Under this procedure, the holder of a national marketing
authorization for which mutual recognition is sought may submit an application
to one or more Member States, certifying that identical dossiers are being
submitted to all Member States for which recognition is sought. Within 90 days
of receiving the application and assessment report, each Member State must
decide whether to recognize the approval. The procedure encourages Member States
to work with applicants and other regulatory authorities to resolve disputes
concerning mutual recognition. If such disputes cannot be resolved within the
90-day period provided for review, the application will be subject to a binding
arbitration procedure.
The Company has chosen a decentralized procedure that utilizes a mutual
recognition process for European regulatory filings and submitted the regulatory
dossier to the Medicines Control Agency in the United Kingdom in October 1997.
However, there can be no assurance that the chosen regulatory strategy will
secure regulatory approvals or approvals of the applications submitted by the
Company.
EUROPEAN REGULATION -- APPROVAL OF MEDICAL DEVICES
The Company's ATRISORB(R) GTR Barrier is regulated in Europe as a medical
device. The EU has promulgated rules that require medical devices received by
mid-June 1998 the right to affix the CE Mark, an international symbol of
adherence to quality assurance standards and compliance with applicable European
medical device directives. Failure to receive the right to affix the CE Mark
will prohibit a company from selling products in Member States of the EU. The
Company has been certified as being in compliance with the ISO 9000 standards,
one of the CE Mark certification prerequisites, and received the CE Mark for the
ATRISORB(R) GTR Barrier in December 1997.
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<PAGE> 14
REGULATORY CONSIDERATIONS FOR OTC DRUG PRODUCTS
An over-the-counter drug ("OTC") may be lawfully marketed in one of three
ways: (i) the drug is generally recognized as safe and effective ("GRAS/E"),
(ii) the drug is the subject of an approved NDA or (iii) the drug complies with
a Tentative Final or Final Monograph published by FDA as part of the OTC Review.
Prior FDA approval is required only if an NDA is submitted. A company makes the
determination as to which route to market is the most appropriate. If a company
determines that the drug product is GRAS/E or is covered in a monograph, it is
the company's responsibility to substantiate the safety and efficacy of the
formulation and that the dosage form and claims are applicable under GRAS/E or
monograph status. Most OTC drug products are marketed pursuant to an FDA
monograph.
There are several other regulatory requirements applicable to all OTC drug
products. These requirements pertain to labeling, drug registration and listing,
and manufacturing. With regard to labeling, the regulations require certain
language for statement of identity, net contents, adequate directions for use,
and name and address of the manufacturer, and their placement on the finished
package, as well as additional warning statements when relevant to the product.
All OTC manufacturers must register their establishments with the FDA and submit
to the FDA a list of products made within 5 days after beginning operations, as
well as a list of products in commercial distribution. All registered
establishments must be inspected by the FDA at least every 2 years. Lastly, OTC
drug products must be manufactured in accordance with cGMP regulations. If the
FDA finds a violation of cGMPs, it may enjoin a company's operations, seize
product, or criminally prosecute the manufacturer.
ADDITIONAL REGULATORY ISSUES
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
patent that claims a product, use or method of manufacture covering drugs and
certain other products may be extended for up to five years to compensate the
patent holder for a portion of the time required for research and the FDA review
of the product. This law also establishes a period of time following approval of
a drug during which the FDA may not accept or approve applications for certain
similar or identical drugs from other sponsors unless those sponsors provide
their own safety and effectiveness data. There can be no assurance that the
Company will be able to take advantage of either the patent term extension or
marketing exclusivity provisions of this law.
The National Institute of Health has been requested by the Department of
Health and Human Services to submit proposals for addressing potential conflicts
of interest in the biomedical research sector. Although the proposal request is
aimed at establishing rules to treat potential abuses in the system without
imposing unnecessary burdens and disincentives, there can be no assurance that
any rules adopted will not adversely affect the Company's ability to obtain
research grants. Various aspects of the Company's business and operations are
regulated by a number of other governmental agencies including the Occupational
Safety and Health Administration and the Securities and Exchange Commission.
THIRD PARTY REIMBURSEMENT
The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare, Medicaid,
health maintenance organizations and private insurers, including Blue Cross/Blue
Shield plans. Governmental imposed limits on reimbursement of hospitals and
other health care providers (including dental practitioners) have significantly
impacted their spending budgets. Under certain government insurance programs, a
health care provider is reimbursed a fixed sum for services rendered in treating
a patient, regardless of the actual charge for such treatment. Private
third-party reimbursement plans are also developing increasingly sophisticated
methods of controlling health care costs through redesign of benefits and
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<PAGE> 15
exploration of more cost-effective methods of delivering health care. In
general, these government and private measures have caused health care providers
to be more selective in the purchase of medical products.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and there can be no assurance that adequate
third-party coverage will be available. Limitations imposed by government and
private insurance programs and the failure of certain third-party payers to
fully or substantially reimburse health care providers for the use of the
products could have a material adverse effect on the Company.
EMPLOYEES
As of December 31, 1998, the Company employed 114 employees on a full-time
basis and one person on a part-time basis. Of the 114 full-time employees, 99
are engaged in production, research and clinical testing and the remaining 15
are in administrative capacities. Sixteen employees have earned doctorate or
advanced degrees. None of the Company's employees are represented by a union or
collective bargaining unit and management considers relations with employees to
be good.
ADDITIONAL INFORMATION
Compliance with federal, state and local law regarding the discharge of
materials into the environment or otherwise relating to the protection of the
environment has not had, and is not expected by the Company to have, any adverse
effect upon capital expenditures, earnings or the competitive position of the
Company. The Company is not presently a party to any litigation or
administrative proceeding with respect to its compliance with such environmental
standards. In addition, the Company does not anticipate being required to expend
any funds in the near future for environmental protection in connection with its
operations.
The Company does not believe that any aspect of its business is
significantly seasonal in nature.
No significant portion of the Company's business is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
United States Government.
The Company currently obtains supplies of the polymer used in the polymer
delivery system from three separate sources. Supplies of doxycycline are
obtained from both domestic and foreign sources. The Company believes that, in
the event that it should lose any of its suppliers of raw materials, it could
locate and obtain such raw materials from other available sources without
substantial adverse delay or increased expense.
ITEM 2. PROPERTIES.
The Company leases approximately 25,200 square feet of office and research
laboratory space located in Fort Collins, Colorado, pursuant to a lease that
expires on June 1, 2003. The Company has a one time right to terminate this
lease on June 1, 2000. In addition, the Company leases an additional 4,000
square feet of space at the same location for preclinical and initial
manufacturing activities, pursuant to a lease which expires on December 1, 1999.
The Company owns a 24,800 square foot manufacturing facility in Fort Collins
which it acquired in July 1996. As part of the building acquisition, the Company
acquired two acres of vacant land, directly adjacent to the building. In August
1997, the Company acquired an additional 2.7 acres for possible future
development or expansion of the Company.
The Company owns substantially all of its laboratory and manufacturing
equipment, which it considers to be adequate for its research, development and
testing requirements for the foreseeable future.
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<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders through
the solicitation of proxies during the fourth quarter of the Company's most
recent year.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock is traded on The Nasdaq Stock Market under the symbol
"ATRX". The following table sets forth, for the fiscal periods indicated, the
range of high and low sales price per share of Common Stock, as reported on The
Nasdaq Stock Market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998:
First Quarter $19 7/8 $ 12 1/4
Second Quarter 21 1/4 13 1/8
Third Quarter 16 1/2 11
Fourth Quarter 13 1/2 7 5/8
1997:
First Quarter $14 1/2 $ 10 1/8
Second Quarter 12 1/4 9
Third Quarter 22 1/4 11
Fourth Quarter 23 7/8 12 3/8
</TABLE>
As of March 5, 1999, there were approximately 2,990 holders of record of the
Common Stock.
The Company has never paid cash dividends. The Company currently anticipates
that it will retain all available funds for use in the operation of its business
and does not anticipate paying any cash dividends in the foreseeable future.
RECENT STOCK SALES
In connection with the ViroTex acquisition, the Company issued 37,860 shares
of Common Stock, valued at $10.30 per share, to eleven principal stockholders of
ViroTex, as partial consideration for the cancellation of their shares under the
Merger Agreement. The Company also issued a warrant to purchase 6,750 shares of
Common Stock at an exercise price of $12.94 per share, which expires on April
28, 2000 in replacement of a warrant to purchase shares of common stock of
ViroTex. The foregoing transactions were made in reliance on the exemption from
the registration requirements of the Securities Act of 1933, as amended,
provided by Section 4(2).
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<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA.
The financial data presented below is derived from the financial statements
of the Company, which has been audited and reported upon by Deloitte & Touche
LLP, independent auditors. The selected financial information set forth in the
table below is not necessarily indicative of the results of future operations of
the Company and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements, related notes and independent auditors' report, included herein.
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Summary of Operations:
Total revenues $ 21,073 $ 9,849 $ 1,640 $ 580 $ 713
Total expenses (19,996) (15,105) (14,328) (14,212) (7,355)
Other income (expense) 404 1,389 1,256 974 1,102
Income tax expense (48) -- -- -- --
Extraordinary gain
on extinguishment of debt 257 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ 1,690 $ (3,867) $(11,432) $(12,658) $ (5,540)
======== ======== ======== ======== ========
Basic and diluted per common share:
Income (loss) before
extraordinary item $.13 $(.35) $(1.13) $(1.58) $(.72)
Extraordinary item .02 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $.15 $(.35) $(1.13) $(1.58) $(.72)
======== ======== ======== ======== ========
Basic and diluted weighted
average shares outstanding 11,270 11,134 10,147 8,002 7,741
======== ======== ======== ======== ========
Balance Sheet Data:
Working capital $ 63,121 $ 67,229 $ 24,669 $ 10,913 $ 12,616
Total assets 79,480 78,294 38,463 14,894 22,006
Long-term obligations 48,500 50,000 -- -- --
Shareholders' equity 28,422 26,703 30,284 12,807 21,191
</TABLE>
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<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition
and Results of Operation, as well as information contained elsewhere in this
Report, contains statements that constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. These statements include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) whether
the Company will receive, and the timing of, regulatory approvals or clearances
to market potential products, (ii) the results of current and future clinical
trials, and (iii) the time and expenses associated with the regulatory approval
process for products. The success of the Company's business operations is, in
turn, dependent on factors such as the receipt and timing of regulatory
approvals or clearances for potential products, the effectiveness of the
Company's marketing strategies to market its current and any future products,
the Company's ability to manufacture products on a commercial scale, the appeal
of the Company`s mix of products, the Company's success at entering into and
collaborating with others to conduct effective strategic alliances and joint
ventures, general competitive conditions within the biotechnology and drug
delivery industry and general economic conditions as set forth under "Risk
Factors" below. Forward-looking statements are not guarantees of future
performance and involve risks and uncertainties and actual results may differ
materially from those projected in the forward-looking statements as a result of
various factors.
OVERVIEW
Since its inception, the Company has devoted its efforts and resources
primarily to research and development of dental products. The Company has
sustained losses in each year of its operations prior to 1998. The Company
realized a net profit in 1998 primarily as a result of earning $17 million in
milestone revenue from Block. The Block Agreement provides for potential
milestone payments totaling up to $50 million to the Company over a
three-to-five year period, as well as manufacturing margins and royalties on
sales. As of December 31, 1998, the Company had recognized approximately $24.1
million in milestone revenue from Block.
On November 24, 1998, the Company acquired ViroTex through a reverse
subsidiary merger, resulting in ViroTex becoming a wholly-owned subsidiary of
the Company. In connection with the transaction the Company recorded intangible
assets of approximately $3,975,000 (made up of purchased technology, purchased
royalty rights and goodwill) and a charge to income for purchased in-process
research and development, in the amount of $3,050,000. The $3,050,000 charge to
income for purchased in-process research and development was based upon an
independent third party valuation using assumptions and methodologies commonly
used by companies in calculating such charge to income. The Securities and
Exchange Commission is reviewing the assumptions and methodology commonly used
by companies in calculating such charges to income. While the Company believes
that it has followed the Securities and Exchange Commission's guidelines in the
valuation of in-process research and development, there can be no assurance that
it has done so and if the Securities and Exchange Commission challenges such
charges to income, the Company may be required to reclassify such charges to
income.
As a result of the ViroTex acquisition, the Company obtained four polymer-
and solvent-based drug delivery technologies and four near-term OTC products for
oral care and skin care, as well as two prescription products ready to enter
Phase I Clinical Trials for oral care and severe acne. ViroTex's first product,
Viractin(R) Cold Sore & Fever Blister Medicine ("Viractin(R)"), launched in
1996, was developed using this system. ViroTex subsequently sold all of the
rights to Viractin(R) to CEP Holdings, Inc. in July 1997. The Company will
continue to receive royalty payments on the sale of Viractin(R) through
September 30, 2002. The Company believes the acquisition of ViroTex
significantly strengthens the Company's research and development base, and
creates both immediate and long-term opportunities to provide enabling
bio-degradable drug delivery systems for a variety of medical, dental and
veterinary applications.
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<PAGE> 20
The Company anticipates that expenses for the year ending December 31, 1999
will increase as a result of increasing costs for product development,
preclinical and clinical testing, regulatory affairs, manufacturing, commercial
distribution activities, and general and administrative activities associated
with the ATRIDOX(R) product, the ATRISORB(R) FreeFlow GTR Barrier, the
ATRISORB(R) GTR Barrier and future products.
At December 31, 1998 the Company had available for Federal income tax
purposes net operating loss carryforwards of approximately $42 million and
approximately $1.6 million in research and development tax credits. These
carryforwards will expire through 2012. The Company's ability to utilize its net
operating loss, alternative minimum tax, and research and development credit
carryforwards is subject to an annual limitation in future periods pursuant to
the "change in ownership" rules under Section 382 of the Internal Revenue Code
of 1986, as amended.
The Company operates in a single reportable segment and all revenues from
customers are from a similar group of periodontal products. Sales and milestone
revenues from one customer amounted to $19,028,000 and $8,213,000 for the years
ended December 31, 1998 and 1997, respectively. Contract revenues from three
customers amounted to $198,000, $235,000 and $270,000 for the year ended
December 31, 1996. Revenues from export sales to foreign customers amounted to
approximately $557,000, $100,000 and $124,000 for the years ended December 31,
1998, 1997 and 1996 respectively.
RESULTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
Total revenues for the year ended December 31, 1998 were approximately
$21,073,000 compared to approximately $9,849,000 for the year ended December 31,
1997, representing a 114% increase. The increase was primarily due to
$17,000,000 earned in milestone revenue under the Block Agreement in 1998.
ATRIDOX(R) product sales and ATRISORB(R) FreeFlow GTR Barrier product sales,
both commencing September 1998 also contributed to the increase in total
revenues.
The Company had revenue from product sales of approximately $3,451,000 for
the year ended December 31, 1998 compared to approximately $1,895,000 for the
year ended December 31, 1997, representing a 82% increase. The increase in sales
was primarily the result of the market launch in September 1998 of the
ATRIDOX(R) product and the ATRISORB(R) FreeFlow GTR Barrier product.
Contract revenue represents revenue the Company received from grants and
from unaffiliated third parties for performing contract research and development
activities utilizing the ATRIGEL(R) system, and was approximately $622,000 for
the year ended December 31, 1998, compared to approximately $854,000 for the
year ended December 31, 1997, representing a 27% decrease. The decrease was
primarily due to the completion of several research contracts during 1997.
Sale of marketing rights represents milestone revenue the Company received
pursuant to the Block Agreement during the year ended December 31, 1998. The
Company expects to receive additional future revenue upon the achievement of
other milestones under the Block Agreement, which could result in substantial
payments.
Cost of goods sold was approximately $2,250,000 for the year ended December
31, 1998 compared to approximately $1,533,000 for the year ended December 31,
1997, representing a 47% increase. The increase was primarily related to sales
19
<PAGE> 21
commencing in September 1998 for both the ATRIDOX(R) product and the ATRISORB(R)
FreeFlow GTR Barrier product.
Research and development expenses, which included activities for ATRIDOX(R)
and other research activities, were approximately $12,189,000 for the year ended
December 31, 1998 compared to approximately $11,545,000 for the year ended
December 31, 1997, representing a 6% increase. The increase was primarily a
result of additional expenditures in new areas of research using the Company's
existing technology.
The Company expensed $3,050,000 of the ViroTex purchase price, which was
allocated to purchased in-process research and development projects, as of the
date of acquisition. The charge to income was based upon an independent third
party valuation.
Administrative and marketing expenses were approximately $2,507,000 for the
year ended December 31, 1998 compared to approximately $2,027,000 for the year
ended December 31, 1997, representing a 24% increase. The primary reason for
this increase was administrative costs associated with the preparation for the
ATRIDOX(R) market launch.
Investment income for the year ended December 31, 1998 was approximately
$3,938,000 compared to approximately $1,726,000 for the year ended December 31,
1997, representing a 128% increase. Investment income increased due to additions
in principal investments as a result of the proceeds from the sale of the
Company's 7% Convertible Subordinated Notes (the "Notes"), which was completed
in the fourth quarter of 1997, and the milestone payments received under the
Block Agreement during 1998. The majority of the funds were invested in U.S.
government bond funds, long-term U.S. government and government agency
investments. The remaining cash and cash equivalents were invested in interest
bearing accounts and commercial paper to fund the Company's short-term
operations.
Interest expense for the year ended December 31, 1998 was approximately
$3,575,000 compared to approximately $307,000 for the year ended December 31,
1997 representing a 1064% increase. The increase was due to the interest expense
on the Notes.
In December 1998, the Company repurchased $1,500,000, or 3%, of the Notes on
the open market for $1,192,500. As a result, the Company reduced deferred
finance charges by approximately $51,000 on a pro-rated basis and recognized an
extraordinary gain of approximately $257,000. As of December 31, 1998,
$48,500,000 of the Notes are outstanding.
In January 1999, the Company repurchased $3,000,000, or 6%, of the Notes for
$2,250,000. As a result, the Company recognized an extraordinary gain of
approximately $650,000, net of deferred finance charges of $100,000.
For the reasons described above, the Company recorded a net income of
approximately $1,690,000 for the year ended December 31, 1998 compared to a net
loss of approximately $3,867,000 for the year ended December 31, 1997,
representing a 144% increase.
Years Ended December 31, 1997 and 1996
Total revenue for the year ended December 31, 1997 was approximately
$9,849,000 compared to approximately $1,640,000 for the year ended December 31,
1996, representing a 501% increase. The increase in total revenue was primarily
due to increases in sales and sale of marketing rights.
The Company had sales of approximately $1,895,000 for the year ended
December 31, 1997 compared to approximately $636,000 for the year ended December
31, 1996 representing a 198% increase. The increase was primarily due to the
increased sales of the ATRISORB(R) GTR Barrier in the United States as a result
of the Block Agreement and a new product released in the fourth quarter of 1997
and marketed by Heska.
20
<PAGE> 22
Contract revenue was approximately $854,000 for the year ended December 31,
1997 compared to approximately $1,004,000 for the year ended December 31, 1996,
representing a 15% decrease. Contract revenue represents revenue the Company
received from grants and from unaffiliated third parties for performing contract
research and development activities utilizing the ATRIGEL(R) system. The
decrease was primarily due to the completion of several research contracts
during 1996.
Sale of marketing rights represents milestone revenue the Company received
pursuant to the Block Agreement during the year ended December 31, 1997. The
Company earned $7,100,000 in milestone revenue for the year ended December 31,
1997. There was no revenue from the sale of marketing rights in 1996. The
Company expects to receive additional revenue in the future upon the achievement
of other milestones under the Block Agreement.
Cost of goods sold was approximately $1,533,000 for the year ended December
31, 1997 compared to approximately $364,000 for the year ended December 31,
1996, representing a 321% increase. The increase was primarily due to the
increased sales of the ATRISORB(R) GTR Barrier in the United States as a result
of the Block Agreement and sales of a new product released in the fourth quarter
of 1997 and marketed by Heska.
Research and development expenses, which included activities for the
ATRIDOX(R) product, the ATRISORB(R) GTR Barrier product and other research
activities, for the year ended December 31, 1997 were approximately $11,545,000
compared to approximately $10,092,000 for the year ended December 31, 1996,
representing a 14% increase. The increase was primarily a result of additional
expenditures in new areas of research using the Company's existing technology.
Administrative and marketing expenses were approximately $2,027,000 for the
year ended December 31, 1997 compared to $3,872,000 for the year ended December
31, 1996, representing a 48% decrease. The primary reason for this decrease was
the termination of the Company's sales and marketing expenses related to the
ATRISORB(R) GTR Barrier, since Block marketed the product.
Investment income for the year ended December 31, 1997 was approximately
$1,726,000 compared to approximately $1,204,000 for the year ended December 31,
1996, representing a 43% increase. Investment income increased due to additions
in principal investments as a result of the proceeds from the Company's Note
offering completed in the fourth quarter of 1997 and the $7,100,000 payment
received under the Block Agreement. The majority of the funds were invested in
U.S. government bond funds, long-term U.S. government and government agency
investments. The remaining cash and cash equivalents were invested in interest
bearing accounts and commercial paper to fund the Company's short-term
operations.
Interest expense for the year ended December 31, 1997 was approximately
$307,000 compared to zero for the year ended December 31, 1996. The increase was
due to the interest expense on the $50,000,000 Notes issued in the fourth
quarter of 1997.
During 1996, the Company recorded a one-time non-cash charge of
approximately $585,000 for compensation expense associated with the cancellation
of certain employee incentive stock options with a five year term and the
issuance of new non-qualified stock options that extended the term to ten
years.
The Company recorded a net loss of approximately $3,867,000 for the year
ended December 31, 1997 compared to a net loss of approximately $11,432,000 for
the year ended December 31, 1996, representing a 66% decrease. The reduction in
net loss was primarily the result of the receipt of the milestone payment of
$7,100,000 from Block.
21
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash and cash equivalents of
approximately $18,557,000, marketable securities of approximately $37,103,000,
accounts receivable of approximately $5,937,000, inventory of approximately
$2,564,000, and other current assets of approximately $1,518,000, for total
current assets of approximately $65,678,000. Current liabilities totaled
approximately $2,557,000, which resulted in working capital of approximately
$63,121,000.
In September 1998, the Company renewed a $1,000,000 line of credit with a
bank. Borrowings under the line bear interest at the prime rate. As of December
31, 1998, there were no borrowings outstanding under this credit agreement.
In November 1997, the Company issued $50,000,000 in principal amount of the
Notes. Interest is payable semi-annually and the Notes mature on December 1,
2004. The Notes are convertible, at the option of the holder, into Common Stock
at a conversion price of $19.00 a share, subject to adjustment in certain
events. The Notes are redeemable, in whole or in part, at the Company's option
at any time on or after December 5, 2000. In December 1998, the Company
purchased $1,500,000 in principal amount of the Notes on the open market for
approximately $1,193,000 and subsequently cancelled the repurchased Notes.
Through the purchase of these Notes, the Company reduced deferred finance
charges by approximately $51,000 on a pro-rated basis and recognized an
extraordinary gain of approximately $257,000. As of December 31, 1998,
$48,500,000 of the Notes remain outstanding.
During the year ended December 31, 1998, net cash used in operating
activities was approximately $1,176,000. This was primarily a result of the net
income for the period of approximately $1,690,000 which is offset by certain
non-cash expenses, and changes in other operating assets and liabilities as set
forth in the statements of cash flows. Net cash provided by investing activities
was approximately $7,157,000 during the year ended December 31, 1998, primarily
as a result of the net proceeds received from the maturity and sale of various
marketable securities during the period. Significant uses of cash for investing
activities during the year ended December 31, 1998 included the acquisition of
property, plant and equipment and the acquisition of ViroTex. Net cash used in
financing activities was approximately $2,610,000 during the year ended December
31, 1998, primarily as a result of the retirement of $1,500,000 in principal
amount of Notes and the repurchase of the Common Stock.
FUTURE CAPITAL REQUIREMENTS
The Company's long-term capital expenditure requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the time required to file and process regulatory approval
and clearance applications, the development of the Company's commercial
manufacturing facilities, including the expansion or possible construction of an
administrative and laboratory facility on land adjacent to its manufacturing
facility, the ability of the Company to obtain additional licensing
arrangements, and the demand for the Company's products. The Company expended
approximately $1,004,000 for property, plant and equipment, approximately
$213,000 for patent development, and approximately $3,976,000 for the
acquisition of ViroTex in the year ended December 31, 1998.
The Company expects to continue to incur substantial expenditures for
research and development, testing, regulatory compliance and to hire additional
management, scientific, manufacturing and administrative personnel. The Company
will also continue to expend a significant amount of funds in its ongoing
clinical studies. Depending on the results of the Company's research and
development activities, the Company may determine to accelerate or expand its
efforts in one or more of its proposed areas and may, therefore, require
additional funds earlier than previously anticipated. Management believes that
the proceeds of the Note Offering, together with existing cash resources, will
be sufficient to fund its operations through 1999. However, there can be no
assurance that underlying assumed levels of revenue and expense will prove
accurate.
22
<PAGE> 24
The Company believes that it is advisable to augment its cash in order to
fund all of its activities, including potential product acquisitions. Therefore,
the Company will consider raising cash whenever market conditions are favorable.
Such capital may be raised through additional public or private financing, as
well as collaborative relationships, borrowings and other available sources. In
addition, in the course of its business, the Company evaluates products and
technologies held by third parties which, if acquired, could result in the
development of product candidates by the Company or which complement
technologies currently being developed by the Company. The Company expects, from
time to time, to be involved in discussions with other entities concerning the
Company's potential acquisition of rights to additional pharmaceutical products.
In the event that the Company acquires such products or third party
technologies, the Company may find it necessary or advisable to obtain
additional funding.
IMPACT OF INFLATION
Although it is difficult to predict the impact of inflation on costs and
revenues of the Company in connection with the Company's products, the Company
does not anticipate that inflation will materially impact its costs of operation
or the profitability of its products when marketed.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. The Company is currently engaged in a two-phase process to
evaluate its internal status with respect to the Year 2000 issue. In the first
phase, which the Company expects to complete in the second quarter of fiscal
1999, the Company is conducting an evaluation of its systems, including both
information technology ("IT") systems and non-IT systems such as hardware and
manufacturing equipment containing embedded technology, for Year 2000
compliance. The Company has completed a significant portion of this phase to
date, and systems that have been evaluated are either Year 2000 compliant or are
expected to be made compliant at an immaterial cost to the Company. Although the
Company does not expect that the impact of the Year 2000 issue will be material
in systems still under evaluation, there can be no assurance that the Company
will not discover Year 2000 issues in the course of its evaluation process that
would have a material adverse effect on the business, financial condition or
results of operations of the Company.
Phase two of the process, which is expected to be completed during the
fourth quarter of fiscal 1999, will involve taking any needed corrective action
to bring systems into compliance and to develop a contingency plan in the event
any non-compliant critical systems remain by January 1, 2000. As part of this
phase, the Company will attempt to quantify the impact, if any, of the failure
to complete any necessary corrective action. Although the Company cannot
currently estimate the magnitude of such impact, if systems material to the
Company's operations have not been made Year 2000 compliant upon completion of
this phase, the Year 2000 issue could have a material adverse effect on the
Company's business, financial condition and results of operations.
To date, the costs incurred by the Company with respect to this process have
not been material. Future costs will remain difficult to estimate until the
completion of phase one; however, the Company does not currently anticipate that
such costs will be material.
Concurrently with the two-phase analysis of its internal systems, the
Company has begun to survey third-party entities with which the Company
transacts business, including critical vendors and financial institutions, for
Year 2000 compliance. The Company expects to complete this survey in the second
quarter of fiscal 1999. At this time the Company cannot estimate the effect, if
any, that non-compliant systems at these entities could have on the business,
financial condition or results of operations of the Company, and there can be no
assurance that the impact, if any, will not be material.
23
<PAGE> 25
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (the "Statement"). The Statement, which will be
effective for the year 2000, requires derivative instruments to be recorded in
the balance sheet at their fair value with changes in fair value being
recognized in earnings unless specific hedging accounting criteria are met. The
Company does not utilize hedges or derivative instruments and will not be
impacted by this Statement.
RISK FACTORS
In addition to the other information contained in this Report, the Company
cautions stockholders and potential investors that the following important
factors, among other, in some cases have affected, and in the future could
affect, the Company's actual results of and could cause the Company's actual
results to differ materially from those expressed in any forward-looking
statements made by, on, or on behalf of, the Company. The following information
is not intended to limit in any way the characterization of other statements or
information under other captions as cautionary statements for such purpose:
o Delay, difficulty or failure in obtaining regulatory approval or
clearance to market additional products; including delays or
difficulties in development because of insufficient proof of safety or
efficacy.
o Substantial manufacturing and marketing expenses to be incurred in the
commercial launch of the ATRIDOX(R) product and commercializing future
products.
o Failure of corporate partners to develop or commercialize successfully
the Company's products or to retain and expand markets served by the
commercial collaborations; conflicts of interest, priorities, and
commercial strategies that may arise between the Company and such
corporate partners.
o The Company's limited experience in the sale and marketing of its
products; dependence on Block to establish effective marketing, sales
and distribution capabilities for the ATRIDOX(R) product, the
ATRISORB(R) GTR Barrier products and the ATRISORB(R)-DOXY product in
North America. Failure to internally develop marketing channels for the
ATRISORB(R) GTR Barrier products, the ATRISORB(R)-DOXY product and the
ATRIDOX(R) product in Europe.
o The ability to obtain, maintain and prosecute intellectual property
rights, and the cost of acquiring in-process technology and other
intellectual property rights, either by license, collaboration or
purchase of another entity.
o Limited experience in manufacturing products on a commercial scale;
failure to manufacture present and future products in compliance with
applicable regulations and at an acceptable cost.
o Cancellation or termination of material collaborative agreements
(including the Block Agreement) and the resulting loss of research or
other funding, or marketing, sales and distribution capabilities.
o Access to the pharmaceutical compounds necessary to successfully
commercialize the ATRIGEL(R) system or other delivery systems currently
in development.
24
<PAGE> 26
o Competitive or market factors that may cause use of the Company's
products to be limited or otherwise fail to achieve broad acceptance.
o The ability to attract and retain highly qualified management and
scientific personnel.
o Difficulties or high costs of obtaining adequate financing to fund
future research, development and commercialization of products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio of cash equivalents and marketable securities.
