<PAGE> 1
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, 1999
[ ] 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
--- ---
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 March 6, 2000 was $160,718,964.
The number of shares outstanding of the registrant's common stock as of
March 6, 2000 was 11,479,926.
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 May 8, 2000.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Atrix Laboratories, Inc. was formed in August 1986 as a Delaware
corporation. In November 1998, we acquired ViroTex Corporation through the
merger of our wholly owned subsidiary, Atrix Acquisition Corporation, with and
into ViroTex. In June 1999, our wholly owned registered subsidiary, Atrix
Laboratories Limited, was organized to conduct our international operations.
We are engaged primarily in the research, development and commercialization
of a broad range of medical, dental, and veterinary products based on our
proprietary drug delivery systems. With the acquisition of ViroTex, we have a
broad-based platform of drug delivery technologies that provides for parenteral,
transmucosal and topical delivery. These patented technologies have capabilities
of delivering small organic molecules, peptides, proteins, vaccines and natural
products. Our business strategy is to:
o focus on the commercialization of dental products that are on the
market in the U.S. and approved in Europe,
o develop partnerships with pharmaceutical and biotechnology companies
for delivery of new chemical entities and life cycle management
products,
o expand our internal product portfolio through the acquisition of
complementary technologies and/or products, and
o retain manufacturing control of our marketed products.
Drug Delivery Systems
The following chart provides a brief description of our drug delivery
systems.
<TABLE>
<CAPTION>
Technology Description Application
- ---------- ----------- -----------
<S> <C> <C>
ATRIGEL(R) Biodegradable sustained release in Delivery of drugs from weeks to months
situ implant for local or systemic
delivery
Bioerodible Muco-Adhesive Film
("BEMA(TM)") Pre-formed bioerodible film for Transmucosal delivery of drugs from
fast-acting local or systemic minutes to hours
delivery
Solvent Microparticle System Topical gel providing 2-stage dermal Dermal delivery of water insoluble drugs
("SMP(TM)") delivery
Mucocutaneous Absorption System Water resistant topical gel providing Tenacious film for either wet or dry
("MCA(TM)") sustained delivery surfaces
Biocompatible Polymer System Non-cytotoxic gel/liquid for topical Protective film for wound healing
("BCP(TM)") delivery
</TABLE>
Marketed Products
In December 1996, we entered into a commercialization agreement with Block
Drug Corporation, a leading marketer of oral healthcare products. Under the
current terms of the agreement, Block has acquired the exclusive North American
rights to market the ATRIDOX(R) product, the ATRISORB(R) GTR Barrier products
and the ATRISORB(R)-DOXY products.
We currently market two drug products, two medical device products and two
over-the-counter drug products. Our flagship drug product, ATRIDOX(R) is a
minimally invasive pharmaceutical treatment for periodontitis that employs the
ATRIGEL(R) system containing the antibiotic doxycycline. ATRIDOX(R) received
approval from the United States Food and Drug Administration, or FDA, in
September 1998 and Block commenced marketing of ATRIDOX(R) at this time. Our
subsidiary, Atrix Laboratories Limited, currently markets the ATRIDOX(R) product
within the United Kingdom. In the veterinary field, we developed a drug product
utilizing the ATRIGEL(R) system to treat periodontal disease in companion
animals, which is being marketed by Heska Corporation.
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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, or
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.
Over-the-counter products currently marketed include Viractin(R) Cold Sore
& Fever Blister Medicine and Eucalyptamint(R) 2000, a topical arthritis pain
relieving gel that utilizes our proprietary formula based upon the MCA(TM) drug
delivery system. Both products were acquired through the ViroTex acquisition.
Viractin(R) is marketed by J.B. Williams Company and we receive royalties on net
sales of Viractin(R) through July 2002. In April 1999, our marketing partner,
Heritage Consumer Products, LLC, commenced sales of Eucalyptamint(R) 2000. Under
the terms of the Heritage agreement, Heritage funds commercialization of the
product and we receive royalty payments and manufacturing margins.
Research and Development
We are currently developing the ATRISORB(R)-DOXY and the ATRISORB(R)-DOXY
FreeFlow GTR Barrier products. These are second-generation GTR barrier products
that combine the benefits of the ATRISORB(R) GTR Barrier products with the
antibiotic doxycycline, for improved clinical outcomes following periodontal
surgery. We commenced pivotal trials for the ATRISORB(R)-DOXY product in July
1998, completed the human clinical studies in November 1999 and filed for
regulatory clearance with the FDA in February 2000.
In June 1999, we successfully completed Phase I/II human clinical studies
for delivery of leuprolide acetate in prostate cancer patients using our
proprietary 30-day sustained released ATRIGEL(R) formulation. In January 2000,
we announced successful interim results in the ongoing Phase III human clinical
trials pertaining to the 30-day prostate cancer therapy study. In January 2000,
we filed an investigational new drug application with the FDA for our 90-day
prostate cancer product.
We are currently developing an acne treatment utilizing the SMP(TM) topical
drug delivery system combined with topical dapsone. Phase I/II human clinical
trials commenced in May 1998.
Development costs associated with the ATRIDOX(R) product and research costs
for various drug evaluations utilizing our five proprietary drug delivery
systems continued throughout 1999.
RECENT DEVELOPMENTS
In April 1999, we received European approval in the United Kingdom for the
ATRIDOX(R) product. In January 2000, we received approval in 11 additional
European countries to market ATRIDOX(R). In 1999, ATRIDOX(R) was awarded the ADA
Seal of Acceptance from the American Dental Association's Council on Scientific
Affairs, which is an important symbol to dentists and consumers that signifies a
dental product's safety, effectiveness and the scientific validity of its health
benefits.
OUR DRUG DELIVERY SYSTEMS
ATRIGEL(R) System
We believe that 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:
o difficulty in maintaining uniform drug levels over time,
o problems with toxicity and side effects,
o high costs due to frequent administration, and
o 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, we have 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 future products using the ATRIGEL(R) system will be successfully
developed and FDA approved or cleared for commercial use.
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We believe 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. We have 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, we have 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 to minimize 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, we have delivered Lidocaine directly to a surgical site to
reduce the pain associated with post-operative surgery.
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 the entire body requires
treatment, and the drug may not be active when given orally. For
example, we are developing an ATRIGEL(R) formulation containing the
peptide hormone leuprolide acetate as a systemic therapy for prostate
cancer. In preclinical models, we have demonstrated the systemic
delivery of leuprolide at therapeutic levels for up to 120 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.
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.
Bioerodible Mucoadhesive ("BEMA(TM)") System
This unique polymer-based system is designed to deliver systemic levels of
drugs rapidly across oral or vaginal mucosal tissues. The BEMA(TM) delivery
system consists of bioerodible bi-layer or multi-layer thin films that can be
developed to deliver at different time intervals. The semi-soft BEMA(TM) film
adheres readily to the mucosa, where it softens further on contact with
moisture, rapidly becoming unnoticeable as it delivers the drug and erodes away.
The BEMA(TM) system is versatile and can incorporate a wide variety of drugs,
including proteins and peptides, which can be loaded into the mucoadhesive layer
for delivery into the mucosal tissue, while minimizing drug release into
surrounding tissues or cavities. It is also possible to load the drug into the
backing layer to provide more controlled release into the oral or vaginal
cavity.
Various properties of the BEMA(TM) products, such as residence time,
bioerosion kinetics, taste, shape and thickness can be modified to the desired
level in order to customize drug delivery to the medical need. The BEMA(TM)
system can be formulated for either local or systemic drug delivery, and is
suitable for both over-the-counter, or OTC, and prescription products. A
BEMA(TM) product containing dyclonine as a local anesthetic prior to dental
procedures and for the treatment of canker sores has been consumer tested. A
proprietary BEMA(TM) prescription product is currently in pivotal clinical
trials for faster healing of canker sores. The BEMA(TM) technology has
applications in hormone replacement therapy, pain management, anti-emetics,
anti-psychotics, mucosal vaccines, all of which require rapid onset of action
and avoidance of first-pass metabolism if necessary. We have evaluated several
compounds for these applications. For a typical oral application, the upper
limit of drug loading for a single immediate-release dose is about 20 mg.
Mucocutaneous Absorption ("MCA(TM)") System
The MCA(TM) delivery system can be formulated as either alcohol-based gels
or as aerosols for the localized delivery of drugs to the skin or mucosal
tissues. The MCA(TM) formulations can be applied to dry, damp or even wet skin
or mucosal surfaces. Because of the novel blend of cellulose polymers dissolved
in alcohol, they quickly dry to form tenacious, moisture-resistant films that
can deliver drugs and/or promote healing. Depending on the desired application,
the MCA(TM) products can be formulated to give opaque films in order to
highlight the area of treatment, or to transparent films that are more
cosmetically acceptable. The MCA(TM) formulations can be easily flavored to mask
the taste of active ingredients for oral products and are compatible with liquid
spray applicators.
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Solvent/Microparticle ("SMP(TM)") System
We are currently developing the SMP(TM) delivery system. This system
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) technology consists of a two-stage system designed to provide
topical delivery of highly water-insoluble drugs to the skin. The unique
combination of dissolved drug with a microparticle suspension of the drug in a
single formulation allows a controlled amount of the dissolved drug to permeate
into the epidermal layer of the skin, while a high level of the microparticle
drug is maintained just above the outermost layer of the skin for later
delivery. The consistent microparticle size and distribution maximize drug
delivery while minimizing crystal growth over the shelf life of the product. The
dissolved and microparticulate drug may be the same pharmaceutical active or
they may be different actives that require local delivery over different time
frames.
Biocompatible Polymer ("BCP(TM)") System
The BCP(TM) delivery system, composed of polymers, solvents and actives
carefully selected for their low toxicity to skin cells, can be formulated as
either film-forming gels or liquids for topical applications. The BCP(TM) gels
are non-greasy, non-staining formulations that can be applied to wounded or
denuded skin to deliver a drug, such as an antibiotic, and then dry to form a
non-constricting, protective film over the wound. The gels have the unique
property of maintaining an ideal wound-healing environment by removing excess
moisture from exudative wounds and transferring moisture from the gel into
wounds that are too dry. The liquid BCP(TM) formulations are designed to provide
effective cleansing of topical wounds or denuded skin without causing further
trauma to the skin, thereby promoting faster healing with minimal scarring.
Topical Anesthetic Depot ("TAD(TM)") System
The 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 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.
MARKETED PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table sets forth certain information about our products and
products under development based on the Atrigel(R) system.
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS(1)
Periodontal Applications:
- --------------------------------------------- ------------------------------------------- ------------------------------------------
<S> <C> <C>
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
GTR Barrier surgery Launched November 1998
- --------------------------------------------- ------------------------------------------- ------------------------------------------
ATRISORB(R)GTR Barrier with Tissue regeneration and infection Phase III clinical trials completed Nov.
doxycycline reduction following periodontal surgery 1999 Currently under review by the FDA
- --------------------------------------------- ------------------------------------------- ------------------------------------------
ATRISORB(R)FreeFlow GTR Barrier with Tissue regeneration and infection Phase III clinical trials completed Nov.
doxycycline reduction following periodontal surgery 1999 Currently under review by the FDA
- --------------------------------------------- ------------------------------------------- ------------------------------------------
Oncology Applications:
- --------------------------------------------- ------------------------------------------- ------------------------------------------
ATRIGEL(R) system with leuprolide Prostate cancer Phase I/II clinical trials completed
acetate June 1999 Phase III clinical trials
began September 1999
- --------------------------------------------- ------------------------------------------- ------------------------------------------
Post-Operative Pain
- --------------------------------------------- ------------------------------------------- ------------------------------------------
ATRIGEL(R)system with lidocaine Pain associated with surgical procedures Phase I clinical trials projected to
start April 2000
- --------------------------------------------- ------------------------------------------- ------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
Veterinary Applications:
- --------------------------------------------- ------------------------------------------- ------------------------------------------
<S> <C> <C>
Heska Periodontal Therapeutic Periodontitis in companion animals Marketed
Launched December 1997
- --------------------------------------------- ------------------------------------------- ------------------------------------------
</TABLE>
- --------------
(1) See "Government Regulation."
The following table provides a summary of our products and products under
development that are not based on the ATRIGEL(R) system, including drug class
and corresponding drug delivery systems.
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS(1)
Dermatological Application
- -------------------------------------------- ------------------------------------------- ------------------------------------------
<S> <C> <C>
SMP(TM)topical gel 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 CEP Holdings 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
- -------------------------------------------- ------------------------------------------- ------------------------------------------
</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, we believe 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 United States population. We believe
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 is a painful procedure known as scaling and root planing that 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. We believe 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. Based on published industry reports, we
believe 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 painless,
minimally invasive pharmaceutical 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 we received notice that the FDA had approved the new drug
application for the ATRIDOX(R) product.
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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 United States dental
profession in November 1998. In April 1999, we received European approval in the
United Kingdom for the ATRIDOX(R) product. Atrix Laboratories Limited sells and
markets ATRIDOX(R) in the United Kingdom. We received approval in 11 additional
European countries to market ATRIDOX(R) in January 2000. In 1999, ATRIDOX(R) was
awarded the ADA Seal of Acceptance which is an important symbol to dentists and
consumers that signifies a dental product's safety, effectiveness and the
scientific validity of its health benefits.
ATRISORB(R) GTR Barrier Products
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. We estimate 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
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, we received a 510(k) premarket notification clearance
from the FDA to market the ATRISORB(R) GTR Barrier in the United States. We
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
we 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, 1999, we had received clearance to market the ATRISORB(R) GTR
Barrier in 21 foreign countries, with 1 application pending. We expect to market
the product in additional foreign countries; however, there can be no assurance
that additional regulatory approvals or clearances will be obtained.
We commenced commercial sales of the Atrisorb(R) GTR Barrier in the United
States in the third quarter of 1996. Block has the exclusive rights to market
the ATRISORB(R) GTR Barrier and the ATRISORB(R) FreeFlow GTR Barrier products in
North America. We currently market the ATRISORB(R) GTR Barrier and the
ATRISORB(R) FreeFlow GTR Barrier products in Europe through independent
distributors and are considering various marketing arrangements at this time.
See "Collaborations."
The ATRISORB(R)-DOXY Products
We are currently developing the ATRISORB(R)-DOXY products to address
infections following periodontal surgery. It has been shown clinically that
post-operative infections often lead to less than optimum healing. We believe
the incorporation of medicinal agents such as doxycycline into the ATRISORB(R)
GTR Barrier and the ATRISORB(R) FreeFlow GTR Barrier products could provide a
drug delivery capability not feasible with other GTR barrier products currently
on the market. As a result, we believe the ATRISORB(R)-DOXY products will
contribute to better healing of the surgical site. We completed Phase III
clinical trials of the ATRISORB(R)-DOXY products in November 1999 and filed for
FDA regulatory clearance of the ATRISORB(R)-DOXY products in February 2000.
ONCOLOGY APPLICATIONS
We believe that there are a number of potential systemic cancer therapies
that are compatible with the ATRIGEL(R) technology. Our first such systemic
application for the ATRIGEL(R) system in oncology is for prostate cancer. This
product uses the ATRIGEL(R) technology and delivers leuprolide acetate to the
systemic circulation for 30 days in order to reduce testosterone levels to
castrated levels. Prostate cancer products that release leuprolide acetate over
a 90-day period and a 120-day period are also under development.
POST-OPERATIVE PAIN APPLICATIONS
We are pursuing the use of our ATRIGEL(R) system to deliver lidocaine for
orthopedic post-operative pain. This product is designed to deliver lidocaine
for 3-5 days post surgery.
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VETERINARY APPLICATIONS
In 1995, we 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, we 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 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 we manufacture exclusively.
DERMATOLOGY
We are currently developing a proprietary prescription acne product that
incorporates the novel anti-inflammatory and antimicrobial drug dapsone into the
SMP(TM) drug delivery system. We have completed product formulation and
stability studies, good manufacturing practices, 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. Phase
II clinical trials are expected to begin in the second quarter, 2000.
COLLABORATIONS
Block Drug Agreement
On December 17, 1996, we 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 products, when and if approved, in North America. Block
also acquired 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 our dental research and development program. We also have 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 us. 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:
o at any time without cause,
o upon 12-months prior written notice,
o if we commit a willful and material breach of the Block agreement, or
o if we cease to manufacture or supply the product to Block pursuant to
the Block agreement.
We may terminate the Block agreement
o if Block fails to make any required payment,
o if Block commits a willful and material breach of the Block agreement,
o if Block ceases to offer the product for distribution, or
o if Block markets, distributes or sells a competitive product.
PATENTS AND TRADEMARKS
We consider patent protection and proprietary position to be materially
significant to our business. As of December 31, 1999, we maintained 37 United
States patents and 27 foreign patents, and have 22 United States and 47 foreign
patent applications pending. Claims contained in these patents and pending
patent applications protect our drug delivery technology and products based upon
these technologies. These include the ATRIGEL(R) system, the BEMA(TM), MCA(TM),
BCP(TM), and SMP(TM) technologies and the ATRISORB(R) GTR Barrier, ATRISORB(R)
FreeFlow, and the ATRIDOX(R) products.
Notwithstanding our pursuit of patent protection, there is no assurance
that others will not develop delivery systems, compositions and/or methods that
infringe our patent rights resulting from outright ownership or non-revocable
exclusive licensure of patents which relate to our delivery systems, composition
and/or methods. In that event, such delivery systems, compositions and methods
may compete with our systems, compositions and methods and may adversely affect
our operations. Furthermore, 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 our
business. We also rely on our 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 our knowledge, or that our
rights under any patents will afford sufficient protection.
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In addition to patents, we also maintain several United States and numerous
foreign trademark and service mark applications for registrations of our name,
logo, drug delivery systems and products. These include 7 United States and 23
foreign issued trademarks, with 3 United States and 14 foreign applications
pending.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. Our competitors include
major pharmaceutical, chemical and specialized biotechnology companies, many of
which have financial, technical and marketing resources significantly greater
than ours. 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 our products. 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, we are aware that other
companies are developing products that may compete with our products. There can
be no assurance that product introductions or developments by others will not
render our products or technologies obsolete or place them at a competitive
disadvantage.
Products utilizing our 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 our drug delivery systems. We expect 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 our 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 our 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 and the regulations promulgated thereunder govern, among other things, the
testing, manufacturing, safety, efficacy, labeling, storage, record keeping,
approval, clearance, advertising and promotion of our 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 our products. Delays or rejections in
obtaining regulatory approvals or clearances would adversely affect our ability
to commercialize any product we develop and our 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
Our 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:
o preclinical and clinical studies,
o the submission to the FDA of an investigational new drug application,
or IND, which must become effective before human clinical trials may
commence,
o adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug,
o the submission to the FDA of a new drug application, or NDA, and
o 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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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:
o assess the efficacy of the drug in specific, targeted indications,
o assess dosage tolerance and optional dosage, and
o 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
our 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 Food, Drug and Cosmetic Act, and User Fee
legislation, the FDA has 6-12 months in which to review the NDA and respond to
the applicant. 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. The approvable letter 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 non-approvable letter which often requires 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.
Failure to comply with the 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, or PMA or PMA supplements and the FDA's refusal to clear 510(k)s.
FDA REGULATION -- APPROVAL OF MEDICAL DEVICES
Our ATRISORB(R) GTR Barrier products are regulated in the United States as
medical devices. New medical devices are generally introduced to the market
based on a premarket notification or 510(k) submission to the FDA. Under a
510(k) submission, 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. We
have received 510(k) clearances from the FDA for the ATRISORB(R) GTR Barrier and
the ATRISORB(R) FreeFlow GTR Barrier products. The 510(k) for our
ATRISORB(R)-DOXY GTR Barrier products are currently undergoing FDA review.
FDA REGULATION -- POST-APPROVAL REQUIREMENTS
Even if regulatory clearances or approvals for our products are obtained,
our products and the facilities manufacturing our products are subject to
continued review and periodic inspection by the FDA. Each United States 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, or cGMP, if the
facility manufactures drugs, and quality system regulations if the facility
manufactures devices. In complying with cGMP and quality system regulations,
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. We must also
report certain adverse events involving our drugs and devices to the FDA under
regulations issued by the FDA.
EUROPEAN REGULATION -- APPROVAL OF MEDICINAL PRODUCTS
Our ATRIDOX(R) product is regulated in Europe as a medicinal product. In
1993, legislation was adopted which established a new and amended system for the
registration of medicinal products in the European Union, or EU. The significant
purpose of this system is to prevent the existence of separate national approval
systems which have been a major obstacle to harmonization. One of the most
significant features
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of this new system is the establishment of a new European Agency for the
Evaluation of Medicinal Products, or EMEA. Under this new system, marketing
authorization may be submitted at either a centralized, or decentralized 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 European Union for the granting of a single marketing
authorization that is valid in all European Union member states.
A mutual recognition procedure is available at the request of the applicant
for all medicinal products that 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 European Union 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 at the request of the applicant. Alternatively, the
application may be withdrawn.