The investment portfolio is used to preserve the Company's capital until it is
required to fund operations, including the Company's research and development
activities. None of these market-risk sensitive instruments are held for trading
purposes. The Company does not own derivative financial instruments in its
investment portfolio. Due the nature of the Company's investments portfolio, the
investment portfolio contains instruments that are primarily subject to interest
rate risk.
Interest Rate Risk. The Company's investment portfolio includes fixed rate
debt instruments that are primarily United States government and agency bonds of
durations ranging from one to four years. The market value of these bonds are
subject to interest rate risk, and could decline in value if interest rates
decrease. To mitigate the impact of fluctuations in cash flow, the Company
maintains substantially all of its debt instruments as fixed rate. The portion
maintained as fixed rate is dependent on many factors including judgments as to
future trends in interest rates.
The Company's investment portfolio also includes equity interests in United
States government and agency bond funds. The value of these equity interests is
also subject to interest rate risk.
The Company regularly assesses the above-described market risks and has
established policies and business practices to protect against the adverse
effects of these and other potential exposures. The Company's investment policy
restricts investments to U.S. Government or government backed securities, or the
highest rated commercial paper (A1P1) only. As a result, the Company does not
anticipate any material losses in these areas.
For disclosure purposes, the Company uses sensitivity analysis to determine
the impacts that market risk exposures may have on the fair values of the
Company's debt and financial instruments. The financial instruments included in
the sensitivity analysis consist of all of the Company's cash and cash
equivalents and long-term and short-term debt instruments.
To perform sensitivity analysis, the Company assesses the risk of loss in
fair values from the impact of hypothetical changes in interest rates on market
sensitive instruments. The fair values are computed based on the present value
of future cash flows as impacted by the changes in the rates attributable to the
market risk being measured. The discount rates used for the present value
computations were selected based on market interest rates in effect at December
31, 1998. The fair values that result from these computations are compared with
the fair values of these financial instruments at December 31, 1998. The
differences in this comparison are the hypothetical gains or losses associated
with each type of risk. The results of the sensitivity analysis at December 31,
1998 are as follows:
Interest Rate Sensitivity: A 10% decrease in the levels of interest
rates with all other variables held constant would result in a decrease
in the fair value of the Company's financial instruments by $300,000
25
<PAGE> 27
per year. A 10% increase in the levels of interest rates with all other
variables held constant would result in an increase in the fair value
of the Company's financial instruments by $300,000 per year. The
Company maintains a portion of its financial instruments, including
long-term debt instruments of $4.9 million at December 31, 1998, at
variable interest rates. If interest rates were to increase 10%, the
impact of such instruments on cash flows or earnings would not be
material.
The use of a 10% estimate is strictly for estimation and evaluation purposes
only. The value of the Company's assets may rise or fall by a greater amount
depending on actual general market performances and the value of individual
securities owned by the Company.
The market price of the Notes generally changes in parallel with the market
price of the Common Stock. When the Common Stock price increases, the price of
the Notes generally increases proportionally. Fair market price of the Notes can
be determined from quoted market prices, where available. The fair value of the
Company's long-term debt was estimated to be $36,375,000 at December 31, 1998
and is lower than the carrying value by $12,125,000. Market risk was estimated
as the potential decrease in fair value resulting from a hypothetical 1%
increase in the Company's weighted average long term borrowing rate and a 1%
decrease in quoted market prices, or $1,000,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company required by Regulation S-X are
attached to this Report. Reference is made to Item 14 below for an index to the
financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained in the Company's definitive proxy statement for
the Company's Annual Meeting of Shareholders scheduled to be held on April 25,
1999 regarding directors and officers of the Company and compliance with Section
16(a) of the Exchange Act is incorporated herein by reference in response to
this item.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the Company's definitive proxy statement for
the Company's Annual Meeting of Shareholders scheduled to be held on April 25,
1999 regarding executive compensation is incorporated herein by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information in the Company's definitive proxy statement for the
Company's Annual Meeting of Shareholders scheduled to be held on April 25, 1999
regarding security ownership of certain beneficial owners and management is
hereby incorporated herein by reference in response to this item.
26
<PAGE> 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information in the Company's definitive proxy statement for the
Company's Annual Meeting of Shareholders scheduled to be held on April 25, 1999
regarding certain relationships and related transactions is hereby incorporated
herein by reference in response to this item.
27
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents of the Company are filed as part of
this Report:
1. Financial Statements
Independent Auditors' Report
Balance Sheets - December 31, 1998 and 1997
Statements of Operations - Years Ended December 31,
1998, 1997 and 1996
Statements of Changes in Shareholders' Equity - Years
Ended December 31, 1998, 1997 and 1996
Statements of Cash Flows - Years Ended December 31,
1998, 1997 and 1996
Notes to the Financial Statements
2. Financial Statement Schedules
Schedules for which provision is made in the
applicable regulations of the Securities and Exchange
Commission have been omitted because they are not required
under the related instructions or the information related is
contained elsewhere in the financial statements.
3. Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Reorganization dated November
24, 1998 by and among Atrix Laboratories, Inc.,
Atrix Acquisition Corporation and ViroTex
Corporation(6)
2.2 Certificate of Merger of Atrix Acquisition
Corporation into ViroTex Corporation dated November
24, 1998(6)
3.1 Amended and Restated Certificate of Incorporation*
3.2 Seventh Amended and Restated Bylaws(1)
4.1 Form of Common Stock Certificate(2)
4.2 Indenture, dated November 15, 1997, by and among
the Registrant and State Street Bank and Trust
company of California, N.A., as trustee
thereunder(4)
4.3 Form of Note (included in Indenture, see Exhibit
4.2)
4.4 Rights Agreement (including form of Right
Certificate, as Exhibit A, and form of Summary of
Rights, as Exhibit B)(5)
4.5 Warrant to purchase 6,750 shares of Atrix Common
Stock issued to Gulfstar Investments, Limited*
28
<PAGE> 30
10.1 Employment Agreement between Registrant and John E.
Urheim dated June 4, 1993(2)
10.2 Lease Agreement dated May 11, 1991 between the
Registrant and GB Ventures(2)
10.3 Agreement dated December 16, 1996 between the
Registrant and Block Drug Corporation ("Block
Agreement")(3)**
10.3A First Amendment to Block Agreement dated June 10,
1997*,**
10.3B Second Amendment to Block Agreement dated July 31,
1997*,**
10.3C Third Amendment to Block Agreement dated February
4, 1998*,**
10.3D Fourth Amendment to Block Agreement dated January
12, 1999*,**
10.3E Fifth Amendment to Block Agreement dated January
27, 1999*,**
10.4 Registration Rights Agreement, dated as of November
15, 1997, by and among Registrant and NationsBanc
Montgomery Securities, Inc. and SBC Warburg Dillon
Read, Inc.(4)
10.5 Amended and Restated Performance Stock Option Plan,
as amended.*
10.6 Non-Qualified Stock Option Plan, as amended.*
10.7 Employment Agreement between Registrant and Dr. J.
Steven Garrett dated April 17, 1995*
10.8 Employment Agreement between Registrant and Rees M.
Orland dated January 1, 1996*
10.9 Employment Agreement between Registrant and Dr.
David W. Osborne dated November 24, 1998*
10.10 Employment Agreement between Registrant and Dr.
Richard L. Jackson dated November 1, 1998*
21 Subsidiaries of the Registrant*
23 Consent of Deloitte & Touche LLP*
27 Financial Data Schedule*
- -------------------
* Filed herewith.
** Confidential treatment requested.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-3, file number 333-43191.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993 as filed with the Securities and
Exchange Commission.
(3) Incorporated by reference to Registrant's Current Report on Form 8-K dated
December 16, 1996, as amended on May 20, 1998, as filed with the Securities
and Exchange Commission.
(4) Incorporated by reference to Registrant's Current Report on Form 8-K dated
November 6, 1997, as filed with the Securities and Exchange Commission.
(5) Incorporated by reference to Registrant's Registration Statement on Form
8-A, file number 000-18231.
(6) Incorporated by reference to Registrant's Current Report on Form 8-K dated
November 24, 1998, as filed with the Securities and Exchange Commission.
(b) Reports on Form 8-K:
1. A current report on Form 8-K, dated November 24, 1998, was
filed with the Securities and Exchange Commission under
Item 2 regarding the acquisition of ViroTex.
29
<PAGE> 31
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets - December 31, 1998 and 1997 F-3
Statements of Operations - Years Ended December 31, 1998,
1997 and 1996 F-4
Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1998, 1997 and 1996 F-5
Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996 F-6
Notes to the financial statements F-7- F-19
</TABLE>
F-1
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Atrix Laboratories, Inc.
Fort Collins, Colorado
We have audited the accompanying balance sheets of Atrix Laboratories,
Inc. (the "Company") as of December 31, 1998 and 1997, and the related
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 3, 1999
F-2
<PAGE> 33
ATRIX LABORATORIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,556,641 $ 15,185,841
Marketable securities, at fair market value 37,102,867 50,233,553
Accounts receivable, net of allowance for doubtful accounts
of $49,165 and $111,479 5,937,446 1,553,427
Interest receivable 664,374 340,346
Inventories 2,563,536 1,309,519
Prepaid expenses and deposits 853,266 196,574
-------------- -----------------
Total current assets 65,678,130 68,819,260
-------------- -----------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 9,504,581 8,332,671
Leasehold improvements 605,107 605,107
-------------- -----------------
Total property plant and equipment 10,109,688 8,937,778
Accumulated depreciation and amortization (2,978,121) (2,381,908)
-------------- -----------------
Property, plant and equipment, net 7,131,567 6,555,870
-------------- -----------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $522,314 and $96,355 5,049,493 1,024,953
Deferred finance costs, net of accumulated amortization of $252,131 and $22,814 1,620,412 1,893,576
-------------- -----------------
Total other assets 6,669,905 2,918,529
-------------- -----------------
TOTAL ASSETS $ 79,479,602 $ 78,293,659
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 1,650,490 $ 1,052,362
Interest payable 279,039 287,671
Accrued salaries and payroll taxes 263,204 155,200
Other accrued liabilities 210,869 95,508
Deferred revenue 153,602 --
-------------- -----------------
Total current liabilities 2,557,204 1,590,741
-------------- -----------------
CONVERTIBLE SUBORDINATED NOTES PAYABLE 48,500,000 50,000,000
-------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000
shares authorized, none issued or outstanding -- --
Common stock, $.001 par value; 25,000,000
shares authorized; 11,360,672 and 11,177,261 shares
issued; 11,203,672 and 11,177,261 shares outstanding 11,361 11,177
Additional paid-in capital 74,822,942 73,224,442
Treasury stock, 157,000 shares, at cost (1,650,564) --
Accumulated other comprehensive loss (96,553) (177,867)
Accumulated deficit (44,664,788) (46,354,834)
-------------- -----------------
Total shareholders' equity 28,422,398 26,702,918
-------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 79,479,602 $ 78,293,659
============== =================
</TABLE>
See notes to the financial statements
F-3
<PAGE> 34
ATRIX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE:
Sales $ 3,451,148 $ 1,895,179 $ 635,517
Contract revenue 621,771 854,081 1,004,201
Sale of marketing rights 17,000,000 7,100,000 --
------------- ------------- -------------
Total revenue 21,072,919 9,849,260 1,639,718
------------- ------------- -------------
OPERATING EXPENSES:
Cost of goods sold 2,249,776 1,533,441 363,517
Research and development 12,189,212 11,544,593 10,091,736
Purchased in-process research and development 3,050,000 -- --
Administrative and marketing 2,506,879 2,027,034 3,872,425
------------- ------------- -------------
Total operating expenses 19,995,867 15,105,068 14,327,678
------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 1,077,052 (5,255,808) (12,687,960)
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Investment income 3,937,780 1,725,838 1,204,352
Interest expense (3,574,906) (306,950) --
Other 41,625 (29,797) 51,455
------------- ------------- -------------
Total other income 404,499 1,389,091 1,255,807
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 1,481,551 (3,866,717) (11,432,153)
Income tax - current expense (48,183) -- --
------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,433,368 (3,866,717) (11,432,153)
Extraordinary gain on extinguishment of debt 256,678 -- --
------------- ------------- -------------
ET INCOME (LOSS) $ 1,690,046 $(3,866,717) $(11,432,153)
============= ============= ==============
Basic and diluted earnings per common share:
Income (loss) before extraordinary item $ .13 $ (.35) $ (1.13)
Extraordinary item .02 -- --
------------- ------------- -------------
Net income (loss) $ .15 $ (.35) $ (1.13)
============= ============= =============
Basic and diluted weighted average common shares
outstanding 11,269,981 11,133,669 10,146,703
------------- ------------- -------------
</TABLE>
See notes to the financial statements.
F-4
<PAGE> 35
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Accumulated Treasury Total
Paid-in Deficit Other Stock Shareholders'
Capital Comprehensive Equity
Loss
Shares Amount
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1995 8,433,296 $ 8,433 $43,889,473 $(31,055,964) $(35,176) $ --- $ 12,806,766
Comprehensive loss:
Net loss --- --- --- (11,432,153) --- --- (11,432,153)
Other comprehensive loss
- Unrealized loss on --- --- --- --- (117,465) --- (117,465)
investments ________________
Total comprehensive loss (11,549,618)
Exercise of stock options 92,828 93 597,824 --- --- --- 597,917
Issuance for cash 2,587,500 2,588 27,841,389 --- --- --- 27,843,977
Compensation-stock options --- --- 584,588 --- --- --- 584,588
----------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1996 11,113,624 11,114 72,913,274 (42,488,117) (152,641) --- 30,283,630
Comprehensive loss:
Net loss --- --- --- (3,866,717) --- --- (3,866,717)
Other comprehensive loss
- Unrealized loss on --- --- --- --- (25,226) --- (25,226)
investments ________________
Total comprehensive loss (3,891,943)
Exercise of stock options 63,637 63 311,168 --- --- --- 311,231
----------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1997 11,177,261 11,177 73,224,442 (46,354,834) (177,867) --- 26,702,918
Comprehensive income:
Net income --- --- --- 1,690,046 --- --- 1,690,046
Other comprehensive Income
- Unrealized gain on --- --- --- --- 81,314 --- 81,314
investments ________________
Total comprehensive income 1,771,360
Exercise of stock options 145,212 146 228,686 --- --- --- 228,832
Issuance for employee stock
purchase plan 339 --- 4,557 --- --- --- 4,557
Issuance for acquisition:
Common stock 37,860 38 389,920 --- --- --- 389,958
Stock options --- --- 921,370 --- --- --- 921,370
Warrants --- --- 30,555 --- --- --- 30,555
Compensation-stock options --- --- 23,412 --- --- --- 23,412
Purchase of treasury stock (157,000) --- --- --- --- (1,650,564) (1,650,564)
----------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1998 11,203,672 $11,361 $74,822,942 $(44,664,788) $(96,553) $(1,650,564) $28,422,398
====================================================================================================
</TABLE>
See notes to the financial statements.
F-5
<PAGE> 36
ATRIX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,690,046 $ (3,866,717) $ (11,432,153)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation 927,619 765,735 554,595
Amortization 390,252 58,464 56,623
Loss (gain) on sale of property, plant and equipment 45,031 76,889 (3,017)
Gain on sale of marketable securities (28,186) -- (36,419)
Write-off of obsolete patents 32,226 -- 29,579
Purchased in-process research and development 3,050,000 -- --
Compensation - stock options 23,412 -- 584,588
Extraordinary gain on extinguishment of debt (256,678) -- --
Net changes in operating assets and liabilities, net of
effects of ViroTex acquisition:
Restricted cash equivalents -- 7,000,000 (7,000,000)
Accounts receivable (4,334,019) (872,137) (490,625)
Interest receivable (324,028) (186,218) (41,825)
Inventories (1,254,017) (1,006,014) (101,241)
Prepaid expenses and deposits (649,997) 104,747 271,430
Accounts payable - trade (466,755) 119,215 (929,703)
Interest payable (8,632) 287,671 --
Accrued salaries and payroll taxes (13,528) 66,332 16,669
Other accrued liabilities (152,428) (60,149) 3,549
Deferred revenue 153,602 (7,002,192) 7,002,192
----------------- ----------------- -----------------
Net cash used in operating activities (1,176,080) (4,514,374) (11,515,758)
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,004,291) (2,623,291) (4,293,064)
Acquisition of leasehold improvements -- (39,499) (59,418)
Investment in patents (213,189) (203,854) (220,677)
Proceeds from sale of property, plant and equipment 2,725 30,855 253,835
Proceeds from sale of marketable securities 20,130,000 2,025,000 1,000,000
Proceeds from maturity of marketable securities 48,043,018 -- 4,070,501
Investment in marketable securities (54,968,515) (46,252,309) (234,328)
Acquisition of ViroTex - net of cash acquired (4,833,192) -- --
----------------- ----------------- -----------------
Net cash provided by (used in) investing
activities 7,156,556 (47,063,098) 516,849
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 233,388 311,231 28,441,894
Proceeds from issuance of convertible subordinated
notes -- 50,000,000 --
Purchased convertible long term debt (1,192,500) -- --
Payment of finance costs -- (1,916,390) --
Acquisition of treasury stock (1,650,564) -- --
----------------- ----------------- -----------------
Net cash provided by (used in) financing
activities (2,609,676) 48,394,841 28,441,894
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,370,800 (3,182,631) 17,442,985
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,185,841 18,368,472 925,487
----------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,556,641 $15,185,841 $18,368,472
================= ================= =================
Supplemental cash flow information:
- Cash paid for interest: $ 3,569,421 $ 19,279 $ 2,502
================= ================= =================
</TABLE>
Non cash activities - In 1998, the Company issued common stock, warrants, and
stock options valued at $1,341,883 in connection with the acquisition of
ViroTex.
See notes to the financial statements.
F-6
<PAGE> 37
ATRIX LABORATORIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Atrix Laboratories, Inc. (the "Company") was incorporated in 1986. The
Company is engaged in research, development and commercialization of a broad
range of dental, medical and veterinary products based on its proprietary
sustained release biodegradable polymer drug delivery system, trade-named
ATRIGEL(R). The Company commenced sales of its first product, the ATRISORB(R)
GTR Barrier in both the United States and Europe during 1996. In 1997, the
Company commenced sales of a product to treat periodontal disease in companion
animals. In 1998, the Company launched the ATRIDOX(R) product and the
ATRISORB(R) FreeFlow GTR Barrier product. The majority of Atrix's other products
are in either the research, development, or clinical stage. The Company acquired
ViroTex Corporation ("ViroTex") in November 1998 (See Note 7). ViroTex is
engaged in the development of over-the-counter and prescription products based
on its proprietary polymer and solvent based drug delivery systems.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments with an original maturity
of three months or less.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale and carried at
fair value with the unrealized holding gain or loss included in shareholders'
equity. Premiums and discounts associated with bonds are amortized using the
effective interest rate method.
F-7
<PAGE> 38
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market. The components of inventories are as follows as of
December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw Materials $1,659,097 $ 563,503
Work In Progress 393,068 500,198
Finished Goods 511,371 245,818
---------- ----------
TOTAL $2,563,536 $1,309,519
========== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the straight-line
method over the estimated useful life of the assets, which range between three
and forty years. Leasehold improvements are amortized over the term of the
related lease.
Betterments, renewals and extraordinary repairs that extend the life of an
asset are capitalized; other repairs and maintenance are expensed. Repairs and
maintenance expense was $203,377, $198,856 and $93,072 for the years ended
December 31, 1998, 1997 and 1996 respectively.
INTANGIBLE ASSETS
Intangible assets consist of patents, purchased technology, purchased
royalty rights, and goodwill. Patents are stated at the legal cost incurred to
obtain the patents. Upon approval, patent costs are amortized, using the
straight-line method, over their estimated useful life. The values assigned to
the purchased technology, purchased royalty rights, and goodwill arising from
the ViroTex acquisition are amortized using the straight-line method over the
period of expected benefit of four to five years.
VALUATION OF LONG-LIVED ASSETS
The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and establishes guidelines
for determining fair value based on future net cash flows for the use of the
asset and for the measurement of the impairment loss. Any impairment loss is
recorded in the period in which the recognition criteria are first applied and
met.
DEFERRED FINANCE COSTS
Costs associated with the issuance of the 7% convertible subordinated notes
are deferred and are being amortized on a straight-line basis over the
seven-year term of the notes.
F-8
<PAGE> 39
REVENUE RECOGNITION
The Company recognizes revenue on sales at the time of shipment. Royalty
revenue is recognized at the time of shipment by licensee and is reported with
sales revenue. Revenue is recognized on research contracts as research work is
performed and costs are incurred. Deferred revenue is recorded with respect to
payments received that relate to research activities to be performed in
subsequent periods.
RESEARCH AND DEVELOPMENT
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities that
perform certain research on behalf of the Company.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share excludes dilution and is computed
by dividing net income (loss) by the weighted average number of common shares
outstanding during the years presented. Diluted net income (loss) per common
share reflects the potential dilution of securities that could share in the
earnings. For the years presented, the effect of dilutive stock options is not
significant and the effect of the assumed conversion of the convertible
subordinated notes would be antidilutive. Therefore, diluted net income (loss)
per share is not materially different from basic net income (loss) per common
share.
OTHER COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." (SFAS 130) which
establishes new rules for the reporting and display of comprehensive income and
its components. The adoption of SFAS 130 had no impact on the Company's net
income or shareholders' equity. SFAS 130 requires unrealized gains and losses on
investments, which prior to adoption were reported separately in shareholder's
equity, to be included in accumulated other comprehensive income. Prior year
amounts have been reclassified to conform to the requirements of SFAS 130.
STOCK OPTION PLANS
The Company accounts for stock-based compensation to employees and directors
using the intrinsic value method in accordance with Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
accounts for stock-based compensation to non-employees using a fair value based
method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation."
F-9
<PAGE> 40
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement basis and the income tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future. Such deferred income tax
liability computations are based on enacted tax laws and rates applicable to the
years in which the differences are expected to affect taxable income. A
valuation allowance is established when necessary to reduce deferred income tax
assets to the amounts expected to be realized.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current presentation.
2. MARKETABLE SECURITIES
As of December 31, 1998 marketable securities consist of the following:
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL ESTIMATED
AMOUNT COST FAIR VALUE
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Government and Agency Bond Funds
Thornburg Fund 43,108 $ 543,888 $ 539,283
Pimco Fund 400,009 4,375,982 4,216,096
----------- ----------- -----------
Total 443,117 4,919,870 4,755,379
U.S. Government and Agency Bonds 40,519,885 32,279,550 32,347,488
=========== =========== ===========
Total 40,963,002 $37,199,420 $37,102,867
=========== =========== ===========
</TABLE>
As of December 31, 1997 marketable securities consist of the following:
<TABLE>
<CAPTION>
NUMBER OF
SHARES/
PRINCIPAL ESTIMATED
AMOUNT COST FAIR VALUE
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Government and Agency Bond Funds:
Thornburg Fund 40,815 $ 515,338 $ 504,059
Pimco Fund 364,087 3,992,860 3,859,326
----------- ----------- -----------
Total 404,902 4,508,198 4,363,385
U.S. Government and Agency Bonds 42,000,000 42,014,235 41,981,180
Commercial Paper-6 month maturity 3,888,988 3,888,988 4,000,000
=========== =========== ===========
Total 46,404,902 $50,411,421 $50,233,553
=========== =========== ===========
</TABLE>
As of December 31, 1998 gross unrealized gains and losses pertaining to
marketable securities are $96,069 and $192,622, respectively. As of December 31,
1997 gross unrealized gains and losses pertaining to marketable securities are
$9,997 and $187,864, respectively.
F-10
<PAGE> 41
3. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
<S> <C> <C>
Patents $1,596,002 $1,121,308
Purchased Technology 2,800,000 --
Purchased Royalty Rights 600,000 --
Goodwill 575,805 --
------------------ -----------------
Sub-total 5,571,807 1,121,308
------------------ -----------------
Less: Accumulated Amortization (522,314) (96,355)
------------------ -----------------
Total $5,049,493 $1,024,953
================== =================
</TABLE>
4. LINE OF CREDIT
In September 1998, the Company renewed a revolving line of credit with a
bank. Under the terms of the line of credit, the Company may borrow up to
$1,000,000. Borrowings under the line bear interest at the prime rate and are
subject to financial covenants requiring the Company to maintain certain levels
of net worth and liquidity. As of December 31, 1998, the Company had no
outstanding balance under this line.
5. CONVERTIBLE SUBORDINATED NOTES PAYABLE
In November 1997, the company issued $50,000,000 of convertible subordinated
notes. These notes bear interest at the rate of 7% and are due in 2004. The
notes are convertible, at the option of the holder, into common stock at any
time prior to maturity, unless previously redeemed or repurchased. The notes are
convertible, at the option of the Company after three years from the date of
issue. The conversion price is set at $19.00 per share.
In December 1998, the Company repurchased $1,500,000, or 3%, of its
outstanding 7% convertible subordinated notes for $1,192,500. As a result, the
Company recognized an extraordinary gain of approximately $257,000, net of
deferred finance charges of $51,000. As of December 31, 1998, $48,500,000 of
these notes are outstanding.
(See notes 13 and 15)
6. BLOCK DRUG CORPORATION AGREEMENT
On December 17, 1996, the Company entered into an agreement with Block Drug
Corporation ("Block"). Under the terms of the agreement, Block acquired the
North American marketing rights to the ATRISORB(R) GTR Barrier and
ATRISORB(R)-DOXY product, and the rights to market the ATRIDOX(R) product in the
United States, with an option to acquire the rights to market the ATRIDOX(R)
product in Canada and certain European countries. On September 12, 1997, Block
exercised its option to market the ATRIDOX(R) product in Canada, but let its
option lapse with respect to Europe.
F-11
<PAGE> 42
Under the Block Agreement, Block is responsible for sales and marketing for
the products and will advise, consult and may financially support various
aspects of the Company's dental research and development program. The Company
also has the right to co-market the products if certain annual sales levels are
not met. The Block Agreement provides for both milestone and royalty payments to
the Company. The Block Agreement expires on a product-by-product and a
country-by-country basis upon the expiration of the last applicable patent or
loss of patent protection for a product in a given country. The first patent
will expire in 2012. In addition, Block may terminate the Block agreement at any
time without cause upon 12 months written notice to the Company, if the Company
commits a willful and material breach of the Block agreement, or if the Company
ceases to manufacture or supply the product to Block pursuant to the Block
Agreement. The Company may terminate the Block Agreement if Block fails to make
any required payment, if Block commits a willful and material breach of the
Block Agreement, if Block ceases to offer the product for distribution, or if
Block markets, distributes or sells a competitive product.
In 1997, the Company recognized revenue of $7,000,000 for the sale of
marketing rights to the ATRISORB(R) GTR Barrier. The Company received an
additional $100,000 payment from Block in September 1997 when Block exercised
its option to acquire rights to market ATRIDOX(R) and ATRISORB(R) GTR Barrier
products in Canada.
In 1998, the Company received milestone payments of $12,000,000 pursuant to
Block Agreements as a result of FDA approval of the Company's new drug
application for ATRIDOX(R). The Company also earned an additional milestone of
$5,000,000 as a result of Block's first commercial sale of the ATRIDOX(R)
product. Total milestone payments earned in 1998 were $17,000,000.
7. ACQUISITION OF VIROTEX
In November 1998, the Company acquired the common stock of ViroTex. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the assets and liabilities of ViroTex have been recorded at their
fair value at the date of acquisition. The results of operations of ViroTex have
been included in the financial statements of the Company since the date of
acquisition. Total consideration paid was $7,693,749 as follows: cash of
$6,201,556, 37,860 shares of common stock valued at $389,958, stock options to
purchase 113,229 shares of common stock valued at $921,370, a warrant to
purchase 6,750 shares of common stock valued at $30,556, and transaction
expenses of $150,309. Additional consideration of up to $3,000,000 is payable,
in shares of common stock or cash, over the next three years upon the
satisfaction of certain defined earn-out events related to the performance of
certain ViroTex products.
F-12
<PAGE> 43
The total purchase price of $7,693,749 was allocated to the fair value of
the assets, based primarily on an independent third party valuation, as follows:
<TABLE>
<S> <C>
Net Tangible Assets $ 667,944
----------
Intangible Assets:
Purchased in process research and development 3,050,000
Purchased Technology 2,800,000
Purchased Royalty Rights 600,000
Goodwill 575,805
----------
Total $7,025,805
----------
Net Assets Purchased $7,693,749
==========
</TABLE>
The Company expensed $3,050,000 of the purchase price, which was allocated
to in-process research and development projects, as of the date of acquisition.
The projects were valued using the discounted cash flow method in an independent
third party valuation.
The following unaudited pro forma results of operations for the year ended
December 31, 1998, 1997 and 1996 assumes the purchase of ViroTex had occurred as
of January 1, 1996:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues $ 3,763,912 $ 16,509,489 $ 25,260,962
------------ ------------ ------------
Net income (loss) $(13,401,655) $ (2,736,752) $ (142,921)
------------ ------------ ------------
Basic and diluted net income
(loss) per common share $ (1.32) $ (.25) $ (0.01)
------------ ------------ ------------
</TABLE>
The pro forma results of operations include adjustments to give effect to
amortization of goodwill and other intangible assets, the write-off of purchased
in-process research and development and certain other adjustments. The unaudited
pro forma financial information is not necessarily indicative of the results of
operations that would have occurred had the purchase been made as of January 1,
1996, or the future results of combined operations.
8. STOCK OPTION PLANS
As of December 31, 1998, the Company has two stock-based compensation plans,
which are discussed below.
PERFORMANCE STOCK OPTION PLAN
The 1987 Performance Stock Option Plan, as amended and restated in 1992 (The
"Plan") permits the granting of both incentive stock options, as defined under
Section 422 of the Internal Revenue Code, and non-qualified stock options to
employees, officers and directors. The exercise price of each option, which have
a maximum ten year life, is equal to the market price of the Company's common
stock on the date of grant.
The Company accounts for the Plan using the intrinsic value method in
accordance with APB No. 25 and has adopted the disclosure-only provisions of
SFAS No. 123. Accordingly, no compensation expense has been recognized for the
F-13
<PAGE> 44
Plan. Had compensation cost for the Plan been determined based on the fair value
at the grant dates of awards under the Plan consistent with SFAS No. 123, the
Company's net income (loss) and basic and diluted income (loss) per common share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) :
-- as reported $ 1,690,046 $ (3,866,717) $(11,432,153)
----------- ------------ ------------
-- pro forma $ 76,088 $ (5,067,819) $(12,188,993)
----------- ------------ ------------
Basic and diluted net income (loss) per
common share:
-- as reported $ .15 $ (.35) $ (1.13)
----------- ------------ ------------
-- pro forma $ .01 $ (.46) $ (1.20)
----------- ------------ ------------
</TABLE>
The Company has reserved 1,500,000 of its authorized but unissued common
stock for stock options to be granted under the Plan. On April 27, 1997, the
stockholders of the Company approved an amendment to the Plan that increased the
maximum aggregate number of shares issuable upon the exercise of options granted
under the Plan from 1,500,000 shares to 2,500,000 shares. Under the terms of the
Plan, options are not exercisable for a period of one to three years from the
date of grant. The exercise price of all options is the closing bid price of the
stock on the date of grant. There are 492,881 shares which remain available
under the plan for future employee stock option grants.
The weighted average Black-Scholes fair value per option granted in 1998,
1997 and 1996 was $5.29, $4.58 and $2.33, respectively. The fair value of
options granted under the Plan was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996: no dividend yield, expected
volatility of 47.7% for 1998, 41.7% for 1997 and 37.8% for 1996, risk free
interest rate of 7.0%, and expected life of 5 years.
F-14
<PAGE> 45
The following table summarizes information on stock option activity for the
Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
------------ -------------- ---------------
<S> <C> <C> <C>
Options outstanding, December 31, 1995 760,255 $.50-- 20.75 $ 6.64
Options granted 602,574 .50-- 14.00 8.64
Options canceled or expired (408,580) 5.88-- 20.75 8.58
Options exercised (92,828) .50-- 9.88 6.44
------------ -------------- ---------------
Options outstanding, December 31, 1996 861,421 .50-- 14.00 7.14
Options granted 189,090 10.75-- 21.75 14.41
Options canceled or expired (6,977) 6.13-- 11.63 10.97
Options exercised (20,137) .50-- 11.75 7.16
------------ -------------- ---------------
Options outstanding, December 31, 1997 1,023,397 .50-- 21.75 8.45
Options granted 409,169 1.18-- 19.00 9.60
Options canceled or expired (12,190) .50-- 12.50 8.22
Options exercised (145,222) 10.50-- 20.00 1.58
------------ -------------- ---------------
Options outstanding, December 31, 1998 1,275,154 $.50-- 21.75 $9.60
------------ -------------- ---------------
Options outstanding are available for
exercise as follows:
Currently Exercisable 792,600 $ 7.81
1999 226,868 12.15
2000 158,297 13.21
2001 97,389 12.40
------------ ---------------
Total 1,275,154 $ 9.60
============ ===============
</TABLE>
On November 18, 1996, the Company canceled certain incentive and
non-qualified stock options with a five-year term and issued new incentive and
non-qualified stock options which extended the original term to ten years. The
effect of this cancellation and reissuance was a $584,588 charge to compensation
expense during 1996.
The following table summarizes information about stock options outstanding
under the Plan as of December 31, 1998:
<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT AVERAGE WEIGHTED EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, EXERCISE PRICE
EXERCISE PRICES 1998 CONTRACTUAL LIFE EXERCISE PRICE 1998 EXERCISABLE
- ---------------------- ------------------ ------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$ .50 - 1.57 31,820 1 year $1.35 31,820 $1.35
1.57 - 14.00 24,578 3 years 2.07 24,578 2.07
6.75 - 9.88 284,465 4 years 8.50 284,465 8.50
1.57 - 9.13 96,982 5 years 5.28 96,982 5.28
1.57 - 6.88 96,971 6 years 5.78 96,971 5.78
6.63 - 11.94 143,248 7 years 8.38 115,861 8.07
6.88 - 13.25 189,197 8 years 10.24 103,343 10.05
11.38 - 21.75 199,233 9 years 16.67 38,580 16.44
10.06 - 14.44 208,660 10 years 10.57 -- --
- ---------------------- ------------------ ------------------- ----------------- ----------------- ------------------
$ 0.50 - 21.75 1,275,154 7.69 years $9.60 792,600 $7.81
- ---------------------- ------------------ ------------------- ----------------- ----------------- ------------------
</TABLE>
NON-QUALIFIED STOCK OPTION PLAN
The Company has reserved 150,000 of its authorized but unissued common stock
for stock options to be granted to outside consultants under its Non-qualified
Stock Option Plan (the "Non-qualified Plan"). In 1998, the Company amended the
Non-qualified Plan to increase 50,000 shares to provide for a total of 150,000
F-15
<PAGE> 46
shares. The option price and exercisability of options granted under the
Non-qualified Plan are set by the Compensation Committee. The exercise price of
all options granted under the Non-qualified Plan currently outstanding is the
closing market price at the date of grant. There are 72,020 shares, which remain
available under the Non-qualified Plan for future stock option grants.
The weighted average Black-Scholes fair value per option granted in 1998,
1997 and 1996 was $7.80, $3.98 and $2.00, respectively. In 1998, compensation
expense for Non-qualified Plan grants was $23,412. The fair value of options
granted under the Non-qualified Plan was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used in 1998, 1997 and 1996: no dividend yield, expected volatility
of 47.7% for 1998, 41.7% for 1997 and 37.8% for 1996, risk free interest rate of
7.0%, and expected lives of 5 years.
The following table summarizes information on stock option activity for the
Non-qualified Plan.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
------------------- --------------------- -------------------
<S> <C> <C> <C>
Options outstanding, December 31, 1995 47,860 $ 3.75-- 6.63 $ 4.55
Options granted 9,120 6.63-- 9.50 7.78
Options canceled or expired -- -- --
------------------- --------------------- -------------------
Options outstanding, December 31, 1996 56,980 3.75-- 9.50 5.07
Options granted 18,000 .50-- 16.50 8.59
Options exercised (43,500) .50-- 6.88 3.84
------------------- --------------------- -------------------
Options outstanding, December 31, 1997 31,480 5.13-- 16.50 8.92
Options granted 3,000 15.38 15.38
Options exercised -- -- --
------------------- --------------------- -------------------
Options outstanding, December 31, 1998 34,480 $ 5.13-- 16.50 $ 8.67
------------------- --------------------- -------------------
Options outstanding are available for
exercise as follows:
Currently Exercisable 22,107 $ 7.53
1999 6,373 12.22
2000 5,000 13.18
2001 1,000 15.38
------------------- -------------------
Total 34,480 $ 8.67
------------------- -------------------
</TABLE>
F-16
<PAGE> 47
The following table summarizes information about stock options outstanding
under the Nonqualified Plan as of December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT EXERCISE
EXERCISE DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, PRICE
PRICES 1998 LIFE EXERCISE PRICE 1998 EXERCISABLE
- --------------------- -------------------- -------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$5.13-- 6.63 10,360 6 years $ 5.62 10,360 $ 5.62
7.00 5,000 7 years 7.00 5,000 7.00
6.63-- 16.50 16,120 8 years 11.63 6,747 9.23
15.38 3,000 9 years 15.38 - -
- --------------------- -------------------- -------------------- ------------------- ----------------- ------------------
$5.13-- 16.50 34,480 7.34 years $ 8.67 22,107 $ 7.53
- --------------------- -------------------- -------------------- ------------------- ----------------- ------------------
</TABLE>
9. INCOME TAXES
Net deferred tax assets at December 31, consist of:
<TABLE>
<CAPTION>
1998 1997
----------------------- --------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $15,129,836 $16,102,000
Research and development tax credit carryforwards 649,162 496,282
Amortization of intangibles 2,311,644 2,488,000
Purchased in-process research and development 1,131,330 --
Depreciation 164,874 140,000
Other items 229,831 269,000
----------------------- --------------------
Net deferred tax assets 19,616,677 19,495,282
----------------------- --------------------
Less valuation allowance 19,616,677 19,495,282
----------------------- --------------------
Total $ 0 $ 0
----------------------- --------------------
</TABLE>
At December 31, 1998, the Company has approximately $42,170,473 of federal
income tax net operating loss carry forwards and $1,608,039 of research and
development credits, which expire through 2012. Included in the deferred tax
asset for net operating loss carryforwards are benefits from the exercise of
employee stock options of $1,656,063, which when subsequently recognized will be
allocated to additional paid in capital.
A reconciliation of the differences in income tax expense from income (loss)
before extraordinary item computed at the federal statutory rate and income tax
expense as recorded for the year ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ------------------ ---------------
<S> <C> <C> <C>
Income tax computed at federal statutory rate: $ 590,998 $(1,314,684) $(3,886,932)
State income taxes - net of federal benefit 57,362 (127,602) (377,261)
Permanent differences 8,457 10,685 65,212
Exercise of employee stock options (593,368) (324,545) (106,347)
Research and Development (151,977) (145,739) (63,622)
Other 15,316 (38,671) (53,855)
Change in valuation allowance 121,395 1,940,556 4,422,805
---------------- ------------------ ---------------
Income tax expense $ 48,183 $ -- $ --
================ ================== ===============
</TABLE>
F-17
<PAGE> 48
10. SEGMENT AND CUSTOMER INFORMATION
The Company operates in a single reportable segment and all revenues from
customers are from a similar group of periodontal products. Sales and milestone
revenues from one customer amounted to $19,028,000 and $8,213,000 for the years
ended December 31, 1998 and 1997, respectively. Contract revenues from three
customers amounted to $198,000, $235,000 and $270,000 for the year ended
December 31, 1996. Revenues from export sales to foreign customers amounted to
approximately $557,000, $100,000 and $124,000 for the years ended December 31,
1998, 1997 and 1996 respectively.
11. LEASE COMMITMENTS
As of December 31, 1998, minimum rental commitments under non-cancelable
operating leases of one year or more are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------------------
<S> <C>
1999 $ 290,358
2000 261,872
2001 262,944
2002 270,830
2003 114,232
2004 --
---------------------
Total $ 1,200,236
=====================
</TABLE>
Rent expense was $275,917, $212,982 and $205,583 for the years ended
December 31, 1998, 1997 and 1996, respectively.
12. BENEFIT PLANS
The Company has an employee savings plan (the "Savings Plan") which
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. This Savings Plan allows eligible employees to contribute from 1%
to 17% of their income to this Savings Plan. The Company matches 50% of the
first 6% of the employee's contributions which are immediately vested. The
Company's matching contributions to the Savings Plan were approximately $91,889,
$64,770 and $48,461 for 1998, 1997 and 1996, respectively.
On April 27, 1997, the stockholders of the Company approved the Atrix
Laboratories, Inc. 1997 Employee Stock Purchase Plan (the "ESPP"). The ESPP
provides eligible employees with the opportunity to purchase shares through
authorized payroll deductions at 85% of the average market price on the last day
of each quarter. The ESPP qualifies as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. The Company has reserved 300,000
shares of its authorized but unissued common stock for issuance under the ESPP
of which 290,049 remain available at December 31, 1998.
<PAGE> 49
13. COMMON STOCK
In February 1998, the Company's Board of Directors authorized the Company
to repurchase up to $10,000,000 of the Company's common stock. As of December
31, 1998, the Company has repurchased 157,000 shares of its common stock for
approximately $1,651,000.
The repurchase program was amended by the Board of Directors to authorize
the Company to purchase up to $10 million of the 7% Convertible Subordinated
Notes or shares of Common Stock and to extend the program through December 31,
1999.
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31 are as follows:
<TABLE>
<CAPTION>
----------------- ------------------- -------------------- ------------------
1998 1998 1997 1997
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------- ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,556,641 $ 18,556,641 $ 15,185,841 $ 15,185,841
Marketable securities 37,102,867 37,102,867 50,233,553 50,233,553
Convertible subordinated notes 36,375,000 50,000,000 47,812,500 48,500,000
----------------- ------------------- -------------------- ------------------
</TABLE>
The following methods and assumptions were used to estimate the fair value
of financial instruments:
Cash and cash equivalents -- The carrying amount approximates fair value
because of the short maturity of these instruments.
Marketable securities -- The fair value is based on quoted market prices
or dealer quotes.
Convertible subordinated notes -- The fair value is based on quoted
marked prices or dealer quotes.
15. SUBSEQUENT EVENTS
In January 1999, the Company repurchased $3,000,000, or 6%, of its
outstanding 7% convertible subordinated notes for $2,250,000. As a result, the
Company recognized an extraordinary gain of approximately $650,000, net of
deferred finance charges of $100,000.
F-19
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ATRIX LABORATORIES, INC.
(Registrant)
Date: March 23, 1999 By: /s/ John E. Urheim
-------------------------------
John E. Urheim
Vice Chairman of the Board of
Directors and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ David R. Bethune Director Date: March 18, 1999
- ---------------------------------
David R. Bethune
/s/ H. Stuart Campbell Director Date: March 23, 1999
- ---------------------------------
H. Stuart Campbell
/s/ Dr. D. Walter Cohen Director Date: March 18, 1999
- ---------------------------------
Dr. D. Walter Cohen
/s/ Michael R. Duncan Vice President of Manufacturing Date: March 23, 1999
- ---------------------------------
Michael R. Duncan
/s/ Richard Dunn Senior Vice President of Drug Date: March 23, 1999
- --------------------------------- Delivery
Richard Dunn
/s/ Dr. Richard Jackson Senior Vice President of Research Date: March 23, 1999
- --------------------------------- and Development
Dr. Richard Jackson
/s/ Dr. J. Steven Garrett Vice President of Clinical Research Date: March 23, 1999
- ---------------------------------
Dr. J. Steven Garrett
/s/ Elaine M. Gazdeck Vice President of Regulatory Date: March 23, 1999
- --------------------------------- Affairs & Quality Assurance
Elaine M. Gazdeck
/s/ Dr. Jere E. Goyan Director Date: March 23, 1999
- ---------------------------------
Dr. Jere E. Goyan
/s/Dr. R. Bruce Merrifield Director Date: March 18, 1999
- ---------------------------------
Dr. R. Bruce Merrifield
/s/ C. Rodney O'Connor Director Date: March 19, 1999
- ---------------------------------
C. Rodney O'Connor
</TABLE>
<PAGE> 51
<TABLE>
<S> <C> <C>
/s/ William C. O'Neil, Jr. Chairman of the Board of Directors Date: March 22, 1999
- ---------------------------------
William C. O'Neil, Jr.
/s/ David Osborne Vice President of Pharmaceutical Date: March 23, 1999
- --------------------------------- Development
David Osborne
/s/ Brian G. Richmond Vice President of Finance and Date: March 23, 1999
- --------------------------------- Assistant Secretary
Brian G. Richmond
Director Date: March __, 1999
- ---------------------------------
G. Lee Southard
/s/ John E. Urheim Vice Chairman of the Board of Date: March 23, 1999
- --------------------------------- Directors and Chief Executive
John E. Urheim Officer
</TABLE>
<PAGE> 52
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Reorganization dated November 24,
1998 by and among Atrix Laboratories, Inc., Atrix
Acquisition Corporation and ViroTex Corporation(6)
2.2 Certificate of Merger of Atrix Acquisition Corporation into
ViroTex Corporation dated November 24, 1998(6)
3.1 Amended and Restated Certificate of Incorporation*
3.2 Seventh Amended and Restated Bylaws(1)
4.1 Form of Common Stock Certificate(2)
4.2 Indenture, dated November 15, 1997, by and among the
Registrant and State Street Bank and Trust company of
California, N.A., as trustee thereunder(4)
4.3 Form of Note (included in Indenture, see Exhibit 4.2)
4.4 Rights Agreement (including form of Right Certificate, as
Exhibit A, and form of Summary of Rights, as Exhibit B)(5)
4.5 Warrant to purchase 6,750 shares of Atrix Common Stock
issued to Gulfstar Investments, Limited*
10.1 Employment Agreement between Registrant and John E. Urheim
dated June 4, 1993(2)
10.2 Lease Agreement dated May 11, 1991 between the Registrant
and GB Ventures(2)
10.3 Agreement dated December 16, 1996 between the Registrant
and Block Drug Corporation(3)
10.3A First Amendment to Block Agreement dated June 10, 1997*,**
10.3B Second Amendment to Block Agreement dated July 31, 1997*,**
10.3C Third Amendment to Block Agreement dated February 4,
1998*,**
10.3D Fourth Amendment to Block Agreement dated January 12,
1999*,**
10.3E Fifth Amendment to Block Agreement dated January 27,
1999*,**
10.4 Registration Rights Agreement, dated as of November 15,
1997, by and among Registrant and NationsBanc Montgomery
Securities, Inc. and SBC Warburg Dillon Read, Inc.(4)
10.5 Amended and Restated Performance Stock Option Plan, as
amended.*
10.6 Non-Qualified Stock Option Plan, as amended.*
10.7 Employment Agreement between Registrant and Dr. J. Steven
Garrett dated April 17, 1995*
10.8 Employment Agreement between Registrant and Rees M. Orland
dated January 1, 1996*
10.9 Employment Agreement between Registrant and Dr. David W.
Osborne dated November 24, 1998*
10.10 Employment Agreement between Registrant and Dr. Richard L.
Jackson dated November 1, 1998*
21 Subsidiaries of the Registrant*
23 Consent of Deloitte & Touche LLP*
27 Financial Data Schedule*
- -------------------
* Filed herewith.
** Confidential treatment requested.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-3, file number 333-43191.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993 as filed with the Securities and
Exchange Commission.
(3) Incorporated by reference to Registrant's Current Report on Form 8-K dated
December 16, 1996, as amended on May 20, 1998, as filed with the Securities
and Exchange Commission.
(4) Incorporated by reference to Registrant's Current Report on Form 8-K dated
November 6, 1997, as filed with the Securities and Exchange Commission.
(5) Incorporated by reference to Registrant's Registration Statement on Form
8-A, file number 000-18231.
(6) Incorporated by reference to Registrant's Current Report on Form 8-K dated
November 24, 1998, as filed with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIPONT RESEARCH LABORATORIES, INC.
AMENDED AND RESTATED AS OF DECEMBER 15, 1989
Pursuant to the provisions of Del. Code Ann. tit. 8, ss. 245 (1983),
the undersigned hereby adopts this Amended and Restated Certificate of
Incorporation (the "Certificate") of Vipont Research Laboratories, Inc. (the
"Corporation"). The certificate correctly sets forth (i) the provisions of the
Certificate of Incorporation, originally filed with the Secretary of State of
the State of Delaware on August 8, 1986; and (ii) the Certificate of Amendment
of Certificate of Incorporation Before Payment of Capital filed with the
Secretary of State of the State of Delaware on November 13, 1985, as amended.
The Certificate restates, amends and supercedes the provisions of any and all
such documents.
The Certificate has been duly adopted and approved by the directors and
stockholders of the Corporation on October 20, 1989 and November 30, 1989,
respectively.
FIRST: The name of the corporation in Atrix Laboratories, Inc.
SECOND: The registered office of said Corporation and place of business in the
State of Delaware is to be located at Corporation Trust Center, 1209 Orange
Street, City of Wilmington, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business, and the objects and purposes proposed to be
transacted, promoted and carried on, are as follow:
(a) The Corporation shall have unlimited power to engage in
and to do any lawful act concerning any or all lawful businesses for
which corporations may be organized under the Delaware General
Corporation Law.
(b) The Corporation assumes to itself and shall and does
possess all general powers, rights, privileges and franchises granted
to or conferred upon corporations by the laws of the State of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is thirty million (30,000,000) shares, divided into
twenty-five million (25,000,000) shares of common stock of the per value of
$.001 par share and five million (5,000,000) shares of preferred stock of the
par value of $.001 per share.
1
<PAGE> 2
The board of directors is authorized, subject to limitations prescribed by law,
to provide for the issuance of the shares of preferred stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or restrictions thereof.
The number of authorized shares of preferred stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the outstanding shares of common stock,
without a vote of the holders of the preferred stock, or of any series thereof,
unless a vote of any such holders in required pursuant to the certificate or
certificates establishing any series of preferred stock.
No stockholder shall be entitled to preemptive rights in the issuance of
preferred or common stock or be entitled to cumulative voting rights.
FIFTH: Prevention of Self-Dealing. In addition to any action, including any vote
by stockholders required by law or this Certificate, the approval or
authorization of any Self-Dealing Transaction shall require either (a) the
approval of a majority of Disinterested Directors or (b) the affirmative vote of
the holders of at least a majority of the combined voting power of the Voting
Stock, voting together as a single class, excluding any votes cast with respect
to shares of Voting Stock beneficially owned by an Interested Stockholder which
is directly or indirectly a party, or an Affiliate or Associate of which is,
directly or indirectly, a party, to such Self-Dealing Transaction.
Certain Definitions. For the purpose of this Article Fifth:
(a) A "person" shall mean any individual, firm, corporation or other
entity.
(b) "Voting Stock" shall mean the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of
Directors. In any vote required by or provided for in this Article
Fifth, each share of Voting Stock shall have the number of votes
granted to it generally in the election of Directors.
(c) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more
than 5% of the outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of more than
5% of the outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
Voting Stock of the Corporation which at any time within the
two-year period immediately prior to the date in question was
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
2
<PAGE> 3
(d) A person shall be a "beneficial owner" of, or "beneficially own" or
have "beneficial ownership" of, any shares of Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its 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 or
upon the exercise of conversion rights, exchange rights,
warrants or options or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its
Affiliates or Associates had any agreement, arrangement or
understanding for the purpose of acquiring holding, voting or
disposing of any Voting Stock.
(e) In determining whether a person is an Interested Stockholder
pursuant to paragraph (c) of this Article Fifth, any class of Voting
Stock outstanding shall be deemed to include any Voting Stock deemed
owned through application of paragraph (d) of this Article Fifth but
shall not include any other securities of such class which may be
issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options or otherwise.
(f) "Self-Dealing Transaction" means any of the following transactions:
(i) any merger or consolidation of the Corporation or any
Subsidiary with (a) any Interested Stockholder or (b) any
other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate of an interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair market
value of $3,000,000 or more or any loan, advance, guarantee or
other financial assistance, including any tax credit or other
tax advantages, to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder which involves a
financial obligation or benefit of $3,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the Corporation or any Subsidiary to any
3
<PAGE> 4
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate fair market
value of $3,000,000 or more; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
Voting Stock of the Corporation or any Subsidiary which is
directly or indirectly owned by any Interested Stockholder or
any Affiliate of any Interested Stockholder.
(g) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, an in effect on
October 1, 1989.
(h) "Subsidiary" means any corporation of which a majority of any class
of shares of such corporation entitled to vote generally in the
election of directors is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Interested Stockholder set forth in paragraph (c) of this section,
the term "Subsidiary" shall mean only a corporation of which a majority
of the combined voting power of all shares of such corporation entitled
to vote generally in the election of directors is owned, directly or
indirectly, by the Corporation.
(i) "Disinterested Director" means any member of the Board of Directors
of the Corporation who is unaffiliated with the Interested Stockholder
and was a member of the Board of Directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is unaffiliated with the
Interested Stockholder and is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.
Powers of the Board of Directors. A majority of the Disinterested Directors, or,
if there are no Disinterested Directors, a majority of the members of the Board
of Directors then in office, shall have the power to determine, for the purposes
of this Article Fifth, on the basis of information known to them, (a) whether a
person in an Interested Stockholder, (b) the number of shares of Voting Stock
beneficially owned by any person, (c) whether a person in an Affiliate or
Associate of another, and (d) whether the assets or financial obligations or
benefits which are the subject of any Self-Dealing Transaction have, or the
consideration to be received for the issuance or transfer of securities by the
Corporation or any Subsidiary in any Self-Dealing Transaction has, an aggregate
fair market value of or involve $3,000,000 or more. A majority of the
Disinterested Directors, or, if there are no Disinterested Directors, a majority
of the members of the Board of Directors then in office, shall have the further
power to interpret all of the terms and provisions of this Article Fifth.
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Amendment, Repeal, etc. Notwithstanding anything contained in this Certificate
or the By-Laws of the Corporation to the contrary, the alteration, change,
amendment, repeal or adoption of any provisions inconsistent with this Article
Fifth shall require the affirmative vote of the holders of a majority of the
combined voting power of the outstanding Voting Stock, excluding any votes cast
with respect to shares of Voting Stock beneficially owned by any Interested
Stockholder, voting together as a single class, but in no event less than the
affirmative vote of 66.66% of combined voting power of the outstanding shares of
Voting Stock, including shares of Voting Stock beneficially owned by any
Interested Stockholder, voting together as a single class.
SIXTH: Board of Directors. The governing board of this Corporation shall be
known as directors and the number of directors may be from time to time
increased or decreased in such manner as shall be specified in the By-Laws of
this Corporation, provided that the number of directors shall not be reduced to
less than three (3) nor increased to more than eleven (11).
Classification. The board of directors shall be divided into three classes, A, B
and C, as nearly equal in number as the total number of directors constituting
the whole board permits, with the term of office of one class expiring each
year. Directors of Class A shall hold office for an initial term expiring at the
annual stockholder meeting in 1990; directors of Class B shall hold office for
an initial term expiring at the annual stockholder meeting in 1991; and
directors of Class C shall hold office for an initial term expiring at the
annual stockholder meeting in 1992. Subject to the foregoing, at each annual
meeting of stockholders the successors to the class of directors whose term
shall then expire shall be elected to hold office for a term expiring at the
third succeeding annual meeting and each director so elected shall hold office
until his successor is elected and qualified, or until his earlier resignation
or removal. If the number of directors is changed, any increase or decrease in
the number of directors shall be apportioned among the three classes so as to
make all classes as nearly equal in number an possible.
Power to Make and Alter By-Laws. In furtherance of, and not in limitation of,
the powers conferred by statute, the Board of Directors is expressly authorized
and empowered to make and alter the By-Laws of the Corporation; provided,
however, that the By-Laws made by the Board of Directors under the powers hereby
conferred may be altered, changed, amended or repealed by the Board of Directors
or by the stockholders having voting power with respect thereto.
Newly Created Directorships and Vacancies. Except as otherwise provided for or
fixed by or pursuant to the provisions of Article Fourth of this Certificate
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
Directors under specified circumstances, newly created directorships resulting
from any increase in the number of Directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled only by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the Board
of Directors. Any Director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of Directors
in which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been elected and qualified. No decrease in the
number of Directors constituting the Board of Directors shall shorten the term
of an incumbent Director.
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<PAGE> 6
Cumulative Voting in Certain Circumstances. Notwithstanding anything contained
in this Certificate to the contrary, in any election of Directors of the
Corporation on or after the date on which the Corporation becomes aware that any
stockholder has become a 30% Stockholder (as defined below), there shall be
cumulative voting for election of Directors so that any holder of shares of
Voting Stock may cumulate the voting power represented by his shares and give
one candidate a number of votes equal to the number of Directors to be elected
multiplied by the number of votes to which such shares are entitled, or
distribute such votes on the same principle among as many candidates for
election as such holder of shares determines. For the purposes of this section,
a "30% Stockholder" shall mean any person (other than the Corporation and any
other corporation of which a majority of the voting power of the capital stock
entitled to vote generally in the election of directors is owned, directly or
indirectly, by the Corporation) who or which in the beneficial owner, directly
or indirectly, of 30% or more of the outstanding Voting Stock (as hereinafter
defined).
Amendment, Repeal or Alteration. Notwithstanding anything contained in this
Certificate to the contrary, the affirmative vote of the holders of at least
66.66% of the combined voting power of the outstanding shares of the Voting
Stock, voting together as a single class, shall be required to alter, change,
amend, repeal or adopt any provision inconsistent with, this Article Sixth.
Certain Definitions. For the purpose of this Article Sixth:
(a) A "person" shall mean any individual, firm, corporation or other
entity,
(b) "Voting Stock" shall mean the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of
Directors. In any vote required by or provided for in this Article
Sixth, each share of Voting Stock shall have the number of votes
granted to it generally in the election of Directors.
(c) A person shall be a "beneficial owner" of any shares of Voting
Stock;
(i) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or
indirectly; or
(ii) which such person or any of its 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 or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
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<PAGE> 7
disposing of any Voting Stock; provided, however, that no
person shall be deemed to be a "beneficial owner" of any
shares of Voting Stock solely by reason of such person's right
to vote or to acquire such Voting Stock pursuant to any
agreement or instrument approved by a majority of the Board of
Directors.
(d) In determining whether a person is a 30% Stockholder pursuant to
this Article Sixth, any class of Voting Stock outstanding shall be
deemed to include any Voting Stock deemed owned through application of
paragraph (c) of this section but shall not include any other
securities of such class which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
October 1, 1989.
SEVENTH: Except as otherwise provided by law, a director of this Corporation
shall not be disqualified by his office from dealing or contracting with the
Corporation as a vendor, purchaser, employee, agent or otherwise; nor shall any
transaction or contract or act of this Corporation be void or voidable, or in
any way affected or invalidated by reason of the fact that any director, or any
firm of which any director is a member, or any corporation of which any director
is a stockholder or director, in any way interested in such transaction or
contract or act, provided the fact that such director, or such firm, or such
corporation, is so interested and shall be disclosed, or shall be known to the
Board of Directors, or such members thereof as shall be present at any meeting
of the Board of Directors at which action upon any such contract or transaction
or act shall be taken; nor shall any director be accountable or responsible to
the Corporation, for or in respect to any such transaction or contract or act of
this Corporation or for any gains or profits realized by him, by reason of the
fact that he or any firm of which he is a member, or any corporation of which he
is a stockholder or director, is interested in such transaction or contract; and
any such director may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of the Corporation which in authorized to take
action in respect to any such contract or transaction or act, and may vote to
authorize, ratify or approve any such contract or transaction or act, with like
force and effect as if he or any firm of which he is a member, or any
corporation of which he in a stockholder or director, are not interested in such
transaction or contract or act.
EIGHTH: Except an otherwise provided in this Certificate or by law, this
Certificate may be amended by a majority vote of all shares of the Corporation
issued and outstanding.