We have submitted an application for ATRIDOX(R) to each European Union
member late in September 1999 for review under the decentralized procedure.
Approval was obtained January 2000 in eleven member states. The application was
withdrawn from three member states. The second round of mutual recognition is
expected to begin in the third quarter of 2000.
EUROPEAN REGULATION -- APPROVAL OF MEDICAL DEVICES
Our ATRISORB(R) GTR Barrier products are regulated in Europe as medical
devices. The European Union has promulgated rules that require medical devices
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 prohibits a company from
selling products in member states of the European Union. We have been certified
as being in compliance with the ISO 9001 standards, one of the CE Mark
certification prerequisites, and received the CE Mark for the ATRISORB(R) GTR
Barrier in January 1998. The CE Mark for the ATRISORB(R) FreeFlow GTR Barrier
product was received in January 1999.
REGULATORY CONSIDERATIONS FOR OTC DRUG PRODUCTS
An over-the-counter drug may be lawfully marketed in one of three ways:
o the drug is generally recognized as safe and effective, or GRAS/E,
o the drug is the subject of an approved NDA, or
o the drug complies with a tentative final or final monograph published
by the 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 a FDA
monograph. We manufacture Eucalyptamint(R) 2000 external analgesic which is
covered under an OTC 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 which 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
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provide their own safety and effectiveness data. There can be no assurance that
we will be able to take advantage of either the patent term extension or
marketing exclusivity provisions of this law.
The National Institutes 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 our ability to obtain research
grants. Various aspects of our 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
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 seriously harm our business.
EMPLOYEES
As of December 31, 1999, we employed 95 employees on a full-time basis and
1 person on a part-time basis. Of the 95 full-time employees, 80 are engaged in
production, research and clinical testing and the remaining 15 are in
administrative capacities and 21 employees have earned doctorate or advanced
degrees. None of our 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 to have, any adverse effect upon
our capital expenditures, earnings or the competitive position. We are not
presently a party to any litigation or administrative proceeding with respect to
our compliance with such environmental standards. In addition, we do not
anticipate being required to expend any funds in the near future for
environmental protection in connection with our operations.
We do not believe that any aspect of our business is significantly seasonal
in nature.
No significant portion of our business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
United States Government.
We currently obtain supplies of the polymer used in the polymer delivery
systems from three separate sources. Supplies of doxycycline are obtained from
both domestic and foreign sources. We believe that, in the event that we should
lose any of our suppliers of raw materials, we could locate and obtain such raw
materials from other available sources without substantial adverse delay or
increased expense.
ITEM 2. PROPERTIES.
We lease approximately 24,580 square feet of office and research laboratory
space located in Fort Collins, Colorado, pursuant to a lease that expires on
June 1, 2003. We leased an additional 4,000 square feet of space at another site
in Fort Collins and subsequently collected rental income under a sublet
agreement executed in April 1999 and completed in December 1999. Pursuant to the
lease agreement, we elected to allow the lease on the additional 4,000 square
feet to expire on December 1, 1999.
We own a 24,100 square foot manufacturing facility in Fort Collins that we
acquired in July 1996. As part of the building acquisition, we acquired two
acres of vacant land, directly adjacent to the building. In August 1997, we
acquired an additional 2.7 acres for possible future development or expansion.
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We own substantially all of our laboratory and manufacturing equipment,
which we consider to be adequate for our research, development and testing
requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
We are 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 our security holders through the
solicitation of proxies during the fourth quarter of our 1999 fiscal year.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock is traded on The Nasdaq National 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 the common stock, as reported on
The Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
---- ---
1999:
<S> <C> <C>
First Quarter $ 16 $ 8 1/2
Second Quarter 12 1/8 7 15/16
Third Quarter 9 15/16 6 1/4
Fourth Quarter 7 11/16 3 5/16
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
</TABLE>
As of March 6 , 2000, there were approximately 2,596 holders on record of
our common stock.
We have never paid cash dividends. We currently anticipate that we will
retain all available funds for use in the operation of our business and do not
anticipate paying any cash dividends in the foreseeable future.
RECENT STOCK SALES
In May 1999, we issued 18,850 shares of common stock for the earn-out
distribution, as set forth in the ViroTex merger agreement for the market launch
of Eucalyptamint(R) 2000. These transactions were made in reliance on the
exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(2).
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The consolidated financial data presented below is derived from our
consolidated financial statements, which have been audited and reported upon by
Deloitte & Touche LLP, independent auditors. The selected consolidated financial
information set forth in the table below is not necessarily indicative of our
results of future operations and should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Consolidated Operations" and the consolidated financial statements,
related notes and independent auditors' report, included herein.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total revenues $ 5,635 $ 21,073 $ 9,849 $ 1,640 $ 580
Total expenses (21,830) (19,996) (15,105) (14,328) (14,212)
Other income (expense) (350) 404 1,389 1,256 974
Income tax expense --- (48) --- ---
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
gain on extinguishment of debt (16,545) 1,433 (3,867) (11,432) (12,658)
Extraordinary gain on
extinguishment of debt 3,275 257 --- --- ---
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (13,270) $ 1,690 $ (3,867) $ (11,432) $ (12,658)
========== ========== ========== ========== ==========
Basic and diluted per common share:
Income (loss) before extraordinary item $ (1.46) $ .13 $ (.35) $ (1.13) $ (1.58)
Extraordinary item .29 .02 --- --- ---
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (1.17) $ .15 $ (.35) $ (1.13) $ (1.58)
========== ========== ========== ========== ==========
Basic and diluted weighted average
shares outstanding 11,327 11,270 11,134 10,147 8,002
========== ========== ========== ========== ==========
Balance Sheet Data:
Working capital $ 38,646 $ 63,121 $ 67,229 $ 24,669 $ 10,913
Total assets 54,659 79,480 78,294 38,463 14,894
Long-term obligations 36,690 48,500 50,000 --- ---
Shareholders' equity 14,670 28,422 26,703 30,284 12,807
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS.
The following Management's Discussion and Analysis of Consolidated
Financial Condition and Consolidated 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 us, our directors or our officers with
respect to, among other things: (i) whether we 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 our
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 our marketing strategies to market our current and any future
products, our ability to manufacture products on a commercial scale, the appeal
of our mix of products, our 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
The year 1998 marked a turning point for us with the market launch of our
flagship product ATRIDOX(R) in September 1998 and the acquisition of ViroTex in
November 1998. Prior to 1998, we devoted our efforts and resources primarily
towards research and development of dental products without a significant
product on the market to generate material revenues. Consequently, we sustained
losses in each year of our operations prior to 1998. We realized a net profit in
1998 primarily as a result of earning $17 million in milestone revenue from
Block for the FDA approval and the subsequent market launch of ATRIDOX(R). The
Block agreement provides for potential milestone payments totaling up to $50
million to us over a three-to-five year period, as well as manufacturing margins
and royalties on sales. Prior to 1999, we had recognized $24.1 million in
milestone revenue from Block. No additional Block milestone revenue was
recognized in 1999.
The year 1999 marked the first full year of ATRIDOX(R) product sales. Sales
of ATRIDOX(R) in 1999 were relatively modest as domestic and foreign market
penetration continues, marketing strategies evolve and product acceptance with a
new innovative technology within the dental community is established. We
anticipate increased sales revenues in 2000 as progress occurs on domestic and
foreign market development. In April 1999, we received European approval in the
United Kingdom for the ATRIDOX(R) product and established Atrix Laboratories
Limited in June 1999, a wholly owned subsidiary, to sell and market ATRIDOX(R)
in the United Kingdom. We received approval in January 2000 to market ATRIDOX(R)
in 11 additional European countries. In 1999, ATRIDOX(R) was awarded the ADA
Seal of Acceptance which is an important symbol to dentists and consumers that
signifies a dental product's safety, effectiveness and the scientific validity
of its health benefits.
We shifted our research and development focus from dental to medical
products in 1999. Significant resources were devoted to the research and
development of prostate cancer therapy incorporating the ATRIGEL(R) drug
delivery system with leuprolide acetate, acne treatment using the SMP(TM) drug
delivery system with topical dapsone and various medical products utilizing the
BEMA(TM) drug delivery system acquired through the ViroTex acquisition. Research
and development expenditures continued for existing and future dental products
as well, including the ATRISORB(R)-DOXY products. We are developing the
ATRISORB(R)-DOXY products, second-generation GTR barrier products that combine
the benefits of the ATRISORB(R) GTR Barrier products with the antibiotic
doxycycline, for improved clinical outcomes following periodontal surgery. We
completed the ATRISORB(R)-DOXY products Phase III human clinical trials in
November 1999. In February 2000, we announced the filing for regulatory
clearance of the ATRISORB(R)-DOXY products.
In June 1999, phase I/II human clinical studies for delivery of leuprolide
acetate in prostate cancer patients using our proprietary 30-day sustained
released ATRIGEL(R) formulation were successfully completed. In January 2000, we
announced successful interim results in the ongoing Phase III human clinical
trials pertaining to the 30-day prostate cancer therapy study. We also filed an
investigational new drug application with the FDA in January 2000 for the 90-day
prostate cancer product.
In April 1999, our marketing partner, Heritage commenced sales of
Eucalyptamint(R) 2000 into North American wholesale and retail distribution
channels. Eucalyptamint(R) 2000 is an over-the-counter pain relieving gel that
was acquired through the purchase of ViroTex. Under the terms of the Heritage
agreement, Heritage funds commercialization of the product and we receive
royalty payments and manufacturing margins.
At December 31, 1999, we had available for Federal income tax purposes, net
operating loss carryforwards of approximately $61 million and approximately $2
million in research and development tax credits. These carryforwards will expire
through 2019. Our ability to utilize our purchased net operating loss acquired
with the acquisition of ViroTex, 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.
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We operate in a single reportable segment and all revenues from customers
are from a similar group of periodontal products. Product net sales, royalty
revenues and milestone revenues from one customer, Block, amounted to
$3,176,000, $19,028,000 and $8,213,000 for the years ended December 31, 1999,
1998 and 1997, respectively. Accounts receivable balances for this customer were
approximately $502,000 and $5,616,000 for the years ended 1999 and 1998,
respectively. Revenues from export sales to customers outside of North America
amounted to approximately $758,000, $557,000 and $100,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
RESULTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
Total revenues for the year ended December 31, 1999 were approximately
$5,635,000 compared to approximately $21,073,000 for the year ended December 31,
1998, representing a 73% decrease. The decrease was primarily related to the $17
million in milestone payments earned from Block during 1998 for the FDA approval
and product launch of ATRIDOX(R) and ATRISORB(R) GTR Barrier products. We did
not earn any milestone payments in 1999. Increased net sales and contract
revenue in 1999 partially offset this decrease in total revenue.
Our total revenue included product net sales and royalty revenue of
approximately $4,542,000 for the year ended December 31, 1999 compared to
approximately $3,451,000 for the year ended December 31, 1998, representing a
32% increase. ATRIDOX(R) product sales increased 176% and ATRISORB(R) FreeFlow
GTR Barrier product sales increased 217% as a result of a full year of sales in
1999 compared to four months of sales of these products at the end of 1998. Both
the ATRIDOX(R) and ATRISORB(R) FreeFlow GTR Barrier products were launched in
September 1998.
During the fourth quarter of 1999, the Company incurred a charge of
$733,000 for a change in estimate for revenues from sales of ATRIDOX(R),
ATRISORB(R) FreeFlow GTR Barrier and ATRISORB(R) GTR Barrier. This change
resulted when Block provided updated information indicating the actual net
selling price of these products was less than the estimated net selling price.
Revenue to us is based on a set percent of actual net sales by Block. We
recorded this adjustment in the fourth quarter as a change in estimate at the
time it became known. Further, we have reduced the rate at which we will
recognize revenue under the Block agreement during 2000 to reflect these lower
selling prices.
Third-party contract manufacturing arrangements and royalty revenue
relating to sales of the Eucalyptamint(R) 2000 product, both of which commenced
in 1999, also contributed to the increase in sales for 1999. The acquisition of
ViroTex in November 1998 included royalty revenue on future net sales of
Viractin(R) from J.B. Williams Company through July 2002. The increase in
royalty revenue of 748% in 1999 was primarily due to the royalty revenue earned
on a full year of Viractin(R) sales in 1999. Partially offsetting the increase
in sales revenue for 1999 was an 80% decrease in sales of the ATRISORB(R) GTR
Barrier product and a 76% decrease in sales of the Heska Periodontal Therapeutic
product for companion animals.
Contract revenue represents revenue we earned from grants and from
unaffiliated third parties for performing contract research and development
activities utilizing our proprietary drug delivery systems. Contract revenue was
approximately $1,093,000 for the year ended December 31, 1999 compared to
approximately $622,000 for the year ended December 31, 1998, representing a 76%
increase. The increase was primarily due to the acceleration of revenue
recognition on the ATRISORB(R)-DOXY federal research grant as a result of the
corresponding acceleration of research and development efforts on these
products.
Sale of marketing rights of $17 million represents milestone revenue we
received pursuant to the Block agreement during the year ended December 31,
1998. We expect to receive additional revenue in the future upon the achievement
of other milestones under the Block agreement. The Block agreement provides for
potential milestone payments totaling up to $50 million to us over a
three-to-five year period, as well as manufacturing margins and royalties on
sales. Prior to 1999, we had recognized $24.1 million in milestone revenue from
Block. No additional Block milestone revenue was recognized in 1999.
Cost of goods sold was approximately $1,974,000 for the year ended December
31, 1999 compared to approximately $2,250,000 for the period ended December 31,
1998, representing a 12% decrease. Although there was an increase in sales
revenue for 1999, the decrease in cost of goods sold was primarily due to lower
costs to manufacture the ATRIDOX(R) and ATRISORB(R) Freeflow GTR Barrier
products as compared to the ATRISORB(R) GTR Barrier product in 1998.
Research and development expenses were approximately $15,555,000 for the
year ended December 31, 1999 compared to approximately $12,189,000 for the year
ended December 31, 1998 representing a 28% increase. This increase represented a
shift in our research and development focus from dental to medical products in
1999. Our strategic goal is to devote substantial resources to our research and
development efforts in these areas with the expectation of quickly moving
products from the development stage through to commercialization.
In 1998, we 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. This charge to income was based upon an independent third
party valuation.
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<PAGE> 18
Administrative and marketing expenses were approximately $4,300,000 for the
year ended December 31, 1999 compared to approximately $2,507,000 for the year
ended December 31, 1998, representing a 72% increase. The increase was primarily
the result of recognition of amortization expense on intangible assets
associated with the ViroTex acquisition in November 1998. Additionally,
contributing to the increase were expenditures associated with establishing our
foreign subsidiary, which commenced operations in June 1999.
Investment income for the year ended December 31, 1999 was approximately
$2,720,000 compared to approximately $3,966,000 for the year ended December 31,
1998, representing a 31% decrease. The decrease was primarily the result of a
reduction in cash and cash equivalents, and investments from 1998 to 1999. A
loss of approximately $141,000 on the sale of investments recorded in 1999 also
contributed to the decrease in investment income.
Interest expense for the year ended December 31, 1999 was approximately
$3,062,000 compared to approximately $3,575,000 for the year ended December 31,
1998 representing a 14% decrease. The reduction in interest expense was
primarily the result of our repurchase and subsequent retirement of $11,810,000,
or approximately 24% of our 7% convertible subordinated notes in 1999. We
repurchased the notes for approximately $8,173,000. As a result, we recognized
an extraordinary gain of approximately $3,275,000, or $0.29 per share, net of
deferred finance charges and accumulated amortization of approximately $362,000.
As of December 31, 1999, $36,690,000 of these notes are outstanding.
For the reasons described above, we recorded a consolidated net loss of
approximately $13,270,000, or $1.17 per share, for the year ended December 31,
1999 compared to a net income of approximately $1,690,000 or $0.15 per share for
the year ended December 31, 1998. The $17 million Block milestone payments
earned in 1998 was the primary factor causing the decrease in net income between
periods.
Years Ended December 31, 1998 and 1997
Total revenue for the year ended December 31, 1998 was 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 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.
We recognized 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 an 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 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. Contract revenue represents revenue we 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 1997.
Sale of marketing rights represents milestone revenue we received pursuant
to the Block agreement during the year ended December 31, 1998. We earned
$17,000,000 for the year ended December 31, 1998 compared to $7,100,000 in
milestone revenue for the year ended December 31, 1997, an increase of 139%. We
expect to receive additional revenue in the future upon the achievement of other
milestones under the Block agreement.
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
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 the
ATRIDOX(R) product 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 our
existing technology.
We 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. This 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.
18
<PAGE> 19
Investment income for the year ended December 31, 1998 was approximately
$3,966,000 compared to approximately $1,726,000 for the year ended December 31,
1997, representing a 130% increase. Investment income increased due to additions
in principal investments as a result of the proceeds from the notes, which was
completed in the fourth quarter of 1997, and 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 our short-term operations.
Interest expense for the year ended December 31, 1998 was approximately
$3,575,000 compared to $307,000 for the year ended December 31, 1997
representing a 1,064% increase. The increase was due to the interest expense on
the notes.
In December 1998, we repurchased $1,500,000, or 3%, of our notes on the
open market for $1,192,500. As a result, we 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 and December 31, 1997,
$48,500,000 and $50,000,000 of these notes were outstanding, respectively.
We 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. The increase in net income was primarily the
result of the increase of the milestone payments from $7,100,000 to $17,000,000
from Block.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had cash and cash equivalents of approximately
$3,022,000, marketable securities (at fair market value) of approximately
$34,857,000, net accounts receivable of approximately $1,223,000, inventory of
approximately $1,863,000, and other current assets of approximately $981,000,
for total current assets of approximately $41,945,000. Current liabilities
totaled approximately $3,299,000, which resulted in working capital of
approximately $38,646,000.
In September 1998, we renewed a $1,000,000 bank line of credit that expires
August 2000. Borrowings under the line bear interest at the prime rate. As of
December 31, 1999, there was no obligation outstanding under this credit
agreement.
In November 1997, we 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 our option at any time on or after
December 5, 2000. As of December 31, 1999, $36,690,000 of these notes are
outstanding.
During the year ended December 31, 1999, net cash used in operating
activities was approximately $7,011,000. This was primarily a result of the net
loss for the period of approximately $13,270,000 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. The $5 million Block milestone payment
earned in the third quarter of 1998 and received in the first quarter of 1999
reduced the cash impact of the net loss for the year ended December 31, 1999.
Net cash used in investing activities was approximately $964,000 during the year
ended December 31, 1999, primarily as a result of the investment in various
marketable securities during the period. Significant uses of cash for investing
activities during the year ended December 31, 1999 included approximately
$1,190,000 for the acquisition of property, plant and equipment. Net cash used
in financing activities was approximately $7,560,000 during the year ended
December 31, 1999, primarily as a result of the retirement of notes.
FUTURE CAPITAL REQUIREMENTS
Our long-term capital expenditure requirements will depend on numerous
factors, including:
o the progress of our research and development programs,
o the time required to file and process regulatory approval and
clearance applications,
o the development of our commercial manufacturing facilities, including
the expansion or possible construction of an administrative and
laboratory facility on land adjacent to our manufacturing facility,
o our ability to obtain additional licensing arrangements, and
o the demand for our products.
We expended approximately $1,190,000 for property, plant and equipment and
approximately $268,000 for patent development during the year ended December 31,
1999.
We expect to continue to incur substantial expenditures for research and
development, testing, regulatory compliance, market development in European
countries, possible repurchases of our notes or common stock and to hire
additional management, scientific, manufacturing and administrative personnel.
We will also continue to expend a significant amount of funds in our ongoing
clinical studies. Depending on the results of our research and development
activities, we may determine to accelerate or expand our efforts in one or more
proposed areas and
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<PAGE> 20
may, therefore, require additional funds earlier than previously anticipated.
Management believes that the existing cash and cash equivalent assets in
addition to marketable security resources will be sufficient to fund our
operations through 2000. However, there can be no assurance that underlying
assumed levels of revenue and expense will prove accurate.
We believe that it is advisable to augment our cash in order to fund all of
our activities, including potential product acquisitions. Therefore, we 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 our business, we evaluate products and technologies
held by third parties which, if acquired, could result in our development of
product candidates or which complement technologies that we are currently
developing. We expect, from time to time, to be involved in discussions with
other entities concerning our potential acquisition of rights to additional
pharmaceutical products. In the event that we acquire such products or third
party technologies, we may find it necessary or advisable to obtain additional
funding.
IMPACT OF INFLATION
Although it is difficult to predict the impact of inflation on our costs
and revenues in connection with our products, we do not anticipate that
inflation will materially impact our costs of operation or the profitability of
our products when marketed.
YEAR 2000
In prior years, we discussed the nature and progress of our plans to become
Year 2000 compliant. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in our critical information technology
and non-information technology systems, and believe those systems successfully
responded to the Year 2000 date change. We replaced some of our existing
computer and software systems with Year 2000 compliant systems. We expended a
total of approximately $1.39 million related to our Year 2000 remediation
program of which approximately $28,000 was charged to expense and approximately
$1.36 million was capitalized in 1998 and 1999. These costs were funded through
operating cash flows. Several computer systems were due to be replaced, but were
accelerated because of the Year 2000 issue.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133,
which will be effective for the year 2001, 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 hedge accounting criteria are met.