NINTH: Without limiting the powers of the Corporation as conferred by statute to
acquire its own shares, said corporation may, from time to time, when authorized
by its Board of Directors and to the extent of the surplus of its assets over
its liabilities, plus capital, purchase shares of any class of securities issued
by it.
TENTH: The Corporation is to have perpetual existence.
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<PAGE> 8
ELEVENTH: Section 1. Elimination of Certain Liability of Directors.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal
benefit.
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "Proceeding"), by reason of the fact that
he or she or a person of whom he or she in the legal representative, is
or was a director or officer, of the Corporation or in or was serving
at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to employee benefit
planet whether the basis of such Proceeding is alleged action an
official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person
seeking indemnification in connection with a preceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this section shall be a
contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such Proceeding in
advance of its final disposition; provided, however, that, if the
Delaware General Corporation Law requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the
final disposition of a Proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation may, by
action of its Board of Directors, provide indemnification to employees
and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
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<PAGE> 9
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section is not paid in full by the Corporation
within thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking, if any is required has been
tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel or its stockholders)
to have made a determination prior to the commencement of such action
and indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal
counsel or its stockholders) that the claimant has not met such
applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a Proceeding in
advance of its final disposition conferred in this Section shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of this Certificate, bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware
General Corporation Law.
Section 3. Amendment, Repeal or Alteration.
Notwithstanding anything contained in this Certificate to the contrary,
the affirmative vote of the holders of at least 66.66% of the combined
voting power of the outstanding shares of the Voting Stock, voting
together as a single class, shall be required to alter, change, amend,
repeal, or adopt any provision inconsistent with this Article Eleventh.
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<PAGE> 10
Executed this 8th day of December, 1989.
By: /s/ G. Lee Southard
-------------------------------
G. Lee Southard, President
ATTEST:
/s/ Walter J. Daly
- -----------------------------
Walter J. Daly, Secretary
STATE OF COLORADO ]
CITY OF FORT COLLINS ] SS.
COUNTY OF LARIMER ]
I, Ann L. Davis, a notary Public, hereby certify that on this 8th day
of December, 1989, personally appeared before me G. Lee Southard, who, being by
me first duly sworn, declared that he is the person who signed the foregoing
document as President of Vipont Research Laboratories, Inc. and that the
statements contained therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 8th day
of December, 1989.
[SEAL]
/s/ Ann L. Davis
------------------------------
Notary Public
My Commission Expires:
6-21-90
- ------------------------------
10
<PAGE> 11
ATRIX LABORATORIES, INC.
CERTIFICATE OF DESIGNATION
OF THE
SERIES A PREFERRED STOCK
-------------------------------------
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
-------------------------------------
The undersigned officers of Atrix Laboratories, Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), in accordance with the provisions of Section 103
thereof, DO HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
of the Corporation by its Amended and Restated Certificate of Incorporation (the
"Certificate"), the said Board of Directors, at a duly called meeting held on
August 2, 1998, at which a quorum was present and acted throughout, adopted the
following resolution, which resolution remains in full force and effect on the
date hereof creating a series of Series A shares of preferred stock having a par
value of $.001 per share, designated as Series A Preferred Stock (the "Series A
Preferred Stock") out of the class of 5,000,000 shares of preferred stock, par
value $.001 per share (the "Preferred Stock"):
RESOLVED, that pursuant to the authority vested in the Board of
Directors in accordance with the provisions of its Certificate, the Board of
Directors does hereby create, authorize and provide for the issuance of 200,000
shares of its authorized Preferred Stock to be designated and issued as the
Series A Preferred Stock, having the voting powers, designation, relative,
participating, optional and other special rights, preferences and
qualifications, limitations and restrictions that are set forth as follows:
1. Dividends and Distributions. (A) Subject to the prior and superior
rights of the holders of any shares of any other series of Preferred Stock or
any other shares of stock of the Corporation ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, each holder of one
one-hundredth (1/100) of a share (a "Unit") of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, (i) quarterly dividends payable in
cash on the first day of March, June, September and December in each year (each
such date being a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of such Unit of Series
A Preferred Stock, in an amount per Unit (rounded to the nearest cent) equal to
the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, the aggregate per share amount of all cash dividends
declared on shares of 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 a Unit of Series A Preferred Stock, and (ii)
subject to the provision for adjustment hereinafter set forth, quarterly
distributions (payable in kind) on each Quarterly Dividend Payment Date in an
amount per Unit equal to the aggregate per share amount of all non-cash
dividends or other distributions (other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock, by
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<PAGE> 12
reclassification or otherwise) declared on shares of 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 a Unit of
Series A Preferred Stock. In the event that the Corporation shall at any time
after September 25, 1998 (the "Rights Declaration Date") (i) declare any
dividend on outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock or (iii) combine
outstanding shares of Common Stock into a smaller number of shares, then in each
such case the amount to which the holder of a Unit of Series A Preferred Stock
was entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which shall be the number of shares of Common Stock that are
outstanding immediately after such event and the denominator of which shall be
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 Units
of Series A Preferred Stock as provided in paragraph (A) above immediately after
it declares a dividend or distribution on the shares of Common Stock (other than
a dividend payable in shares of Common Stock); provided, however, 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 $.01 per Unit on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issuance of such Unit of Series A Preferred
Stock, unless the date of issuance of such Unit is prior to the record date for
the first Quarterly Dividend Payment Date, in which case, dividends on such Unit
shall begin to accrue from the date of issuance of such Unit, or unless the date
of issuance is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of Units of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on Units of Series A Preferred
Stock in an amount less than the aggregate amount of all such dividends at the
time accrued and payable on such Units shall be allocated pro rata on a
unit-by-unit basis among all Units of Series A Preferred Stock at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of Units of Series A Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
2. Voting Rights. The holders of Units of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
Unit of Series A Preferred Stock shall entitle the holder thereof to one vote on
all matters submitted to a vote of the stockholders of the Corporation. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock or (iii) combine
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<PAGE> 13
the outstanding shares of Common Stock into a smaller number of shares, then in
each such case the number of votes per Unit to which holders of Units of Series
A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which shall
be the number of shares of Common Stock outstanding immediately after such event
and the denominator of which shall be the number of shares of Common Stock that
were outstanding immediately prior to such event; and
(B) Except as otherwise provided herein, in the Certificate or the
Bylaws of the Corporation or as required by law, the holders of Units of Series
A Preferred Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders of the
Corporation, and such holders shall have no special voting rights and their
consents shall not be required for taking any corporate action.
3. Certain Restrictions. (A) Whenever quarterly dividends or other
dividends or distributions payable on Units of Series A Preferred Stock as
provided herein are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on outstanding Units of
Series A Preferred Stock shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or redeem or
purchase or otherwise acquire for consideration any shares of junior stock; (ii)
declare or pay dividends on or make any other distributions on any shares of
parity stock, except dividends paid ratably on Units of Series A Preferred Stock
and shares of all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of such Units and all
such shares are then entitled; (iii) redeem or purchase or otherwise acquire for
consideration shares of any parity stock, provided, however, that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any junior stock; (iv) purchase or
otherwise acquire for consideration any Units of Series A Preferred Stock,
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 Units.
(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 could, under paragraph (A) of this Section 3,
purchase or otherwise acquire such shares at such time and in such manner.
4. Reacquired Shares. Any Units of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such Units
shall, upon their cancellation, become authorized but unissued shares (or
fractions of shares) of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth herein.
5. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the holders of shares of junior stock unless
the holders of Units of Series A Preferred Stock shall have received, subject to
adjustment as hereinafter provided in paragraph (B), the greater of either (a)
$.01 per Unit plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not earned or declared, to the date of such
payment, or (b) the amount equal to the aggregate per share amount to be
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<PAGE> 14
distributed to holders of shares of Common Stock, or (ii) to the holders of
shares of parity stock, unless simultaneously therewith distributions are made
ratably on Units of Series A Preferred Stock and all other shares of such parity
stock in proportion to the total amounts to which the holders of Units of Series
A Preferred Stock are entitled under clause (i)(a) of this sentence and to which
the holders of shares of such parity stock are entitled, in each case upon such
liquidation, dissolution or winding up.
(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock, or (iii) combine outstanding shares of Common Stock into a smaller number
of shares, then in each such case the aggregate amount to which holders of Units
of Series A Preferred Stock were entitled immediately prior to such event
pursuant to clause (i)(b) of paragraph (A) of this Section 5 shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.
6. Consolidation, Merger, etc. 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 converted into other stock or securities,
cash and/or any other property, then in any such case Units of Series A
Preferred Stock shall at the same time be similarly exchanged for or converted
into an amount per Unit (subject to the provision for adjustment hereinafter set
forth) equal to 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 converted or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock, or (iii) combine outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the immediately preceding sentence with respect to the exchange or
conversion of Units of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which shall be the number of shares
of Common Stock that are outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
7. Redemption. The Units of Series A Preferred Stock and shares of
Series A Preferred Stock shall not be redeemable.
8. Ranking. The Units of Series A Preferred Stock and shares of Series
A Preferred Stock shall rank junior to all other series of the Preferred Stock
and to any other class of Preferred Stock that hereafter may be issued by the
Corporation as to the payment of dividends and the distribution of assets,
unless the terms of any such series or class shall provide otherwise.
9. Fractional Shares. The Series A Preferred Stock may be issued in
Units or other fractions of a share, which Units or fractions shall entitle the
holder, in proportion to such holder's units or fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred Stock.
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<PAGE> 15
10. Certain Definitions. As used in this resolution with respect to the
Series A Preferred Stock, the following terms shall have the following meanings:
(A) The term "Common Stock" shall mean the class of stock designated as
the common stock, par value $.001 per share, of the Corporation at the date
hereof or any other class of stock resulting from successive changes or
reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 3 shall mean the
Common Stock and any other class or series of capital stock of the Corporation
hereafter authorized or issued over which the Series A Preferred Stock has
preference or priority as to the payment of dividends and (ii) as used in
Section 5, shall mean the Common Stock and any other class or series of capital
stock of the Corporation over which the Series A Preferred Stock has preference
or priority in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
(C) The term "parity stock" (i) as used in Section 3 shall mean any
class or series of stock of the Corporation hereafter authorized or issued
ranking pari passu with the Series A Preferred Stock as to dividends and (ii) as
used in Section 5, shall mean any class or series of capital stock ranking pari
passu with the Series A Preferred Stock in the distribution of assets on any
liquidation, dissolution or winding up.
5
<PAGE> 16
IN WITNESS WHEREOF, Atrix Laboratories, Inc. has caused this
Certificate to be signed by its Vice Chairman and Chief Executive Officer and
its Assistant Secretary and Chief Financial Officer this 24th day of September,
1998.
ATRIX LABORATORIES, INC.
By: /s/ John E. Urheim
------------------------------------------
Name: John E. Urheim
Title: Vice Chairman and Chief Executive Officer
By: /s/ Brian G. Richmond
------------------------------------------
Name: Brian G. Richmond
Title: Assistant Secretary and Chief Financial
Officer
6
<PAGE> 1
EXHIBIT 4.5
-----------
STOCK PURCHASE WARRANT
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO ATRIX
LABORATORIES, INC. OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER, OR SUBMISSION TO THE COMPANY OF
SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY
SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE OR FOREIGN SECURITIES LAW OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER.
WHEREAS, Atrix Laboratories, Inc., a Delaware corporation (the
"Company"), has agreed to acquire ViroTex Corporation ("ViroTex") pursuant to
the terms of the Agreement and Plan of Reorganization by and among the Company,
Atrix Acquisition Corporation, a Delaware corporation and ViroTex, dated
November 24, 1998 (the "Merger Agreement") whereby ViroTex will merge with a
wholly owned subsidiary of the Company (the "Merger"); and
WHEREAS, Warrant Holder (as defined below) is the holder of a warrant
to purchase 52,936 shares of the common stock of ViroTex, at a price of $1.65
per share, pursuant to a Stock Purchase Warrant (the "Original Warrant") between
Warrant Holder and ViroTex dated April 28, 1995 (the "Prior Option"); and
WHEREAS, pursuant to the terms of the Original Warrant and Section 2.04
of the Merger Agreement, the Warrant Holder is entitled to receive a substitute
stock purchase warrant (the "Warrant") in exchange for the Warrant Holder's
agreement to cancel and surrender the Original Warrant; and
WHEREAS, the Warrant Holder is desirous of obtaining the Warrant in
exchange for canceling and surrendering the Original Warrant on the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
Company and Warrant Holder agree as follows:
1. Subject to and effective upon the consummation of the Merger, the
Company hereby grants to GulfStar Investments, Limited, ("Warrant Holder"), the
right to purchase (and the Company shall be obligated to issue and sell to the
Warrant Holder),
<PAGE> 2
at the option of the Warrant Holder and on the terms and conditions hereinafter
set forth, all or any part of an aggregate of 6,750 shares ("Shares") of Common
Stock, $.001 par value per share ("Common Stock"), of the Company, such Shares
to be exercisable at a purchase price per share equal to $12.94 ("Exercise
Price"). This Warrant may be exercised at any time, or from time to time, until
five (5) years from April 28, 1995 (the "Expiration Date). The number of Shares
subject to this Warrant and the Exercise Price therefor shall be subject to
adjustment as set forth in Section 6. In consideration therefore, Warrant Holder
agrees to cancel and surrender the Original Warrant in exchange for issuance of
this replacement Warrant, as provided in Section 2.04(f) of the Merger
Agreement. Such cancellation and surrender shall become effective automatically
and without further action on the part of the Warrant Holder upon receipt by the
Company of an executed copy of this Warrant and upon the consummation of the
Merger. The Warrant Holder further acknowledges that the cancellation and
surrender of the Original Warrant held by the Warrant Holder releases absolutely
and irrevocably the Warrant Holder's interest in the Original Warrant.
2. (a) The Warrant Holder may exercise this Warrant, in whole or in
part, upon surrender to the Company of this Warrant with the Subscription Form
attached hereto duly executed, together with payment in full of the Exercise
Price for the Shares to be purchased in cash or by certified or cashier's check
to the order of the Company.
(b) Upon receipt of this Warrant with the Subscription Form
duly executed and accompanied by payment of the Exercise Price for the Shares
for which this Warrant is then being exercised, the Company will cause to be
issued certificates for the total number of whole shares of Common Stock for
which this Warrant is being exercised in such denominations as are required for
delivery to the Warrant Holder and the Company shall thereupon deliver such
certificates to the Warrant Holder.
(c) In case the Warrant Holder shall exercise this Warrant
with respect to less than all of the Shares that may then be purchased under
this Warrant, the Company will execute a new Warrant in the form of this Warrant
for the balance of such Shares and deliver such new Warrant to the Warrant
Holder.
3. The Company shall at all times during the term of this Warrant have
authorized, reserve and keep available, free from preemptive rights, such number
of shares of its Common Stock as will be sufficient to satisfy the requirements
of this Warrant, and shall pay all fees and expenses necessarily incurred by the
Company in connection therewith. The reserved shares may be either authorized
and unissued shares of its Common Stock or shares of Common Stock held in its
treasury, or partly unissued and partly treasury shares, at the Company's sole
discretion. Upon issuance to the Warrant Holder, all of the Shares shall be duly
authorized, validly issued, fully paid and nonassessable and free and clear from
all liens, charges, security interests and encumbrances created by the Company.
4. (a) This Warrant, and the rights and privileges conferred hereby,
may be exercised only by the Warrant Holder and its or his legal
representatives, successors or
2
<PAGE> 3
permitted assignees. This Warrant may be transferred in whole to any person or
entity or in part to any partner or partners of GulfStar Investments, Limited or
members of any of their families and/or trusts established for their behalf
(subject to the provisions hereof including the provisions of Section 5 below).
(b) Prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the Warrant Holder as the absolute
owner of this Warrant (notwithstanding any notation of ownership or other
writing hereon) for the purpose of any exercise hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
(c) Subject to and limited by the provisions of Section 5
hereof, this Warrant may be split up, combined or exchanged for another Warrant
or Warrants containing the same terms and entitling the Warrant Holder to
purchase a like aggregate number of Shares. If the Warrant Holder desires to
split up, combine or exchange this Warrant, he or it shall make such request in
writing delivered to the Company and shall surrender to the Company this Warrant
and any other Warrants to be so split up, combined or exchanged. Upon any such
surrender for a split-up, combination or exchange, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split-up,
combination or exchange which will result in the issuance of a Warrant entitling
the Warrant Holder to purchase upon exercise a fraction of a share of Common
Stock or a fractional Warrant. The Company may require such Warrant Holder to
pay a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any split-up, combination or exchange of Warrants.
(d) If this Warrant shall be mutilated, upon request by the
Warrant Holder the Company shall issue a new Warrant containing the same terms
and entitling the Warrant Holder to purchase the same number of Shares, in
exchange for and upon cancellation of the mutilated Warrant. If this Warrant
shall be lost, stolen or destroyed, upon request by the Warrant Holder and upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of this Warrant Certificate and, if required by the Company,
indemnity also satisfactory to it, the Company shall issue a new Warrant
containing the same terms and entitling the Warrant Holder to purchase the same
number of Shares, in substitution for the lost, stolen or destroyed Warrant.
5. Neither this Warrant nor the underlying Shares have been registered
under the Securities Act of 1933 ("Act), or registered or qualified under the
securities laws of any state. Neither this Warrant nor the underlying Shares may
be sold or offered for sale in the absence of the effective registration or
qualification thereof under the Act and any applicable state securities laws or
an opinion of counsel acceptable to the Company that such registration or
qualification is not required. Any certificates representing the shares of
Common Stock issued hereunder shall bear a restrictive legend in conformity with
the provisions of this Section 5. The Company will not recognize or give effect
to any purported transfer of this Warrant or any interest herein, or the
underlying Shares, unless and until the provisions of this Section 5 shall have
been satisfied.
3
<PAGE> 4
6. (a) (i) if at any time prior to the full exercise of this Warrant,
the Company shall: (A) pay a dividend or make a distribution on its shares of
Common Stock in shares of Common Stock; (B) subdivide, reclassify or
recapitalize its outstanding shares of Common Stock into a greater number of
shares; or (C) combine, reclassify or recapitalize its outstanding shares of
Common Stock into a smaller number of shares, the number of Shares in effect at
the time of the record date of such dividend, subdivision, combination,
reclassification or recapitalization shall be proportionately adjusted so that
the Warrant Holder shall be entitled to receive the aggregate number and type of
shares that, if this Warrant had been exercised in full immediately prior to
such time, it would have owned upon such exercise and been entitled to receive
upon such dividend, subdivision, combination, or recapitalization. Such
adjustment shall be made successively whenever any event listed in this
paragraph (a) shall occur.
(ii) Whenever the number of Shares issuable upon
exercise of this Warrant is adjusted pursuant to paragraph (a) of this Section
6, the Exercise Price payable for such Shares shall simultaneously be adjusted
by multiplying the number of Shares initially issuable upon exercise of each
Warrant by the Exercise Price in effect on the date thereof and dividing the
product so obtained by the number of Shares, as adjusted.
(iii) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least five cents ($.05) in such price, provided, however, that any adjustments
which by reason of this paragraph (iii) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
(iv) If at any time, as a result of any adjustment
made pursuant to paragraph (a) of this Section 6, the Warrant Holder thereafter
shall become entitled to receive any securities of the Company other than shares
of Common Stock, thereafter the number of such other securities so receivable
upon exercise of any Warrant 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 Common Stock contained in paragraph (a) of this Section 6.
(b) No adjustment in respect of any cash dividends in the
ordinary course out of current earnings of the Company shall be made during the
term of this Warrant or upon the exercise of this Warrant.
(c) In case of any consolidation of the Company with or merger
of the Company into another corporation or any sale, lease or other transfer or
conveyance to another corporation of all or substantially all the property of
the Company, the corporation resulting from such consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of the Warrants) and shall assume the
4
<PAGE> 5
obligations of the Company hereunder (by written instrument executed and mailed
to each holder of the Warrants then outstanding) pursuant to which, upon
exercise of the Warrants, at any time during the duration of the Warrants after
such consolidation, merger, or sale, lease or other transfer or conveyance the
holder shall be entitled to receive the stock or other securities or property
that such holder would have been entitled to receive upon consummation if such
holder had executed the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 6.
(d) Whenever the number of Shares or the Exercise Price is
adjusted as herein provided, the Company shall prepare and deliver to the
Warrant Holder a certificate signed by its President, or any Vice President,
Treasurer or Secretary, setting forth the adjusted number of shares purchasable
upon the exercise of this Warrant and the Exercise Price of such shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
(e) The form of this Warrant need not be changed because of
any adjustments in the Exercise Price or the number or kind of the Shares, and
Warrants theretofore and thereafter issued may continue to express the same
price and number and kind of shares as are stated in this Warrant as initially
issued.
(f) In case at any time:
(i) the Company shall declare any cash dividend on
its Common Stock;
(ii) the Company shall pay any dividends payable in
stock upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(iii) the Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights;
(iv) the Company shall authorize the distribution to
all holders of its Common Stock of evidences of its indebtedness or assets
(other than cash dividends or cash distributions payable out of current
earnings or dividends payable in Common Stock);
(v) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another corporation (other than a subsidiary of the Company
in which the Company is the surviving or continuing corporation and no change
occurs in the Company's Common Stock), or sale of all or substantially all of
its assets to, another corporation;
5
<PAGE> 6
(vi) there shall be a voluntary or involuntary
dissolution, liquidation, bankruptcy, assignment for the benefit of creditors,
or winding up of the Company, or
(vii) the Company proposes to take any other action
or an event occurs which would require an adjustment pursuant to subsections
(a) or (c) of this Section 6;
then, in any one or more of said cases, the Company shall give written notice to
the holder of this Warrant, of (A) the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights, or (B) the date (or, if not then known, a reasonable
approximation thereof by the Company) on which such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
bankruptcy, assignment for the benefit of creditors, winding up or other action,
as the case may be, shall take place. Such notice shall also specify (or, if not
then known, reasonably approximate) the date as of which the holders of Common
Stock of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment
for the benefit of creditors, winding up, or other action, as the case may be.
Such written notice shall be given at least 20 days prior to the action in
question and not less than 20 days prior to the record date or the date on which
the Company's transfer books are closed in respect thereto.
(g) The number of shares of Common Stock which may be acquired
upon exercise of this Warrant and the Exercise Price payable hereunder shall be
subject to adjustments from time to time in the event that the Company sells or
issues any shares of equity securities, or securities exercisable for or
convertible into equity securities, at a price less than the Exercise Price
(such securities being referred to as "Additional Shares of Common Stock").
Notwithstanding anything contained herein to the contrary, the Company shall not
be required to make any adjustment of the Exercise Price in the case of: (i) the
issuance or exercise of shares of Common Stock or any other securities which may
now or hereafter be granted or exercised under the Company's Amended and
Restated Performance Stock Option Plan, 1997 Employee Stock Purchase Plan and
Non-qualified Stock Option Plan (the "Plans") or under any other employee
benefit plan or stock option plan of the Company approved by the Company's Board
of Directors; (ii) the issuance of any shares of Common Stock of the Company or
other securities or instruments convertible into shares of Common Stock of the
Company issued in connection with corporate collaborations with pharmaceutical,
life science or biotechnology corporations or entities; (iii) the issuance of
shares of Common Stock in connection with a bona fide merger (other than the
Merger), acquisition or other similar transactions involving the Company with or
into a corporation or other entity if the Board of Directors of the Company has
obtained a fairness opinion with respect to the issuance of such Common Stock
from a nationally recognized investment banking firm indicating that the
financial terms of such merger, acquisition or other similar transaction are
fair to the Company when taken as a whole; (iv) the issuance or sale of shares
of Common
6
<PAGE> 7
Stock upon conversion or exchange of any Convertible Securities, whether or not
any adjustment in the Exercise Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; (v) the issuance of or sale of
securities to consultants or third parties providing consulting, marketing,
investor relations and other services to the Company; and (vi) issuance of
securities under the Merger Agreement. If, at any time or from time to time
after the date of issuance of this Warrant, the Company issues or sells any
Additional Shares of Common Stock, other than as a dividend or other
distribution on its shares of Common Stock as provided in Section 6(a)(i)(A),
and other than a combination, reclassification or recapitalization of its
outstanding shares of Common Stock as provided in Section 6(a)(i)(C), for a per
share price less than the then applicable Exercise Price, then, and in each such
case, the Exercise Price shall be reduced to a price determined by multiplying
the Exercise Price by a fraction, (i) the numerator of which shall be (A) the
number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issuance or sale, plus (B) the number of shares of
Common Stock which the aggregate consideration received by the Company for the
total number of Additional Shares of Common Stock so issued or sold would
purchase at such Exercise Price, and (ii) the denominator of which shall be the
number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued. For the purposes of the preceding sentence,
the number of shares of Common Stock deemed outstanding as of a given date shall
be the sum of (A) the number of shares of Common Stock actually outstanding, and
(B) the number of shares of Common Stock underlying all outstanding options,
warrants (including this Warrant) and convertible securities on the day
immediately preceding the given date.
(h) The shares of Common Stock which may be acquired upon
exercise of this Warrant shall be entitled to the registration rights on the
same terms and conditions as the principal stockholders of ViroTex pursuant to
the terms of the Merger Agreement.
7. Neither the Warrant Holder nor its legal representatives, successors
or assignees shall be or have any rights or privileges of a shareholder of the
Company in respect to the shares issuable upon exercise of the Warrants granted
hereunder, unless and until the Warrant Holder shall have delivered the notice
and tendered payment for the Exercise Price to the Company, as required under
the provisions of Sections 1 and 2 hereof.
8. The Company shall pay all taxes and other governmental charges
(other than taxes or governmental charges levied in respect of the income of the
Warrant Holder) that may be imposed on the Company or on the Warrants or the
Shares; provided, however, that the Company shall not be required to pay any tax
or other charge imposed in respect of the transfer of Warrants or the issuance
or delivery of certificates for Shares or other securities in respect of the
Shares upon the exercise of Warrants to a person or entity other than the then
holder of Warrants.
7
<PAGE> 8
9. This Warrant shall be construed and enforced in accordance with the
laws of the State of Colorado. Any notices to be given under the terms of this
Warrant shall be addressed to the Company at 2579 Midpoint Drive, Fort Collins,
Colorado 80525, Attention: Chief Executive Officer, and notice to be given to
the Warrant Holder shall be addressed to it at the address last shown on the
books of the Company for such Warrant Holder or at any such other address as
either party may hereafter designate, by notice in writing, to the other. Any
such notice shall be deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, registered or certified, and
deposited, postage and registry or certification fee prepaid, in a post office
or branch post office regularly maintained by the United States Postal Service.
10. This Warrant shall be binding upon and inure to the benefit of any
successor or successors of the Company, and shall inure to the benefit of and
shall be enforceable by the Warrant Holder and its legal representatives,
successors, heirs and permitted assigns.
Dated this 24th day of November, 1998.
ATTEST: ATRIX LABORATORIES, INC.
/s/ Brian G. Richmond By: /s/ John E. Urheim
- ---------------------------- --------------------------------
Brian G. Richmond John E. Urheim, Vice Chairman and
Assistant Secretary Chief Executive Officer
8
<PAGE> 9
ASSIGNMENT
(To be executed only upon assignment of Warrant )
For value received, ______________________ hereby sells,
assigns and transfers unto ________________________ the within Warrant, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ______________________ attorney, to transfer said Warrant
on the books of the within-named Company with respect to the number of Warrant
Shares set forth below, with full power of substitution in the premises:
<TABLE>
<CAPTION>
Name(s) of
Assignee(s) Address No. of Shares
----------- ------- -------------
<S> <C> <C>
</TABLE>
And if said number of Shares shall not be all the Shares
issuable upon exercise of the Warrant, a new Warrant is to be issued in the name
of said undersigned for the balance remaining of the Shares issuable upon
exercise of said Warrant.
Dated: ___________________, 19___
By:
--------------------------------------
The above signature should correspond
exactly with the name of the Warrant
Holder set forth in this Warrant.
9
<PAGE> 10
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant)
Atrix Laboratories, Inc.:
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, __________ shares of Common Stock, as provided for therein, and
tenders herewith payment of the Exercise Price in full in the form of cash or a
certified or cashier's check in the amount of $___________.
Please issue a certificate, or certificates for such shares of
Common Stock in the name of:
Name:
--------------------------------
Address:
-----------------------------
Social Security No.:
-----------------
Signature:
-------------------------
NOTE: The above signature should
correspond exactly with the
name of the Warrant Holder
set forth in this Warrant or
with the name of the assignee
appearing in the assignment
form below.
And if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
10
<PAGE> 1
EXHIBIT 10.3(a)
FIRST AMENDMENT TO AGREEMENT
This First Amendment to Agreement (this "First Amendment"), is made by
and between Atrix Laboratories, Inc., a Delaware corporation ("Atrix") with its
principal place of business at 2579 Midpoint Drive, Fort Collins, Colorado
80525-4417 and Block Drug Corporation, a New Jersey corporation ("Block") with
its principal place of business at 105 Academy Street, Jersey City, New Jersey
07302-9988, as of this 10th day of June 1997, with respect to that certain
Agreement dated as of December 16, 1996 (the "Agreement") between Atrix and
Block. The parties now desire to amend the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby amend
the Agreement as follows:
1. Section 2.02 of the Agreement is hereby amended in its entirety to read as
follows:
Section 2.02 International Option. Block shall have the option
to acquire from Atrix an exclusive license in each country in
Group I, II and III, on a country by country basis, to market,
promote, advertise, distribute and commercialize Atridox(TM)
upon the payment of the following option fees (the "Option
Fees") on or before July 31, 1997:
(a) [**] per country for each Group I country;
(b) [**] per country for each Group II country; and
(c) [**] per country for each Group III country.
Failure by Block to exercise the option by payment of the Option Fees
shall be deemed to be the termination of that part of the option for which the
Option Fees were not paid.
2. All capitalized terms used and not otherwise defined herein shall have
the same meanings as set forth in the Agreement.
3. Except as expressly modified by the terms hereof, the terms and
provisions of the Agreement shall remain in full force and effect as
originally written.
- ----------
** Confidential Treatment Requested by Atrix on March 23, 1999.
<PAGE> 2
4. Signatures on this First Amendment may be communicated by facsimile
transmission and shall be binding upon the parties transmitting the
same by facsimile transmission. Counterparts with original signatures
shall be provided to the other party within five (5) days of the
applicable facsimile transmission, provided, however, that the failure
to provide the original counterpart shall have no effect on the
validity or the binding nature of this First Amendment. If executed in
counterparts, this First Amendment will be as effective as if
simultaneously executed.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first written above.
ATRIX LABORATORIES, INC.
By /s/ John E. Urheim
------------------------------------
John E. Urheim, Vice Chairman
and Chief Executive Officer
Dated: June 19, 1997.
BLOCK DRUG CORPORATION
By /s/ David J. Schuman
------------------------------------
David J. Schuman,
Assistant Secretary
Dated: June 10, 1997.
<PAGE> 3
STATE OF COLORADO )
) ss.
COUNTRY OF USA )
The above and foregoing was acknowledged before me by John E. Urheim,
Vice Chairman and Chief Executive Officer of Atrix Laboratories, Inc. on the
19th day of June, 1997.
Witness my hand and official seal.
/s/ Joy N. Batley
--------------------
Notary Public
My commission expires: 9/6/99
STATE OF NEW JERSEY )
) ss.
COUNTRY OF USA )
The above and foregoing was acknowledged before me by David J. Schuman,
Assistant Secretary of Block Drug Corporation on the 10th day of June, 1997.
Witness my hand and official seal.
/s/ Kellyann Zwarycz
------------------------
Notary Public
My Commission expires: April 26, 2000
<PAGE> 1
EXHIBIT 10.3(b)
SECOND AMENDMENT TO AGREEMENT
This Second Amendment to Agreement (this "Second Amendment"),
is made by and between Atrix Laboratories, Inc., a Delaware corporation
("Atrix") with its principal place of business at 2579 Midpoint Drive, Fort
Collins, Colorado 80525-4417 and Block Drug Corporation, a New Jersey
corporation ("Block") with its principal place of business at 105 Academy
Street, Jersey City, New Jersey 07302-9988, as of this 31st day of July 1997,
with respect to that certain Agreement dated as of December 16, 1996 (the
"Agreement") between Atrix and Block, as amended by that certain First Amendment
to Agreement dated as of June 10, 1997.
WHEREAS, the parties desire to further amend the Agreement on
the terms and conditions set forth herein; and
WHEREAS, the Agreement was amended by that First Amendment
dated as of June 10, 1997 to extend the time period for Block to elect whether
or not to exercise the International Option.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby amend the Agreement as follows:
1. Section 2.02 of the Agreement is hereby amended in its entirety to
read as follows:
Section 2.02. International Option. Block shall have the
option to acquire from Atrix an exclusive license in each country in
Group I, II and III, on a country by country basis, to market, promote,
advertise, distribute and commercialize Atridox(TM) upon the payment of
the following option fees (the "Option Fees") on or before September 8,
1997:
(a) [**] per country for each Group I country;
(b) [**] per country for each Group II country; and
(c) [**] per country for each Group III country.
Failure by Block to exercise the option by payment of the
Option Fees shall be deemed to be the termination of that part of the
option for which the Option Fees were not paid.
- ----------
** Confidential Treatment Requested by Atrix on March 23, 1999
<PAGE> 2
2. All capitalized terms used and not otherwise defined herein shall
have the same meanings as set forth in the Agreement.
3. Except as expressly modified by the terms hereof, the terms
and provisions of the Agreement shall remain in full force and
effect as originally written.
4. Signatures on this Second Amendment may be communicated by
facsimile transmission and shall be binding upon the parties
transmitting the same by facsimile transmission. Counterparts
with original signatures shall be provided to the other party
within five (5) days of the applicable facsimile transmission,
provided, however, that the failure to provide the original
counterpart shall have no effect on the validity or the
binding nature of this Second Amendment. If executed in
counterparts, this Second Amendment will be as effective as if
simultaneously executed.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first written above.
ATRIX LABORATORIES, INC.
By /s/ Charles P. Cox
-------------------------------------------------
Charles P. Cox, Ph.D., M.B.A.
Vice President of New Business Development
Dated July 31, 1997.
BLOCK DRUG CORPORATION
By: /s/ Michael C. Alfano
-------------------------------------------------
Michael C. Alfano, Senior Vice
President Research and Technology
Dated July 31, 1997.
<PAGE> 3
STATE OF COLORADO )
) ss.
COUNTY OF LARIMER )
The above and foregoing was acknowledged before me by Charles P. Cox,
Ph.D., M.B.A., Vice President of New Business Development of Atrix Laboratories,
Inc. on the 31st day of July, 1997.
Witness my hand and official seal.
/s/ Joy N. Batley
-------------------------
Notary Public
My Commission expires: September 6, 1999
STATE OF NEW JERSEY )
) ss.
COUNTY OF OCEAN )
The above and foregoing was acknowledged before me by Michael C. Alfano,
Senior Vice President Research and Technology of Block Drug Corporation on the
4th day of August, 1997.
Witness my hand and official seal.
/s/ Leann Bruno
-------------------------
Notary Public
My Commission expires: October 4, 1999
<PAGE> 1
EXHIBIT 10.3(c)
THIRD AMENDMENT TO AGREEMENT
This Third Amendment to Agreement ("Third Amendment"), is made by and
between Atrix Laboratories, Inc., a Delaware corporation ("Atrix") with its
principal place of business at 2579 Midpoint Drive, Fort Collins, Colorado
80525-4417, and Block Drug Corporation, a New Jersey corporation ("Block") with
its principal place of business at 105 Academy Street, Jersey City, New Jersey
07302-9988, as of this 4th day of February, 1998, with respect to that certain
Agreement dated as of December 16, 1996 (the "Agreement") between Atrix and
Block, as amended by that certain First Amendment to Agreement dated as of June
10, 1997, and as further amended by that certain Second Amendment to Agreement
dated as of July 31, 1997.
WHEREAS, the parties desire to further amend the Agreement on the terms
and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby amend
the Agreement as follows:
1. Section 3.02(a)(i) is amended to read as follows:
(i) following receipt by Block of Notice from Atrix that
the FDA has issued an Approvable Letter for the NDA
for Atridox(TM) with the following indication:
"Atridox(TM) is indicated for gain in clinical
attachment and reduction in probing depth in patients
with chronic adult periodontitis" (the "Atridox(TM)
NDA"), the sum of [**] if said Approvable Letter is
issued on or before June 30, 1998, or [**] if said
Approvable Letter is issued after June 30, 1998.
2. Section 8.04(a) of the Agreement is amended to read as follows:
(a) Subject to the provisions of the following sections
8.04(a)(i) and 8.04(a)(ii), each party shall pay
fifty percent (50%) of the cost of all Developments
approved by Block (the "Development Expenses").
(i) Notwithstanding the provisions of section
8.04(a), Atrix shall be solely responsible
for payment of the first [**] of Development
Expenses incurred in connection with
Developments covered by the Agreement,
thereafter; Block shall be responsible for
payment of fifty percent (50%) of
Development Expenses for such Developments.
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<PAGE> 2
(ii) The Steering Committee shall solicit bids
from Atrix and from third parties and
determine which is the most appropriate and
award the contract for the Development to
the successful bidder.
3. In the event that the Approvable Letter for the Atridox(TM)
NDA is not issued by the FDA on or before June 30, 1998, then
the terms and conditions of Paragraphs 1 and 2 of this Third
Amendment shall be null and void and the original terms and
conditions of Sections 3.02(a)(i) and 8.04 of the Agreement
shall be reinstated, effective as of the date of this Third
Amendment.
4. All capitalized terms used and not otherwise defined herein
shall have the same meanings as set forth in the Agreement.
5. Except as expressly modified by the terms hereof, the terms
and provisions of the Agreement shall remain in full force and
effect as originally written.
6. Signatures on this Third Amendment may be communicated by
facsimile transmission and shall be binding upon the parties
transmitting the same by facsimile transmission. Counterparts
with original signatures shall be provided to the other party
within five (5) days of the applicable facsimile transmission;
provided, however, that failure to provide the original
counterpart shall have no affect on the validity or binding
nature of this Third Amendment. If executed in counterparts,
this Third Amendment will be as effective as if simultaneously
executed.
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as of the date first written above.
ATRIX LABORATORIES, INC. BLOCK DRUG CORPORATION
By /s/ John E. Urheim By /s/ Michael C. Alfano
------------------------------- ----------------------------------
John E. Urheim, Vice Chairman Michael C. Alfano, Senior Vice
and Chief Executive Officer President Research and Technology
<PAGE> 1
EXHIBIT 10.3(d)
FOURTH AMENDMENT TO AGREEMENT
This Fourth Amendment to Agreement ("Fourth Amendment") is made by and
between Atrix Laboratories, Inc., a Delaware Corporation ("Atrix"). with its
principal place of business at 2579 Midpoint Drive, Fort Collins, Colorado
80525-4417; and Block Drug Corporation, a New Jersey corporation ("Block"), with
its principal place of business at 105 Academy Street, Jersey City, New Jersey
07302-9988, is made and effective as of this 12th day of January, 1999, with
respect to that certain Agreement dated as of December 16, 1996 (the
"Agreement"), between Atrix and Block, as amended by that certain First
Amendment to Agreement dated as of June 10, 1997, by that certain Second
Amendment to Agreement dated as of July 31, 1997, and further amended by that
certain Third Amendment to Agreement dated February 4, 1998.
WHEREAS, the parties desire to further amend the Agreement on the terms
and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto hereby amend
the Agreement as follows:
1. The definition of "ATRISORB with Doxycycline" in Article I is deleted and
the following definition inserted in lieu thereof:
"ATRISORB with Doxycycline" means the Atrisorb barrier containing
doxycycline, [**].
2. Section 3.02 is hereby deleted and the following language shall be inserted
in lieu thereof:
Section 3.02(b) Atrisorb(R) with Doxycycline Milestone
Payments. In the event the FDA issues a Clearance Letter for
the [**] Atrisorb(R) with Doxycycline, Atrix shall be entitled
to receive from Block additional milestone payments upon the
following terms and conditions:
(i) A one time milestone payment of [**], which shall be
payable within thirty (30) days following receipt by
Block of Notice from Atrix that the FDA has issued a
Clearance Letter for the [**] Atrisorb(R) with
Doxycycline; and
(ii) provided the FDA has issued the Clearance Letter for
the [**] Atrisorb(R) with Doxycycline prior to April
1, 2000, a one time milestone payment of [**] which
shall be payable within ninety (90) days after the
receipt by Block of Notice from Atrix that the FDA
has issued a Clearance Letter for the [**]
Atrisorb(R) with Doxycycline; but
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<PAGE> 2
(iii) in the event the FDA has not issued the Clearance
Letter for the [**] Atrisorb(R) with Doxycycline
prior to April 2, 2000, a one time milestone payment
of [**] which shall be payable within ten (10) days
after the close of the calendar quarter in which
Block makes the First Commercial Sale of the [**]
Atrisorb(R) with Doxycycline in the United States.
3. Section 14.09(b) is hereby deleted and the following language shall be
inserted in lieu thereof:
(b) Any topical or mucosal therapy product that is intended to treat the signs
and symptoms of periodontal disease, provided however that the prohibition set
forth in this subsection shall expire at midnight, eastern standard time, on
[**], and further provided that nothing in this section shall be construed to
prohibit Block from conducting business in (i) any treatment or any therapy
primarily indicated for the signs and symptoms of gingivitis or (ii) Block's
[**] product, provided that in no event shall Block promote any such treatment
or therapy for the treatment of periodontitis.
4. Article XIV is hereby amended by adding section 14.12, which reads as
follows:
Section 14.12 Atridox Adverse Drug Events (ADEs). From the Effective Date of
this Amendment through midnight, eastern standard time, on [**], Block shall, at
Block's [**], be responsible for that portion of ADE data collection activity
that occurs between Block and the patient or dental professional, as
appropriate, including any follow-up inquires which Block deems necessary or
appropriate. Block shall handle Atridox ADEs in accordance with Block's policies
and procedures concerning ADEs, as Block in its sole discretion may amend from
time to time provided that such policies and procedures are sufficient, and will
be sufficient if and when amended, for Atrix to perform its obligations to the
FDA regarding ADEs. Promptly upon the execution of this Amendment, Block shall
provide Atrix with a copy of its policies and procedures concerning ADEs and
shall notify Atrix of and deliver copies to Atrix of any amendments to such
policies and procedures. Block shall on a timely basis forward to Atrix that ADE
information required by Atrix to fulfil Atrix's reporting obligations to the FDA
as the holder of the NDA. [**].
5. All capitalized terms used and not otherwise defined herein shall have the
same meanings as set forth in the Agreement.
6. Except as expressly modified by the terms hereof, the terms and provisions
of the Agreement, as amended by the First, Second and Third Amendments,
shall remain in full force and effect as originally written.
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<PAGE> 3
7. Signatures on this Fourth Amendment may be communicated by facsimile
transmission and shall be binding upon the parties transmitting the same by
facsimile transmission. Counterparts with original signatures shall be provided
to the other party within five (5) days of the applicable facsimile
transmission; provided, however, that failure to provide the original
counterpart shall have no affect on the validity or binding nature of this
Fourth Amendment. If executed in counterparts, this Fourth Amendment will be as
effective as if simultaneously executed.
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amendment as of the date first written above.
ATRIX LABORATORIES, INC. BLOCK DRUG CORPORATION
By: /s/ John E. Urheim By: /s/ Peter C. Mann
--------------------------------- -----------------------------
John E. Urheim, Vice Chairman Peter C. Mann
and Chief Executive Officer President, U.S. Division
<PAGE> 1
EXHIBIT 10.3(e)
FIFTH AMENDMENT TO AGREEMENT
This Fifth Amendment to Agreement ("Fifth Amendment") is made by and
between Atrix Laboratories, Inc., a Delaware Corporation ("Atrix"). with its
principal place of business at 2579 Midpoint Drive, Fort Collins, Colorado
80525-4417; and Block Drug Corporation, a New Jersey corporation ("Block"), with
its principal place of business at 105 Academy Street, Jersey City, New Jersey
07302-9988, effective as of this 27th day of January, 1999, with respect to that
certain Agreement dated as of December 16, 1996 (the "Agreement"), between Atrix
and Block, as amended by (i) that certain First Amendment to Agreement dated as
of June 10, 1997, (ii) that certain Second Amendment to Agreement dated as of
July 31, 1997, (iii) that certain Third Amendment to Agreement dated February 4,
1998, and (iv) that certain Fourth Amendment to Agreement dated as of January
12, 1999.
WHEREAS, the parties desire to further amend the Agreement on the terms
and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto hereby amend
the Agreement as follows:
1. Article III is hereby amended by the addition of the following
Section 3.08:
Section 3.08. Increased Sales Support for Atridox(R): [**].
2. Article III is hereby amended by the addition of the following
Section 3.09:
Section 3.09. Reimbursement of Increased Sales Support. [**].
3. All capitalized terms used and not otherwise defined herein shall have the
same meanings as set forth in the Agreement.
4. Except as expressly modified by the terms hereof, the terms and provisions
of the Agreement, as amended by the First, Second, Third and Fourth
Amendments, shall remain in full force and effect as originally written.
5. Signatures on this Fifth Amendment may be communicated by facsimile
transmission and shall be binding upon the parties transmitting the same by
facsimile transmission. Counterparts with original signatures shall be
provided to the other party within five (5) days of the applicable
facsimile transmission; provided, however, that failure to provide the
original counterpart shall have no affect on the validity or binding nature
of this Fifth Amendment. If executed in counterparts, this Fifth Amendment
will be as effective as if simultaneously executed.
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<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Fifth
Amendment as of the date first written above.
ATRIX LABORATORIES, INC. BLOCK DRUG CORPORATION
By: /s/ John E. Urheim By: /s/ Peter C. Mann
-------------------------------- --------------------------
John E. Urheim, Vice Chairman Peter C. Mann
and Chief Executive Officer President, U.S. Division
<PAGE> 3
ATTACHMENT A
[**]
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** Confidential Treatment Requested by Atrix on March 23, 1999
<PAGE> 1
EXHIBIT 10.5
ATRIX LABORATORIES, INC.
AMENDED AND RESTATED
PERFORMANCE STOCK OPTION PLAN
I. ESTABLISHMENT AND PURPOSE
In 1987, Atrix Laboratories, Inc., a Delaware corporation (the
"Company"), established a Performance Stock Option Plan, as amended and restated
in 1992 (the "Plan"), to afford certain of its employees, officers and directors
who are responsible for the continued growth of the Company an opportunity to
acquire a proprietary interest in the Company, and thus to create in such
employees, officers and directors an increased interest in and a greater concern
for the welfare of the Company and its shareholders.
The stock options ("Options") offered pursuant to this Plan are a
matter of separate inducement and are not in lieu of any salary or other
compensation for the services of any employee, officer or director.
The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions with the Company and to secure the services of
persons capable of filling such positions.
The Board of Directors of the Company intends that the Plan conform to
the requirements of Section 422 of the United States Internal Revenue Code of
1986, as amended (the "Code"), in order that options granted under the Plan may
be "incentive stock options" within the definition of that term in said Section
422.
II. DEFINITIONS
A. "Board of Directors" shall mean the Board of Directors of
the Company, as constituted from time to time.
B. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
C. "Committee" shall mean the Stock Option Committee of the
Board of Directors, as described in Article IV hereof.
D. "Company" shall mean Atrix Laboratories, Inc., a Delaware
corporation.
E. "Exercise Price" shall mean the amount for which one Share
may be purchased upon the exercise of an Option, as specified in the
applicable Stock Option Agreement.
<PAGE> 2
F. "Option" shall mean an option granted under the Plan and
entitling the holder to purchase Shares.
G. "Optionee" shall mean an individual who holds an Option.
H. "Plan" shall mean this amended and restated Performance
Stock Option Plan of Atrix Laboratories, Inc., as amended from time to
time.
I. "Share" shall mean one share of common stock, $.001 par
value per share, of the Company.
J. "Stock Option Agreement" shall mean the agreement between
the Company and an Optionee which contains the terms, conditions and
restrictions pertaining to the Optionee's Option.
III. AMOUNT OF STOCK SUBJECT TO THE PLAN
The total number of shares of capital stock of the Company which may be
purchased pursuant to the exercise of Options granted under the Plan shall not
exceed, in the aggregate, 1,500,000 shares of the authorized common stock,
$.001 par value per share, of the Company (the "Shares").
Shares which may be acquired under the Plan may be either authorized
but unissued Shares, Shares of issued stock held in the Company's treasury, or
both, at the discretion of the Company. If and to the extent that Options
granted under the Plan expire or terminate without having been exercised, new
Options may be granted with respect to the Shares covered by such expired or
terminated Options, provided that the grant and the terms of such new Options
shall in all respects comply with the provisions of the Plan; provided, however,
that no Option shall be granted under the Plan more than ten (10) years after
the date the Plan is adopted or the date the Plan is approved by the
shareholders of the Company, whichever occurs earlier.
Except as provided in Article XXV, the Company may, from time to time
during the period from April 29, 1992 (the "Effective Date") through April 29,
2002 (the "Termination Date"), grant to certain key employees, officers and
directors of the Company, or of any subsidiary corporation of the Company now
existing or hereafter formed or acquired, options under the terms hereinafter
set forth.
IV. ADMINISTRATION
The Board of Directors of the Company shall designate from among its
members a Stock Option Committee (the "Committee"), which shall consist of no
fewer than two members of the Board of Directors, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to administer the Plan. A majority of the members of the
Committee shall constitute a quorum, and the act of a majority of the members of
the Committee shall be the act of the Committee. Any member of the Committee may
be removed at any time either with or without cause by resolution adopted by the
Board of Directors, and any vacancy on the Committee may at any time be filled
by resolution adopted by the Board of Directors.
<PAGE> 3
Any or all powers and functions of the Committee may at any time and
from time to time be exercised by the Board of Directors or the Executive
Committee thereof; provided, however, that, with respect to the participation in
the Plan by employees who are members of the Board of Directors or of the
Executive Committee, as the case may be, such powers and functions of the
Committee may be exercised by the Board of Directors or the Executive Committee
only if, at the time of such exercise, a majority of the members of the Board of
Directors or the Executive Committee, as the case may be, and a majority of the
directors acting in the particular matter, are "disinterested persons" within
the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated
under the Exchange Act.
Subject to the express provisions of the Plan, the Committee shall have
authority, in its discretion, to determine the employees, officers and directors
to whom Options shall be granted, the time when such Options shall be granted,
the number of Shares which shall be subject to each option, the purchase price
of each Share which shall be subject to each Option, the period(s) during which
such Options shall be exercisable (whether in whole or in part), and the other
terms and provisions thereof. In determining the employees, officers and
directors to whom Options shall be granted and the number of Shares for which
Options shall be granted to each employee, officer or director, the committee
shall consider the length of service, the amount of earnings, and the
responsibilities and duties of each such employee, officer or director.
Subject to the express provisions of the Plan, the Committee also shall
have authority to construe the Plan and options granted thereunder, to amend the
Plan and Options granted thereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective Options (which need not be identical) and to make all other
determinations necessary or advisable for administering the Plan.
The determination of the Committee on matters referred to in this
Article IV shall be conclusive.
The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company. No member or former member of the Committee or the Board of Directors
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder.
V. ELIGIBILITY
Options may be granted only to officers, directors and key employees of
the Company or of any subsidiary corporation of the Company who, in the judgment
of the Committee, contribute materially to the profitability and success of the
Company.
<PAGE> 4
VI. OPTION PRICE AND PAYMENT
The price ("Exercise Price") for each Share purchasable under any
Incentive Option granted hereunder shall be such amount as the Committee shall,
in its best judgment made in good faith, determine on the basis of facts and
circumstances to be not less than one hundred percent (100%) of the fair market
value per Share at the date such Options are granted; provided, however, that in
the case of an Option granted to a person who, at the time such Option is
granted, owns more than ten percent (10%) of the total combined voting power of
all classes of shares of the Company or of any subsidiary corporation of the
Company, the Exercise Price for each Share purchasable thereunder shall be such
amount as the Committee, in its best judgment, shall determine to be not less
than one hundred ten percent (110%) of the fair market value per Share at the
date the Option is granted. In determining stock ownership of an employee,
officer or director for any purposes under the Plan, the rules of Section 424(d)
of the Code shall be applied, and the Board of Directors and the Committee may
rely on representations of fact made to it by the employee, officer or director
and believed by it to be true.
If the Shares are listed on a national securities exchange in the
United States on the date any Option is granted, the fair market value per share
shall be deemed to be the average of the high and low quotations at which such
Shares are sold on such national securities exchange on the date such Option is
granted. If the Shares are listed on a national securities exchange in the
United States on such date but the Shares are not traded on such date, or such
national securities exchange is not open for business on such date, the fair
market value per Share shall be determined as of the closest preceding date on
which such exchange shall have been open for business and the Shares were
traded. If the Shares are listed on more than one national securities exchange
in the United States on the date any such Option is granted, the Committee shall
determine which national securities exchange shall be used for the purpose of
determining the fair market value per Share.
For purposes of this Plan, the determination by the Committee of the
fair market value of a Share shall be conclusive.
Upon the exercise of an Option granted hereunder, the Company shall
cause the purchased Shares to be issued only when it shall have received the
full purchase price for the Shares in cash or by certified check.
VII. USE OF PROCEEDS
The cash proceeds of the sale of Shares subject to the Options granted
hereunder are to be added to the general funds of the Company and used for its
general corporate purposes as the Board of Directors shall determine.
VIII. TERMS OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Any Option granted hereunder shall be exercisable during a period of
not more than ten (10) years from the date of grant of such Option at such times
and in such amounts as the Committee shall determine at such date of grant.
<PAGE> 5
The Committee shall have the right to accelerate, in whole or in part,
from time to time, conditionally or unconditionally, the vesting provisions of
any Stock Option Agreement and the rights to exercise any Option granted
hereunder upon written notice to the Optionee. Any such acceleration by the
Committee shall not affect the expiration date of an Option. No Option granted
to an officer or director of the Company shall become exercisable as a result of
the acceleration of exercisability of Options provided for herein within six (6)
months of the date of its grant.
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part. If any Option granted hereunder shall terminate prior to the Termination
Date, the Committee shall have the right to use the Shares as to which such
Option shall not have been exercised to grant one or more additional Options to
any eligible employee, officer or director, but any such grant of an additional
Option shall be made prior to the close of business on the Termination Date.
In no event shall an Option granted hereunder be exercised for a
fraction of a Share.
IX. EXERCISE OF OPTIONS
Options granted under the Plan shall be exercised by the Optionee as to
all or part of the Shares covered thereby by the giving of written notice of the
exercise thereof to the Corporate Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and specifying a business day not more than fifteen (15) days from the date such
notice is given, for the payment of the purchase price against delivery of the
Shares being purchased. Subject to the terms of Articles XVI and XVIII, the
Company shall cause certificates for the Shares so purchased to be delivered to
the Optionee at the principal business office of the Company, against payment of
the full purchase price.
X. MODIFICATION OF OPTIONS; CANCELLATIONS AND REGRANTS
If the Committee determines that it is advisable and in the best
interest of the Company, the Committee may, within the limitations of the Plan,
modify, extend or assume outstanding Options and it may solicit and accept
written offers from Optionees to terminate previously granted Options that
remain unexercised ("Original Options"), and grant a like number of new Options
("Substitute Options") to Optionees upon surrender of an Original Option,
regardless of whether the vesting schedules or exercise prices of the Substitute
Option are the same as or different from the Original Option being surrendered.
Such offers to terminate shall be pursuant to and in accordance with such rules
and regulations as the Committee may from time to time establish, subject to the
terms and conditions of and within the limitations set forth herein.
XI. NONTRANSFERABILITY OF OPTIONS
An Option granted hereunder shall not be transferable, whether by
operation of law or otherwise, other than by will or the laws of descent and
distribution, and any Option granted hereunder shall be exercisable, during the
lifetime of the holder, only by such holder.
<PAGE> 6
XII. TERMINATION OF EMPLOYMENT
Upon termination of employment of any employee with the Company or any
subsidiary thereof, any option previously granted to the employee, unless
otherwise specified by the Committee in the Option shall, to the extent not
theretofore exercised, terminate and become null and void, provided that:
(a) if the employee shall die while in the employ of such
corporations or during either the three (3) month or one (1) year
period, whichever is applicable, specified in clause (b) below and at a
time when such employee was entitled to exercise an option as herein
provided, the legal representative of such employee, or such person who
acquired such Option by bequest or inheritance or by reason of the
death of the employee, may, not later than one (1) year from the date
of death, exercise such option, to the extent not theretofore
exercised, in respect of any or all of such number of Shares as
specified by the Committee, in such Option; and
(b) if the employment of any employee to whom such Option
shall have been granted shall terminate by reason of the employee's
retirement (at such age or upon such conditions as shall be specified
by the Committee), disability (as described in Section 22(e)(3) of the
Code) or dismissal by the employer other than for cause (as defined
below), and while such employee is entitled to exercise such Option as
herein provided, such employee shall have the right to exercise such
option so granted, to the extent not theretofore exercised, in respect
of any or all of such number of Shares as specified by the Committee,
in such option, at any time up to and including (i) three (3) months
after the date of such termination of employment in the case of
termination by reason of retirement or dismissal other than for cause
and (ii) one (1) year after the date of termination of employment in
the case of termination by reason of disability.
If an employee voluntarily terminates his or her employment, or is
discharged for cause, any Option granted hereunder shall, unless otherwise
specified by the Committee, in the Option, forthwith terminate with respect to
any unexercised portion thereof.
Notwithstanding the preceding paragraphs of this Article XII, if the
employment of any employee with the Company and all subsidiary corporations of
the Company is terminated, whether voluntarily or involuntarily, within a
one-year period following a change in control of the Company (as defined in
Article XIII) and while such employee is entitled to exercise an option as
herein provided, other than a termination of such employment by the employer for
cause, such employee shall have the right to exercise all or any portion of such
Option at any time up and to and including three (3) months after the date of
such termination of employment, at which time such Option shall cease to be
exercisable.
Notwithstanding the immediately preceding paragraphs of this Article
XII, no option may be exercised after the expiration of the period of
exercisability provided for in such Option.
<PAGE> 7
If an Option granted hereunder shall be exercised by the legal
representative of a deceased employee or former employee, or by a person who
acquired an Option granted hereunder by bequest or inheritance or by reason of
the death of any employee or former employee, written notice of such exercise
shall be accompanied by a certified copy of letters testamentary or equivalent
proof of the right of such legal representative or other person to exercise such
Option.
For the purposes of the Plan, the term "for cause" shall mean (i) with
respect to an employee who is a party to a written agreement with, or
alternatively, participates in a compensation or benefit plan of the Company or
a subsidiary corporation of the Company, which agreement or plan contains a
definition of "for cause" or "cause" (or words of like import) for purposes of
termination of employment thereunder by the Company or such subsidiary
corporation of the Company, "for cause" or "cause" as defined in the most recent
of such agreements or plans, or (ii) in all other cases, as determined by the
Committee or the Board of Directors, in its sole discretion, (a) the willful
commission by an employee of a criminal or other act that causes or will
probably cause substantial economic damage to the Company or a subsidiary
corporation of the Company or substantial injury to the business reputation of
the Company or a subsidiary corporation of the Company; (c) the continuing
willful failure of an employee to perform the duties of such employee to the
Company or a subsidiary corporation of the Company (other than such failure
resulting from the employee's incapacity due to physical or mental illness)
after written thereof (specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such failure are given to the
employee by the Board of Directors or the Committee; or (d) the order of a
federal or state bank regulatory agency or a court of competent jurisdiction
requiring the termination of the employee's employment. For purposes of the
Plan, no act, or failure to act, on the employee's part shall be considered
"willful" unless done or omitted to be done by the employee not in good faith
and without reasonable belief that the employee's action or omission was in the
best interest of the Company or a subsidiary corporation of the Company.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an "employee" of such corporation for purposes
of Section. 422(a) of the Code. If an individual is on military, sick leave or
other bona fide leave of absence such individual shall be considered an
"employee" for purposes of the exercise of an Option and shall be entitled to
exercise such option during such leave if the period of such leave does not
exceed ninety (90) days, or, if longer, so long as the individual's right to
reemployment with the corporation granting the option (or a related corporation)
is guaranteed either by statute or by contract. If the period of leave exceeds
ninety (90) days, the employment relationship shall be deemed to have terminated
on the ninety-first (91st) day of such leave, unless the individual's right to
reemployment is guaranteed by statute or contract.