We do 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, we caution
stockholders and potential investors that the following important factors, among
others, in some cases have affected, and in the future could affect, our actual
results of operations and could cause our actual results to differ materially
from those expressed in any forward-looking statements made by, on, or on behalf
of us. 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. These factors include:
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
our products or to retain and expand markets served by the commercial
collaborations; conflicts of interest, priorities, and commercial
strategies that may arise between us and such corporate partners.
o Our limited experience in the sale and marketing of our 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 products in North
America. Failure to internally develop marketing channels for the
ATRISORB(R) GTR Barrier products, the ATRISORB(R)-DOXY products 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.
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<PAGE> 21
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.
o Competitive or market factors that may limit the use or broad
acceptance of our products.
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.
o The slow rate of acceptance of new products in the dental market.
o The continued growth and market acceptance of our products and our
ability to develop and commercialize new products in a timely and
cost-effective manner.
o Exchange rate fluctuations that may adversely impact net income
(loss).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We own financial instruments that are sensitive to market risks as part of
our investment portfolio of cash equivalents and marketable securities. The
investment portfolio is used to preserve our capital until it is required to
fund operations, including our research and development activities. None of
these market-risk sensitive instruments are held for trading purposes. We do not
own derivative financial instruments in our investment portfolio. Due to the
nature of our investment portfolio, the portfolio contains instruments that are
primarily subject to interest rate risk.
Interest Rate Risk
Our investment portfolio includes fixed rate debt instruments that are
primarily United States government and agency bonds of durations ranging from
one to nine years. The market value of these bonds is subject to interest rate
risk, and could decline in value if interest rates increase. To mitigate the
impact of fluctuations in cash flow, we maintain substantially all of our 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.
Our investment portfolio also includes investments in United States
government and agency bond funds. The value of these investments is subject to
interest rate risk.
We regularly assess the above-described market risks and have established
policies and business practices to protect against the adverse effects of these
and other potential exposures. Our investment policy restricts investments to
United States government or government backed securities, or the highest rated
commercial paper (A1P1) only. As a result, we do not anticipate any material
losses in these areas.
For disclosure purposes, we use sensitivity analysis to determine the
impacts that market risk exposures may have on the fair values of our debt and
financial instruments. The financial instruments included in the sensitivity
analysis consist of all of our cash and cash equivalents and short-term and
long-term debt instruments.
To perform sensitivity analysis, we assess 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 interest 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, 1999. The fair values that result from these computations are compared with
the fair values of these financial instruments at December 31, 1999. 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,
1999 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 our financial instruments by approximately $231,000 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
our financial instruments by
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<PAGE> 22
approximately $231,000 per year. We maintain a portion of our financial
instruments, including long-term debt instruments of approximately $7.28
million at December 31, 1999, 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 our assets may rise or fall by a greater amount
depending on actual general market performances and the value of the individual
securities we own.
The market price of the notes generally changes in parallel with the market
price of our common stock. When our stock price increases, the price of the
notes generally increases proportionally. Fair market price of our notes can be
determined from quoted market prices, where available. The fair value of our
long-term debt was estimated to be $21,463,650 at December 31, 1999 and is lower
than the carrying value by $15,226,350. Market risk was estimated as the
potential decrease in fair value resulting from a hypothetical 1% increase in
our weighted average long-term borrowing rate and a 1% decrease in quoted market
prices, or approximately $734,000.
Exchange Rate Risk
We face foreign exchange rate fluctuations, primarily with respect to the
British Pound, as the financial results of our foreign subsidiary are translated
into United States dollars for consolidation. As exchange rates vary, these
results, when translated may vary from expectations and adversely impact net
income (loss) and overall profitability. The effect of foreign exchange rate
fluctuation for the year ended December 31, 1999 was not material. Based on our
overall foreign currency rate exposure at December 31, 1999, we do not believe
that a hypothetical 10% change in foreign currency rates would materially affect
our financial position.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements required by Regulation S-X are
attached to this Report. Reference is made to Item 14 below for an index to the
consolidated 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 our definitive proxy statement for our annual
meeting of shareholders scheduled to be held on May 8, 2000 regarding our
directors and officers 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 our definitive proxy statement for our annual
meeting of shareholders scheduled to be held on May 8, 2000 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 our definitive proxy statement for our annual meeting of
shareholders scheduled to be held on May 8, 2000 regarding security ownership of
certain beneficial owners and management is hereby incorporated herein by
reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information in our definitive proxy statement for our annual meeting of
shareholders scheduled to be held on May 8, 2000 regarding certain relationships
and related transactions is hereby incorporated herein by reference in response
to this item.
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<PAGE> 23
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) Our following documents are filed as part of this Report:
1. Consolidated Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations - Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity -
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December 31,
1999, 1998 and 1997
Notes to the Consolidated Financial Statements
2. Consolidated 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
The exhibits are set forth in the Exhibit Index.
4. Reports on Form 8-K:
1. No reports on Form 8-K were filed during the three-month
period ended December 31, 1999.
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<PAGE> 24
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
our behalf by the undersigned, thereunto duly authorized.
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
(Registrant)
Date: March 13, 2000 By: /s/ David R. Bethune
------------------------------------------------
David R. Bethune
Chairman of the Board 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>
<CAPTION>
<S> <C> <C>
/s/ David R. Bethune Chairman of the Board of Directors March 13, 2000
-------------------------------- and Interim Chief Executive Officer
David R. Bethune (Principal Executive Officer)
/s/ H. Stuart Campbell Director March 13, 2000
--------------------------------
H. Stuart Campbell
Director March , 2000
--------------------------------
Dr. D. Walter Cohen
/s/ Dr. Charles P. Cox Vice President of New Business March 13, 2000
-------------------------------- Development
Dr. Charles P. Cox
/s/ Michael R. Duncan Vice President of Manufacturing March 13, 2000
--------------------------------
Michael R. Duncan
/s/ Dr. Richard Dunn Senior Vice President of Drug March 13, 2000
-------------------------------- Delivery
Dr. Richard Dunn
Director March , 2000
--------------------------------
Sander A. Flaum
/s/ Dr. J. Steven Garrett Vice President of Clinical Research March 13, 2000
--------------------------------
Dr. J. Steven Garrett
/s/ Elaine M. Gazdeck Vice President of Regulatory March 13, 2000
-------------------------------- Affairs & Quality Assurance
Elaine M. Gazdeck
/s/ Dr. Jere E. Goyan Director March 13, 2000
--------------------------------
Dr. Jere E. Goyan
/s/ Dr. Richard L. Jackson Director and Senior Vice President March 13, 2000
-------------------------------- of Research and Development
Dr. Richard L. Jackson
/s/ C. Rodney O'Connor Director March 13, 2000
--------------------------------
C. Rodney O'Connor
/s/ William C. O'Neil, Jr. Director March 13, 2000
--------------------------------
William C. O'Neil, Jr.
/s/ Dr. David Osborne Vice President of Pharmaceutical March 13, 2000
-------------------------------- Development
Dr. David Osborne
/s/ Brian G. Richmond Vice President of Finance and March 13, 2000
-------------------------------- Assistant Secretary (Principal
Brian G. Richmond Financial and Accounting Officer)
/s/ Dr. G. Lee. Southard Director March 13, 2000
--------------------------------
Dr. G. Lee Southard
/s/ John E. Urheim Director March 13, 2000
--------------------------------
John E. Urheim
</TABLE>
24
<PAGE> 25
CONSOLIDATED FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations - Years Ended December 31, 1999,
1998 and 1997 F-4
Consolidated Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997 F-6
Notes to the consolidated financial statements F-7- F-18
</TABLE>
F-1
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Atrix Laboratories, Inc. and Subsidiaries
Fort Collins, Colorado
We have audited the accompanying consolidated balance sheets of Atrix
Laboratories, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. 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 auditing standards generally
accepted in the United States of America. 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 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 29, 2000
F-2
<PAGE> 27
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,021,869 $ 18,556,641
Marketable securities available for sale, at fair market value 34,856,697 37,102,867
Accounts receivable, net of allowance for doubtful accounts
of $18,355 and $49,165 1,222,850 5,937,446
Interest receivable 562,318 664,374
Inventories 1,862,522 2,563,536
Prepaid expenses and deposits 418,812 853,266
---------------- ----------------
Total current assets 41,945,068 65,678,130
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, NET: 7,114,761 7,131,567
---------------- ----------------
OTHER ASSETS:
Intangible assets, net 4,580,325 5,049,493
Deferred finance costs, net of accumulated amortization of $430,007
and $252,131 1,018,650 1,620,412
---------------- ----------------
Other assets, net 5,598,975 6,669,905
---------------- ----------------
TOTAL ASSETS $ 54,658,804 $ 79,479,602
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 2,455,605 $ 1,650,490
Interest payable 211,094 279,039
Accrued salaries and payroll taxes 321,548 259,986
Other accrued liabilities 150,396 214,087
Deferred revenue 160,000 153,602
---------------- ----------------
Total current liabilities 3,298,643 2,557,204
---------------- ----------------
CONVERTIBLE SUBORDINATED NOTES PAYABLE 36,690,000 48,500,000
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (SEE NOTES 4, 6, 7 AND 11)
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;
11,435,244 and 11,360,672 shares issued; 11,427,554 and 11,203,672 shares
outstanding 11,435 11,361
Additional paid-in capital 74,495,672 74,822,942
Treasury stock, 7,690 and 157,000 shares, at cost (80,846) (1,650,564)
Accumulated other comprehensive loss (1,696,010) (96,553)
Accumulated deficit (58,060,090) (44,664,788)
---------------- ----------------
Total shareholders' equity 14,670,161 28,422,398
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 54,658,804 $ 79,479,602
================ ================
</TABLE>
See notes to the consolidated financial statements.
F-3
<PAGE> 28
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUE:
Net sales and royalties $ 4,541,703 $ 3,451,148 $ 1,895,179
Contract revenue 1,093,358 621,771 854,081
Sale of marketing rights and milestone revenue --- 17,000,000 7,100,000
------------------ ------------------ ------------------
Total revenue 5,635,061 21,072,919 9,849,260
------------------ ------------------ ------------------
OPERATING EXPENSES:
Cost of goods sold 1,974,009 2,249,776 1,533,441
Research and development 15,555,333 12,189,212 11,544,593
Purchased in-process research and development --- 3,050,000 ---
Administrative and marketing 4,300,480 2,506,879 2,027,034
------------------ ------------------ ------------------
Total operating expenses 21,829,822 19,995,867 15,105,068
------------------ ------------------ ------------------
INCOME (LOSS) FROM OPERATIONS (16,194,761) 1,077,052 (5,255,808)
OTHER INCOME (EXPENSE):
Investment income 2,719,830 3,965,966 1,725,838
Interest expense (3,062,239) (3,574,906) (306,950)
Other (7,651) 13,439 (29,797)
------------------ ------------------ ------------------
Net other income (expense) (350,060) 404,499 1,389,091
------------------ ------------------ ------------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
(16,544,821) 1,481,551 (3,866,717)
Income tax - current expense --- (48,183) ---
------------------ ------------------ ------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (16,544,821) 1,433,368 (3,866,717)
Extraordinary gain on extinguished debt 3,274,595 256,678 ---
------------------ ------------------ ------------------
NET INCOME (LOSS) $ (13,270,226) $ 1,690,046 $ (3,866,717)
================== ================== ==================
Basic and diluted earnings per common share:
Income (loss) before extraordinary item $ (1.46) $ .13 $ (.35)
Extraordinary item .29 .02 ---
------------------ ------------------ ------------------
Net income (loss) $ (1.17) $ .15 $ (.35)
================== ================== ==================
Basic and diluted weighted average common shares
outstanding 11,327,213 11,269,981 11,133,669
================== ================== ==================
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 29
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 11,113,624 $ 11,114 $ 72,913,274
Comprehensive loss:
Net loss -- -- --
Other comprehensive loss:
- Unrealized loss on
investments -- -- --
Net comprehensive loss
Exercise of stock options 63,637 63 311,168
------------ ------------ ------------
BALANCE,
DECEMBER 31, 1997 11,177,261 11,177 73,224,442
Comprehensive income:
Net income -- -- --
Other comprehensive
income:
- Unrealized gain on
investments -- -- --
Net comprehensive income
Exercise of stock options 145,212 146 228,686
Issuance for employee stock
purchase plan 339 -- 4,557
Issuance for acquisition:
Common stock 37,860 38 389,920
Stock options -- -- 921,370
Warrants -- -- 30,555
Compensation - stock options -- -- 23,412
Purchase of treasury stock (157,000) -- --
------------ ------------ ------------
BALANCE,
DECEMBER 31, 1998 11,203,672 11,361 74,822,942
Comprehensive loss:
Net loss -- -- --
Other comprehensive loss:
Cumulative foreign
currency translation
adjustments -- -- --
Unrealized loss on
investments -- -- --
Net comprehensive loss
Exercise of stock options 120,650 15 (763,781)
Exercise of non-qualified stock
options 1,000 -- --
Issuance for employee stock
purchase plan 3,382 -- 4,781
Issuance for restricted stock 80,000 40 236,840
Issuance for earn-out
distribution 18,850 19 194,890
------------ ------------ ------------
BALANCE,
DECEMBER 31, 1999 11,427,554 $ 11,435 $ 74,495,672
============ ============ ============
<CAPTION>
Accumulated
Other Total
Treasury Comprehensive Accumulated Shareholders'
Stock Loss Deficit Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 $ -- $ (152,641) $(42,488,117) $ 30,283,630
Comprehensive loss:
Net loss -- -- (3,866,717) (3,866,717)
Other comprehensive loss:
- Unrealized loss on
investments -- (25,226) -- (25,226)
------------
Net comprehensive loss (3,891,943)
Exercise of stock options -- -- -- 311,231
------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1997 -- (177,867) (46,354,834) 26,702,918
Comprehensive income:
Net income -- -- 1,690,046 1,690,046
Other comprehensive income:
- Unrealized gain on
investments -- 81,314 -- 81,314
------------
Net comprehensive income 1,771,360
Exercise of stock options -- -- -- 228,832
Issuance for employee stock
purchase plan -- -- -- 4,557
Issuance for acquisition:
Common stock -- -- -- 389,958
Stock options -- -- -- 921,370
Warrants -- -- -- 30,555
Compensation - stock options -- -- -- 23,412
Purchase of treasury stock (1,650,564) -- -- (1,650,564)
------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1998 (1,650,564) (96,553) (44,664,788) 28,422,398
Comprehensive loss:
Net loss -- -- (13,270,226) (13,270,226)
Other comprehensive loss:
Cumulative foreign
currency translation
adjustments -- (931) -- (931)
Unrealized loss on
investments -- (1,598,526) -- (1,598,526)
------------
Net comprehensive loss (14,869,683)
Exercise of stock options 1,107,550 -- (32,567) 311,217
Exercise of non-qualified stock
options 10,513 -- (3,513) 7,000
Issuance for employee stock
purchase plan 31,129 -- 1,530 37,440
Issuance for restricted stock 420,526 -- (90,526) 566,880
Issuance for earn-out
distribution -- -- -- 194,909
------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1999 $ (80,846) $ (1,696,010) $(58,060,090) $ 14,670,161
============ ============ ============ ============
See notes to the consolidated financial statements.
</TABLE>
F-5
<PAGE> 30
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (13,270,226) $ 1,690,046 $ (3,866,717)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 1,067,878 927,619 765,735
Amortization 708,817 390,252 58,464
Loss on sale of property, plant and equipment 113,772 45,031 76,889
Loss (gain) on sale of marketable securities 140,350 (28,186) ---
Write-off of patents 25,835 32,226 ---
Purchased in-process research and development --- 3,050,000 ---
Compensation - stock options --- 23,412 ---
Compensation - restricted stock 309,380 --- ---
Extraordinary gain on extinguishment of debt (3,274,595) (256,678) ---
Net changes in operating assets and liabilities, net of effects
of ViroTex acquisition in 1998:
Restricted cash equivalents --- --- 7,000,000
Accounts receivable 4,714,596 (4,334,019) (872,137)
Interest receivable 102,056 (324,028) (186,218)
Inventories 701,014 (1,254,017) (1,006,014)
Prepaid expenses and deposits 434,454 (649,997) 104,747
Other assets 474,708 --- ---
Accounts payable - trade 804,184 (466,755) 119,215
Interest payable (67,945) (8,632) 287,671
Accrued salaries and payroll taxes 61,562 (16,746) 63,326
Other accrued liabilities (63,691) (149,210) (57,143)
Deferred revenue 6,398 153,602 (7,002,192)
---------------- ---------------- ----------------
Net cash used in operating activities (7,011,453) (1,176,080) (4,514,374)
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,190,338) (1,004,291) (2,623,291)
Acquisition of leasehold improvements (3,743) --- (39,499)
Investment in intangible assets (268,184) (213,189) (203,854)
Proceeds from sale of property, plant and equipment 29,235 2,725 30,855
Proceeds from sale of marketable securities 10,710,352 20,130,000 2,025,000
Proceeds from maturity of marketable securities 9,352,656 48,043,018 ---
Investment in marketable securities (19,570,429) (54,968,515) (46,252,309)
Acquisition of ViroTex - net of cash acquired (23,124) (4,833,192) ---
---------------- ---------------- ----------------
Net cash provided by (used in) investing activities (963,575) 7,156,556 (47,063,098)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 613,156 233,388 311,231
Proceeds from issuance of convertible subordinated notes --- --- 50,000,000
Payment for purchase of convertible subordinated notes (8,172,900) (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 (7,559,744) (2,609,676) 48,394,841
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,534,772) 3,370,800 (3,182,631)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,556,641 15,185,841 18,368,472
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,021,869 $ 18,556,641 $ 15,185,841
================ ================ ================
Supplemental cash flow information:
- Cash paid for interest: $ 3,110,116 $ 3,569,421 $ 19,279
================ ================ ================
</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.
- In 1999, the Company issued common stock valued at
$194,909 in connection with the May 1999 Earn-Out payments relating to the
ViroTex acquisition.
- In 1999, the Company recognized compensation expense
of $309,380 for issuance of restricted stock as an addition to additional
paid-in capital.
See notes to the consolidated financial statements.
F-6
<PAGE> 31
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 five of its
proprietary drug delivery systems. ATRIGEL(R) is the Company's original
proprietary sustained release biodegradable polymer drug delivery system. 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) and the ATRISORB(R) FreeFlow GTR Barrier
products. 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. The acquisition of ViroTex provided four
additional drug delivery systems: BEMATM, MCATM, BCPTM and SMPTM. ViroTex
engaged in the development of over-the-counter and prescription products based
on its proprietary polymer and solvent based drug delivery systems. In April
1999, the Company received European approval in the United Kingdom for the
ATRIDOX(R) product and established Atrix Laboratories Limited in June 1999, a
wholly owned subsidiary of the Company, to sell and market ATRIDOX(R) in the
United Kingdom. In 1999, ATRIDOX(R) was awarded the American Dental
Association's Seal of Acceptance.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Atrix Laboratories, Inc., and our wholly-owned subsidiary, Atrix Laboratories,
Limited. All significant intercompany transactions and balances have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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 market value with the unrealized holding gain or loss included in
shareholders' equity as a component of other comprehensive income (loss).
Premiums and discounts associated with bonds are amortized using the effective
interest rate method.
F-7
<PAGE> 32
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>
1999 1998
----------- -----------
<S> <C> <C>
Raw materials $ 1,486,289 $ 1,659,097
Work in progress 300,571 393,068
Finished goods 75,662 511,371
----------- -----------
Total $ 1,862,522 $ 2,563,536
=========== ===========
</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 remaining term of
the related lease. The components of net property, plant and equipment are as
follows as of December 31:
<TABLE>
<CAPTION>
-------------- --------------
1999 1998
-------------- --------------
<S> <C> <C>
Land $ 1,071,018 $ 1,071,018
Building 3,573,695 3,416,853
Leasehold improvements 470,002 605,107
Furniture & fixtures 387,549 414,019
Machinery 4,517,952 3,929,712
Office equipment 686,958 672,979
-------------- --------------
Total property, plant and
equipment 10,707,174 10,109,688
Accumulated depreciation and
amortization (3,592,413) (2,978,121)
-------------- --------------
Property, plant and equipment,
net $ 7,114,761 $ 7,131,567
============== ==============
</TABLE>
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 $239,482 and $203,377 and $198,856 for the years ended
December 31, 1999, 1998 and 1997, 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. If this review indicates
that these assets will not be recoverable, based on the forecasted
non-discounted future operating cash flows expected to result from the use of
these assets and their eventual disposition, the Company's carrying value of
these assets is reduced to fair value. Management does not believe current
events or circumstances indicate that the Company's long-lived assets including
goodwill, are impaired as of December 31, 1999.