A termination of employment shall not be deemed to occur by reason of
(i) the transfer of an employee from employment by the Company to employment by
a subsidiary corporation of the Company or (ii) the transfer of an employee from
employment by a subsidiary corporation of the Company to employment by the
Company or by another subsidiary corporation of the Company.
<PAGE> 8
XIII. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTION
In the event of any change in the outstanding Shares through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
split-up, split-off, spin-off, combination of shares, exchange of shares, or
other like change in capital structure of the Company, an adjustment shall be
made to each outstanding Option such that each such Option shall thereafter be
exercisable for such securities, cash and/or other property as would have been
received in respect of the Shares subject to such Option had such Option been
exercised in full immediately prior to such change, and such an adjustment shall
be made successively each time any such change shall occur. The term "Shares"
shall after any such change refer to the securities, cash and/or property then
receivable upon exercise of an Option. In addition, in the event of any such
change, the Committee shall make any further adjustment as may be appropriate to
the maximum number of Shares subject to the Plan, the maximum number of Shares
of which Options may be granted to any one employee, and the number of Shares
and price per Share subject to outstanding Options as shall be equitable to
prevent dilution or enlargement of rights under such Options, and the
determination of the Committee as to these matters shall be conclusive.
XIV. REDUCTION OF VESTING PERIOD
(a) Except as provided in subsection (b) below,
notwithstanding any provisions to the contrary contained in any Stock
Option Agreement, the Stock Option Committee may, in its discretion,
reduce the vesting period set forth in a Stock Option Agreement upon
the occurrence of any of the following events:
(i) any person, including a group as defined in
Section 13(d)(3) of the Exchange Act, shall become the
beneficial owner of 25% of the total number of Shares of the
Company then outstanding;
(ii) as a result of, or in connection with, any cash
tender offer, exchange offer, merger or other business
combination, sale of assets or contested election, or
combination of the foregoing, the persons who were directors
of the Company just prior to such event shall cease to
constitute a majority of the Board of Directors;
(iii) the shareholders of the Company shall approve
an agreement providing either for a transaction in which the
Company will cease to be an independent publicly owned
corporation or for a sale or other disposition of all or
substantially all the assets of the Company;
(iv) a tender offer or exchange offer is made for
Shares of the Company (other than one made by the Company) and
Shares are acquired thereunder.
<PAGE> 9
(b) No option granted to an officer or director of the Company
shall become exercisable as a result of the acceleration of
exercisability of Options provided for in subsection (a) of this
Article XIV within six (6) months of the date of its grant.
XV. RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation thereof to continue the employment of any holder of an
Option; and it shall not impose any obligation on the part of any holder of an
Option to remain in the employ of the Company or of any subsidiary corporation
thereof.
XVI. PURCHASE FOR INVESTMENT
Except as hereafter provided, the holder of an Option granted hereunder
shall, upon any exercise thereof, execute and deliver to the Company a written
statement, in form satisfactory to the Company, in which such holder represents
and warrants that such holder is purchasing or acquiring the Shares acquired
thereunder for such holder's own account, for investment only and not with a
view to the resale or distribution thereof, and agrees that any subsequent offer
for sale or sale or distribution of any of such Shares shall be made pursuant to
either (a) a Registration Statement on an appropriate form under the Securities
Act of 1933, as amended (the "Securities Act"), which Registration Statement has
become effective and is current with regard to the Shares being offered or sold,
or (b) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption the holder shall, prior to any offer for
sale or sale of such Shares, obtain a prior favorable written opinion, in form
and substance satisfactory to the Company, from counsel for or approved by the
Company, as to the applicability of such exemption thereto. The foregoing
restrictions shall not apply to (i) issuances by the Company so long as the
Shares being issued are registered under the Securities Act and a prospectus in
respect thereof is current or (ii) reofferings of Shares by affiliates of the
Company (as defined in Rule 405 or any successor rule or regulation promulgated
under the Securities Act) if the Shares being reoffered are registered under the
Securities Act and a prospectus in respect thereof is current.
XVII. ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
Upon any exercise of an Option which may be granted hereunder and, in
the case of an Option, payment of the purchase price, a certificate or
certificates for the Shares as to which the Option has been exercised shall be
issued by the Company in the name of the person exercising the Option and shall
be delivered to or upon the order of such person or persons.
The Company may endorse such legend or legends upon the certificates
for Shares issued upon exercise of an Option granted hereunder and may issue
such "stop transfer" instructions to its transfer agent in respect of such
Shares as, in its discretion, it determines to be necessary or appropriate to
(i) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act, (ii) implement the provisions of the Plan
and any agreement between the Company and the Optionee or grantee with respect
to such Shares, or (iii) permit the Company to determine the occurrence of a
disqualifying disposition, as described in Section 421(b) of the Code, of Shares
transferred upon exercise of an Option granted under the Plan.
<PAGE> 10
The Company shall pay all issue taxes with respect to the issuance of
Shares, as well as all fees and expenses necessarily incurred by the Company in
connection with such issuance.
All Shares issued as provided herein shall be fully paid and
non-assessable to the extent permitted by law.
XVIII. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board of Directors shall determine in its discretion
that the listing, registration or qualification of the Shares covered by the
Plan upon any national securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
Shares under the Plan, no Shares shall be issued unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board of Directors.
XIX. AMENDMENT OF THE PLAN
The Board of Directors may, from time to time, amend the Plan, provided
that no amendment shall be made, without the approval of the shareholders of the
Company, that will (i) increase the total number of Shares reserved for Options
under the Plan (other than an increase resulting from an adjustment provided for
in Article XIII), (ii) reduce the exercise price of any Option granted hereunder
below the price required by Article VI, (iii) modify the provisions of the Plan
relating to eligibility, or (iv) materially increase the benefits accruing to
participants under the Plan. The Committee shall be authorized to amend the Plan
and the Options granted thereunder to permit the Options granted thereunder to
qualify as incentive stock options within the meaning of Section 422 of the
Code. The rights and obligations under any Option granted before amendment of
the Plan or any unexercised portion of such Option shall not be adversely
affected by amendment of the Plan or the Option without the consent of the
holder of the Option.
XX. TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors may at any time suspend or terminate the Plan.
The Plan, unless sooner terminated under Article XXII or by action of the Board
of Directors, shall terminate at the close of business on the Termination Date.
An Option may not be granted while the Plan is suspended or after it is
terminated. Rights and obligations under any Option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except upon the consent of the person to whom the Option was granted. The
power of the Committee to construe and administer any options granted prior to
the termination or suspension of the Plan under Article IV nevertheless shall
continue after such termination or during such suspension.
<PAGE> 11
XXI. GOVERNING LAW
The Plan, such options as may be granted thereunder and all related
matters shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware from time to time obtaining.
XXII. PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be
deemed to affect the validity of any other provision.
XXIII. APPROVAL BY SHAREHOLDERS
The Plan has been approved by the Board of Directors and is subject to
approval by the affirmative votes of the holders of a majority of the Shares
present, or represented, and entitled to vote at the meeting of shareholders at
which the Plan is submitted.
XXIV. EFFECTIVE DATE
The Plan shall become effective at 5:00 p.m., Fort Collins, Colorado
time, on the Effective Date; provided, however, that if the Plan is not approved
by a vote of the shareholders of the Company at an annual meeting or any special
meeting or by written consent within twelve months after the Effective Date, the
Plan and any Options granted thereunder shall terminate.
XXV. IMPLEMENTATION OF PLAN
If approved by the shareholders of the Company as provided in Article
XXIII above, this Amended and Restated Performance Stock Option Plan shall
supersede and replace the Performance Stock Option Plan adopted by the Board of
Directors on October 12, 1987, except as to those Options granted pursuant to
the Plan between October 12, 1987 and the Effective Date hereof. If this Plan is
implemented as provided herein, no further Options will be granted under the
original Performance Stock Option Plan adopted by the Board of Directors on
October 12, 1987.
<PAGE> 12
On April 27, 1997, the Company's Shareholders approved an amendment to
the Plan increasing the aggregate number of shares of common stock that may be
issued under the Plan to 2,500,000.
<PAGE> 13
AMENDMENT NO. I TO
AMENDED AND RESTATED PERFORMANCE STOCK OPTION PLAN
OF
ATRIX LABORATORIES, INC.
Article XIII of the Plan is hereby deleted in its entirety and replaced
with the following:
XIII. TERMINATION OF EMPLOYMENT
(a) If an employee ceases to be an employee for any reason,
other than by reason of death or disability, then all Options held by
such employee which are not exercisable when the employee ceases to be
an employee shall terminate. All Options which are exercisable when the
employee ceases to be an employee must be exercised prior to the
earlier of (i) the expiration date of the option period of the
exercisable Options, or (ii) the date occurring three (3) months after
the date on which the employee ceases to be an employee. Such Options
shall terminate to the extent they are not exercised during such
period.
(b) If the employee shall die while in the employ of such
corporation and at a time when such employee was entitled to exercise
an Option as herein provided, the legal representative of such
employee, or such person who acquired such Option by bequest or
inheritance or by reason of the death of the employee, may exercise
such Option to the extent that such Option could have been exercised by
the deceased employee immediately prior to his death. Such Options must
be exercised prior to the earlier of (i) the expiration date of the
Option period of the subject Options, or (ii) the date occurring twelve
(12) months after the date of the employee's death. Such Options shall
terminate to the extent they are not exercised during such period.
(c) If the employment of any employee to whom such Option
shall have been granted shall terminate by reason of the employee's
disability (as described in Section 22(e)(3) of the Code) and while
such employee is entitled to exercise such Option as herein provided,
such Option may be exercised by such person to the extent that such
Option could have been exercised by the disabled employee immediately
prior to his disability. Such Options must be exercised prior to the
earlier of (i) the expiration date of the Option period of the subject
Options, or (ii) the date occurring twelve (12) months after the date
of the employee's disability. Such Options shall terminate to the
extent they are not exercised during such period;
(d) If an Option granted hereunder shall be exercised by the
legal representative of a deceased employee or former employee, or by a
person who acquired an Option granted hereunder by bequest,
inheritance, qualified domestic relations order or by reason of the
death of any employee or former employee, written notice of such
exercise shall be accompanied by a certified copy of letters
testamentary or equivalent proof of the right of such legal
representative or other person to exercise such Option.
<PAGE> 14
(e) For the purposes of the Plan, an employment relationship
shall be deemed to exist between an individual and a corporation if, at
the time of the determination, the individual was an "employee" of such
corporation for purposes of Section 422(a) of the Code. If an
individual is on military, sick leave or other bona fide leave of
absence such individual shall be considered an "employee" for purposes
of the exercise of an Option and shall be entitled to exercise such
Option during such leave if the period of such leave does not exceed
ninety (90) days, or, if longer, so long as the individual's right to
reemployment with the corporation granting the Option (or a related
corporation) is guaranteed either by statute or by contract. If the
period of leave exceeds ninety (90) days, the employment relationship
shall be deemed to have terminated on the ninety-first (91st) day of
such leave, unless the individual's right to reemployment is guaranteed
by statute or contract.
(f) A termination of employment shall not be deemed to occur
by reason of (i) the transfer of an employee from employment by the
Company to employment by a subsidiary corporation of the Company or
(ii) the transfer of an employee from employment by a subsidiary
corporation of the Company to employment by the Company or by another
subsidiary corporation of the Company.
(g) Notwithstanding anything above to the contrary, the
Committee may in its sole discretion vary the date on which an Option
would otherwise terminate pursuant to this Article XIII; provided,
however, that a variation from the date an Option must terminate as
described above shall cause an Incentive Option to fail to qualify for
the tax treatment available pursuant to Section 422 of the Code upon
the exercise of such Option.
<PAGE> 15
AMENDMENT NO. 2 TO
AMENDED AND RESTATED
PERFORMANCE STOCK OPTION PLAN OF
ATRIX LABORATORIES, INC.
The Amended and Restated Performance Stock Option Plan of Atrix
Laboratories, Inc. (the "Plan"), as amended by Amendment No. I to the Plan, is
hereby amended as to Options awarded under the Plan as of November 15, 1998 and
thereafter as follows:
1. The last paragraph of Article VI is deleted in its entirety and replaced with
the following:
Except as provided in the Stock Option Agreement, upon the exercise of
an Option granted hereunder, the Company shall cause the purchased Shares to be
issued only when it shall have received the full purchase price for the Shares
(i) in cash, (ii) by certified check, (iii) by surrender of Shares (including
withholding of Shares otherwise deliverable upon exercise of the Option) which
have a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised (but
only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price unless otherwise determined by the Committee), (iv) through a
broker-dealer sale and remittance procedure pursuant to which the Optionee (A)
shall provide written instructions to a Company designated brokerage firm to
effect the immediate sale of some or all of the purchased Shares and remit to
the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
Shares and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction, or (v) any combination of the foregoing
methods of payment.
2. Article XII is deleted in its entirety and replaced with the following:
XII. TERMINATION OF EMPLOYMENT
(a) If an employee ceases to be an employee of the Company for
any reason, other than by reason of death or disability, then all
Options held by such employee which are not exercisable when the
employee ceases to be an employee shall terminate. All Options which
are exercisable when the employee ceases to be an employee must be
exercised prior to the earlier of (i) the expiration date of the option
period of the exercisable Options or (ii) the date occurring three (3)
months after the date on which the employee ceases to be an employee.
Such Options shall terminate to the extent they are not exercised
during such period.
(b) If the employee dies while in the employ of the Company or
during the three (3) month post-termination exercise period specified
above while such employee was entitled to exercise an Option, the legal
representative of such employee, or such person who acquired such
Option by bequest or inheritance or by reason of the death of the
employee, may exercise such Option to the extent that such Option could
have been exercised by the deceased employee immediately prior to his
death. Such Options must be exercised prior to the earlier of (i) the
<PAGE> 16
expiration date of the Option period of the subject Options, or (ii)
the date occurring twelve (12) months after the date of the employee's
death. Such Options shall terminate to the extent they are not
exercised during such period.
(c) If the employment of any employee to whom an Option shall
have been granted shall terminate by reason of the employee's
disability (as described in Section 22(e)(3) of the Code) while such
employee is entitled to exercise the Option, such Option may be
exercised by the employee to the extent that such Option could have
been exercised by the employee immediately prior to his disability.
Such Options must be exercised prior to the earlier of (i) the
expiration date of the Option period of the subject Options or (ii) the
date occurring twelve (12) months after the date of the employee's
disability. Such Options shall terminate to the extent they are not
exercised during such period. In the event such disability is not a
"disability" as described in Section 22(e)(3) of the Code, such Option
shall automatically convert to an Option not intended to qualify as an
"incentive stock option" under Section 422 of the Code (a
"Non-Qualified Stock Option") on the day three (3) months and one (1)
day following the termination.
(d) If an Option granted hereunder shall be exercised by the
legal representative of a deceased employee or former employee, or by a
person who acquired an Option granted hereunder by bequest,
inheritance, qualified domestic relations order or by reason of the
death of any employee or former employee, written notice of such
exercise shall be accompanied by a certified copy of letters
testamentary or equivalent proof of the right of such legal
representative or other person to exercise such Option.
(e) If an individual is on military, sick leave or other bona
fide leave of absence such individual shall be considered an "employee"
for purposes of the exercise of an Option and shall be entitled to
exercise such Option during such leave if the period of such leave does
not exceed ninety (90) days, or, if longer, so long as the individual's
right to reemployment with the corporation granting the Option (or a
related corporation) is guaranteed either by statute or by contract. If
the period of leave exceeds ninety (90) days, the employment
relationship shall be deemed to have terminated on the ninety-first
(91st) day of such leave, unless the individual's right to reemployment
is guaranteed by statute or contract.
(f) A termination of employment shall not be deemed to occur
by reason of (i) the transfer of an employee from employment by the
Company to employment by a parent or subsidiary corporation of the
Company, (ii) the transfer of an employee from employment by a parent
or subsidiary corporation of the Company to employment by the Company
or by another parent or subsidiary corporation of the Company, (iii)
the change in status of the employee to that of a consultant or a
director of the Company or of any parent or subsidiary corporation of
the Company, provided that a termination of employment will be deemed
to occur upon the termination such former employee's service as a
consultant or director unless such termination is due to resumption of
employment with the Company or any parent or subsidiary of the Company,
and, provided further, that in the case of a change in status from
employee to consultant or director, any Option granted to such person
<PAGE> 17
and designated as an incentive stock option in the Stock Option
Agreement shall cease to be treated as an incentive stock option and
shall be treated as a Non-Qualified Stock Option on the day three (3)
months and one (1) day following such change in status.
(g) Notwithstanding anything above to the contrary, the
Committee may in its sole discretion vary the date on which an Option
would otherwise terminate pursuant to this Article XII.
3. Current Articles XX through XXV are hereby renumbered XXI through XXVI and
the following new Article XX is hereby inserted:
XX. SUBSTITUTION OPTIONS
Options may be granted under this Plan from time to time in
substitution for stock options held by employees of other corporations who are
about to become employees of or affiliated with the Company as a result of a
merger or consolidation of the employing corporation with the Company, the
acquisition by the Company of the assets of the employing corporation, the
acquisition by the Company of stock of the employing corporation, or a similar
transaction as a result of which it becomes an affiliate of the Company. The
terms and conditions of the substitute Options so granted may vary from the
terms and conditions set forth in this Plan to such extent as the Committee at
the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the stock options in substitution for which they are granted.
<PAGE> 1
EXHIBIT 10.6
ATRIX LABORATORIES, INC.
NONQUALIFIED STOCK OPTION PLAN
A. Purpose and Scope
The purposes of this Plan are to encourage stock ownership by
consultants, other independent contractors and other designated persons who are
not employees (collectively, "Consultants") of Atrix Laboratories, Inc. (herein
called the "Company") and to provide an incentive for such persons to expand and
improve the profits and prosperity of the Company through the grant of Options
to purchase shares of the Stock as hereinafter defined.
B. Definitions
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Compensation Committee, which is
appointed by the Board, and which shall be composed of members of the Board.
3. "Company" shall mean Atrix Laboratories, Inc., a Delaware
corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
5. "Option" shall mean a right to purchase Stock, granted pursuant to
the Plan.
6. "Option Price" shall mean the purchase price for Stock under an
Option, as determined in Section F below.
7. "Participant" shall mean a Consultant to whom an Option is granted
under the Plan.
8. "Plan" shall mean this Atrix Laboratories, Inc. Nonqualified Stock
Option Plan.
9. "Stock" shall mean the common stock of the Company, $.001 par value.
C. Stock Subject to Options
Subject to the provisions of Section L of the Plan, the maximum number
of shares of Stock that may be optioned or sold under the Plan is 50,000 shares.
Such shares may be treasury, or authorized, but unissued, shares of Stock of the
Company.
<PAGE> 2
D. Administration
The Plan shall be administered by the Committee. The Committee shall be
responsible to the Board for the operation of the Plan, and shall make
recommendations to the Board with respect to participation in the Plan by
Consultants, and with respect to the extent of that participation. The
interpretation and construction of any provision of the Plan by the Committee
shall be final, unless otherwise determined by the Board. No member of the Board
or the Committee shall be liable for any action or determination concerning the
Plan made by him in good faith.
E. Eligibility
The Board, upon recommendation of the Committee, may grant Options to
any Consultant which the Committee in its discretion shall designate. Options
granted at different times need not contain similar provisions.
F. Option Price
The purchase price for Stock under each Option shall be designated by
the Committee in its discretion.
G. Terms and Conditions of Options
Options granted pursuant to the Plan shall be authorized by the Board
and shall be evidenced by agreements in such form as the Board, upon
recommendation of the Committee, shall from time to time approve. Such
agreements shall comply with and be subject to the following terms and
conditions:
1. Consulting Agreement. The Board may, in its discretion, include in
any Option granted under the Plan a condition that the Participant shall agree
to render services to the Company for a period of time (specified in the
agreement) following the date the Option is granted. No such agreement shall
impose upon the Company, however, any additional obligation to retain the
Participant for any period of time.
2. Time and Method of Payment. The Option Price shall be paid in full
in cash at the time an Option is exercised under the Plan. Otherwise, an
exercise of any Option granted under the Plan shall be invalid and of no effect.
Promptly after the exercise of an Option and the payment of the full Option
Price, the Participant shall be entitled to the issuance of a stock certificate
evidencing his ownership of such Stock. A Participant shall have none of the
rights of a shareholder until shares are issued to him, and no adjustment will
be made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
3. Number of Shares. Each Option shall state the total number of shares
of Stock to which it pertains.
2
<PAGE> 3
4. Option Period and Limitations on Exercise of Options. The Committee
shall, in its discretion, designate the periods of time during which an Option
may be exercised and such conditions to exercise as the Committee may deem
appropriate. No Option may be exercised after the expiration of ten years from
the date it is granted. No Option may be exercised for a fractional share of
Stock.
H. Termination of Consulting Agreements
Except as provided in Section I below and except to the extent the
Committee shall otherwise designate, in the event of any termination of the
consulting or other agreement between the Participant and the Company all
Options which had not been exercised as of the date of such termination shall
immediately expire.
I. Rights in Event of Death
If a Participant dies while retained by the Company and without having
fully exercised his Options, the executors or administrators, or legatees or
heirs, of his estate shall have the right to exercise such Options to the extent
that such deceased Participant was entitled to exercise the Options on the date
of his death; provided, however, that in no event shall the Options be
exercisable more than two years from the date of the Participant's death.
J. No Obligations to Exercise Option
The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.
K. Nonassignability
Options shall not be transferable other than by will or by the laws of
descent and distribution, and during a Participant's lifetime shall be
exercisable only by such Participant.
L. Effect of Change in Stock Subject to the Plan
The aggregate number of shares of Stock available for Options under the
Plan, the shares subject to any Option and the price per share shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Plan resulting from (1)
a subdivision or consolidation of shares or any other capital adjustment, (2)
the payment of a stock dividend, or (3) other increase or decrease in such
shares effected without receipt of consideration by the Company. If the Company
shall be the surviving corporation in any merger or consolidation, any Option
shall pertain, apply, and relate to the securities to which a holder of the
number of shares of Stock subject to the Option would have been entitled after
the merger or consolidation. Upon dissolution or liquidation of the Company, or
upon a merger or consolidation in which the Company is not the surviving
corporation, all Options outstanding under the Plan shall terminate; provided,
however, that each Participant (and each other person entitled under Section I
3
<PAGE> 4
to exercise an Option) shall have the right, immediately prior to such
dissolution or liquidation, or such merger or consolidation, to exercise such
Participant's Options in whole or in part, but only to the extent that such
Options are otherwise exercisable under the terms of the Plan.
M. Amendment and Termination
The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect for
a period of ten years from the date of the Plan's adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.
N. Agreement and Representation of Consultants
As a condition to the exercise of any portion of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of such exercise that any shares of Stock acquired at exercise are being
acquired only for investment and without any present intention to sell or
distribute such shares, if, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.
O. Reservation of Shares of Stock
The Company, during the term of this Plan, will at all times reserve
and keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the Company for the
lawful issuance and sale of its Stock hereunder shall relieve the Company of any
liability in respect of the failure to issue or sell Stock as to which the
requisite authority has not been obtained.
P. Effective Date of Plan
The Plan shall be effective from the date that the Plan is approved by
the Board.
4
<PAGE> 5
ATRIX LABORATORIES, INC.
FIRST AMENDMENT
TO
NONQUALIFIED STOCK OPTION PLAN
This First Amendment (the "First Amendment") to the Nonqualified Stock
Option Plan (the "Plan") of Atrix Laboratories, Inc. (the "Company") amends
Section C of the Plan. This First Amendment has been duly adopted by the Board
of Directors of the Company by unanimous written consent dated October 16, 1995.
Section C of the Plan is hereby amended in its entirety to read as
follows:
C. Stock Subject to Options
Subject to the provisions of Section L of the Plan, the maximum number
of shares of Stock that may be optioned or sold under the Plan is 100,000
shares. Such shares may be treasury, or authorized, but unissued, shares of
Stock of the Company.
All other terms and provisions set forth in the Plan shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have acknowledged this
First Amendment as of the day of October, 1995.
ATRIX LABORATORIES, INC.
ATTEST: By: /s/ John E. Urheim
----------------------------------------
John E. Urheim, Vice Chairman and Chief
Executive Officer
By: /s/ Kimberly A. Marks
----------------------------------
Kimberly A. Marks, Assistant
Secretary and Corporate Controller
<PAGE> 6
SECOND AMENDMENT TO
THE ATRIX LABORATORIES, INC.
NONQUALIFIED STOCK OPTION PLAN
This Second Amendment ("Amendment") to Atrix Laboratories, Inc.'s (the
"Company") Nonqualified Stock Option Plan (the "Plan") is dated as of this 27th
day of April, 1998.
RECITALS
WHEREAS, the Plan was duly adopted by the Board of Directors of the
Company and was subsequently amended by the Board of Directors on October 16,
1995.
WHEREAS, the Company desires to further amend the Plan on the terms and
conditions set forth herein.
* * *
1. Section B of the Plan is hereby amended in its entirety to read as follows:
B. Definitions
Unless otherwise required by the context:
1. "Administrator" means the Board or any of its Committee(s)
administering the Plan, in accordance with Section D of the Plan.
2. "Applicable Laws" means the legal requirements relating to the
administration of stock option and equity incentive plans under applicable state
of Delaware corporate and securities laws and under the Code.
3. "Board" shall mean the Board of Directors of the Company.
4. "Committee" means a Committee appointed by the Board in accordance
with Section D of the Plan.
5. "Common Stock" means the Common Stock of the Company which is traded
on an approved securities market pursuant to the Exchange Act.
6. "Company" shall mean Atrix Laboratories, Inc., a Delaware
corporation.
7. "Code" shall mean the Internal Revenue Code of 1986, as amended.
8. "Director" means a member of the Board.
1
<PAGE> 7
9. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
10. "Fair Market Value" means, as of a specified date, the value of
Common Stock determined by the Administrator as follows:
(i) If the Common Stock is listed on any established stock
exchange or quoted on a national market system, including
without limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System, the Fair Market Value of a Share of Common
Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such
exchange (or, if listed on more than one exchange, the
exchange with the greatest volume of trading in Common Stock)
or system on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such
other source as the Administrator deems reliable; or
(ii) If the Common Stock is quoted on the NASDAQ System (but
is not included on the National Market System thereof) or is
regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share of
Common Stock shall be the mean between the closing bid and
closing asked prices for the Common Stock on the last market
trading day prior to the day of determination, as reported in
the Wall Street Journal or such other source as the
Administrator deems reliable.
11. "Nonstatutory Stock Option" means an Option that is not an
Incentive Stock Option.
12. "Notice of Grant" means a written notice evidencing certain terms
and conditions of an individual Option. The Notice of Grant is part of the
Option Agreement.
13. "Option" shall mean a Stock Option granted pursuant to the Plan.
14. "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan
and the Notice of Grant.
15. "Option Price" shall mean the purchase price for Stock under an
Option, as determined in Section F of the Plan.
16. "Optioned Stock" means the Common Stock subject to an Option.
17. "Participant" shall mean a Consultant to whom an Option is granted
under the Plan.
2
<PAGE> 8
18. "Plan" shall mean Atrix Laboratories, Inc. Nonqualified Stock
Option Plan.
19. "Share" means a share of the Common Stock.
20. "Stock" shall mean the common stock of the Company, $.001 par
value.
2. Section C of the Plan is hereby amended in its entirety to read as follows:
C. Stock Subject to Options
1. Subject to the provisions of Section L of the Plan, the
total number of Shares reserved and available for distribution pursuant
to awards made under the Plan shall be One Hundred Fifty Thousand
(150,000) shares. The Shares may be authorized but unissued or
reacquired stock.
2. If an Option should expire or become unexercisable for any
reason without having been exercised in full, then unpurchased Shares
which were subject thereto shall, unless the Plan shall have been
terminated, become available for other options granted under the Plan.
3. Notwithstanding any other provision of the Plan, Shares
issued upon exercise of Options under the Plan and later repurchased by
the Company shall not become available for future grant or sale under
the Plan.
3. Section D of the Plan is hereby amended in its entirety to read as follows:
D. Administration
1. The Plan shall be administered by (a) the Board; (b) a
Committee designated by the Board, which Committee shall be constituted
in such a manner as to satisfy the Applicable Laws; or (c) as permitted
by Rule 16b-3.
2. Once a Committee has been appointed pursuant to this
Section, such Committee shall continue to serve in its designated
capacity or until otherwise directed by the Board. From time to time,
the Board may increase the size of any Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies (however caused) or
remove all member of the Committee and thereafter directly administer
the Plan, all to the extent permitted by the Applicable Laws and, in
the case of a Committee appointed under this Section, to the extent
permitted by Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary grant or award plan.
3
<PAGE> 9
3. Subject to the provisions of the Plan and, in the case of a
Committee, the specific duties delegated by the Board to such
Committee, the Administrator shall have the authority, in its
discretion:
(a) to grant Nonqualified Stock Options;
(b) to determine the Fair Market Value of the Common
Stock, in accordance with Section B(10) of the Plan;
(c) to determine the number of shares of Common Stock
to be covered by each such award granted hereunder;
(d) to approve forms of agreements for use under the
Plan;
(e) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder and of the Options so awarded (including, but not
limited to, the exercise or purchase price and any restriction
or limitation regarding any Option and/or the shares of Common
Stock relating thereto, based in each case on such factors as
the Administrator shall determine, in its sole discretion);
(f) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an
Option previously granted by the Administrator;
(g) to interpret the Plan and to prescribe, amend,
and rescind rules and regulations relating to the Plan; and
(h) to make all other determinations deemed necessary
or advisable for administering the Plan.
4. All decisions, determinations, and interpretations of the
Administrator shall be final and binding.
5. If the Chief Executive Officer or his or her designees
reasonably believes that an Optionee has committed an act of
misconduct, the Chief Executive Officer may suspend the Optionee's
right to exercise any Option or to receive any benefits relating
thereto pending a determination by the Administrator. If the
Administrator determines that an Optionee has committed an act of
embezzlement, fraud, dishonesty, nonpayment of an obligation owed to
the Company, breach of fiduciary duty, or deliberate disregard of the
Company's rules resulting in loss, damage or injury to the Company, or
if an Optionee makes an unauthorized disclosure of any Company trade
secret or confidential information, engages in any conduct constituting
unfair competition, induces any Company customer to breach a contract
with the Company, or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor
his or her estate shall be entitled to exercise any Option or to
4
<PAGE> 10
receive any benefits relating to Options whatsoever. In making such
determination, the Administrator shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's
behalf at a hearing before the Administrator.
3. Section G of the Plan is hereby amended in its entirety to read as follows:
G. Terms and Conditions
The Notice of Grant shall specify the per Share exercise price
for the Shares issuable pursuant to an Option. The Notice of Grant
shall also specify the number of Shares which are subject to the
Option.
4. Section M of the Plan is hereby amended in its entirety to read as follows:
M. Amendment and Termination
1. The Board, by resolution, may terminate, amend, or revise
the Plan with respect to any shares as to which Options have not been
granted. Neither the board nor the Committee may, without the consent
of the holder of an Option, alter or impair any Option previously
granted under the Pan, except as authorized herein. Unless sooner
terminated, the Plan shall remain in effect for a period of ten years
from the date of the Plan's adoption by the Board. Termination of the
Plan shall not affect any Option previously granted.
2. Any such amendment, alteration, suspension, or termination
of the Plan shall not adversely affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not
been amended, altered, suspended, or terminated, unless mutually agreed
otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company.
5. Section N of the Plan is hereby amended in its entirety to read as follows:
N. Legal Compliance
1. Shares shall not be issued pursuant to the award, vesting,
or exercise of an Option unless the award, vesting, or exercise of such
Option, as the case may be, and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated
thereunder, applicable state securities laws, and the requirements of
any stock exchange or quotation system upon which the Shares may then
be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
5
<PAGE> 11
2. As a condition to the receipt of Shares upon the award,
vesting, or exercise of an Option, the Company may require the person
receiving such Shares to represent and warrant at the time of any such
award, vesting, or exercise that the Shares are being acquired only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant
provisions of law.
3. The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of
any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
4. If the Optioned Stock covered by an Option exceeds, as of
the date of grant, the number of Shares which may be issued under the
Plan without additional Board approval, such Option shall be void with
respect to such excess Optioned Stock, unless Board approval of an
amendment sufficiently increasing the number of Shares subject to the
Plan is timely obtained in accordance with Section M of the Plan.
6. The following is added as a new Section O to the Plan:
O. Agreements
Options shall be evidenced by written agreements in such form
as the Administrator shall approve from time to time.
7. All capitalized terms used and not otherwise defined herein shall have the
same meanings as set forth in the Agreement.
8. Except as expressly modified by the terms hereof, the terms and provisions of
the Agreement shall remain in full force and effect as originally written.
6
<PAGE> 12
This Second Amendment has been duly adopted by the Board of Directors
at a meeting held on April 27,1998.
ATRIX LABORATORIES, INC.
/s/ John E. Urheim
----------------------------------------
John E. Urheim, Vice Chairman and Chief
Executive Officer
ATTEST:
/s/ Brian G. Richmond
- ----------------------------------------
Brian G. Richmond, Assistant Secretary
and Vice President-Finance
7
<PAGE> 1
EXHIBIT 10.7
January 13, 1995
Steven Garrett, D.D.S., M.S.
1674 Halsey Street
Redlands, California 92373
Dear Dr. Garrett:
On behalf of the Atrix Board of Directors and Executive Management, I
am pleased to offer you the position of Vice President of Periodontal (Dental)
Clinical Research of Atrix Laboratories, Inc. You will report directly to Dr.
Lee Southard, President and Chief Scientific Officer. I think the job is a
perfect match and that you will enjoy the opportunities, the people, and the
business very much. At the same time, I'm confident that you will lead the
Clinical group well, provide the direction for its continued growth and help the
rest of senior management set an appropriate strategic direction for the
corporation.
Your responsibilities at Atrix will span preclinical and clinical
research in the dental area and will include: directing, planning, execution and
interpretation of clinical trials/research and data collection activities;
establishing and approving scientific methods for design and implementation of
clinical protocols, data collection systems and final reports; monitoring
adherence to protocols and determining study completion; interacting with
various inside/outside groups to facilitate the clinical trials program for
Phase I - Phase IV clinical trials; and collaborating with senior management in
determining what other applications of the ATRIGELTM technology should be
brought forward to the clinical testing stage in the fields of dentistry and
particularly periodontal disease.
The major elements of our employment offer are outlined as follows:
A. Base Salary: Your base salary will be $150,000 and will be
reviewed annually. Merit increases are given based on
performance. Annual salary reviews for executives are given by
the Board of Directors.
B. Initial Stock Option: You will be granted a stock option of
50,000 shares of Atrix Laboratories, Inc. stock under the
company's Performance Stock Option Plan with the purchase
price being the closing bid price reported in The Wall Street
Journal on the first day of your employment. Your shares will
vest at the rate of 33-1/3 percent a year upon each
anniversary date of employment.
<PAGE> 2
Steve Garrett, D.D.S., M.S.
January 13, 1995
Page 2
C. 401 W Saving Plan: Atrix's 401(k) plan is administered by the
Principal Financial Group, and enrollment is permitted twice a
year, January and July. After a year of service, you will be
eligible for participation in a 401(k) savings plan in which
the company matches 50 percent of your contribution up to 6
percent of your salary subject to non-discrimination rules. If
you have an existing 401(k), it can be rolled-over into the
Atrix plan and you may make additional contributions to the
Atrix plan upon hire.
D. Insurance: You will be eligible to participate in the
Company's full range of insurance, including medical, dental,
disability, accident and life in accordance with the Company
waiting period.
E. Relocation: Relocation expense reimbursements include:
1. Atrix will pay you up to $50,000 in accordance with
our Relocation Assistance Policy, a copy of which is
attached for your convenience. This policy takes into
consideration certain IRS restrictions and
requirements. Basically, all normal moving expenses
(packing, loading, transporting of household goods)
are deductible. We do not pay a gross up for any
amount spent on relocation expenses in excess of the
standard IRS deductible expenses.
2. Also, to further assist you and your family in moving
to Fort Collins, the Company will pay your weekly or
bi-weekly airfare between Fort Collins and Los
Angeles until June 30, 1995, or until you are
relocated, whichever comes first.
3. If your present house does not sell within 90 days of
the date you join Atrix, the Company will provide you
with a bridge loan for a down-payment to assist you
in a new home purchase in Colorado at one percent
above the prime rate until you sell your house.
F. Termination: In the event that you are terminated for any of
the following:
1. the sale by the Company of substantially all of its
assets to a single purchaser or to a group of
associated purchasers;
2. the sale, exchange or other disposition in one
transaction, of two-thirds of the outstanding capital
stock of the Company;
3. if your position is eliminated, other than for cause;
<PAGE> 3
Steve Garrett, D.D.S., M.S.
January 13, 1995
Page 3
4. if there is a change in control of the Company
through a merger or consolidation of the Company in a
transaction in which the Shareholders of the Company
receive less than 50% of the outstanding voting
shares of the new or continuing corporation or other
business entity and as a result of the change in
control your responsibilities are substantially
reduced, the Company will pay you, in addition to
amounts accrued in respect to periods prior to such
termination, severance equal to one year's salary and
benefits. Notwithstanding the above, such severance
shall only be paid until such time as you become
employed, on a consulting basis or otherwise. Upon
such termination, other than for cause, all unvested
stock options shall immediately vest.
This summarizes the various elements in our offer. I would like to add
that I believe that Atrix Laboratories is a splendid place for you at this point
in your career. There is an enormous opportunity here, and I know that with all
of us working together great things are in store both for Atrix and for you.
I realize that you'll be investigating the potential for selling your
practice and, as we discussed, you'll be getting back to us in about 45 days. In
the meantime, please call if you have any questions, or if we can be of any
assistance. I look forward to a long and mutually rewarding relationship in the
years ahead.
Sincerely,
/s/ John E. Urheim
John E. Urheim
Chief Executive Officer
and Vice Chairman of the Board
Accepted: /s/ Steven Garrett Date:
--------------------------------- ---------------------------
Steven Garrett, D.D.S., M.S.
<PAGE> 1
EXHIBIT 10.8
------------
ATRIX
-----
LABORATORIES, INC.
December 27, 1995
Mr. Rees M. Orland
877 East Westminster
Lake Forest, Illinois 60045-1508
Dear Mr. Orland,
On behalf of the Atrix Board of Directors and Executive Management, I
am pleased to offer you the position of Vice President of Sales and Marketing of
Atrix Laboratories, Inc. effective January 1, 1996. You will report directly to
Mr. John E. Urheim., Vice Chairman of the Board and Chief Executive Officer. I
think the job is a perfect match and that you will enjoy the opportunities, the
people, and the business very much. At the same time, I'm confident that you
will lead the Sales and Marketing group well, provide the direction for its
continued growth and help the rest of senior management set an appropriate
strategic direction for the corporation.
Your primary objective at Atrix will be to consistently meet sales
goals through the creation of a sales, marketing and distribution function of
the highest caliber consistent with what we are striving for in terms of
excellence throughout the organization. To meet the objective you will develop a
five year strategic marketing and distribution plan worldwide. Because of the
technical nature of our products, training of Atrix personnel as well as our
customers will be a critical element of all that we do.
The major elements of our employment offer are outlined as follows:
A. Base Salary: Your annual, base salary will be $150,000, to be
paid twice per month; and, will be reviewed annually. Merit
increases are given based on performance and achievement of
Company goals. Annual salary reviews for officers are given by
the Board of Directors.
B. Initial Stock Option: You will be granted an option of 40,000
shares of Atrix Laboratories, Inc., common stock under the
Company's Performance Stock Option Plan. The exercise price
will be the closing bid price reported in The Wall Street
Journal on the first day of your employment. The option will
be exercisable at the rate of 33-1/3 percent a year upon each
anniversary date of employment.
C. 401(k) Savings Plan: Atrix's 401(k) plan is administered by
the Principal Financial Group, and enrollment is open any time
after employment. After a year of service, you will be
eligible for participation in a 401(k) savings plan in which
the Company matches 50 percent of your contribution up to 6
percent of your salary subject to non-
<PAGE> 2
Mr. Rees M. Orland
December 20, 1995
Page 2
discrimination rules. If you have an existing 401(k), it may
be rolled-over into the Atrix plan and you may make additional
contributions to the Atrix plan upon hire.
D. Insurance: You will be eligible to participate in the
Company's full range of insurance, including medical, dental,
disability, accident and life in accordance with the Company
waiting period.
E. Termination: In the event that you are terminated for any of
the following:
1. the sale by the Company of substantially all of
its assets to a single purchaser or to a group of
associated purchasers;
2. the sale, exchange or other disposition in one
transaction, of two-thirds of the outstanding capital
stock of the Company:
3. if your position is eliminated, other than for cause;
4. if there is a change in control of the Company
through a merger of consolidation of the Company in a
transaction in which the shareholders of the Company
receive less than 50% of the outstanding voting
shares of the new or continuing corporation or other
business entity and as a result of the change in
control your responsibilities are substantially
reduced,
the Company will pay you, in addition to amounts accrued in
respect to periods prior to such termination, severance equal
to nine month's salary and benefits. Notwithstanding the
above, such severance shall only be paid until such time as
you become employed, on a consulting basis or otherwise. Upon
such termination other than for cause, all unvested stock
options shall immediately vest.
F. Relocation: Relocation expense reimbursements include:
1. Atrix will pay you up to $50,000 in accordance with
our Relocation Assistance Policy, a copy of which is
attached for your convenience. This policy takes
into consideration certain IRS restrictions and
requirements. Basically, all normal moving expenses
(packing, loading, transporting of household goods)
are deductible. We do not pay a gross up for any
amount spent on relocation expenses in excess of the
standard IRS deductible expenses. The Company will
pay temporary living expenses during the period
January 1, 1996 through March 31, 1996. In addition,
the Company will reimburse you for rent only during
the period April 1, 1996 through June 30, 1996.
2. Also, to further assist you and your wife in moving
to Fort Collins, the Company will pay your bi-weekly
airfare between Fort Collins and Chicago until
February 29, 1996, or until you are relocated,
whichever comes first.
This summarizes the various elements in our offer. I believe Atrix
Laboratories represents an ideal match between your extensive experience and our
specific needs at this time. I know you agree there is an
<PAGE> 3
Mr. Rees M. Orland
December 20, 1995
Page 3
enormous opportunity here and that by working together with other members of
management we can create a truly unique, highly profitable organization here.
<PAGE> 4
Mr. Rees M. Orland
December 20, 1995
Page 4
I look forward to working with you in this exciting endeavor.
Sincerely,
/s/ John E. Urheim
Chief Executive Officer and Vice Chairman of the Board
Accepted: /s/ Rees M. Orland Date: 1/1/96
----------------------------------- -----------------
encls: 401(k) Plan Description
Employee Relocation Assistance Plan
Stock Option Plan
<PAGE> 1
EXHIBIT 10.9
------------
FORM OF PERSONAL SERVICES AGREEMENT
This Personal Services Agreement (the "Agreement") is entered into this
1st day of December, 1998 by and between Atrix Laboratories, Inc., a Delaware
corporation (the "Company") with its principal place of business at 2579
Midpoint Drive, Fort Collins, Colorado 80525, and David Osborne ("Employee")
with his address at 19 Quiet Oak Circle, The Woodlands, Texas 77381 to be
effective as of December 1, 1998 (the "Effective Date").
PREMISES
--------
WHEREAS, the Company desires to employ Employee pursuant to
the terms and conditions and for the consideration set forth in this Agreement
and Employee desires to enter the employ of the Company pursuant to such terms
and conditions and for such consideration;
WHEREAS, the provisions of this Agreement are a condition of
Employee being employed by Company, of Employee's having access to confidential
business and technological information, and of Employee's being eligible to
receive certain benefits of the Company. This Agreement is entered into, and is
reasonably necessary, to protect confidential information and customer
relationships to which Employee may have access, and to protect the goodwill and
other business interests of the Company; and
WHEREAS, the provisions of this Agreement are also a condition
to Employee's agreement to provide personal services to Company.
NOW THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
Company and Employee agree as follows:
AGREEMENT
---------
1. Position, Term, Duties, Responsibilities
a. Position. Employee shall be employed by the Company as its
Vice President of Pharmacological Development at the Company's current place of
business in Fort Collins, Colorado.
b. Duties. Employee shall faithfully and diligently render
such services and perform such related duties and responsibilities as are
customarily performed by a person holding such title and as otherwise may, from
time to time, be assigned to Employee by the Company's Chief Executive Officer,
or his designees. Employee shall comply with the provisions of this Agreement
and shall at all times be subject to such Company policies and procedures
including, but not limited to, a Company code of conduct, as the Company may
from time to time establish as pertaining to Employee.
<PAGE> 2
c. Term. This Agreement shall be for a term beginning on the
Effective Date and terminating the earlier of (i) twelve (12) months from the
Effective Date (the "Expiration Date"), or (ii) the date on which Employee's
employment is terminated pursuant to Section 3 of this Agreement (the "Term").
d. Other Activities. During Employee's employment with the
Company, Employee shall devote his entire business time, attention and energies
to the performance of his duties and functions under this Agreement and, except
upon the prior written consent of the Company, shall not (i) accept any other
employment, or (ii) directly or indirectly engage in any other business activity
(whether or not pursued for gain, profit or pecuniary advantage) that is or may
be in conflict with, or that might place Employee in a conflicting position to
that of the Company.
e. Proprietary Information. Employee agrees to comply with the
terms and conditions of the standard Company Employee Proprietary Information
and Inventions Agreement, which is annexed to this Agreement and referred to as
("Exhibit A") to this Agreement.
2. Compensation, Bonuses and Benefits
a. Base Salary. During Employee's employment with the Company,
the Company shall pay Employee a base annual salary, (the "Base Salary") which
at the time of the execution of this Agreement is One Hundred and Forty-Five
Thousand Dollars ($145,000). The Base Salary shall be payable in accordance with
the Company's normal payroll schedule, less all applicable tax withholdings for
state and federal income taxes, FICA and other deductions as required by law
and/or authorized by the Employee. The Employee's Base Salary shall be reviewed
no less frequently than annually to determine whether or not the same should be
increased in light of the duties and responsibilities of the Employee and the
performance thereof, and, if it is determined that an increase is merited in the
sole discretion of the Company, such increase shall be promptly put into effect
and the base salary of the Employee as so increased shall constitute the base
salary of the Employee for purposes of this Section 2.
b. Incentive Compensation Program. During Employee's
employment with the Company, Employee shall be entitled to participate in such
incentive compensation programs as are from time to time established and
approved by Company's Board of Directors in accordance with the Company's
practice for similarly situated employees.
c. Initial Stock Options. At the Effective Date, the Company
shall grant Employee stock options to purchase 30,000 shares of the Company's
$.001 par value common stock with the purchase price being the closing sales
price as listed on the Nasdaq National Market System on the Effective Date
("Initial Stock Options"). Subject to the provisions of Section 3 of this
Agreement, Employee's Initial Stock Options shall vest pro rata over three (3)
years from the date of the grant commencing on the anniversary date of
Employee's employment with the Company, provided Employee remains employed by
the Company. Subsequent grants may be awarded in the sole discretion of the
Company, based on Employee's performance and contributions to the business. Any
stock options are subject to the approval of the Company's Board of Directors.
2
<PAGE> 3
d. Benefits. Employee shall also be entitled to participate in
such employee benefit plans which the Company provides or may establish from
time to time for the benefit of employees, subject to the terms of each such
plan and subject to the right of the Company and the Company's Board of
Directors to modify, revise or eliminate such benefit plans from time to time in
their sole discretion. Employee shall pay for the portion of the cost of such
benefits as is from time-to-time established by Company as the portion of such
cost to be paid by employees of the Company.
e. Costs and Expenses. Employee shall be entitled to
reimbursement for all ordinary reasonable out-of-pocket business expenses which
are reasonably incurred by him in the furtherance of the Company's business, in
accordance with the policies adopted from time to time by the Company or the
Company's Board of Directors. Employee will comply with the Company's travel
policies as established from time to time by the Company or the Company's Board
of Directors.
f. Vacation. During the Term, Employee shall be entitled to
paid vacation in accordance with the Company's Earned Leave Day Policy.
g. Relocation Expenses. The Company shall provide Employee
with a relocation benefit of a lump sum of Twenty-Five Thousand Dollars
($25,000), less all applicable tax withholdings for state and federal income
taxes, FICA and other deductions as required by law, payable to Executive at the
time Executive physically relocates to the Fort Collins, Colorado area on a
permanent basis.
3. Termination
a. For Cause by the Company. Employee's employment may be
terminated for "Cause." For purposes of this Agreement, "Cause" shall mean: (i)
the Employee's willful and continued failure substantially to perform his duties
hereunder (other than as a result of total or partial incapacity due to physical
or mental illness), (ii) the conviction of, or plea of guilty or nolo contendere
by the Employee to a charge of any felony under the laws of the United States or
any state thereof or crime involving moral turpitude, (iii) breach of any
covenants contained in this Agreement and/or (iv) the Employee's acting in a
manner which is reasonably likely to be detrimental or damaging to the Company's
reputation, business, operations or relations with employees, suppliers and
customers.
If Employee is terminated for Cause prior to the Expiration
Date, he shall be entitled to receive his then current Base Salary pursuant to
Section 2(a) through the date of termination. Thereafter, Employee shall not be
entitled to receive, and Company shall not be obligated to provide Employee with
any additional salary, payments or benefits of any kind.
b. Termination by Death of Employee. Employee's employment
with the Company shall terminate upon the death of the Employee. In the event
Employee's employment is terminated by death, Employee's designated beneficiary
shall be entitled to receive: (i) Employee's then current Base Salary pursuant
to Section 2(a) through the date of termination; (ii) the proceeds of any life
insurance policy offered by the Company; and (iii) the lump-sum payment of any
incentive compensation to which Employee was entitled and which Employee
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<PAGE> 4
did not receive prior to his death. Such incentive compensation, if any, shall
be prorated through the date of termination and shall be payable to Employee's
designated beneficiary at the time the bonus for such calendar year would
normally be paid.
c. Termination by Disability of Employee. To the extent
allowable under existing law, Employee's employment with Company shall terminate
upon the Disability of the Employee. For the purposes of this Section 3(c),
Employee shall be considered "Disabled" if he becomes physically or mentally
incapacitated, such that for a period of three (3) consecutive months or for an
aggregate of six (6) months during a twelve (12) consecutive month period,
Employee is unable to perform the essential functions of his job without
reasonable accommodation. Any question as to the existence of the Disability of
the Employee shall be determined in writing by a qualified independent physician
chosen by the Company and reasonably satisfactory to Employee (or Employee's
legal representative) and such determination shall be conclusive. In the event
Employee's employment is terminated by Disability, Employee shall be entitled to
receive: (i) Employee's then current Base Salary pursuant to Section 2(a)
through the date of termination due to Disability (offset by any payments made
during such period under the Company's short-term and long-term disability
programs then in effect); and (ii) the lump-sum payment of any incentive
compensation to which Employee was entitled and which Employee did not receive
prior to the date of termination; such incentive compensation, if any, shall be
prorated through the date of termination. Thereafter, Employee shall not be
entitled to receive, and Company shall not be obligated to provide Employee with
any additional salary, payments or benefits of any kind.
d. Termination of Employee by Company Without Cause. Company
may terminate Employee's employment without cause at any time for any reason
prior to the Expiration Date without notice. In the event the Company terminates
Employee's employment under this Section 3(d), Employee shall be entitled to
receive: (i) in either a lump-sum or through salary continuation, at the
Company's sole discretion, the amount of Employee's then current Base Salary
pursuant to Section 2(a) until the first to occur of (A) the Expiration Date, or
(B) Employee is employed, as an employee, consultant or otherwise, by a third
party; and (ii) the lump-sum payment of any incentive compensation to which
Employee was entitled and which Employee did not receive prior to termination;
such incentive compensation, if any, shall be prorated through the date of
termination. Thereafter Employee shall not be entitled to receive, and the
Company shall not be obligated to provide Employee with any additional salary,
payments or benefits of any kind other than those specifically set forth in
Section 3(d) or 3(i).
e. Termination of Employee Upon Change of Control. In the
event Employee's employment is terminated prior to the Expiration Date by a
Change of Control of the Company, as defined below, Employee shall be entitled
to receive: (i) Employee's then current Base Salary pursuant to Section 2(a)
above through the date of termination and (ii) the lump-sum payment of any
incentive compensation to which Employee was entitled and which Employee did not
receive prior to the date of termination; such incentive compensation, if any,
shall be prorated through the date of termination. Thereafter Employee shall not
be entitled to receive, and the Company shall not be obligated to provide
Employee with any additional salary, payments or benefits of any kind other than
those specifically set forth in Section 3(e) or 3(i).
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<PAGE> 5
For purposes of this Section 3(e), Change of Control shall
mean:
(i) any person (as defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) directly or indirectly becoming
the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to such
Securities Exchange Act) of 50% or more of the combined voting power of
Company's then outstanding securities; or
(ii) the occurrence within any 12-month period of a
change in the membership of Company's Board of Directors such that the Incumbent
Members (as defined in the following sentence) do not constitute a majority of
the members of such Board of Directors. "Incumbent Members" shall mean, with
respect to any given 12-month period, the members of such Board of Directors on
the date immediately preceding the commencement of such given 12-month period;
provided, however, that any person who becomes a member of such Board of
Directors during such given 12-month period whose election or appointment to
such Board of Directors was approved by a vote of a majority of the members of
such Board of Directors who, on the date of such election or appointment,
comprised the Incumbent Members on the date of such vote shall be considered one
of the Incumbent Members with respect to such 12-month period.
f. Voluntary Termination by Employee. If Employee voluntarily
terminates his employment prior to the Expiration Date and prior to the
occurrence of a Change of Control, Employee shall receive his then current Base
Salary pursuant to Section 2(a) through the date of termination. Employee shall
not be entitled to receive, and Company shall have no obligation to provide
Employee with any additional pay, salary, bonuses or benefits of any kind.
g. Termination by Expiration Date. In the event Employee's
employment is terminated by the occurrence of the Expiration Date, the Company
shall have no obligation to pay Employee or provide Employee with benefits of
any kind beyond the Expiration Date. In the event that Employee remains employed
by Company beyond the Expiration Date, Employee shall be considered an at-will
employee.
h. Notice of Termination. With the exception of termination by
the Expiration Date, any purported termination of employment shall be
communicated through written notice indicating the specific provision in this
Agreement relied upon.
i. Stock Options Upon Termination. In the event that
Employee's employment is terminated under the provisions of Section 3(d) and/or
3(e) of this Agreement, all unvested stock options shall vest as of the date of
termination.
4. Noncompetition
a. Employee covenants and agrees with the Company that so long
as he is employed by the Company and for a period of twelve (12) months after
the termination of Employee's employment for any reason (the "Non-Competition
Period"), Employee will not engage or participate, directly or indirectly, as
principal, agent, employee, employer, consultant, advisor, sole proprietor,
stockholder, partner, independent contractor, trustee, joint venturer or in any
other individual or representative capacity whatever, in the conduct or
management of, or own any stock or other proprietary interest in, or debt of,
any business organization, person, firm
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<PAGE> 6
partnership, association, corporation, enterprise or other entity that shall be
engaged in any business (whether in operation or in the planning, research or
development stage) that is a Competitive Business, unless Employee shall obtain
the prior written consent of the Company which consent shall make express
reference to this Agreement. Notwithstanding the foregoing, Employee may make
passive investments in any company whose stock is listed on a national
securities exchange or traded in the over-the-counter market so long as he does
not come to own, directly or indirectly, more than five percent (5%) of the
equity securities of such company. For purposes of this Agreement, a business
shall be considered a "Competitive Business" if it involves or relates to (i)
any business in which the Company is actively engaged on the date of termination
or any business in which during the twelve (12) months immediately preceding the
date of termination the Company actively contemplated engaging (as evidenced by
(x) discussions between Employee or any other officer of the Company, (y)
inclusion in a written business plan or proposal, or (z) discussions between
Employee or any other officer of the Company and any customer or prospective
customer of the Company) or (ii) any business in which an affiliate is actively
engaged on the date of termination or any business in which during the twelve
(12) months immediately preceding the date of termination an affiliate actively
contemplated engaging (as evidenced by (x) discussions between any officer of
any affiliate, (y) inclusion in a written business plan or proposal, or (z)
discussions between an officer of any affiliate and any customer or prospective
customer of any affiliate), provided, however, for purposes of this clause (ii),
such business involves or relates to the research, development, manufacturing,
production, marketing, selling or servicing of products or services for or
related to the drug delivery business.
b. During the Non-Competition Period, Employee will not
directly or indirectly solicit or induce, or aid any other entity or person in
soliciting or inducing, or knowingly permit any entity directly or indirectly
controlled by him to solicit or induce, any person who is, or during the last
six months of Employee's employment by the Company was, an officer, director,
executive, consultant or employee of the company or any of its affiliates or any
of its existing or future subsidiaries to leave the employment or association
with the Company, its affiliate or subsidiary, to become employed or retained by
any other entity or to participate in the establishment of any other business.
c. Employee agrees that in addition to the remedies the
Company may seek and obtain pursuant to this Agreement, the period during which
the covenants contained in this Section 4 apply shall be extended by any and all
periods during which Employee shall be found by a court possessing personal
jurisdiction over him to have been in violation of the covenants contained in
this Agreement.
d. Without limitation of any of the provisions of this Section
4, any payments to be made to Employee or for his benefit following termination
of his employment with the Company pursuant to Section 3 of this Agreement shall
be deemed to secure his agreements set forth in this Section 4 and such payments
may be terminated by the Company if he fails to observe the agreements set forth
in this Section 4.
e. Employee (i) acknowledges that his skills and experience
are such that he can anticipate finding employment at a senior level in his
profession, and (ii) represents and agrees
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that the restrictions imposed by this Section 4 on engaging in competitive
business activities are necessary for the protection of the legitimate interests
and competitive position of the Company and do not impose undue hardships on
him.
f. This Section 4 shall survive the termination of this
Agreement.
5. Termination Obligations of Employee
a. Return of the Company's Property. Employee hereby
acknowledges and agrees that all personal property, including, without
limitation, all books, manuals, records, reports, notes, contracts, lists,
blueprints, and other documents, or materials, or copies thereof, and equipment
furnished to or prepared by Employee in the course of or incident to Employee's
employment, belong to the Company and shall be promptly returned to the Company
upon termination of Employee's employment.
b. Representations, Obligations and Warranties Survive
Termination of Employment. The representations, obligations and warranties
contained in Sections 1(e), 4, 5, 6, 7, 10, 11, 12, 13, 14 and 15 of this
Agreement as well as the terms and conditions of Exhibit A of this Agreement
shall survive Employee's termination of employment with the Company.
c. Cooperation in Pending Work. Employee agrees to fully
cooperate with the Company in all matters relating to the winding up of pending
work on behalf of the Company and the orderly transfer of work to other
employees of the Company following any termination of Employee's employment.
Employee shall also cooperate in the resolution of any dispute, including
litigation of any action, involving the Company that relates in any way to
Employee's activities while employed by the Company.
6. Alternative Dispute Resolution
The Company and Employee mutually agree that any controversy
or claim arising out of or relating to this Agreement or the breach thereof, or
any other dispute between the parties relating in any way to Employee's
employment with the Company or the termination of that relationship, including
disputes arising under the common law and/or any federal or state statutes, laws
or regulations, shall be submitted to mediation before a mutually agreeable
mediator, which cost is to be borne equally by the parties. In the event
mediation is unsuccessful in resolving the claim or controversy, such claim or
controversy shall be resolved exclusively by arbitration. The claims covered by
this Agreement ("Arbitrable Claims") include, but are not limited to, claims for
wages or other compensation due; claims for breach of any contract (including
this Agreement) or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to, race, sex, religion, national
origin, age, marital status, medical condition, or disability); claims for
benefits (except where an employee benefit or pension plan specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one), and claims for violation of any federal, state, or other law, statute,
regulation, or ordinance, except claims excluded in the following paragraph. The
parties hereby waive any rights they may have to trial by jury in regard to
Arbitrable Claims.