DEFERRED FINANCE COSTS
Costs associated with the issuance of the 7% Convertible Subordinated
Notes were deferred and are being amortized on a straight-line basis over the
seven-year term of the Notes.
F-8
<PAGE> 33
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. A portion of overhead costs
is allocated to research and development costs on a weighted-average percentage
basis among all projects under development.
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 dilution of the Notes if dilutive, and the issuance of common
stock for other potential dilutive equivalent shares outstanding. 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133,
which will be effective for the year 2001, 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 hedge accounting criteria are met.
The Company does not utilize hedges or derivative instruments and will not be
impacted by this statement.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS
130 requires that changes in equity during a reporting period, except
transactions with owners in their capacity as owners (for example, the issuance
of common stock and payments of dividends on common stock) and transactions
reported as direct adjustments to retained earnings, be reported as a component
of comprehensive income. Comprehensive income is required to be displayed with
the same prominence as other financial statements. Disclosure of comprehensive
income for the years ended December 31, 1999, 1998 and 1997 is included in the
accompanying financial statements as part of the consolidated statements of
shareholders' equity.
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."
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
F-9
<PAGE> 34
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.
TRANSLATION OF FOREIGN CURRENCIES
The Company's primary functional currency is the U.S. dollar. Foreign
subsidiaries with a functional currency other than the U.S. dollar translate net
assets at year-end exchange rates, while income and expense accounts are
translated at weighted-average exchange rates in effect during the period.
Adjustments resulting from these transactions are reflected in stockholders'
equity as cumulative foreign currency translation adjustments included in other
comprehensive income or loss.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current presentation.
2. MARKETABLE SECURITIES
As of December 31, 1999 marketable securities consist of the following:
<TABLE>
<CAPTION>
Number of Shares or Estimated
Principal Amount Cost Fair Market Value
----------------- ----------------- -----------------
<S> <C> <C> <C>
U.S. Government and Agency Bond Funds:
Thornburg Fund 45,496 $ 572,871 $ 540,494
Pimco Fund 622,446 6,707,337 6,162,219
----------------- -----------------
Total 7,280,208 6,702,713
U.S. Government and Agency Bonds 29,265,000 29,271,567 28,153,984
----------------- -----------------
Total $ 36,551,775 $ 34,856,697
================= =================
</TABLE>
As of December 31, 1998 marketable securities consist of the following:
<TABLE>
<CAPTION>
Number of Shares or Estimated
Principal Amount Cost Fair Market 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 4,919,870 4,755,379
U.S. Government and Agency Bonds 40,519,885 32,279,550 32,347,488
----------------- -----------------
Total $ 37,199,420 $ 37,102,867
================= =================
</TABLE>
As of December 31, 1999 gross unrealized gains and losses pertaining to
marketable securities were $-0- and $1,695,079, respectively. As of December 31,
1998 gross unrealized gains and losses pertaining to marketable securities were
$96,069 and $192,622, respectively. Realized investment gains and losses
included in investment income included gains of $608, $28,186 and -0- in 1999,
1998 and 1997, respectively, and losses of $140,958, -0-, and -0- in 1999, 1998
and 1997, respectively.
F-10
<PAGE> 35
3. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
----------------- -----------------
1999 1998
----------------- -----------------
<S> <C> <C>
Patents $ 1,864,185 $ 1,596,002
Purchased technology 2,800,000 2,800,000
Purchased royalty rights 600,000 600,000
Goodwill 793,838 575,805
----------------- -----------------
Sub-total 6,058,023 5,571,807
----------------- -----------------
Less: Accumulated amortization (1,477,698) (522,314)
----------------- -----------------
Total $ 4,580,325 $ 5,049,493
================= =================
</TABLE>
4. LINE OF CREDIT
The Company has a revolving line of credit with a bank that expires in
August 2000. 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, 1999, 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 (the "Notes"). The Notes bear interest at the rate of 7% and are due in
2004. The Notes are convertible, at the option of the holder, into the Company's
common stock, $.001 par value, at any time prior to maturity, unless previously
redeemed or repurchased, at a conversion price of $19.00 per share, subject to
adjustments in certain events. The Notes are redeemable, in whole or in part, at
the Company's option on or after December 5, 2000.
In December 1998, the Company repurchased $1,500,000, or 3%, of the Notes
for $1,192,500. As a result, the Company recognized an extraordinary gain of
approximately $257,000, net of unamortized deferred finance charges of $51,000.
As of December 31, 1998, $48,500,000 of these notes were outstanding.
Throughout 1999, the Company repurchased a total of $11,810,000, or
approximately 24%, of the Notes on the open market for approximately $8,173,000.
As a result, the Company recognized an extraordinary gain of approximately
$3,275,000 net of unamortized deferred finance charges and accumulated
amortization of approximately $362,000. As of December 31, 1999, $36,690,000 of
the Notes were outstanding.
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 products and
ATRISORB(R)-DOXY products, 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 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 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 agreement,
or if the Company ceases to manufacture or supply the product to Block pursuant
to the agreement. The Company may terminate the agreement if Block fails to
F-11
<PAGE> 36
make any required payment, if Block commits a willful and material breach of the
agreement, if Block ceases to offer the product for distribution, or if Block
markets, distributes or sells a competitive product.
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. Prior to 1999, the Company had
recognized $24.1 million in milestone revenue from Block. No additional Block
milestone revenue was recognized in 1999.
In 1997, the Company recognized revenue of $7,000,000 for the sale of
marketing rights of the ATRISORB(R) GTR Barrier product. 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
the Block agreements as a result of the FDA approval of the Company's new drug
application for the ATRIDOX(R) product. The Company also earned an additional
milestone of $5,000,000 as a result of Block's first commercial sale of
ATRIDOX(R). 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 were 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, issuance of 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. 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 years ended
December 31, 1998 and 1997 assumes the purchase of ViroTex had occurred as of
January 1, 1997:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Total revenues $ 25,260,962 $ 16,509,489
Net income (loss) $ (142,921) $ (2,736,752)
Basic net income (loss) per
common share $ (0.01) $ (0.25)
</TABLE>
F-12
<PAGE> 37
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,
1997, or the future results of combined operations.
In 1999 the Company made payments totaling $218,000 under the earn-out
provisions of the merger agreement. Specifically, ViroTex shareholders earned
18,850 shares of our common stock valued at approximately $195,000 and a cash
distribution of approximately $23,000 in April 1999 for the introduction and
sale of Eucalyptamint(R) 2000. Included in the purchase price of ViroTex in
November 1998 was approximately $32,000 relating to an advance payment of the
Eucalyptamint(R) 2000 earn-out paid to ViroTex employees who subsequently were
employed by our company or performed consulting duties on our company's behalf.
An additional $1,750,000 in cash and common stock is available to be
earned by previous ViroTex shareholders under the provisions of the merger
agreement for additional licensing agreements and product introductions if
executed prior to December 31, 2000.
8. STOCK OPTION PLANS
As of December 31, 1999, the Company has three 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 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 219,433 shares that remain available under
the plan for future employee stock option grants.
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
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 changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) :
-- as reported $ (13,270,226) $ 1,690,046 $ (3,866,717)
-------------- -------------- --------------
-- pro forma $ (14,911,956) $ 76,088 $ (5,067,819)
-------------- -------------- --------------
Basic and diluted net income (loss) per common
-- as reported $ (1.17) $ .15 $ (.35)
-------------- -------------- --------------
-- pro forma $ (1.32) $ .01 $ (.46)
-------------- -------------- --------------
</TABLE>
The weighted-average Black-Scholes fair value per option granted in 1999,
1998 and 1997 was $5.63, $5.29 and $4.58, 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 1999, 1998 and 1997: no dividend yield, expected
volatility of 52.5% for 1999, 47.7% for 1998 and 41.7% for 1997, risk free
interest rate of 7.0%, and expected life of 5 years.
F-13
<PAGE> 38
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, 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 granted 342,390 5.38 -12.875 13.98
Options canceled or expired (68,942) .50 -21.750 12.30
Options exercised (120,650) 8.75 - 15.00 11.15
---------------- ---------------- ----------------
Options outstanding, December 31, 1999 1,427,952 $ 5.38 - 20.75 $ 9.54
---------------- ---------------- ----------------
</TABLE>
Options outstanding are available for exercise as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Currently exercisable 884,743 $ 9.57
2000 246,029 10.57
2001 192,280 9.37
2002 104,900 7.17
--------------- ---------------
Total 1,427,952 $ 9.54
--------------- ---------------
</TABLE>
The following table summarizes information about stock options outstanding
under the Plan as of December 31, 1999:
<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 1999 CONTRACTUAL LIFE EXERCISE PRICE 1999 EXERCISABLE
- ---------------------- ------------------ ------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 5.88 - 17.25 28,887 1 year $ 10.94 28,887 $ 10.94
6.50 - 14.00 625 2 years 11.00 625 11.00
6.75 - 9.88 279,715 3 years 8.48 279,715 8.48
5.88 - 8.00 55,247 4 years 6.57 55,247 6.57
6.75 - 6.88 73,000 5 years 6.80 73,000 6.80
6.63 - 11.94 139,558 6 years 8.29 139,558 8.29
9.00 - 12.75 159,260 7 years 10.16 143,823 10.08
11.38 - 20.75 171,590 8 years 16.71 95,373 16.59
8.75 - 14.44 319,490 9 years 10.34 68,515 10.56
5.38 - 9.25 200,580 10 years 5.60 -- --
-------------- ----------------- ------------------ ----------- ---------------- -----------
$ 5.38 - 20.75 1,427,952 6.77 years $ 9.54 884,743 $ 9.57
-------------- ----------------- ------------------ ----------- ---------------- -----------
</TABLE>
NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
During the year ended December 31, 1999 the company adopted a "Non-Employee
Director Stock Incentive Plan ("DSI Plan"). The purposes of the DSI Plan are to
attract and retain the best available Non-Employee Directors, to provide them
additional incentives, and to promote the success of the Company's business.
This DSI Plan is comprised of two components: an "Automatic Option Grant
Program" and a "Stock Fee Program."
Automatic Option Grant Program
Immediately following each annual meeting of the Company's stockholders,
commencing with the 1999 Annual Stockholders' Meeting, each Non-Employee
Director who continues as a Non-Employee Director following such annual meeting
shall be granted automatically a Non-Qualified Stock Option to purchase 4,000
(5,000 in the case of the Chairman) shares of the Company's common stock. Under
the terms of the plan, these options vest in three equal annual installments
from the date of the grant. The exercise price of each option, which has a
maximum ten- year life, is equal to the market price of the Company's common
stock on the date of the grant. All options awarded under this portion of the
plan shall be made under the "Performance Stock Option Plan" and are included
above. For
F-14
<PAGE> 39
the year ended December 31, 1999, 33,000 stock options were issued and none were
exercised under this program. The exercise price of these options is $9.94.
Stock Fee Program
Commencing with the 1999 Annual Stockholders' Meeting, each Non-Employee
Director will receive an annual retainer fee. Each Non-Employee Director shall
be eligible to elect to apply all or any portion of the retainer fee to the
acquisition of shares of Restricted Common Stock or the receipt of stock
options.
The portion of the fee subject to election of Restricted Common Stock shall
be determined by dividing the elected dollar amount by the fair market value per
share on the date the fee is due to be paid. Under the terms of the plan, the
Restricted Common Stock vest in three equal installments upon completion of one
full calendar month of Board service and become fully vested and exercisable at
the end of the quarterly period from the date of grant.
The portion of the fee subject to the election of options shall be equal to
the option fee amount divided by the value of an option to purchase one share as
determined on the grant date using the Black-Scholes option pricing model. Under
the terms of the plan, the options vest in three equal installments upon
completion of one full calendar month of Board service and become fully vested
and exercisable at the end of the quarterly period from the date of grant. The
exercise price of each stock option, which has a maximum ten-year life, is equal
to the market price of the Company's common stock on the date of the grant.
The maximum aggregate number of shares which may be issued under the Stock
Fee Program portion of the plan is 25,000 shares. During the year ended December
31, 1999 the Non-Employee Directors elected to have 2,474 shares of Restricted
Common Stock issued and no stock options were elected to be issued. There are
22,526 shares that remain available under this Program.
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
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 Company accounts for grants under the Non-Qualified Plan using SFAS 123.
The weighted-average Black-Scholes fair value per option granted under the
Non-Qualified Plan in 1998 and 1997 was $7.80 and $3.98, respectively. 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 and 1997: no dividend yield, expected
volatility of 47.7% for 1998 and 41.7% for 1997, risk free interest rate of
7.0%, and expected lives of 5 years.
F-15
<PAGE> 40
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, 1996 56,980 $ 3.75 - 9.50 $ 5.07
Options granted 18,000 .50 - 16.50 8.59
Options canceled or expired (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 granted -- -- --
Options exercised (1,000) 7.00 7.00
---------------- ------------------ ------------
Options outstanding, December 31, 1999 33,480 $ 5.13 - 16.50 $ 9.30
---------------- ------------
Options outstanding are available for exercise as follows:
---------------- ------------
Currently exercisable 27,480 $ 8.68
2000 5,000 13.18
2001 1,000 15.38
TOTAL 33,480 $ 9.55
---------------- ------------
</TABLE>
The following table summarizes information about stock options outstanding
under the Non-Qualified Plan as of December 31, 1999:
<TABLE>
<CAPTION>
RANGE OF NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-
EXERCISE PRICES OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE PRICE DECEMBER 31, 1999 EXERCISE PRICE
1999 EXERCISABLE
- --------------------- -------------------- -------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 5.13 7,000 5 years $ 5.13 7,000 $ 5.13
6.63 - 7.00 8,480 6 years 6.80 8,480 6.80
9.50 - 10.88 9,000 7 years 10.42 7,000 10.29
12.28 - 16.50 9,000 8 years 14.72 5,000 14.59
---------------- ----------------- ----------------- ------------- -------------- ------------
$ 5.13 - 16.50 33,480 6.60 years $ 9.55 27,480 $ 8.68
---------------- ----------------- ----------------- ------------- -------------- ------------
</TABLE>
9. INCOME TAXES
Net deferred tax assets at December 31, consist of:
<TABLE>
<CAPTION>
1999 1998
----------------------- --------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 22,793,308 $ 15,129,836
Research and development tax credit carryforwards 1,967,066 1,608,039
Amortization of intangibles 2,124,879 2,311,644
Purchased in-process research and development -- 1,131,330
Depreciation 104,449 164,874
Other items 296,266 229,831
-------------- --------------
Net deferred tax assets 27,285,968 20,575,554
-------------- --------------
Less valuation allowance 27,285,968 20,575,554
-------------- --------------
Total $ -0- $ -0-
============== ==============
</TABLE>
At December 31, 1999, the Company has $60,798,685 of federal income tax net
operating loss carryforwards and $1,967,066 of research and development credits,
which expire through 2019. Included in the deferred tax asset for net operating
loss carryforwards are benefits from the exercise of employee stock options of
$2,691,332, which when subsequently recognized will be allocated to additional
paid in capital.
F-16
<PAGE> 41
A reconciliation of the differences in income tax expense from income (loss)
computed at the federal statutory rate and income tax expense as recorded for
the year ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ------------------ ---------------
<S> <C> <C> <C>
Income tax computed at federal statutory rate: $ (4,511,877) $ 590,998 $ (1,314,684)
State income taxes - net of federal benefit (437,917) 57,362 (127,602)
Meals and entertainment 9,569 8,457 10,685
Exercise of employee stock options (351,991) (593,368) (324,545)
Research and Development (359,027) (1,110,854) (145,739)
Other (1,059,171) 15,316 (38,671)
Change in valuation allowance 6,710,414 1,080,272 1,940,556
------------ ------------ ------------
Income tax expense $ -- $ 48,183 $ --
============ ============ ============
</TABLE>
10. SEGMENT AND CUSTOMER INFORMATION
The Company operates in a single reportable segment and all revenues from
customers are primarily from a similar group of periodontal products. Product
net sales, royalty revenues and milestone revenues from one customer amounted to
$3,176,000, $19,028,000 and $8,213,000 for the years ended December 31, 1999,
1998 and 1997 respectively. Accounts receivable balances for this customer were
approximately $502,000 and $5,616,000 for the years ended 1999 and 1998
respectively. Revenues from export sales to customers outside of North America
amounted to approximately $758,000, $557,000 and $100,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
11. COMMITMENTS
As of December 31, 1999, minimum rental commitments under non-cancelable
operating leases of one year or more are as follows:
<TABLE>
<CAPTION>
Year Ending Minimum Rental
December 31, Commitment
------------ ------------------
<S> <C> <C>
2000 $ 274,261
2001 281,918
2002 273,993
2003 114,232
----------
Total $ 944,404
==========
</TABLE>
Rent expense was $330,346, $275,917 and $212,982 for the years ended
December 31, 1999, 1998 and 1997, respectively.
A five-year purchase agreement with a supplier to provide doxycycline
hyclate was executed in March 1998 and expires in March 2003. The agreement
required a $300,000 initial annual fee payment and $100,000 in annual fees for
each of the remaining contract years. The priced charged for the doxycyline
product is based on accumulated commercial sales of our products containing
doxycycline sold for each year under the agreement and varies from 1/2% to 2% of
such sales depending on the level of accumulated sales. In the event the fee for
doxycyline consumption exceeds $100,000 in any one year, then the annual fee
shall be waived.
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 that are immediately vested. The
Company's matching contributions to the Savings Plan were $119,120, $91,889 and
$64,770 for 1999, 1998 and 1997, respectively.
F-17
<PAGE> 42
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 283,871 shares remain available at December 31, 1999.
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. 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. The initial repurchase program completed in November 1999 and a
new repurchase program to acquire an additional $10 million in the Company's
Common Stock or Notes was approved by the Board of Directors in November 1999.
As of December 31, 1999, the Company has repurchased 157,000 shares of its
common stock for approximately $1,651,000. In 1999, 149,310 shares of the
Company's treasury stock were reissued for the Company's common stock shares
under the ESPP, the Performance Stock Option Plan and the Non-Qualified Plan. As
of December 31, 1999, 7,690 treasury stock shares remain available. The treasury
shares reissued increased the Accumulated Deficit by approximately $125,000 in
1999.
During 1999, the Company granted an officer the right to purchase up to
50,000 shares of common stock at the market price on date of purchase. Upon
purchase, the Company will match the number of shares acquired for no additional
consideration. This arrangement extends for the term of employment. During 1999,
40,000 shares were acquired under this arrangement and an additional 40,000
shares were issued to match the stock purchases made. As a result, the Company
recognized $309,380 of compensation expense during 1999 related to this
arrangement.
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>
1999 1999 1998 1998
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------- ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,021,869 $ 3,021,869 $ 18,556,641 $ 18,556,641
Marketable securities 34,856,697 34,856,697 37,102,867 37,102,867
Convertible subordinated notes 36,690,000 21,463,650 48,500,000 36,375,000
------------ --------------- ---------------- ---------------
</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.
F-18
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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(7)
3.2 Eighth Amended and Restated Bylaws(*)
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(7)
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.(7) **
10.3B Second Amendment to Block Agreement dated July 31,
1997.(7) **
10.3C Third Amendment to Block Agreement dated February 4,
1998.(7) **
10.3D Fourth Amendment to Block Agreement dated January 12,
1999.(7) **
10.3E Fifth Amendment to Block Agreement dated January 27,
1999.(7) **
10.3F Sixth Amendment to Block Agreement dated September
24, 1999.(8) **
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.(7)
10.6 Non-Qualified Stock Option Plan, as amended.(7)
</TABLE>
1
<PAGE> 44
<TABLE>
<S> <C>
10.7 Non-Employee Director Stock Incentive Plan.*
10.8 Employment Agreement between Registrant and Dr. J.
Steven Garrett dated April 17, 1995(7)
10.10 Employment Agreement between Registrant and Dr. David
W. Osborne dated November 24, 1998(7)
10.11 Employment Agreement between Registrant and Dr.
Richard L. Jackson dated November 1, 1998(7)
10.12 Personal Services Agreement between Registrant and
David R. Bethune dated August 10, 1999.*
10.13 Agreement between Registrant and John E. Urheim dated
August 2, 1999.*
21 Subsidiaries of the Registrant*
23 Consent of Deloitte & Touche LLP*
27 Financial Data Schedule*
</TABLE>
- -------------------
* 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.
(7) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, as filed with the Securities and
Exchange Commission.
(8) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the nine months ended September 30, 1999, as filed with the Securities
and Exchange Commission..
2
<PAGE> 1
EXHIBIT 3.2
EIGHTH AMENDED AND RESTATED BYLAWS
OF
ATRIX LABORATORIES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Name...........................................................................................1
ARTICLE II Corporate Seal................................................................................1
ARTICLE III Offices......................................................................................1
Section 3.1 Registered Office.........................................................................1
Section 3.2 Other Offices.............................................................................1
ARTICLE IV Stockholders' Meetings........................................................................2
Section 4.1 Place of Meetings.........................................................................2
Section 4.2 Annual Meetings...........................................................................2
Section 4.3 Special Meetings..........................................................................2
Section 4.4 Notice of Meetings........................................................................2
Section 4.5 Quorum and Voting.........................................................................3
Section 4.6 Voting Rights.............................................................................3
Section 4.7 Voting Procedures and Inspectors of Elections.............................................4
Section 4.8 List of Stockholders......................................................................5
Section 4.9 Stockholder Proposals at Annual Meetings..................................................5
Section 4.10 Nominations of Persons for Election to the Board of Directors............................6
Section 4.11 Action Without Meeting...................................................................7
Section 4.12 Cumulative Voting in Certain Circumstances...............................................8
ARTICLE V Directors......................................................................................8
Section 5.1 Number and Term of Office.................................................................8
Section 5.2 Powers....................................................................................9
Section 5.3 Vacancies.................................................................................9
Section 5.4 Resignations and Removals.................................................................9
Section 5.5 Meetings.................................................................................10
Section 5.6 Quorum and Voting........................................................................11
Section 5.7 Action Without Meeting...................................................................11
Section 5.8 Fees and Compensation....................................................................11
Section 5.9 Committees...............................................................................11
Section 5.10 Honorary Directors.......................................................................13
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VI Officers.....................................................................................13
Section 6.1 Officers Designated......................................................................13
Section 6.2 Tenure and Duties of Officers............................................................13
Section 6.3 Removal..................................................................................15
ARTICLE VII Execution of Corporate Instruments and Voting of Securities Owned by the Corporation........15
Section 7.1 Execution of Corporate Instruments.......................................................15
Section 7.2 Voting of Securities Owned by Corporation................................................15
ARTICLE VIII Shares of Stock............................................................................16
Section 8.1 Form and Execution of Certificates.......................................................16
Section 8.2 Lost Certificates........................................................................16
Section 8.3 Transfers................................................................................17
Section 8.4 Fixing Record Dates......................................................................17
Section 8.5 Registered Stockholders..................................................................18
ARTICLE IX Other Securities of the Corporation..........................................................18
ARTICLE X Indemnification of Officers, Directors, Employees and Agents..................................18
Section 10.1 Right to Indemnification................................................................18
Section 10.2 Authority to Advance Expenses...........................................................19
Section 10.3 Right of Claimant to Bring Suit.........................................................19
Section 10.4 Provisions Nonexclusive.................................................................20
Section 10.5 Authority to Insure.....................................................................20
Section 10.6 Survival of Rights......................................................................20
Section 10.7 Settlement of Claims....................................................................20
Section 10.8 Effect of Amendment.....................................................................20
Section 10.9 Subrogation.............................................................................21
Section 10.10 No Duplication of Payments.............................................................21
Section 10.11 Savings Clause.........................................................................21
Section 10.12 Certain Definitions....................................................................21
ARTICLE XI General Provisions...........................................................................22
Section 11.1 Fiscal Year.............................................................................22
</TABLE>
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<TABLE>
<S> <C>
Section 11.2 Dividends...............................................................................22
ARTICLE XII Notices.....................................................................................22
ARTICLE XIII Amendments.................................................................................24
ARTICLE XIV Loans to Officers...........................................................................24
</TABLE>
iii
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ATRIX LABORATORIES, INC.
EIGHTH AMENDED AND RESTATED
BYLAWS
- -------------------------------------------------------------------------------
ARTICLE I
NAME
The name of this Corporation shall be "Atrix Laboratories, Inc.,"
incorporated under the laws of the State of Delaware on August 8, 1996.
ARTICLE II
CORPORATE SEAL
The Corporation shall adopt a seal which shall consist of two
concentric circles, and within the outer circle shall be printed the words:
ATRIX LABORATORIES, INC.
DELAWARE
AND WITHIN THE INNER CIRCLE, THE WORDS: SEAL
ARTICLE III
OFFICES
SECTION 3.1 REGISTERED OFFICE.
The registered office of the Corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 3.2 OTHER OFFICES.
The Corporation shall also have and maintain an office or principal
place of business at 2579 Midpoint Drive, Fort Collins, Colorado 80525 and may
also have offices at such other places, both within and without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation may require.
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ARTICLE IV
STOCKHOLDERS' MEETINGS
SECTION 4.1 PLACE OF MEETINGS.
Meetings of the stockholders of the Corporation shall be held at such
place, either within or without the State of Delaware, as may be designated from
time to time by the Board of Directors, or, if not so designated, then at the
office of the Corporation required to be maintained pursuant to Section 3.2 of
Article III hereof.
SECTION 4.2 ANNUAL MEETINGS.
The annual meetings of the stockholders of the Corporation, commencing
with the year 1998, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
SECTION 4.3 SPECIAL MEETINGS.
Special Meetings of the stockholders of the Corporation may be called
for any purpose or purpose, by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether or
not there exists any vacancies in previously authorized directorship at the time
any such resolution is presented to the Board of Directors for adoption) and
shall be held at such place, on such date, and at such time as the Board of
Directors shall fix. No business may be transacted at such special meeting
otherwise than as specified in such notice.
SECTION 4.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Amended and Restated
Certificate of Incorporation, written notice of each meeting of stockholders,
specifying the place, date and hour, and purpose or purposes of the meeting,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote thereat, directed to
his address as it appears upon the books of the Corporation; except that where
the matter to be acted on is a merger or consolidation of the Corporation or a
sale, lease or exchange of all or substantially all of its assets, such notice
shall be given not less than twenty (20) nor more than sixty (60) days prior to
such meeting.
(b) If at any meeting action is proposed to be taken which, if taken,
would entitle shareholders fulfilling the requirements of Section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
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(c) When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless the
adjournment is for more than thirty (30) days, or unless after the adjournment a
new record date is fixed for the adjourned meeting, in which event a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. Any stockholder so waiving notice of
such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
SECTION 4.5 QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Amended and Restated Certificate of Incorporation, or these Eighth
Amended and Restated Bylaws, the presence, in person or by proxy duly
authorized, of the holders of a majority of the outstanding shares of stock
entitled to vote shall constitute a quorum for the transaction of business.
Shares, the voting of which at said meeting have been enjoined, or which for any
reason cannot be lawfully voted at such meeting, shall not be counted to
determine a quorum at said meeting. In the absence of a quorum, any meeting of
stockholders may be adjourned, from time to time, by vote of the holders of a
majority of the shares represented thereat, but no other business shall be
transacted at such meeting. At such adjourned meeting at which a quorum is
present or represented any business may be transacted which might have been
transacted at the original meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Amended and Restated
Certificate of Incorporation or these Eighth Amended and Restated Bylaws, all
action taken by the holders of a majority of the voting power represented at any
meeting at which a quorum is present shall be valid and binding upon the
Corporation.
SECTION 4.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names
shares entitled to vote stand on the stock records of the Corporation on the
record date for determining the stockholders entitled to vote at said meeting
shall be entitled to vote at such meeting. Shares standing in the names of two
or more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such persons
is present in person or represented by proxy, such person shall have the right
to vote such shares and such shares shall be deemed to be represented for the
purpose of determining a quorum.
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(b) Every person entitled to vote or execute consents shall have the
right to do so either in person or by an agent or agents authorized by a written
proxy executed by such person or his duly authorized agent, which proxy shall be
filed with the Secretary of the Corporation at or before the meeting at which it
is to be used. Said proxy so appointed need not be a stockholder. No proxy shall
be voted on after three years from its date unless the proxy provides for a
longer period.
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person
or persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act
for him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder. If
it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information upon which
they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 4.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
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(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the Corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this section shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
SECTION 4.8 LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held and which
place shall be specified in the notice of the meeting, or if not specified, at
the place where said meeting is to be held, and the list shall be produced and
kept at the time and place of meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 4.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement thereto)
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given by or at the direction of the Board of Directors, (B) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(C) otherwise properly brought before the meeting by a stockholder. In addition
to other applicable requirements, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than forty-five (45)
days nor more than seventy-five (75) days prior to the date on which the
Corporation first mailed its proxy materials for the previous year's annual
meeting of stockholders (or the date on which the Corporation mails its proxy
materials for the current year if during the prior year the Corporation did not
hold an annual meeting or if the date of the annual meeting was changed more
than thirty (30) days from the prior year). A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act.
The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 4.9, and,
if he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding anything in the Eighth Amended and Restated Bylaws to
the contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 4.9, provided, however,
that nothing in this Section 4.9 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting in
accordance with said procedure.
SECTION 4.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 4.10. Such nominations, other
than those made by or at the direction of the Board
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of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than thirty (30) days nor more than sixty (60) days prior
to the meeting; provided, however, that in the event that less than forty (40)
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth (10th) day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
the person, (iv) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nominations are to be made by the stockholder,
and (v) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934 (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving the notice, (i) the
name and record address of the stockholder, (ii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder, (iii) the
class and number of shares of the corporation which are beneficially owned by
the person, and (iv) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nominations are to be made by the
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
These provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 4.11 ACTION WITHOUT MEETING.
Unless otherwise provided in the Amended and Restated Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, are signed by the
holders of eighty percent (80%) of the outstanding stock of the Corporation. To
be effective, a written consent must be delivered to the Corporation by delivery
to its registered office in Delaware, its
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principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. Every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate action
referred to therein unless, within sixty (60) days of the earliest dated consent
delivered in the manner required by this Section to the Corporation, written
consents signed by a sufficient number of holders to take action are delivered
to the Corporation in accordance with this Section. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
SECTION 4.12 CUMULATIVE VOTING IN CERTAIN CIRCUMSTANCES.
In any election of directors of the Corporation on or after the date on
which the Corporation becomes aware that any shareholder has become a 30%
Shareholder (as defined below), there shall be cumulative voting for election of
directors so that any holder of shares of Voting Stock (as defined below) 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 share
determines. For the purposes of this section, a "30% Shareholder" 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 is the beneficial owner, directly or indirectly, of thirty percent
(30%) or more of the outstanding Voting Stock. For the purposes of this section,
"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 section, each share of Voting Stock shall
have the number of votes granted to it generally in the election of directors.
ARTICLE V
DIRECTORS
SECTION 5.1 NUMBER AND TERM OF OFFICE.
The authorized number of directors of the Corporation shall be fixed in
accordance with the Amended and Restated Certificate of Incorporation. Directors
need not be stockholders unless so required by the Amended and Restated
Certificate of Incorporation or in this Section 5.1. If for any cause, the
directors shall not have been elected at an annual meeting, they may be elected
as soon thereafter as convenient at a special meeting of the stockholders called
for that purpose in the manner provided in these Eighth Amended and Restated
Bylaws. Subject to the foregoing, the Board of Directors shall consist of at
least three (3), but not more than eleven (11) directors unless changed by
amendment. Directors need not be residents of Delaware.
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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 shareholder meeting for the year ended 1999, directors of Class B shall
hold office for an initial term expiring at the annual shareholder meeting for
the year ended 2000, and directors of Class C shall hold office for an initial
term expiring at the annual shareholder meeting for the year ended 2001. Subject
to the foregoing, at each annual meeting of shareholders 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 as possible.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Any amendment, change or repeal of this Section 5.1, or any other
amendment to these Eighth Amended and Restated Bylaws that has the effect of
permitting circumvention of or modifying this Section 5.1, shall require the
favorable vote, at a stockholders' meeting, of the holders of at least eighty
percent (80%) of the then-outstanding shares of stock of the Corporation
entitled to vote.
SECTION 5.2 POWERS.
The powers of the Corporation shall be exercised, its business
conducted and its property controlled by or under the direction of the Board of
Directors.
SECTION 5.3 VACANCIES.
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and each director so elected shall hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until his
successor shall have been duly elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this section in the case of the death,
removal or resignation of any director, or if the stockholders fail at any
meeting of stockholders at which directors are to be elected (including any
meeting referred to in Section 5.4 below) to elect the number of directors then
constituting the whole Board.
SECTION 5.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon
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receipt by the Secretary or at the pleasure of the Board of Directors. If no
such specification is made it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office for the
unexpired portion of the term of the director whose place shall be vacated and
until his successor shall have been duly elected and qualified.
(b) Subject to the right of the holders of any series or preferred
stock, no directors shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be removed
from office at any time with cause by the affirmative vote of the holders of
eighty percent (80%) of the voting power of all the then outstanding shares of
voting stock of the Corporation entitled to vote at an election of directors.
(c) At a special meeting of stockholders called for the purpose in the
manner hereinabove provided, the Board of Directors, or any individual director,
may be removed from office, with or without cause, and a new director or
directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
SECTION 5.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where such
meeting is held or at the place announced by the Chairman at such meeting. No
notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the
Board of Directors shall be held in the office of the Corporation required to be
maintained pursuant to Section 3.2 of Article III hereof. Regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolutions of the Board of Directors
or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time
and place within or without the State of Delaware whenever called by the
Chairman of the Board or, if there is no Chairman of the Board, by the
President, or by any of the directors.
(d) Written notice of the time and place of all regular and special
meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least forty-eight (48)
hours before the start of the meeting, or sent by first class mail at least one
hundred-twenty (120) hours before the start of the meeting. Notice of any
meeting may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat.
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SECTION 5.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time in accordance with Section
5.1 of Article V of these Eighth Amended and Restated Bylaws, but not less than
one; provided, however, at any meeting whether a quorum be present or otherwise,
a majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all
questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Amended and
Restated Certificate of Incorporation, or these Eighth Amended and Restated
Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof,
may participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 5.7 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Amended and Restated Certificate of
Incorporation or these Eighth Amended and Restated Bylaws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 5.8 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
SECTION 5.9 COMMITTEES.
(a) EXECUTIVE COMMITTEE: The Board of Directors may appoint an
Executive Committee of not less than one member, each of whom shall be a
director. The Executive Committee, to the extent permitted by law, shall have
and may exercise when the Board of Directors is not in session all powers of the
Board in the management of the business and affairs
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of the Corporation, except such committee shall not have the power or authority
to amend these Eighth Amended and Restated Bylaws or to approve or recommend to
the stockholders any action which must be submitted to stockholders for approval
under the General Corporation Law.
(b) OTHER COMMITTEES: The Board of Directors may, by resolution passed
by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committee, but in no
event shall any such committee have the powers denied to the Executive Committee
in these Eighth Amended and Restated Bylaws.
(c) TERM: The members of all committees of the Board of Directors shall
serve a term coexistent with that of the Board of Directors which shall have
appointed such committee. The Board, subject to the provisions of subsections
(a) or (b) of this Section 5.9, may at any time increase or decrease the number
of members of a committee or terminate the existence of a committee; provided,
that no committee shall consist of less than one member. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation, but the Board may at any time for any reason remove any individual
committee member and the Board may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS: Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 5.9 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter; special meetings of any such
committee may be held at the principal office of the Corporation required to be
maintained pursuant to Section 3.2 of Article III hereof; or at any place which
has been designated from time to time by resolution of such committee or by
written consent of all members thereof, and may be called by any director who is
a member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
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SECTION 5.10 HONORARY DIRECTORS.
In addition to the directors of the corporation, there may be as many
honorary directors as the stockholders or the Board of Directors may elect.
Honorary directors shall be elected by the stockholders at any meeting of
stockholders or by the Board of Directors at any meeting of the directors.
Honorary directors shall have no liability after they become honorary directors
for the actions of the Board of Directors and shall not be required to attend
any meeting of the Board of Directors, but shall be notified of all meetings of
the Board of Directors in the same manner as the directors, and if in attendance
at such meetings, shall have all the rights and privileges of directors
(including the right to receive directors' fees and expenses), except the right
to vote on all matters before such meetings and all other matters which may be
brought before the Board of Directors from time to time.
ARTICLE VI
OFFICERS
SECTION 6.1 OFFICERS DESIGNATED.
The officers of the Corporation shall include, if an when designated by
the Board of Directors, the Chairman of the Board of Directors, the Chief
Executive Officer, the President, the Secretary, the Treasurer, the Chief
Financial Officer and one or more Vice-Presidents, assistant secretaries,
assistant treasurers, and such other officers and agents with such powers and
duties as it or he shall deem necessary. The order of the seniority of the
Vice-Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors may assign such
additional titles to one or more of the officers as they shall deem appropriate.
Any one person may hold any number of offices of the Corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the Corporation shall be fixed by or in the
manner designated by the Board of Directors.
SECTION 6.2 TENURE AND DUTIES OF OFFICERS.
(a) GENERAL: All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. Nothing in these Eighth Amended and Restated Bylaws shall be
construed as creating any kind of contractual right to employment with the
Corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of
the Board of Directors shall preside at all meetings of the shareholders and the
Board of Directors and shall perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
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(c) DUTIES OF THE VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Vice
Chairman of the Board of Directors shall, in the absence or disability of the
Chairman of the Board of Directors, perform the duties and exercise the powers
of the Chairman of the Board of Directors. He shall preside at all meetings of
the stockholders and the Board of Directors in the absence of the Chairman. He
shall perform such other duties and have such other powers as the Board of
Directors shall prescribe.
(d) DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall have such powers and duties as may be prescribed by the Board of
Directors.
(e) DUTIES OF PRESIDENT: The President shall preside at all meetings of
the shareholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. The
President shall perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(f) DUTIES OF VICE-PRESIDENTS: The Vice-Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of the President
is vacant. The Vice-President shall perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(g) DUTIES OF SECRETARY: The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and any committee thereof, and shall
record all acts and proceedings thereof in the minute book of the Corporation.
The Secretary shall give notice, in conformity with these Eighth Amended and
Restated Bylaws, of all meetings of the shareholders, and of all meetings of the
Board of Directors and any committee thereof requiring notice. The Secretary
shall perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(h) DUTIES OF CHIEF FINANCIAL OFFICER: The Chief Financial Officer
shall keep or cause to be kept the books of account of the Corporation in a
thorough and proper manner, and shall render statements of the financial affairs
of the Corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the Corporation. The Chief Financial Officer shall perform all other duties
commonly incident to his office and shall perform such other duties and have
such other powers as the Board of Directors or the President shall designate
from time to time. The President may direct the Treasurer or any Assistant
Treasurer to assume and perform the duties of the Chief Financial Officer in the
absence or disability of the Chief Financial Officer, and the Treasurer or each
Assistant Treasurer shall perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
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SECTION 6.3 REMOVAL.
Any officer may be removed from office at any time, either with or
without cause, by the affirmative vote of a majority of the directors in office
at the time, or by unanimous written consent of the directors in office at the
time, or by any committee or superior officers upon whom such power for removal
may have been conferred by the Board of Directors.
ARTICLE VII
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 7.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the method
and designate the signatory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the Corporation.
(b) Unless otherwise specifically determined by the Board of Directors
or otherwise required by law, formal contracts of the Corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
Corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the Corporation,
shall be executed, signed or endorsed by the Chairman of the Board or by the
President; such documents may also be executed by any Vice-President and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositories on funds
to the credit of the Corporation, or in special accounts of the Corporation,
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.
SECTION 7.2 VOTING OF SECURITIES OWNED BY CORPORATION.
All stock and other securities of other corporations owned or held by
the Corporation for itself, or for other parties in any capacity, shall be
voted, and all proxies with respect thereto shall be executed by the person
authorized so to do by resolution of the Board of Directors or, in the absence
of such authorization, by the Chairman of the Board or by the President, or by
any Vice-President.
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ARTICLE VIII
SHARES OF STOCK
SECTION 8.1 FORM AND EXECUTION OF CERTIFICATES.
Certificates for the shares of stock of the Corporation shall be in
such form as is consistent with the Amended and Restated Certificate of
Incorporation and applicable law. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by, or in the name of the Corporation
by, the Chairman of the Board or by the President or any Vice-President and by
the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary,
certifying the number of shares owned by him in the Corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue. If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 8.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
Corporation in such manner as it shall require and/or to give the Corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost or destroyed.
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SECTION 8.3 TRANSFERS.
Transfers of record of shares of stock of the Corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed.
SECTION 8.4 FIXING RECORD DATES.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the date on which the meeting is held. A determination of
stockholders of record entitled notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record
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date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 8.5 REGISTERED STOCKHOLDERS.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE IX
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the
Corporation, other than stock certificates, may be signed by the Chairman of the
Board or the President or any Vice-President or such other person as may be
authorized by the Board of Directors and the corporate seal impressed thereon or
a facsimile of such seal imprinted thereon and attested by the signature of the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer;
provided, however, that where any such bond, debenture or other corporate
security shall be authenticated by the manual signature of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signature of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the Corporation, or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person. In case any officer who shall have signed or attested
any bond, debenture or other corporate security, or whose facsimile signature
shall appear thereon or before the bond, debenture or other corporate security
so signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the Corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE X
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 10.1 RIGHT TO INDEMNIFICATION.