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Claims Employee or the Company may have regarding Workers'
Compensation or unemployment compensation benefits and the noncompetition
provisions of this Agreement are not covered by the arbitration and mediation
provisions of this Agreement. Claims Employee or the Company may have for
violation of the proprietary information provisions of this Agreement as well as
the terms and provisions of Exhibit A of this Agreement are not covered by the
arbitration and mediation provisions of this Section 6 of this Agreement.
Arbitration under this Agreement shall be the exclusive remedy
for all Arbitrable Claims. The Company and Employee agree that arbitration shall
be held in or near Denver, Colorado or Fort Collins, Colorado and shall be in
accordance with the then-current Employment Dispute Resolution Rules of the
American Arbitration Association, before an arbitrator licensed to practice law
in Colorado. The arbitrator shall have authority to award or grant both legal,
equitable, and declaratory relief. Such arbitration shall be final and binding
on the parties. The Federal Arbitration Act shall govern the interpretation and
enforcement of this Section 6 pertaining to Alternative Dispute Resolution.
This Agreement to mediate and arbitrate survives termination
of Employee's employment.
7. Notices
All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand, overnight delivery or mailed, postage prepaid, by
certified or registered mail, return receipt requested, and addressed to the
Company:
Atrix Laboratories, Inc.
2579 Midpoint Drive
Fort Collins, Colorado 80525
Attn: Vice President, Finance
Telephone: (970) 482-5868
Facsimile: (970) 482-9735
and to Employee at:
19 Quiet Oak Circle
The Woodlands, Texas 77381
Telephone: (281) 363-1693
Employee and the Company shall be obligated to notify the
other party of any change in address. Notice of change of address shall be
effective only when made in accordance with this Section.
8. Entire Agreement
The terms of this Agreement, together with Exhibit A to this
Agreement are intended by the parties to be the final and exclusive expression
of their agreement with respect to the
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<PAGE> 9
employment of Employee by the Company and may not be contradicted by evidence of
any prior or contemporaneous statements or agreements. The parties further
intend that this Agreement shall constitute the complete and exclusive statement
of its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding involving this Agreement.
9. Amendments, Waivers
This Agreement may not be modified, amended, or terminated
except by an instrument in writing, signed by Employee and by a duly authorized
representative of the Company other than Employee. No failure to exercise and no
delay in exercising any right, remedy, or power under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.
10. Assignment; Successors and Assigns
Employee agrees that Employee will not assign, sell, transfer, delegate
or otherwise dispose of, whether voluntarily or involuntarily, or by operation
of law, any rights or obligations under this Agreement, nor shall Employee's
rights be subject to encumbrance or the claims of creditors. Any purported
assignment, transfer, or delegation shall be null and void. Nothing in this
Agreement shall prevent the consolidation of the Company with, or its merger
into, any other corporation, or the sale by the Company of all or substantially
all of its properties or assets, or the assignment by the Company of this
Agreement and the performance of its obligations hereunder to any successor in
interest. Subject to the foregoing, this Agreement shall be binding upon
Employee and Company and shall inure to the benefit of the parties and their
respective heirs, legal representatives, successors, and permitted assigns, and
shall not benefit any person or entity other than those enumerated above.
11. Use of Employee's Likeness.
Employee authorizes the Company to use, reuse and to
reasonably grant others the right to use and reuse without additional
compensation, Employee's name, photograph, likeness (including caricature),
voice and biographical information and any reproduction or simulation thereof in
any media now known or hereafter developed, for valid business purposes of the
Company.
12. Exclusion of Property of Others.
Employee will not bring to the Company or use in the
performance of his duties any documents or materials of a former employer that
are not generally available to the public or that have not been legally
transferred to the Company.
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13. Employee's Authorization to Deduct Amounts Owed.
Upon Employee's separation from employment, Company is
authorized to deduct from Employee's final wages or other monies due Employee
any debts or amounts owed to Company by Employee.
14. Severability; Enforcement
If any provision of this Agreement, or the application thereof
to any person, place, or circumstance, shall be held by a court or arbitrator of
competent jurisdiction to be invalid, unenforceable, or void, the remainder of
this Agreement and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.
15. Governing Law
The validity, interpretation, enforceability, and performance
of this Agreement shall be governed by and construed in accordance with the laws
of the United States and the Federal Arbitration Act to the extent applicable,
and otherwise by the laws of the State of Colorado.
16. Employee Acknowledgment
The parties acknowledge (a) that they have consulted with or
have had the opportunity to consult with independent counsel of their own choice
concerning this Agreement, and (b) that they have read and understand the
Agreement, are fully aware of its legal effect, and have entered into it freely
based on their own judgment and not on any representations or promises other
than those contained in this Agreement.
In Witness Whereof, the parties have duly executed this
Agreement as of the date first written above.
<TABLE>
<S> <C>
Company Employee
By: /s/ John E. Urheim /s/ David Osborne
----------------------------------------------- -------------------------------------------
John E. Urheim David Osborne
Vice Chairman and Chief Executive Officer
By: /s/ Brian G. Richmond
-----------------------------------------------
Brian G. Richmond
Vice President, Finance
</TABLE>
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EXHIBIT A
<PAGE> 1
EXHIBIT 10.10
PERSONAL SERVICES AGREEMENT
This Personal Services Agreement (the "Agreement") is entered into this
1st day of November, 1998 by and between Atrix Laboratories, Inc., a Delaware
corporation (the "Company") with its principal place of business at 2579
Midpoint Drive, Fort Collins, Colorado 80525, and Richard L. Jackson, Ph.D.
("Executive") with his address at 3950 Rose Hill Avenue, Cincinnati, Ohio 45229
to be effective as of November 1, 1998 (the "Effective Date").
PREMISES
WHEREAS, the Company desires to employ Executive pursuant to the terms
and conditions and for the consideration set forth in this Agreement and
Executive desires to enter the employ of the Company pursuant to such terms and
conditions and for such consideration;
WHEREAS, the provisions of this Agreement are a condition of Executive
being employed by Company, of Executive's having access to confidential business
and technological information, and of Executive's being eligible to receive
certain benefits of the Company. This Agreement is entered into, and is
reasonably necessary, to protect confidential information and customer
relationships to which Executive may have access, and to protect the goodwill
and other business interests of the Company; and
WHEREAS, the provisions of this Agreement are also a condition to
Executive's agreement to provide personal services to Company.
NOW THEREFORE, in consideration of the mutual promises and covenants
agreed to herein, the receipt and sufficiency of which are hereby acknowledged,
Company and Executive agree as follows:
AGREEMENT
1. Position, Term, Duties, Responsibilities
a. Position. Executive shall be employed by the Company as its
Senior Vice President of Research and Development at the Company's current place
of business in Fort Collins, Colorado.
b. Duties. Executive shall faithfully and diligently render
such services and perform such related duties and responsibilities as are
customarily performed by a person holding such title and as otherwise may, from
time to time, be reasonably assigned to Executive by the Company's Vice Chairman
and Chief Executive Officer. Executive shall comply with the provisions of this
Agreement and shall at all times be subject to such Company policies and
procedures including, but not limited to, a Company code of conduct, as the
Company may from time to time establish as pertaining to Executive.
<PAGE> 2
c. Term. This Agreement shall be for a term beginning on the
Effective Date and terminating the earlier of (i) three years from the Effective
Date (the "Expiration Date"), or (ii) the date on which Executive's employment
is terminated pursuant to Section 3 of this Agreement (the "Term"); provided
that the term shall be automatically extended indefinitely thereafter until
either party shall have given notice to the contrary (the "Term Termination
Notice"), in which event the Term shall expire on the six month anniversary of
such Term Termination Notice.
d. Other Activities. During Executive's employment with the
Company, Executive shall devote his entire business time, attention and energies
to the performance of his duties and functions under this Agreement and, except
upon the prior written consent of the Company, shall not (i) accept any other
employment, or (ii) directly or indirectly engage in any other business activity
(whether or not pursued for gain, profit or pecuniary advantage) that is or may
be in conflict with, or that might place Executive in a conflicting position to
that of the Company.
e. Proprietary Information. Executive agrees to comply with
the terms and conditions of the standard Company Employee Proprietary
Information and Inventions Agreement, which is annexed to this Agreement and
referred to as ("Exhibit A") to this Agreement.
2. Compensation, Bonuses and Benefits
a. Base Salary. During Executive's employment with the
Company, the Company shall pay Executive a base annual salary, (the "Base
Salary") which at the time of the execution of this Agreement is Two Hundred
Fifty Thousand Dollars ($250,000.00). The Base Salary shall be payable in
accordance with the Company's normal payroll schedule, less all applicable tax
withholdings for state and federal income taxes, FICA and other deductions as
required by law and/or authorized by the Executive. The Executive's Base Salary
shall be reviewed no less frequently than annually to determine whether or not
the same should be increased in light of the duties and responsibilities of the
Executive and the performance thereof, and, if it is determined that an increase
is merited, such increase shall be promptly put into effect and the base salary
of the Executive as so increased shall constitute the base salary of the
Executive for purposes of this Section 2.
b. Incentive Compensation Program. During Employee's
employment with the Company, Employee shall be entitled to participate in such
incentive compensation programs as are from time to time established and
approved by Company's Board of Directors in accordance with the Company's
practice for similarly situated employees.
c. Initial Stock Options. At the Effective Date, the Company
shall grant Executive stock options in 100,000 shares of the Company's $.001 par
value common stock with the purchase price being the price reported in the Wall
Street Journal as of the Effective Date ("Initial Stock Options"). Subject to
the provisions of Section 3 of this Agreement, Executive's Initial Stock Options
shall vest thirty-three and one-third percent per year on the anniversary date
of Executive's employment with the Company, provided Executive remains employed
by the Company. Subsequent grants may be awarded based on your performance and
contributions to the business. Any stock options are subject to the approval of
the Company's Board of Directors.
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d. Benefits. Executive shall also be entitled to participate
in such employee benefit plans which the Company provides or may establish from
time to time for the benefit of employees, subject to the terms of each such
plan and subject to the right of the Company and the Company's Board of
Directors to modify, revise or eliminate such benefit plans from time to time in
their sole discretion. Executive shall pay for the portion of the cost of such
benefits as is from time-to-time established by Company as the portion of such
cost to be paid by senior executives of Company.
e. Costs and Expenses. Executive shall be entitled to
reimbursement for all ordinary reasonable out-of-pocket business expenses which
are reasonably incurred by him in the furtherance of the Company's business, in
accordance with the policies adopted from time to time by the Company or the
Company's Board of Directors. Executive will comply with the Company's travel
policies as established from time to time by the Company or the Company's Board
of Directors.
f. Vacation. During the Term, Executive shall be entitled to
four weeks of paid vacation per year so long as the absence of Executive does
not interfere in any material respect with the performance by Executive of
Executive's duties hereunder. Executive will use his best efforts to schedule
vacation periods to minimize disruption of the Company's business.
g. Relocation Expenses. The Company shall provide Executive
with the following relocation benefits ("Relocation Benefits"):
(i) A lump-sum payment of Fifteen Thousand Dollars
($15,000) ("Lump-Sum Relocation Amount"), less all applicable tax withholdings
for state and federal income taxes, FICA and other deductions as required by
law, payable to Executive at the time Executive physically relocates to the Fort
Collins, Colorado area on a permanent basis. In the event that Executive does
not physically relocate to the Fort Collins, Colorado area on a permanent basis
within twelve months of the Effective Date, the Company shall apply the Lump-Sum
Relocation Amount toward living expenses incurred by Executive from November 1,
1999 and thereafter up to the Lump-Sum Relocation Amount;
(ii) Reasonable temporary living expenses in Fort Collins,
Colorado for up to a total of twelve (12) months from the Effective Date or
until the Executive locates reasonable accommodations, whichever comes first, up
to a maximum amount of $24,000;
(iii) Reasonable expenses for trips back to Cincinnati,
Ohio from Colorado for up to twice per month for a total of twelve (12) months
from the Effective Date, or until the Executive locates reasonable
accommodations, whichever comes first, up to a maximum amount of $12,000;
(iv) Reasonable expenses associated with Executive's
house-hunting trips to find a suitable residence in the Fort Collins, Colorado
area, up to a maximum amount of $5,000; and
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<PAGE> 4
(v) Reasonable real estate commissions, closing costs and
attorney's fees incurred in connection with the sale of Executive's residence in
Cincinnati, Ohio and the purchase of a residence in the Fort Collins, Colorado
area, up to a maximum amount of $30,000.
The Company will reimburse Executive for Relocation Benefits,
up to the maximum amounts set forth above, in accordance with the Company's
reimbursement policies.
3. Termination
a. For Cause by the Company. Executive's employment may be
terminated for "Cause." For purposes of this Agreement, "Cause" shall mean: (i)
the Executive's willful and continued failure substantially to perform his
duties hereunder (other than as a result of total or partial incapacity due to
physical or mental illness), (ii) the conviction of, or plea of guilty or nolo
contendere by the Executive to a charge of any felony under the laws of the
United States or any state thereof or crime involving moral turpitude, (iii)
breach of any covenants contained in this Agreement and/or (iv) the Executive's
acting in an intentional manner which is reasonably likely to be materially
detrimental or damaging to the Company's reputation, business, operations or
relations with employees, suppliers and customers.
If Executive is terminated for Cause prior to the Expiration
Date, he shall be entitled to receive his then current Base Salary pursuant to
Section 2(a) through the date of termination. Thereafter, Executive shall not be
entitled to receive, and Company shall not be obligated to provide Executive
with any additional salary, payments or benefits of any kind.
b. Termination by Death of Executive. Executive's employment
with the Company shall terminate upon the death of the Executive. In the event
Executive's employment is terminated by death, Executive's designated
beneficiary shall be entitled to receive: (i) the proceeds of any life insurance
policy offered by the Company; and (ii) the lump-sum payment of any incentive
compensation to which Executive was entitled and which Executive did not receive
prior to his death. Such incentive compensation shall be prorated through the
date of termination and shall be payable to Executive's designated beneficiary
at the time the bonus for such calendar year would normally be paid.
c. Termination by Disability of Executive. To the extent
allowable under existing law, Executive's employment with Company shall
terminate upon the Disability of the Executive. For the purposes of this Section
3(c), Executive shall be considered "Disabled" if he becomes physically or
mentally incapacitated, such that for a period of six consecutive months or for
an aggregate of twelve months during a twenty-four consecutive month period,
Executive is unable to perform the essential functions of his job without
reasonable accommodation. Any question as to the existence of the Disability of
the Executive shall be determined in writing by a qualified independent
physician chosen by the Company and reasonably satisfactory to Executive (or
Executive's legal representative) and such determination shall be conclusive. In
the event Executive's employment is terminated by Disability, Executive shall be
entitled to receive his current Base Salary pursuant to Section 2(a) through the
date of termination due to Disability, medical and life insurance benefits for a
period of six months following the date on which Executive's employment is
terminated due to Disability. Thereafter, Executive shall not be entitled to
receive, and Company shall not be obligated to provide Executive with any
additional salary, payments or benefits of any kind.
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<PAGE> 5
d. Termination of Executive by Company Without Cause. Company
may terminate Executive's employment without cause at any time for any reason
prior to the Expiration Date without notice. In the event the Company terminates
Executive's employment under this Section 3(d), the Company shall: (i) pay to
Executive in either a lump-sum or through salary continuation, at the Company's
sole discretion, the amount of Executive's then current Base Salary pursuant to
Section 2(a) for twelve (12) months following the date of termination; (ii) if
the Executive elects continued coverage under the Company's health plan pursuant
to the Comprehensive Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), then the Company shall continue to pay the Company's portion of the
premium for the Executive's continued coverage under the Company's health plan
until the first to occur of (A) twelve (12) months from the date of termination;
(B) Executive is employed by a third party or (C) Executive elects to cease such
coverage or fails to pay his portion of the premium; and (iii) pay to Executive
the portion of the incentive compensation for the year of such termination which
are (A) determined by objective measurement standards under the Company's
incentive compensation program applicable to senior executives of Company, and
(B) would have been paid to Executive had Executive been continuously employed
under this Agreement through the Expiration Date. Payment of such portions of
incentive compensation, if any, shall be made to Executive within 10 business
days after the date, if any, on which senior executives of Company receive
payment of their incentive compensation under such incentive compensation
program. Thereafter Executive shall not be entitled to receive, and the Company
shall not be obligated to provide Executive with any additional salary, payments
or benefits of any kind other than those specifically set forth in this Section
3(d).
e. Termination of Executive Upon Change of Control. In the
event Executive's employment is terminated prior to the Expiration Date by a
Change of Control of the Company, as defined below, Company shall: (i) pay to
Executive, in a lump sum within ten (10) days after the date Executive's
employment is terminated, the amount of Executive's then current Base Salary
pursuant to Section 2(a) above for twelve (12) months following the termination
of Executive's employment; and (ii) pay to Executive the portion of the
incentive compensation for the year of such termination which are (A) determined
by objective measurement standards under the Company's incentive compensation
program applicable to senior executives of Company, and (B) would have been paid
to Executive had Executive been continuously employed under this Agreement
through the Expiration Date. Payment of such portions of incentive compensation,
if any, shall be made to Executive within 10 business days after the date, if
any, on which senior executives of Company receive payment of their incentive
compensation under such incentive compensation program. Thereafter Executive
shall not be entitled to receive, and the Company shall not be obligated to
provide Executive with any additional salary, payments or benefits of any kind
other than those specifically set forth in this Section 3(e).
For purposes of this Section 3(e), Change of Control shall
mean:
(i) any person (as defined in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934) directly or indirectly becoming the
"beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to such
5
<PAGE> 6
Securities Exchange Act) of 50% or more of the combined voting power of
Company's then outstanding securities; or
(ii) the occurrence within any 12-month period of a change
in the membership of Company's Board of Directors such that the Incumbent
Members (as defined in the following sentence) do not constitute a majority of
the members of such Board of Directors. "Incumbent Members" shall mean, with
respect to any given 12-month period, the members of such Board of Directors on
the date immediately preceding the commencement of such given 12-month period;
provided, however, that any person who becomes a member of such Board of
Directors during such given 12-month period whose election or appointment to
such Board of Directors was approved by a vote of a majority of the members of
such Board of Directors who, on the date of such election or appointment,
comprised the Incumbent Members on the date of such vote shall be considered one
of the Incumbent Members with respect to such 12-month period.
f. Voluntary Termination by Executive. If Executive
voluntarily terminates his employment prior to the Expiration Date and prior to
the occurrence of a Change of Control, Executive shall receive his then current
Base Salary pursuant to Section 2(a) through the date of termination. Executive
shall not be entitled to receive, and Company shall have no obligation to
provide Executive with any additional pay, salary, bonuses or benefits of any
kind.
g. Termination by Expiration Date. In the event Executive's
employment is terminated by the occurrence of the Expiration Date, the Company
shall have no obligation to pay Executive or provide Executive with benefits of
any kind beyond the Expiration Date. In the event that Executive remains
employed by Company beyond the Expiration Date, Executive shall be considered an
at-will employee.
h. Notice of Termination. With the exception of termination by
the Expiration Date, any purported termination of employment shall be
communicated through written notice indicating the specific provision in this
Agreement relied upon.
i. Stock Options Upon Termination. In the event that
Executive's employment is terminated under the provisions of Section 3(d) and/or
3(e) of this Agreement, Executive's stock options shall vest upon the date his
employment is terminated.
4. Noncompetition
a. Executive covenants and agrees with the Company that so
long as he is employed by the Company and for a period of one (1) year after the
termination of Executive's employment for any reason (the "Non-Competition
Period"), Executive will not engage or participate, directly or indirectly, as
principal, agent, employee, employer, consultant, advisor, sole proprietor,
stockholder, partner, independent contractor, trustee, joint venturer or in any
other individual or representative capacity whatever, in the conduct or
management of, or own any stock or other proprietary interest in, or debt of,
any business organization, person, firm partnership, association, corporation,
enterprise or other entity that shall be engaged in any business (whether in
operation or in the planning, research or development stage) that is a
Competitive Business, unless Executive shall obtain the prior written consent of
the Company which consent shall make express reference to this Agreement.
Notwithstanding the foregoing, Executive may make passive investments in any
6
<PAGE> 7
company whose stock is listed on a national securities exchange or traded in the
over-the-counter market so long as he does not come to own, directly or
indirectly, more than five percent (5%) of the equity securities of such
company. For purposes of this Agreement, a business shall be considered a
"Competitive Business" if it involves or relates to (i) any business in which
the Company is actively engaged on the date of termination or any business in
which during the twelve (12) months immediately preceding the date of
termination the Company actively contemplated engaging (as evidenced by (x)
discussions between Executive or any other officer of the Company, (y) inclusion
in a written business plan or proposal, or (z) discussions between Executive or
any other officer of the Company and any customer or prospective customer of the
Company) or (ii) any business in which an affiliate is actively engaged on the
date of termination or any business in which during the twelve (12) months
immediately preceding the date of termination an affiliate actively contemplated
engaging (as evidenced by (x) discussions between any officer of any affiliate,
(y) inclusion in a written business plan or proposal, or (z) discussions between
an officer of any affiliate and any customer or prospective customer of any
affiliate), provided, however, for purposes of this clause (ii), such business
involves or relates to the research, development, manufacturing, production,
marketing, selling or servicing of products or services for or related to the
drug delivery business.
b. During the Non-Competition Period, Executive will not
directly or indirectly solicit or induce, or aid any other entity or person in
soliciting or inducing, or knowingly permit any entity directly or indirectly
controlled by him to solicit or induce, any person who is, or during the last
six months of Executive's employment by the Company was, an officer, director,
executive, consultant or employee of the company or any of its affiliates or any
of its existing or future subsidiaries to leave the employment or association
with the Company, its affiliate or subsidiary, to become employed or retained by
any other entity or to participate in the establishment of any other business.
c. Executive agrees that in addition to the remedies the
Company may seek and obtain pursuant to this Agreement, the period during which
the covenants contained in this Section 4 apply shall be extended by any and all
periods during which Executive shall be found by a court possessing personal
jurisdiction over him to have been in violation of the covenants contained in
this Agreement.
d. Without limitation of any of the provisions of this Section
4, any payments to be made to Executive or for his benefit following termination
of his employment with the Company pursuant to Section 3 of this Agreement shall
be deemed to secure his agreements set forth in this Section 4 and such payments
may be terminated by the Company if he fails to observe the agreements set forth
in this Section 4.
e. Executive (i) acknowledges that his skills and experience
are such that he can anticipate finding employment at a senior level in his
profession, and (ii) represents and agrees that the restrictions imposed by this
Section 4 on engaging in competitive business activities are necessary for the
protection of the legitimate interests and competitive position of the Company
and do not impose undue hardships on him.
7
<PAGE> 8
f. This Section 4 shall survive the termination of this
Agreement.
5. Termination Obligations of Executive
a. Return of the Company's Property. Executive hereby
acknowledges and agrees that all personal property, including, without
limitation, all books, manuals, records, reports, notes, contracts, lists,
blueprints, and other documents, or materials, or copies thereof, and equipment
furnished to or prepared by Executive in the course of or incident to
Executive's employment, belong to the Company and shall be promptly returned to
the Company upon termination of Executive's employment.
b. Representations, Obligations and Warranties Survive
Termination of Employment. The representations, obligations and warranties
contained in Sections 1(e), 4, 5, 6, 7, 10, 11, 12, 13 14 and 15 of this
Agreement as well as the terms and conditions of Exhibit A of this Agreement
shall survive Executive's termination of employment with the Company.
c. Cooperation in Pending Work. Executive agrees to fully
cooperate with the Company in all matters relating to the winding up of pending
work on behalf of the Company and the orderly transfer of work to other
employees of the Company following any termination of Executive's employment.
Executive shall also cooperate in the resolution of any dispute, including
litigation of any action, involving the Company that relates in any way to
Executive's activities while employed by the Company.
6. Alternative Dispute Resolution
The Company and Executive mutually agree that any controversy
or claim arising out of or relating to this Agreement or the breach thereof, or
any other dispute between the parties relating in any way to Executive's
employment with the Company or the termination of that relationship, including
disputes arising under the common law and/or any federal or state statutes, laws
or regulations, shall be submitted to mediation before a mutually agreeable
mediator, which cost is to be borne equally by the parties. In the event
mediation is unsuccessful in resolving the claim or controversy, such claim or
controversy shall be resolved exclusively by arbitration. The claims covered by
this Agreement ("Arbitrable Claims") include, but are not limited to, claims for
wages or other compensation due; claims for breach of any contract (including
this Agreement) or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to, race, sex, religion, national
origin, age, marital status, medical condition, or disability); claims for
benefits (except where an employee benefit or pension plan specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one), and claims for violation of any federal, state, or other law, statute,
regulation, or ordinance, except claims excluded in the following paragraph. The
parties hereby waive any rights they may have to trial by jury in regard to
Arbitrable Claims.
Claims Executive or the Company may have regarding Workers'
Compensation or unemployment compensation benefits and the noncompetition
provisions of this Agreement are not covered by the arbitration and mediation
provisions of this Agreement. Claims Executive or the Company may have for
violation of the proprietary information provisions of this Agreement as well as
the terms and provisions of Exhibit A of this Agreement are not covered by the
arbitration and mediation provisions of this Section 6 of this Agreement.
8
<PAGE> 9
Arbitration under this Agreement shall be the exclusive remedy
for all Arbitrable Claims. The Company and Executive agree that arbitration
shall be held in or near either Denver or Fort Collins, Colorado and shall be in
accordance with the then-current Employment Dispute Resolution Rules of the
American Arbitration Association, before an arbitrator licensed to practice law
in Colorado. The arbitrator shall have authority to award or grant both legal,
equitable, and declaratory relief. Such arbitration shall be final and binding
on the parties. The Federal Arbitration Act shall govern the interpretation and
enforcement of this Section 6 pertaining to Alternative Dispute Resolution.
This Agreement to mediate and arbitrate survives termination
of Executive's employment.
7. Notices
All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand, overnight delivery or mailed, postage prepaid, by
certified or registered mail, return receipt requested, and addressed to the
Company:
Atrix Laboratories, Inc.
2579 Midpoint Drive
Fort Collins, Colorado 80525
Attn: Chief Executive Officer
Telephone: (800) 442-8749
Facsimile: (970) 482-9735
and to Executive at:
Richard L. Jackson, Ph.D.
3950 Rose Hill Avenue
Cincinnati, Ohio 45229
Telephone: (513) 861-8490
Executive and the Company shall be obligated to notify the
other party of any change in address. Notice of change of address shall be
effective only when made in accordance with this Section.
8. Entire Agreement
The terms of this Agreement, together with Exhibit A to this
Agreement are intended by the parties to be the final and exclusive expression
of their agreement with respect to the employment of Executive by the Company
and may not be contradicted by evidence of any prior or contemporaneous
statements or agreements. The parties further intend that this Agreement shall
9
<PAGE> 10
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative,
or other legal proceeding involving this Agreement.
9. Amendments, Waivers
This Agreement may not be modified, amended, or terminated
except by an instrument in writing, signed by Executive and by a duly authorized
representative of the Company other than Executive. No failure to exercise and
no delay in exercising any right, remedy, or power under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.
10. Assignment; Successors and Assigns
Executive agrees that Executive will not assign, sell,
transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Executive's rights be subject to encumbrance or the claims
of creditors. Any purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement and the performance of its
obligations hereunder to any successor in interest. Subject to the foregoing,
this Agreement shall be binding upon Executive and Company and shall inure to
the benefit of the parties and their respective heirs, legal representatives,
successors, and permitted assigns, and shall not benefit any person or entity
other than those enumerated above.
11. Use of Employee's Likeness.
Executive authorizes the Company to use, reuse and to
reasonably grant others the right to use and reuse without additional
compensation, Executive's name, photograph, likeness (including caricature),
voice and biographical information and any reproduction or simulation thereof in
any media now known or hereafter developed, for valid business purposes of the
Company.
12. Exclusion of Property of Others.
Executive will not bring to the Company or use in the
performance of his duties any documents or materials of a former employer that
are not generally available to the public or that have not been legally
transferred to the Company.
13. Executive's Authorization to Deduct Amounts Owed.
Upon Executive's separation from employment, Company is
authorized to deduct from Executive's final wages or other monies due Executive
any debts or amounts owed to Company by Executive.
10
<PAGE> 11
14. Severability; Enforcement
If any provision of this Agreement, or the application thereof
to any person, place, or circumstance, shall be held by a court or arbitrator of
competent jurisdiction to be invalid, unenforceable, or void, the remainder of
this Agreement and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.
15. Governing Law
The validity, interpretation, enforceability, and performance
of this Agreement shall be governed by and construed in accordance with the laws
of the United States and the Federal Arbitration Act to the extent applicable,
and otherwise by the laws of the State of Colorado.
16. Executive Acknowledgment
The parties acknowledge (a) that they have consulted with or
have had the opportunity to consult with independent counsel of their own choice
concerning this Agreement, and (b) that they have read and understand the
Agreement, are fully aware of its legal effect, and have entered into it freely
based on their own judgment and not on any representations or promises other
than those contained in this Agreement.
In Witness Whereof, the parties have duly executed this
Agreement as of the date first written above.
Company Executive
/s/ G. Lee Southard /s/ Richard L. Jackson
- ----------------------------------- ----------------------------------
G. Lee Southard, Ph.D. Richard L. Jackson, Ph.D.
President and Chief Scientific
Officer
11
<PAGE> 12
EXHIBIT A
(OMITTED)
<PAGE> 1
EXHIBIT 21
MATERIAL SUBSIDIARIES OF REGISTRANT
ViroTex Corporation, a Delaware corporation.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Atrix Laboratories, Inc.
We consent to the incorporation by reference in Registration Statements No.
33-49268, No. 33-64029 and No. 333-29325 of Atrix Laboratories, Inc. on Forms
S-8, and No. 333-43191 and No. 333-68585 of Atrix Laboratories, Inc. on Form
S-3, of our report dated March 3, 1999, appearing in this Annual Report on Form
10-K of Atrix Laboratories, Inc. for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
March 23, 1999
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