Each person who was or is a party or is threatened to be made a party
to or is involved (as a party, witness, or otherwise) in any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "Proceeding"),
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by reason of the fact that he, or a person of whom he is the legal
representative, is or was a director, officer, employee, or agent of the
Corporation or is 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 plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "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 or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the Corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article X) reasonably incurred or suffered by
such person in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereinafter "Expenses"); provided, however, that except as
to actions to enforce indemnification rights pursuant to Section 10.3 of this
Article, the Corporation shall indemnify any Agent seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article X shall be a
contract right.
SECTION 10.2 AUTHORITY TO ADVANCE EXPENSES.
The right to indemnification provided in Section 10.1 of this Article
shall include, in advance of a Proceeding's final disposition, the right to be
paid, Expenses incurred in defending that Proceeding; provided, however, that if
required by the Delaware General Corporation Law, as amended, the payment of
such expenses incurred by an officer or director acting in his capacity as such
(and not in any other capacity) in advance of the final disposition of the
Proceeding shall be made only upon delivery to the Corporation of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized under this Article or otherwise. Any obligation to
reimburse the Corporation for Expense advances shall be unsecured and no
interest shall be charged thereon.
SECTION 10.3 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under Section 10.1 or 10.2 of this Article is not paid in
full by the Corporation within thirty (30) 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 (including attorneys' fees) 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 a Proceeding in advance of its final disposition
where the required undertaking has been tendered
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to the Corporation) that the claimant has not met the standards of conduct that
make it permissible under the Delaware General Corporation Law for the
Corporation to indemnify the claimant for the amount claimed. The burden of
proving such a 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 that indemnification of the claimant is proper under the circumstances
because he 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 had not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
SECTION 10.4 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article X shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Amended and Restated Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
Certificate, agreement, or vote of the stockholders or disinterested directors
is inconsistent with these Eighth Amended and Restated Bylaws, the provision,
agreement, or vote shall take precedence.
SECTION 10.5 AUTHORITY TO INSURE.
The Corporation may purchase and maintain insurance to protect itself
and any Agent against any Expense, whether or not the Corporation would have the
power to indemnify the Agent against such Expense under applicable law or the
provisions of this Article X.
SECTION 10.6 SURVIVAL OF RIGHTS.
The rights provided by this Article X shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
SECTION 10.7 SETTLEMENT OF CLAIMS.
The Corporation shall not be liable to indemnify any Agent under this
Article X (a) for any amounts paid in settlement of any action or claim effected
without the Corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award if the Corporation was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
SECTION 10.8 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any Agent existing at the time of
such amendment, repeal, or modification.
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SECTION 10.9 SUBROGATION.
In the event of payment under this Article, the Corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Corporation effectively to bring suit to enforce such
rights.
SECTION 10.10 NO DUPLICATION OF PAYMENTS.
The Corporation shall not be liable under this Article to make any
payment in connection with any claim made against the Agent to the extent the
Agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
SECTION 10.11 SAVINGS CLAUSE.
If this Article X or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director and executive officer to the fullest extent
not prohibited by any applicable portion of these Eighth Amended and Restated
Bylaws that shall not have been invalidated, or by any other applicable law.
SECTION 10.12 CERTAIN DEFINITIONS.
For the purposes of this Article X, the following definitions shall
apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs
and expenses of any nature or kind incurred in connection with any
proceeding.
(3) The term the "Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer, employee
or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
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trust or other enterprise, shall stand in the same position under the
provisions of these Eighth Amended and Restated Bylaws with respect to
the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the Corporation shall include,
without limitation, situations where such person is serving at the
request of the Corporation as, respectively, a director, executive
officer, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include
any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in these Eighth Amended
and Restated Bylaws.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 FISCAL YEAR.
The fiscal year of the Corporation shall begin on the first (1st) day
of January and end on the thirty-first (31st) day of December in each year.
SECTION 11.2 DIVIDENDS.
The Board of Directors may declare and the Corporation may pay
dividends on its outstanding shares in cash, property, or its own shares
pursuant to law and subject to the provisions of its Amended and Restated
Certificate of Incorporation.
ARTICLE XII
NOTICES
Whenever, under any provisions of these Eighth Amended and Restated
Bylaws, notice is required to be given to any stockholder, the same shall be
given in writing, timely and duly deposited in the United States Mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the Corporation or its transfer agent. Any notice
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required to be given to any director may be given by the method hereinabove
stated, or by telegram or other means of electronic transmission, except that
such notice other than one which is delivered personally, shall be sent to such
address or (in the case of facsimile telecommunication) facsimile telephone
number as such director shall have filed in writing with the Secretary of the
Corporation, or, in the absence of such filing, to the last known post office
address of such director. If no address of a stockholder or director be known,
such notice may be sent to the office of the Corporation required to be
maintained pursuant to Section 3.2 of Article III hereof. An affidavit of
mailing, executed by a duly authorized and competent employee of the Corporation
or its transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder or
stockholders, director or directors, to whom any such notice or notices was or
were given, and the time and method of giving the same, shall be conclusive
evidence of the statements therein contained. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by telegram or other means of electronic transmission shall be
deemed to have been given as at the sending time recorded by the telegraph
company or other electronic transmission equipment operator transmitting the
same. It shall not be necessary that the same method of giving be employed in
respect of all directors, but one permissible method may be employed in respect
of any one or more, and any other permissible method or methods may be employed
in respect of any other or others. The period or limitation of time within which
any stockholder may exercise any option or right, or enjoy any privilege or
benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such a stockholder or such director to receive such notice. Whenever
any notice is required to be given under the provisions of the statutes or of
the Amended and Restated Certificate of Incorporation, or of these Eighth
Amended and Restated Bylaws, a waiver thereof in writing signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. Whenever notice is required to be
given, under any provision of law or of the Amended and Restated Certificate of
Incorporation or these Eighth Amended and Restated Bylaws of the Corporation, to
any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the Corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
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ARTICLE XIII
AMENDMENTS
Subject to Section 10.8 of these Eighth Amended and Restated Bylaws,
(i) the affirmative vote of at least eighty percent (80%) of the voting power of
all of the then outstanding shares of the voting stock, shall be required to
alter, amend or repeal Sections 4.3, 4.9, 4.11, 5.1, 5.2, 5.3, 5.4, Article X
and Article XIII of these Eighth Amended and Restated Bylaws or to adopt any
other provision inconsistent with such provisions of these Eighth Amended and
Restated Bylaws, and (ii) the affirmative vote of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the Voting Stock shall be required to alter, amend or repeal any other
provision of these Eighth Amended and Restated Bylaws or to adopt any other
provision inconsistent with any other such provision of the Eighth Amended and
Restated Bylaws. The Board of Directors shall also have the power to adopt,
amend or repeal these Eighth Amended and Restated Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
The Corporation may lend money to guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiaries, including any officer or employee who is a director of the
Corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in these Eighth Amended and Restated Bylaws
shall be deemed to deny, limit or restrict the powers of guaranty or warranty of
the Corporation at common law or under any statute.
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of ATRIX LABORATORIES, INC., a
Delaware corporation, hereby certifies that the foregoing is a full, true and
correct copy of the Eighth Amended and Restated Bylaws of said Corporation, with
all amendments to date of this Certificate.
WITNESS the signature of the undersigned this 26th day of April,
1999.
/s/ Brian G. Richmond
---------------------------------------
Brian G. Richmond, Assistant Secretary
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EXHIBIT 10.7
ATRIX LABORATORIES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this stock incentive plan are
to attract and retain the best available Non-Employee Directors, to provide
them additional incentives, and to promote the success of the Company's
business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the
Exchange Act.
(c) "Applicable Laws" means the legal requirements relating
to the administration of stock incentive plans, if any, under
applicable provisions of federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock exchange
or national market system, and the rules of any foreign jurisdiction
applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, Restricted Stock,
Shares or other rights or benefits under the Plan.
(e) "Award Agreement" means the written agreement evidencing
the grant of an Award executed by the Company and the Grantee,
including any amendments thereto in the form attached hereto as
Exhibit A.
(f) "Board" means the Board of Directors of the Company.
(g) "Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday that is not a day on which the stock exchanges
and/or the Nasdaq National Market are closed.
(h) "Chairman" means the Non-Employee Director who serves as
Chairman of the Board.
(i) "Change in Control" means a change in ownership or
control of the Company effected through either of the following
transactions:
(i) the direct or indirect acquisition by any person
or related group of persons (other than an acquisition from
or by the Company or by a Company-sponsored employee benefit
plan or by a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company)
of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of
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securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made
directly to the Company's stockholders, which a majority of
the Continuing Directors who are not Affiliates or Associates
of the offeror do not recommend such stockholders accept; or
(ii) a change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority
of the Board members (rounded up to the next whole number)
ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who are
Continuing Directors.
(j) "Code" means the Internal Revenue Code of 1986, as
amended.
(k) "Committee" means any committee appointed by the Board to
administer the Plan
(l) "Common Stock" means the common stock, $.001 par value,
of the Company.
(m) "Company" means Atrix Laboratories, Inc., a Delaware
corporation.
(n) "Consultant" means any person who is engaged by the
Company or any Related Entity to render consulting or advisory
services as an independent contractor and is compensated for such
services.
(o) "Continuing Directors" means members of the Board who
either (i) have been Board members continuously for a period of at
least thirty-six (36) months or (ii) have been Board members for less
than thirty-six (36) months and were elected or nominated for election
as Board members by at least a majority of the Board members described
in clause (i) who were still in office at the time such election or
nomination was approved by the Board.
(p) "Continuous Service" means that the Grantee's service as
a Director is not interrupted or terminated. The Continuous Service of
a Grantee shall not be considered interrupted or terminated in the
case of (i) any approved leave of absence or (ii) terminating service
as a Director followed within thirty (30) days of such termination by
commencing service to the Company or a Related Entity as an Employee
or a Consultant until the time such service as an Employee or
Consultant is terminated. An approved leave of absence shall include
sick leave, military leave, or any other authorized personal leave.
(q) "Corporate Transaction" means any of the following
transactions:
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(i) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the
principal purpose of which is to change the state in which
the Company is incorporated;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company (including
the capital stock of the Company's subsidiary corporations)
in connection with the complete liquidation or dissolution of
the Company;
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person
or persons different from those who held such securities
immediately prior to such merger; or
(iv) any person or related group of persons (other
than the Company or by a Company-sponsored employee benefit
plan) who becomes the beneficial owner (within the meaning of
Rule 13d-3 of the Exchange Act) of securities possessing more
than fifty percent (50%) of the total combined voting power
of the Company's outstanding securities (whether or not in a
transaction also constituting a Change in Control), but
excluding any such transaction that the Administrator
determines shall not be a Corporate Transaction.
(r) "Director" means a member of the Board.
(s) "Disability" means that a Grantee is unable to serve as a
Director by reason of any medically determinable physical or mental
impairment. A Grantee will not be considered to have incurred a
Disability unless he or she furnishes proof of such condition
sufficient to satisfy the Administrator, in its sole discretion.
(t) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(u) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(v) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the
Common Stock, the Fair Market Value shall be (A) the closing
price for a Share for the last market trading day prior to
the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined
by the Administrator to be the primary market for the Common
Stock or the Nasdaq National Market, whichever is applicable
or (B) if the Common Stock is not traded on any such exchange
or national market system,
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the average of the closing bid and asked prices of a Share on
the Nasdaq Small Cap Market for the day prior to the time of
the determination (or, if no such prices were reported on
that date, on the last date on which such prices were
reported), in each case, as reported in The Wall Street
Journal or such other source as the Administrator deems
reliable; or
(ii) In the absence of an established market of the
type described in (i), above, for the Common Stock, the Fair
Market Value thereof shall be determined by the Administrator
in good faith.
(w) "Grantee" means a Non-Employee Director who receives an
Award under the Plan.
(x) "Non-Employee Director" means a Director who is not an
Employee.
(y) "Non-Qualified Stock Option" means an Option not intended
to qualify as an incentive stock option within the meaning of Section
422 of the Code.
(z) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(aa) "Option" means a stock option granted pursuant to the
Plan.
(bb) "Performance Plan" means the Company's Amended and
Restated Performance Stock Option Plan, as amended.
(cc) "Plan" means this 1999 Non-Employee Director Stock
Incentive Plan.
(dd) "Related Entity" means any parent, subsidiary and any
business, corporation, partnership, limited liability company or other
entity in which the Company, a parent or a subsidiary holds a
substantial ownership interest, directly or indirectly.
(ee) "Restricted Stock" means Shares issued under the Plan to
the Grantee for such consideration, if any, and subject to such
restrictions on transfer, rights of first refusal, repurchase
provisions, forfeiture provisions, and other terms and conditions as
established under the Plan or by the Administrator.
(ff) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor thereto.
(gg) "Share" means a share of the Common Stock.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 below, the
maximum aggregate number of Shares which may be issued pursuant to all
Awards is 25,000 Shares. The
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Shares to be issued pursuant to Awards may be authorized, but
unissued, or reacquired Common Stock. Notwithstanding anything
contained in this Section 3(a) to the contrary, all Options awarded
under the Automatic Option Grant Program shall be made under the
Performance Plan and shall not constitute Shares granted or Awarded
under this Plan. With respect to such Options, in the event a conflict
arises between the terms and provisions of this Plan and the
Performance Plan, the terms and provisions of the Performance Plan
shall control.
(b) Any Shares covered by an Award (or portion of an Award)
which is forfeited or canceled, expires or is settled in cash, shall
be deemed not to have been issued for purposes of determining the
maximum aggregate number of Shares which may be issued under the Plan.
If any unissued Shares are retained by the Company upon exercise of an
Award in order to satisfy the exercise price for such Award or any
withholding taxes due with respect to such Award, such retained Shares
subject to such Award shall become available for future issuance under
the Plan (unless the Plan has terminated). Shares that actually have
been issued under the Plan pursuant to an Award shall not be returned
to the Plan and shall not become available for future issuance under
the Plan, except that if unvested Shares are forfeited, or repurchased
by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Plan Administrator.
(i) Administration. The Plan shall be administered
by (A) the Board or (B) a Committee designated by the Board,
which Committee shall be constituted in such a manner as to
satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once
appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board.
(ii) Administration Errors. In the event an Award is
granted in a manner inconsistent with the provisions of this
subsection (a), such Award shall be presumptively valid as of
its grant date to the extent permitted by the Applicable
Laws.
(b) Powers of the Administrator. Subject to Applicable Laws
and the provisions of the Plan (including any other powers given to
the Administrator hereunder), and except as otherwise provided by the
Board, the Administrator shall have the authority, in its discretion:
(i) to approve forms of Award Agreement for use
under the Plan;
(ii) to determine the terms and conditions
consistent with the terms of the Plan of any Award granted
hereunder;
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(iii) to amend the terms of any outstanding Award
granted under the Plan, including a reduction in the exercise
price (or base amount on which appreciation is measured) of
any Award to reflect a reduction in the Fair Market Value of
the Common Stock since the grant date of the Award, provided
that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without
the Grantee's written consent;
(iv) to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan; and
(v) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems
appropriate.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. AUTOMATIC OPTION GRANT PROGRAM.
(a) Eligibility. Each Non-Employee Director shall be entitled to
receive Options to acquire Shares upon the terms and conditions of this
Automatic Option Grant Program.
(b) Date of Grant and Number of Shares. Immediately following each
annual meeting of the Company's stockholders, commencing with the 1999 Annual
Stockholders Meeting, each Non-Employee Director who continues as a
Non-Employee Director following such annual meeting shall be granted
automatically a Non-Qualified Stock Option to purchase 4,000 (5,000 in the case
of the Chairman) Shares ("Option Grant"). Each such Option Grant shall be made
on the first Business Day after the date of the annual stockholders' meeting in
question.
(c) Vesting. Each Option Grant shall vest and become exercisable as to
one-third (1/3) of the Shares subject to such Option twelve (12) months after
the grant date and an additional one-third (1/3) of the shares of Common Stock
subject to such Option shall vest on each yearly anniversary of the grant date
thereafter, such that the Option will be fully exercisable three (3) years
after its date of grant.
(d) Corporate Transactions/Changes in Control.
(i) In the event of a Corporate Transaction, immediately
prior to the specified effective date of such Corporate Transaction,
each Option Grant which is at the time outstanding automatically shall
become fully vested and exercisable as to all of the Shares subject to
such Option. Effective upon the consummation of the Corporate
Transaction, all outstanding Options under the Plan shall terminate.
However, all such Options shall not terminate if the Options are
assumed by the successor corporation or parent thereof in connection
with the Corporate Transaction.
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(ii) In the event of a Change in Control (other than a Change
in Control which also is a Corporate Transaction), immediately prior
to the specified effective date of such Change in Control, each Option
Grant which is at the time outstanding automatically shall become
fully vested and exercisable as to all of the Shares subject to such
Option.
(e) Exercise of Option Following Termination of Service. In the event
of termination of a Grantee's Continuous Service for any reason other than
Disability or death, such Grantee may, but only within three (3) months after
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Award Agreement), exercise his or
her Option to the extent that the Grantee was entitled to exercise it at the
date of such termination or to such other extent as may be determined by the
Administrator. If the Grantee should die within three (3) months after the date
of such termination, the Grantee's estate or the person who acquired the right
to exercise the Option by bequest or inheritance may exercise the Option to the
extent that the Grantee was entitled to exercise it at the date of such
termination within twelve (12) months of the Grantee's date of death, but in no
event later than the expiration date of the term of such Option as set forth in
the Award Agreement.
(f) Disability of Grantee. In the event of termination of a Grantee's
Continuous Service as a result of his or her Disability, such Grantee may, but
only within twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Award Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that the Grantee is
not entitled to exercise the Option at the date of termination, or if Grantee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(g) Death of Grantee. In the event of the death of a Grantee, the
Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Award Agreement), by the Grantee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Grantee was entitled to exercise the Option at
the date of death. If, at the time of death, the Grantee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Grantee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time
specified herein, the Option shall terminate.
(h) Term of Option. The term of each Option awarded under this
Automatic Option Grant Program shall be ten (10) years from the date of grant
thereof.
(i) Transferability of Option. Each Option awarded under this
Automatic Option Grant Program shall be transferable to the extent provided in
the Performance Plan.
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(j) Exercise Price. The exercise price for each Option awarded under
this Automatic Option Grant Program shall be one hundred percent (100%) of the
Fair Market Value per Share on the date of grant.
(k) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise of an Option under this
Automatic Option Grant Program shall be the following:
(i) cash;
(ii) check;
(iii) surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may
require (including withholding of Shares otherwise deliverable upon
exercise of the Option) which have a Fair Market Value on the date of
surrender or attestation 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 Administrator);
or
(iv) any combination of the foregoing methods of payment.
(l) Other Method of Payment. In lieu of paying the consideration in
the manner set forth in Section 5(k) above, the Grantee may also receive Shares
to be issued upon exercise of an Option through the delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price.
6. STOCK FEE PROGRAM.
(a) Eligibility. Commencing with the 1999 Stockholders Meeting, each
Non-Employee Director will receive an annual retainer fee ("Retainer Fee"). The
Retainer Fee will become due and payable in four equal quarterly installments
on a date determined by the Company. Each Non-Employee Director shall be
eligible to elect to apply all or any portion of the Retainer Fee otherwise
payable to such individual in cash to the acquisition of shares of Restricted
Stock or the receipt of Options upon the terms and conditions of this Section 6
and Sections 7 and 8.
(b) Election Procedure.
(i) Filing. A Non-Employee Director must make an election to
receive shares of Restricted Stock or Options prior to the first
calendar day of the quarterly period for which the election is to be
effective. The first quarter for which any such election may be filed
shall be the first quarter commencing on the
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first full month after the 1999 Annual Stockholders Meeting. Each
election, once filed, shall be revocable prior to the start of the
next quarter for which the election is to be effective. Thereafter,
the election is irrevocable. The election for any upcoming quarter may
be filed at any time prior to the start of that quarter, but in no
event later than the last day of the immediately preceding quarter. A
Non-Employee Director may file a standing election to be in effect for
two (2) or more consecutive quarters or to remain in effect
indefinitely until revoked by written instrument filed with the
Administrator prior to the start of the first quarter for which such
standing election is no longer to remain in effect.
(ii) Election Form. To receive Options or shares of
Restricted Stock in lieu of cash payment of the Retainer Fee or
meeting fees, a Non-Employee Director must execute an election notice
in substantially the form attached hereto as Exhibit B. On the
election notice, a Non-Employee Director must indicate the percentage
or dollar amount of his or her Retainer Fee and/or his or her meeting
fees to be applied to the acquisition of shares of Restricted Stock or
Options.
7. ISSUANCE OF RESTRICTED STOCK.
(a) Issue Date for Annual Retainer Fee in Restricted Stock. On the
first Business Day following the date any portion of the Retainer Fee is
otherwise due to be paid, in a quarter for which a Non-Employee Director has
elected to receive all or a portion of his or her Retainer Fee in Restricted
Stock, the portion of the Retainer Fee subject to such election shall
automatically be applied to the acquisition of shares of Restricted Stock
determined by dividing the elected dollar amount by the Fair Market Value per
share on such date. The number of issuable shares of Restricted Stock shall be
rounded down to the next whole share. The shares of Restricted Stock shall be
held by the Secretary or Assistant Secretary of the Company as partly-paid
shares until the Non-Employee Director vests in those shares. The Non-Employee
Director shall have full stockholder rights, including voting, dividend and
liquidation rights, with respect to all issued shares held in escrow on his or
her behalf, but such shares shall not be assignable or transferable while they
remain unvested.
(b) Vesting of Restricted Stock. The Restricted Stock acquired under
this Section 7 shall vest and become exercisable as to one-third (1/3) of the
shares of Restricted Stock upon completion of one (1) full calendar month of
Board service and an additional one-third (1/3) of such shares shall vest upon
completion of each full calendar month of Board Service thereafter, such that
the Restricted Stock will be fully exercisable at the end of the applicable
quarterly period. Upon vesting, the stock certificate for those shares shall be
released from escrow. Immediate vesting in all the issued shares of Restricted
Stock shall occur in the event (i) the Non-Employee Director should die or
become Disabled while such individual remains in Continuous Service or (ii)
there should occur a Corporate Transaction or Change in Control while such
individual remains in Continuous Service. Should such individual cease
Continuous Service prior to vesting in one or more monthly installments of the
issued shares of Restricted Stock, then those unvested shares of
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Restricted Stock shall be cancelled by the Company, and the Non-Employee
Director shall not be entitled to any cash payment or other consideration from
the Company with respect to the cancelled shares of Restricted Stock and shall
have no further stockholder rights with respect to such shares.
(c) Issue Date for Meeting Shares. On the first Business Day following
any meeting, in a quarter for which a Non-Employee Director has elected to
receive all or a portion of his or her Retainer Fee in Restricted Stock, the
portion of the meeting fee subject to such election shall automatically be
applied to the acquisition of shares of Restricted Stock by dividing the
elected dollar amount by the Fair Market Value per share on such date. The
number of issuable shares of Restricted Stock shall be rounded down to the next
whole share, and such shares shall be issued as soon as practicable to the
Non-Employee Director.
8. OPTION ISSUANCE.
(a) Issue Date for Annual Retainer Fee Options. On the first Business
Day following the date any portion of the Retainer Fee is otherwise due to be
paid (the "Grant Date"), in a quarter for which a Non-Employee Director has
elected to receive all or a portion of his or her Retainer Fee in Options (the
"Option Fee Amount"), the portion of the Retainer Fee subject to such election
shall automatically be applied to a grant of an Option to purchase Shares. The
number of Shares subject to such Option shall equal the quotient of (x) the
Option Fee Amount, divided by (y) the value of an option to purchase one (1)
Share as determined on the Grant Date using the Black-Scholes option pricing
model. The number of Shares subject to such option shall be rounded down to the
next whole Share.
In applying the Black-Scholes option pricing model the following
variables shall apply:
(i) the risk free rate of return shall be the long-term
Treasury bill rate in effect on the Grant Date;
(ii) the assumed dividend rate shall be that in effect on the
Grant Date:
(iii) the volatility shall be determined on the basis of the
Common Stock's volatility over the four calendar years preceding the
Grant Date; and
(iv) any other variables as may be established by the
Committee.
(b) The price per share of the Common Stock subject to such Option
shall not be less than 100% of the Fair Market Value per share on the Grant
Date.
(c) Vesting of Annual Retainer Options. Each Option Grant under this
Section 8 shall vest and become exercisable as to one-third (1/3) of the Shares
subject to such Option upon completion of one (1) full calendar month of full
Board service and an
10
<PAGE> 11
additional one-third (1/3) of the Shares subject to such Option shall vest upon
completion of each full calendar month of Board Service thereafter, such that
the Option will be fully exercisable at the end of the applicable quarterly
period. Immediate vesting in all of the Shares subject to Option shall occur in
the event (i) the Non-Employee Director should die or become Disabled while
such individual remains in Continuous Service or (ii) there should occur a
Corporate Transaction or Change in Control while such individual remains in
Continuous Service. Should such individual cease Continuous Service prior to
vesting in one (1) or more monthly installments of the Shares subject to such
Option, those unvested Shares shall be cancelled by the Company, and the
Non-Employee Director shall not be entitled to any cash payment or other
consideration from the Company with respect to the cancelled Shares.
(d) Issue Date for Meeting Shares. On the first Business Day following
any meeting, in a quarter for which a Non-Employee Director has elected to
receive all or a portion of his or her Retainer Fee in Options, the portion of
the meeting fee subject to such election shall automatically be applied to the
grant of an Option to purchase Shares in accordance with Section 8(a) above.
The Option shall be fully vested on the Grant Date.
(e) Additional Provisions. The provisions contained in Sections 5(e),
(f), (g), (h), (i) and (k) shall govern Options granted under this Section 8.
9. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Satisfaction of Applicable Laws. Shares shall not be issued
pursuant to the exercise of an Award unless the exercise of such Award and the
issuance and delivery of such Shares pursuant thereto shall comply with all
Applicable Laws, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
(i) Investment Representation. As a condition to the exercise
of an Award, the Company may require the person exercising such Award
to represent and warrant at the time of any such exercise that the
Shares are being purchased 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
Applicable Laws.
(b) Taxes. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations. Upon
exercise of an Award, the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, the exercise price of each
11
<PAGE> 12
such outstanding Award, as well as any other terms that the Administrator
determines require adjustment shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Shares, merger, consolidation, acquisition of the property or equity
securities of the Company, any separation of the Company (including a spin-off
or other distribution of equity securities or property of the Company),
reorganization (whether or not such reorganization comes within the definition
of Code Section 368), partial or complete liquidation, or any other similar
event resulting in an increase or decrease in the number of issued Shares.
Except as the Administrator determines, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason hereof shall be made with
respect to, the number or price of Shares subject to an Award.
11. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
upon its adoption by the Board. It shall continue in effect for a term of ten
(10) years unless sooner terminated. Awards may be granted under the Plan upon
its becoming effective.
12. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Awards
already granted, and such Awards shall remain in full force and effect as if
the Plan had not been amended, suspended or terminated, unless mutually agreed
otherwise between the Grantee and the Administrator, which agreement must be in
writing and signed by the Grantee and the Company.
13. RESERVATION OF SHARES.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) 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.
12
<PAGE> 13
EXHIBIT A
ATRIX LABORATORIES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION AWARD
Grantee's Name and Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
You have been granted an option to purchase shares of Common Stock of the
Company, subject to the terms and conditions of this Notice of Stock Option
Award (the "Notice"), the Plan or the Performance Plan (where applicable), and
the Stock Option Award Agreement (the "Option Agreement") attached hereto, as
follows:
Award Number
------------------------------
Date of Award _______________, 1999
Vesting Commencement Date _______________, 1999
Exercise Price per Share $_____
Total Number of Shares subject
to the Option __________
Total Exercise Price $_________
Type of Option: Non-Qualified Stock Option
Expiration Date: _______________, 200__
Vesting Schedule:
Subject to the Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan, or the Performance Plan (where applicable) and the
Option Agreement, the Option may be exercised, in whole or in part, in
accordance with the following schedule:
One-third (1/3) of the Shares subject to the Option shall vest [twelve months]
[one month] after the Vesting Commencement Date, and an additional one-third
(1/3) of the Shares subject to the Option shall vest on each [yearly
anniversary] [monthly anniversary] of the Vesting Commencement Date thereafter.
A-1
<PAGE> 14
Termination Period:
The Option may be exercised within three (3) months from termination of the
Grantee's Continuous Service or such longer period as may be applicable upon
death or Disability of the Grantee as provided in the Option Agreement.
IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and
agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, the Performance Plan (where applicable), and the Option
Agreement.
Atrix Laboratories, Inc.,
a Delaware corporation
By:
--------------------------------------
Title:
----------------------------------
THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). THE
GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE OPTION
AGREEMENT, OR THE COMPANY'S 1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN OR
AMENDED AND RESTATED PERFORMANCE STOCK OPTION PLAN, AS AMENDED, SHALL CONFER
UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE.
The Grantee acknowledges receipt of a copy of the Plan, the Performance Plan
(where applicable) and the Option Agreement, and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts the Option
subject to all of the terms and provisions hereof and thereof. The Grantee has
reviewed this Notice, the Plan, the Performance Plan (where applicable) and the
Option Agreement in their entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Notice, and fully understands all provisions
of this Notice, the Plan, the Performance Plan (where applicable) and the
Option Agreement. The Grantee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any
questions arising under this Notice, the Plan, the Performance Plan (where
applicable) or the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.
Dated: Signed:
------------------------------- -----------------------
Grantee
A-2
<PAGE> 15
AWARD NUMBER: ______________
ATRIX LABORATORIES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
1. GRANT OF OPTION. Atrix Laboratories, Inc., a Delaware corporation
(the "Company"), hereby grants to the Grantee (the "Grantee") named in the
Notice of Stock Option Award (Initial Grant) (the "Notice"), an option (the
"Option") to purchase the Total Number of Shares of Common Stock subject to the
Option (the "Shares") set forth in the Notice, at the Exercise Price per Share
set forth in the Notice (the "Exercise Price") subject to the terms and
provisions of the Notice, this Stock Option Award Agreement (the "Option
Agreement") and the Company's 1999 Non-Employee Director Stock Incentive Plan
(the "Plan") or, where applicable, the Amended and Restated Performance Stock
Option Plan, as amended (the "Performance Plan") both as adopted by the
Company, which are incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan or the Performance Plan, as applicable,
shall have the same defined meanings in this Option Agreement.
2. EXERCISE OF OPTION.
(a) Right to Exercise. The Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice
and with the applicable provisions of the Plan or the Performance
Plan, as applicable, and this Option Agreement. The Option shall be
subject to the provisions of Section 5(d) or Section 8(d) of the Plan
or Article XIV of the Performance Plan, as applicable, relating to the
exercisability or termination of the Option in the event of a
Corporate Transaction or Change in Control. No partial exercise of the
Option may be for less than the lesser of five percent (5%) of the
total number of Shares subject to the Option or the remaining number
of Shares subject to the Option. In no event shall the Company issue
fractional Shares.
3. Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, such other representations and agreements as to
the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. The Exercise Notice shall
be signed by the Grantee and shall be delivered in person or by certified mail
to the Secretary of the Company accompanied by payment of the Exercise Price.
The Option shall be deemed to be exercised upon receipt by the Company of such
written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option unless
such issuance and such exercise shall comply with all Applicable Laws. Assuming
such compliance, for income tax purposes, the Shares shall be considered
transferred to the Grantee on the date on which the Option is exercised with
respect to such Shares.
A-3
<PAGE> 16
(a) Taxes. No Shares will be delivered to the Grantee or
other person pursuant to the exercise of the Option until the Grantee
or other person has made arrangements acceptable to the Administrator
for the satisfaction of foreign, federal, state and local income and
employment tax withholding obligations.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law:
(a) cash;
(b) check; or
(c) surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may
require (including withholding of Shares otherwise deliverable upon
exercise of the Option) which have a Fair Market Value on the date of
surrender or attestation equal to the aggregate Exercise Price of the
Shares as to which the Option is being 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).
In lieu of paying the consideration in the manner set forth in this
Section 4, the Grantee may also receive Shares to be issued upon exercise of an
option through the delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the Exercise Price.
5. RESTRICTIONS ON EXERCISE. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would
constitute a violation of any Applicable Laws.
6. TERMINATION OF CONTINUOUS SERVICE. In the event the Grantee's
Continuous Service terminates, the Grantee may, to the extent otherwise so
entitled at the date of such termination (the "Termination Date"), exercise the
Option during the Termination Period set out in the Notice. Except as provided
in Sections 7 and 8, below, to the extent that the Grantee was not entitled to
exercise the Option on the Termination Date, or if the Grantee does not
exercise the Option within the Termination Period, the Option shall terminate.
7. DISABILITY OF GRANTEE. In the event the Grantee's Continuous
Service terminates as a result of his or her Disability, the Grantee may, but
only within twelve (12) months from the Termination Date (and in no event later
than the Expiration Date), exercise the Option to the extent he or she was
otherwise entitled to exercise it on the Termination Date. To the extent that
the Grantee is not entitled to exercise the Option on the Termination Date, or
if the Grantee does not exercise the Option to the extent so entitled within
the time specified herein, the Option shall terminate.
A-4
<PAGE> 17
8. DEATH OF GRANTEE. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Termination Period, the Grantee's estate, or a
person who acquired the right to exercise the Option by bequest or inheritance,
may exercise the Option, but only to the extent the Grantee could exercise the
Option at the date of termination, within twelve (12) months from the date of
such termination (but in no event later than the Expiration Date). To the
extent that the Grantee is not entitled to exercise the Option on the date of
death, or if the Option is not exercised to the extent so entitled within the
time specified herein, the Option shall terminate.
9. TRANSFERABILITY OF OPTION. The Option may be transferred by the
Grantee in a manner and to the extent acceptable to the Administrator and,
where applicable, in the manner set forth in the Performance Plan, as evidenced
by a writing signed by the Company and the Grantee. The terms of the Option
shall be binding upon the executors, administrators, heirs and successors of
the Grantee.
10. TERM OF OPTION. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.
11. TAX CONSEQUENCES. Set forth below is a brief summary as of the
date of this Option Agreement of some of the federal tax consequences of
exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE GRANTEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES.
(a) Exercise of Non-Qualified Stock Option. On exercise of a
Non-Qualified Stock Option, the Grantee will be treated as having
received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price.
(b) Disposition of Shares. In the case of a Non-Qualified
Stock Option, if Shares are held for more than one year, any gain
realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes and subject to tax at a
maximum rate of 20%.
12. ENTIRE AGREEMENT: GOVERNING LAW. The Notice, the Plan, the
Performance Plan, (where applicable) and this Option Agreement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and the Grantee with respect to the subject matter hereof, and may not
be modified adversely to the Grantee's interest except by means of a writing
signed by the Company and the Grantee. These agreements are to be construed in
accordance with and governed by the internal laws of the State of Colorado
without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of Colorado to the rights and duties of the parties. Should any provision
of the Notice or this Option Agreement be determined by a court of law to be
illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
A-5
<PAGE> 18
13. HEADINGS. The captions used in the Notice and this Option
Agreement are inserted for convenience and shall not be deemed a part of the
Option for construction or interpretation.
14. INTERPRETATION. Any dispute regarding the interpretation of the
Notice, the Plan, the Performance Plan (where applicable) and this Option
Agreement shall be submitted by the Grantee or by the Company forthwith to the
Administrator, which shall review such dispute at its next regular meeting. The
resolution of such dispute by the Administrator shall be final and binding on
all persons.
A-6
<PAGE> 19
EXHIBIT A
ATRIX LABORATORIES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
EXERCISE NOTICE
Atrix Laboratories, Inc.
2579 Midpoint Drive
Fort Collins, CO 80525
Attention: Secretary
EXERCISE OF OPTION. Effective as of today,_______ ,__ the undersigned
(the "Grantee") hereby elects to exercise the Grantee's option to purchase _____
shares of the Common Stock (the "Shares") of Atrix Laboratories, Inc. (the
"Company") under and pursuant to the Company's 1999 Non-Employee
Director Stock Incentive Plan (the "Plan") or, where applicable, the Amended and
Restated Performance Stock Option Plan, as amended (the "Performance Plan") and
the Non-Qualified Stock Option Award Agreement (the "Option Agreement") and
Notice of Stock Option Award (Initial Grant) (the "Notice") dated _____________,
______.
REPRESENTATIONS OF THE GRANTEE. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, the Performance
Plan (where applicable) and the Option Agreement and agrees to abide by and be
bound by their terms and conditions.
RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan or the Performance Plan (where
applicable).
DELIVERY OF PAYMENT. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares.
TAX CONSULTATION. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition
of the Shares. The Grantee represents that the Grantee has consulted with any
tax consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company
for any tax advice
TAXES. The Grantee agrees to satisfy all applicable federal, state and
local income and employment tax withholding obligations and herewith delivers
to the Company the full amount of such obligations or has made arrangements
acceptable to the Company to satisfy such obligations.
A-7
<PAGE> 20
SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. This
Exercise Notice shall be binding upon the Grantee and his or her heirs,
executors, administrators, successors and assigns.
HEADINGS. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction
or interpretation.
INTERPRETATION. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by the Grantee or by the Company forthwith
to the Administrator, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on all persons.
GOVERNING LAW; SEVERABILITY. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of Colorado
without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of Colorado to the rights and duties of the parties. Should any provision
of this Exercise Notice be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.
ENTIRE AGREEMENT. The Notice, the Plan, the Performance Plan (where
applicable) and the Option Agreement are incorporated herein by reference, and
together with this Exercise Notice constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Grantee
with respect to the subject matter hereof, and may not be modified adversely to
the Grantee's interest except by means of a writing signed by the Company and
the Grantee.
A-8
<PAGE> 21
Submitted by: Accepted by:
GRANTEE: ATRIX LABORATORIES, INC.
By:
-----------------------------------
Title:
- ---------------------------------- --------------------------------
(Signature)
Address: Address:
2579 Midpoint Drive
- ----------------------------------
Fort Collins, CO 80525
- ----------------------------------
A-9
<PAGE> 22
EXHIBIT B
ELECTION NOTICE
ATRIX LABORATORIES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
STOCK IN LIEU OF CASH FEE ELECTION
Commencing with the 1999 Annual Stockholders Meeting, I understand that
pursuant to the provisions of the Atrix Laboratories, Inc. (the "Company") 1999
Non-Employee Director Stock Incentive Plan (the "Plan") or where applicable,
the Amended and Restated Performance Stock Option Plan, as amended (the
"Performance Plan"), I may elect to apply all or a portion of the annual
retainer fee and meeting fees otherwise payable in cash to me for service on
the Board of Directors to the acquisition of Restricted Stock or Options.
Pursuant to this form, I hereby elect to apply my annual retainer fee and
meeting fees to receive shares of Restricted Stock or Options pursuant to the
terms set forth in the Plan or the Performance Plan, as applicable:
Cash __________%
Options __________%
Restricted Stock __________%
Total 100%
==========
This election applies to:
[ ] Annual Retainer Fee
[ ] Meeting Fees
Unless otherwise selected below, this election will remain in effect for all
future quarterly periods unless revoked.
If you do not want a standing election for each quarterly period of service on
the Board of Directors check one of the following two alternatives (and
complete if needed):
[ ] This election will be effective only for the next quarterly
period.
[ ] This election will be effective for the next quarterly period
and _____ quarterly periods thereafter.
I understand that my election with respect to the next quarterly period is
revocable until the last day of the immediately preceding quarter (i.e., April
30 for the quarterly period commencing on May 1, 1999 and ending July 31,
1999). Thereafter, my election for the quarterly period is irrevocable. Any
election for later quarterly periods may be revoked prior to the last day of
the immediately preceding quarter for which a standing election is no longer to
remain in effect.
Date: __________, 1999 ------------------------------
Director's Name [Please Print]
------------------------------
Director's Signature
B-1
<PAGE> 1
EXHIBIT 10.12
PERSONAL SERVICES AGREEMENT
This Personal Services Agreement (the "Agreement") is entered
into this 10th day of August, 1999 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 R. Bethune
("Executive") with his address at 6646 East Crested Saguaro Lane, Scottsdale,
Arizona 85262 to be effective as of August 3, 1999 (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
interim Chief Executive Officer 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 Board of
Directors. 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.
c. Term. This Agreement shall be for a term beginning on the
Effective Date and terminating the earlier of (i) December 31, 1999 (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 on a month to month basis
<PAGE> 2
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 date specified in such Term Termination Notice.
d. Other Activities. Executive agrees to devote substantially
all of its business time and energies to the business and affairs of the Company
as is reasonably required to fulfill his duties and responsibilities. Nothing
contained in this Section 1(d) shall be deemed to prevent or limit Executive's
right to make wholly passive investments in securities of any entity which he
does not control, directly or indirectly. Further, nothing herein shall be
deemed to preclude Executive from continuing to serve on the board of directors
of any business, corporation or any charitable organization in which he now
serves or from serving or seeking to serve on the board of directors of other
businesses, corporations or charitable organizations; provided, however such
additional services shall have been disclosed to the Company in writing or
subject to the prior approval of the Company's Board of Directors and such
activities do not materially interfere with the performance of Executive's
duties hereunder.
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 monthly salary, (the "Base
Salary") of Twenty-One Thousand Two Hundred and Fifty Dollars ($21,250.00) per
month. 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.
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. Benefits. In consideration for the stock grant provided for
in Section 2(d), Executive waives any right to and agrees that Executive shall
not be entitled to participate in any employee benefit plans which the Company
provides or may establish from time to time for the benefit of employees.
d. Stock Grant. During Executive's employment with the
Company, Executive shall have the right to purchase and the Company shall sell
to Executive up to 50,000 shares of the Company's $.001 par value common stock
("Common Stock") at a price per share equal to (i) the closing price of the
Common Stock for the last market trading date prior to the time of the
determination (or, if no closing price was reported on that date, on the last
trading date on which a closing price was reported) on the stock exchange
determined by the Company to be the primary market for the Common Stock or the
Nasdaq National Market, whichever is applicable,
2
<PAGE> 3
or (ii) if the Common Stock is not traded on any such exchange or national
market system, the average of the closing bid and ask prices of a share of
Common Stock on the Nasdaq SmallCap Market for the day prior to the time of the
determination (or if no such prices were reported on that date, on the last date
on which such prices were reported) in each case as reported in The Wall Street
Journal or such other source as the Company deems reliable. In consideration for
entering into this Agreement and the Executive's agreement to waive Executive's
right to participate in the Company's employee benefit plans, which employee
benefits the Executive would otherwise be entitled to receive, the Company shall
issue to Executive one share of Common Stock for each share of Common Stock
Executive purchases pursuant to the terms of this Section 2(d).
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 including, but not limited to, the following:
(i) Reasonable temporary living expenses in Fort
Collins, Colorado up to a maximum amount of $24,000 through the earlier of (A)
the Expiration Date or (B) up to a total of twelve (12) months from the
Effective Date;
(ii) Reasonable expenses for roundtrips between
Arizona and Colorado up to a maximum of six (6) roundtrips per month.
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.
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) his then
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current Base Salary through the termination date; and (ii) the proceeds of any
life insurance policy offered by the Company.
c. Termination by Disability of Executive. To the extent
allowable under existing law, Executive's employment with Company shall
terminate upon Executive's incapacity by reason of accident, sickness or other
circumstance which renders Executive mentally or physically incapable of
performing the duties and services required hereunder (collectively
"Disability"). 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. 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.
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 pay to
Executive his then current Base Salary through the date of termination.
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.
e. Voluntary Termination by Executive. If Executive
voluntarily terminates his employment prior to the Expiration Date, Executive
shall receive his then current Base Salary through the date of termination.
Thereafter, Executive shall not be entitled to receive, and the Company shall
have no obligation to provide Executive with any additional salary, payments or
benefits of any kind.
f. 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.
g. 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.
4. Restrictive Covenants
a. Nonsolicitation of Employees. During the term of this
Agreement, and for a period of one (1) year thereafter, 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
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employed or retained by any other entity or to participate in the establishment
of any other business.
b. Injunction. Executive agrees that in addition to the
remedies the Company may seek and obtain pursuant to this Agreement, the period
during which the non-solicitation covenant contained in this Section 4 applies
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 Section 4.
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,
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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.
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 Financial Officer
Telephone: (800) 442-8749
Facsimile: (970) 482-9735
and to Executive at:
David R. Bethune
6646 East Crested Saguaro Lane
Scottsdale, Arizona 85262
Telephone: (602) 595-6593
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.
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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
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.
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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.
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/ WILLIAM C. O'NEIL /s/ DAVID R. BETHUNE
- -------------------------------------- --------------------------------
William C. O'Neil David R. Bethune
Chairman of the Board of Directors
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EXHIBIT A
(OMITTED)
<PAGE> 1
EXHIBIT 10.13
AGREEMENT
This Agreement is entered into this 2nd day of August, 1999,
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 John E. Urheim, an individual (the "Employee"), with his
address at 5417 Taylor Lane, Fort Collins, Colorado 80525.
WHEREAS, Employee desires to resign from his position as an
officer of the Company and its subsidiaries for health reasons.
WHEREAS, the Company and Employee desire to enter into this
Agreement to set forth the terms of such resignation.
NOW, THEREFORE, in consideration of the covenants undertaken, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Resignation. Employee's employment with the Company as its Chief
Executive Officer will terminate effective as of 5:00 p.m. Mountain Daylight
Time, August 2, 1999 (the "Resignation Date"). Effective on the Resignation
Date, Employee will relinquish all positions as an officer of the Company or its
subsidiaries. Employee acknowledges that upon receipt of the Employee's final
salary payment for the period ended August 31, 1999 that the Company will have
paid him for all work performed on or prior to the Resignation Date based on
Employee's base annual salary of Two Hundred Fifty-Five Thousand Dollars
($255,000) ("Base Salary"), and has provided Employee with all benefits to which
he was entitled through the Resignation Date.
2. Final Termination Date. The Company shall employ Employee as a
salaried employee of the Company reporting to the Company's interim Chief
Executive Officer to assist the Company in all matters relating to the winding-
up of pending work and the orderly transition of work to other employees from
the Resignation Date through August 31, 1999, at which time Employee's
employment with the Company will terminate ("Final Termination Date"); provided
however, Employee will be deemed to be an "employee" for severance related
issues as provided in Section 3 hereof. The Company shall pay Employee his
salary based on his Base Salary, and provide Employee with benefits on
substantially the same conditions and terms as previously provided to Employee
from the Resignation Date through the Final Termination Date. Employee hereby
waives any right to claim reinstatement as an employee of the Company or its
subsidiaries after the Final Termination Date.
3. Severance. The Company shall provide Employee with:
(a) Severance Payments. The cash equivalent of twelve (12)
months of Employee's Base Salary, Two Hundred Fifty-Five Thousand
Dollars ($255,000.00) in the form of salary continuation for the period
from September 1, 1999 through August 31, 2000, in accordance with the
Company's normal payroll procedures ("Severance Payment"). The Company
shall deduct all applicable tax
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withholdings for state and federal income taxes, FICA and other
deductions required by law and/or authorized by Employee from the
Severance Payment.
(b) Severance Benefits. Dental, medical, life insurance
coverage and other employee benefits provided by the Company on the
same terms as the Company provided to Employee prior to the Resignation
Date for the period from September 1, 1999 through August 31, 2000. The
benefits provided for in this Section 3(b) shall constitute all of the
Severance Benefits provided by the Company to Employee after the Final
Termination Date. The Company will use its best efforts to cause such
Severance Benefits to be effective on or before the Final Termination
Date. Employee acknowledges that except as provided for in this
Agreement, Employee shall not otherwise be entitled to any other
payments or benefits from the Company.
4. Consulting. If requested by the Company's interim Chief Executive
Officer (or permanent Chief Executive Officer) subsequent to August 31, 1999
Employee will serve as a part-time consultant (but in any event no more than a
maximum of 30 hours per week) to the Company to assist the Company on
acquisitions, licensing and other matters as deemed appropriate by the Company's
interim Chief Executive Officer (or permanent Chief Executive Officer). In that
capacity, Employee will be paid One Hundred and Fifty Dollars ($150) per hour as
set forth on Exhibit B. Employee's engagement as a part-time consultant to the
Company will not entitle him to any other payments or benefits beyond this
hourly rate of compensation. Employee's engagement as a part-time consultant
will be as an independent contractor, and he shall not be deemed or construed to
be an agent, servant, representative, or employee of the Company within the
meaning of any State Worker's Compensation Act, the common law of any State, the
rules of any federal agency, or federal law.
5. Stock Options. Employee has unvested stock options to acquire 28,034
shares of the Company's $.001 par value common stock (the "Options"), at
exercise prices ranging from $6.625 to $16.50 per share. The Company will cause
all unvested Options to immediately vest as of the date this Agreement becomes
effective or enforceable.
6. Company Property. Employee represents that he will turn over to the
Company all files, memoranda, records, other documents and all other physical
property which Employee received from the Company and which are the property of
the Company by the Final Termination Date, or sooner if requested by the
Company. Employee shall return to the Company all Company credit cards and
calling cards promptly upon request.
7. Tax Liability. Employee agrees that Employee is exclusively liable
for the payment of any federal, state, city or other taxes which may be due as a
result of any consideration received by Employee as provided by this Agreement;
provided, however, that Company shall pay all federal, state and local amounts
withheld from payments to Employee and all other employment taxes of the type
normally paid by Company on employee salaries in connection with the
consideration payable to Employee pursuant to Section 3 of this Agreement.
8. Releases by Employee. Except for obligations created by this
Agreement, Employee hereby covenants not to sue and fully releases the Company
and its
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subsidiaries and affiliates, past and present, and each of them, as well as
their directors, partners, officers, agents, attorneys, insurers, employees,
stockholders, representatives, assigns and successors, past and present, and
each of them (hereinafter together and collectively referred to as "Releasees")
with respect to and from all actions, and claims of any kind, known or unknown,
suspected or unsuspected, which Employee may now have or has ever had against
any of the Releasees, including all claims arising from, with respect to, or
related in any manner to Employee's employment as chief executive officer and/or
in any other capacity as an officer or employee of the Company or its
subsidiaries and all matters relating to, arising out of or with respect to the
decision to terminate that relationship and the termination of that
relationship, as of the Final Termination Date (and specifically including any
and all claims related to prior promises or contracts of employment and any and
all claims for wages, benefits, vacation pay, and wrongful termination or
discrimination whether based on age, race, sex, disability or otherwise
including specifically and without limitation claims under the Federal Age
Discrimination in Employment Act, Americans with Disabilities Act, and any state
or local statute or law). Employee warrants and represents that Employee has not
assigned or transferred to any person or entity any of the claims released by
this Agreement and Employee agrees to defend, by counsel of Company's choosing,
and indemnify and hold harmless any of the Releasees from and against any claims
based on or in connection with or arising out of any such assignment or transfer
made.
9. Releases by Company. Except for obligations created by this
Agreement, the Company hereby covenants not to sue and fully releases Employee
and his successors and assigns (the "Employee Releasees"), with respect to and
from all actions, and claims of any kind, known or unknown, suspected or
unsuspected, which Company may now have or has ever had against any of the
Employee Releasees, including all claims arising from Employee's position as a
chief executive officer or employee of the Company or its subsidiaries and the
termination of that relationship (and specifically including any and all claims
related to prior promises or contracts of employment), as of the Final
Termination Date; provided, however, the Company does not release the Employee
Releases with respect to claims arising out of or relating to the fraud, gross
negligence or willful misconduct of the Employee. The Company warrants and
represents that the Company has not assigned or transferred to any person or
entity any of the claims released by this Agreement and the Company agrees to
defend, at its sole cost and expense, by counsel of Employee's choosing, and
indemnify and hold harmless any of the Employee Releasees from and against any
claims based on or in connection with or arising out of any such assignment or
transfer made.
10. Indemnification and Defense by Company. Company shall indemnify and
defend, at its sole cost and expense, Employee in any threatened, pending, or
contemplated action, suit or proceeding, whether civil or criminal,
administrative or investigative, or whether formal or informal which arises by
reason of the fact that Employee was chief executive officer of the Company
and/or in any other capacity as an officer or employee of the Company or its
subsidiaries prior to the Resignation Date, against expenses, including
attorney's fees, judgments, penalties, fines and amounts to be paid in
settlement in connection with such action, suit or proceeding if it is
determined by the Company that Employee conducted himself in good faith and that
Employee reasonably believed (i) in the case of conduct in his official capacity
with the Company,
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that his conduct was in the Company's best interests, or (ii) in all other cases
(except criminal cases), that his conduct was at least not opposed to the
Company's best interests, or (iii) in the case of any criminal proceeding, that
he had no reasonable cause to believe that his conduct was unlawful
("Indemnified Claims"). The Company shall have the sole and exclusive right to
select legal counsel to represent the Company and Employee, and to control the
defense and/or settlement of any Indemnified Claims. Employee agrees to
cooperate with the Company in the defense of any Indemnified Claims, and make
available to the Company any and all documents in his possession and/or control
that may be necessary or useful to such defense and/or settlement.
No indemnification shall be made to Employee under this Section 10 with
respect to any claim, issue or matter in connection with a proceeding by or on
behalf of the Company or any other entity in which Employee's actions giving
rise to the action, suit, proceeding or claim constituted fraud, gross
negligence and/or willful misconduct on the part of the Employee.
11. Cooperation. Employee agrees to fully cooperate with Company in all
matters relating to the winding up of pending work on behalf of Company and the
orderly transfer of work to other employees of the Company following the Final
Termination Date and thereafter. 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 Company. The terms
and conditions of this Section 11 shall not apply to the Company's defense
and/or indemnification of Employee with respect to the Indemnified Claims under
Section 10 of this Agreement.
12. Non-Competition.
(a) Employee covenants and agrees with the Company that for
the period from September 1, 1999 through August 31, 2000 (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 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 Board of Directors 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 as of
September 1, 1999 or any business in which during the twelve (12)
months immediately preceding September 1, 1999 the Company actively
contemplated engaging (as evidenced by (x) discussions between
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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 September 1, 1999
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) Employee covenants and agrees with the Company that from
the Effective Date through August 31, 2000, 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 12 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 12, any payments to be made to Employee or for his benefit
pursuant to Section 3 of this Agreement shall be deemed to secure his
agreements set forth in this Section 12 and such payments may be
terminated by the Company if Employee fails to observe the agreements
set forth in this Section 12.
(e) Employee (i) acknowledges that, subject to current health
limitations and successful cardiac rehabilitation, 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 12 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.
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13. Nonadmission of Violation. This Agreement is not, and shall not be
construed as, an admission by Company of any violation of its policies or
procedures, or of any local, state or federal law or regulation.
14. Complete Agreement. This Agreement constitutes the full and entire
agreement and understanding of the parties. This Agreement supersedes and
replaces all prior negotiations and all agreements, proposed or otherwise,
between the parties, whether written or oral, concerning the subject matters
hereof. This Agreement also supersedes, replaces and terminates as null and void
all prior employment and severance agreements between Employee and the Company.
All such prior negotiations and agreements are merged into this Agreement. This
Agreement does not, however, affect or limit the parties' past or ongoing
respective rights and responsibilities under any applicable stock option
agreement which provides for disposition of stock which Employee may hold in the
Company. The terms and conditions contained herein shall inure to the benefit
of, and be binding upon, the heirs, representatives, assigns and
successors-in-interest of the parties. This is an integrated document.
15. Severability of Invalid Provisions. If any provision or portion of
this Agreement or the application thereof is held by a court of competent
jurisdiction or arbitrator to be invalid, unlawful or unenforceable, the
remaining provisions or portions of provisions of this Agreement shall remain in
full force and effect. Such invalidity shall not affect other provisions or
applications of the Agreement which can be given effect without the invalid
provisions or applications and to this end the provisions of this Agreement are
declared severable.
16. Choice of Law. Except for claims relating to trade secrets, any
dispute between the parties relating in any way to Employee's employment, the
termination of that employment or this Agreement, including, without limitation,
the formation, implementation, or termination thereof shall be resolved by
arbitration before a single arbitrator in Fort Collins, Colorado, according to
the commercial rules of the American Arbitration Association. The parties also
agree that prior to commencing any arbitration proceedings, as provided above,
the parties shall first attempt to resolve any dispute between or among them
through mediation with the assistance of a mediator selected by or agreeable to
the parties to the dispute. The costs and expense of arbitration and mediation
shall be shared equally by the parties to the arbitration and/or mediation,
regardless of which party prevails. The rights and obligations of the parties
hereunder, including any agreement to arbitrate and the law to be applied in the
arbitration shall be construed and enforced in accordance with and governed by
the law of the United States to the extent applicable and otherwise the laws of
the State of Colorado, without giving effect to principles of conflicts of law.
17. Waiver of Breach. No waiver, amendment or modification of this
Agreement shall be effective unless in writing and signed by the party against
whom the waiver, amendment or modification is sought to be enforced. No waiver
of any term, condition, breach or default of this Agreement shall be construed
as a waiver of any other term,
6
<PAGE> 7
condition, breach or default. Failure to enforce any breach or default of this
agreement shall not be a waiver of that breach or default or any other breach or
default of this Agreement.
18. Further Executions. All parties agree to cooperate fully and to
execute any and all supplementary documents and to take all additional actions
that may be necessary or appropriate to give full force to the basic terms and
intent of this Agreement and which are not inconsistent with its terms.
19. Headings. The use of headings in this Agreement is only for ease of
reference and the headings have no effect and are not to be considered a part or
term of this Agreement.
20. Each Party to Bear Own Costs. Except as provided herein, the
parties agree that each party shall be responsible for the payment of its own
costs, attorneys' fees, and all other expense in connection with the negotiation
of this Agreement.
21. Counterparts. This Agreement may be executed by the parties hereto
in two or more counterparts, each of which shall be deemed to be an original,
but all such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
22. FURTHER ACKNOWLEDGMENTS. EMPLOYEE FURTHER ACKNOWLEDGES THAT: (A)
EMPLOYEE HAS READ THIS AGREEMENT; (b) EMPLOYEE HAS BEEN PROVIDED A FULL AND
AMPLE OPPORTUNITY TO STUDY IT; (c) EMPLOYEE HEREBY IS ADVISED IN WRITING TO
CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT; (d) EMPLOYEE HAS BEEN
ADVISED THAT EMPLOYEE HAS TWENTY-ONE (21) DAYS FROM THE DATE THIS AGREEMENT IS
PRESENTED TO EMPLOYEE IN WHICH TO CONSIDER THIS AGREEMENT AND WHETHER EMPLOYEE
WILL ENTER INTO IT, ALTHOUGH EMPLOYEE MAY, IN THE EXERCISE OF EMPLOYEE'S
DISCRETION, SIGN OR REJECT THIS AGREEMENT AT ANY TIME BEFORE THE TWENTY-ONE (21)
DAY PERIOD EXPIRES; (E) EMPLOYEE HAS SEVEN (7) DAYS FOLLOWING EXECUTION OF THIS
AGREEMENT TO REVOKE THE AGREEMENT BY DELIVERING TIMELY NOTICE OF EMPLOYEE'S
REVOCATION TO THE CHAIRMAN OF THE BOARD OF DIRECTORS OF THE COMPANY; (f) THIS
AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE AND NO FUNDS SHALL BE
EXCHANGED UNTIL THE SEVEN (7) DAY REVOCATION PERIOD HAS EXPIRED; (g) EMPLOYEE
ENTERS INTO THIS AGREEMENT BASED UPON EMPLOYEE'S OWN KNOWLEDGE AND JUDGMENT AND
NOT IN RELIANCE ON ANY REPRESENTATIONS OR PROMISES OF COMPANY OTHER THAN THOSE
CONTAINED IN THIS AGREEMENT; (h) EMPLOYEE UNDERSTANDS THAT IF ANY FACTS OR
MATTERS UPON WHICH EMPLOYEE HAS RELIED IN ENTERING INTO THIS AGREEMENT SHALL
HEREINAFTER PROVE TO BE OTHERWISE, THIS AGREEMENT SHALL NEVERTHELESS REMAIN IN
FULL FORCE AND EFFECT; AND (j) EMPLOYEE IS SIGNING THIS AGREEMENT VOLUNTARILY,
WITHOUT COERCION, AND WITH FULL KNOWLEDGE THAT IT IS INTENDED, TO THE MAXIMUM
EXTENT PERMITTED BY LAW, AS A COMPLETE AND FINAL RELEASE AND WAIVER OF ANY AND
ALL CLAIMS.
7
<PAGE> 8
In Witness Whereof, the parties have duly executed this Agreement as of
August 2, 1999.
Atrix Laboratories, Inc. Employee
By: /s/ WILLIAM C. O'NEIL By: /s/ JOHN W. URHEIM
------------------------------------- ------------------------------
William C. O'Neil John E. Urheim
Chairman of the Board of Directors
8
<PAGE> 9
EXHIBIT B
TERMS OF CONSULTING ENGAGEMENT
1. DUTIES. Assist the Company on acquisitions, licensing and other
matters as deemed appropriate by the Company's interim Chief Executive Officer
(or permanent Chief Executive Officer).
2. COMPENSATION.
(a) Compensation. One Hundred and Fifty Dollars ($150.00)
per hour, not including travel time unless approved in advance by
the Chief Executive Officer of the Company.
(b) Expenses. The Company shall promptly pay or reimburse
consultant for all reasonable expenses incurred by him in connection
with the performance of his duties and responsibilities hereunder,
and that are consistent with the Company's Travel and Expense
Reimbursement Policy, as now existing or hereafter amended. All
requests for reimbursed expenses shall be accompanied by such
underlying documents or other evidence as are reasonably required to
support the deduction of such expenses in accordance with the rules
established by the Company.
(c) Invoices. Consultant will invoice the Company for
billable time and expenses incurred monthly, if appropriate, by the
15th of the following month. The Company will distribute payment or
reimbursement checks to consultant within thirty (30) days of
receipt of the invoices by the Company's Accounts Payable
department, subsequent to proper authorizations.
(d) Taxes. All compensation paid for consulting services
shall constitute revenues to the consultant. To the extent
consistent with applicable law, the Company will not withhold any
amounts therefrom as federal income tax withholding from wages or as
employee contributions under the Federal Insurance Contributions Act
or any other state or federal laws. Consultant shall be solely
responsible for the withholding and/or payment of any federal, state
or local income or payroll taxes.
B-1
<PAGE> 1
EXHIBIT 21
Material Subsidiaries of Registrant
ViroTex Corporation, a Delaware corporation
Atrix Laboratories Limited, organized under the
laws of England and Wales
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
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 February 29, 2000, 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
February 29, 2000
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