SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 30, 1997
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in Charter)
Oregon
(State or Other Jurisdiction of Incorporation)
0-15360 93-1099680
(Commission File Number) (IRS Employer Identification No.)
7620 S.W. Bridgeport Road
Portland, Oregon 97224
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (503) 639-7221
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events
On September 30, 1997 the registrant executed an agreement with Elan
Corporation,plc for a license of certain technology related to research,
development and commercialization of a continuous glucose level monitoring
system for diabetics (the "Agreement"). The ambulatory monitoring system
will consist of a patch-like sensor coupled with a wrist watch-type
monitoring device to measure glucose levels. Human clinical trials are
presently expected to begin in early 1998.
The project will be conducted in a joint venture company that will be a
subsidiary of Bioject, owned 19.9 percent by Elan. The new company will
exclusively license Elan's glucose monitoring technology for an initial
payment of $15 million, certain milestone payments and future royalty
payments based upon the joint venture company's net revenues attributable to
the license. Initially Elan will invest approximately $3 million in the
subsidiary and Bioject will invest approximately $12 million. Elan has
agreed to lend Bioject $12 million, the principal amount and accrued interest
of which will be exchanged for convertible preferred stock of Bioject if
Bioject's shareholders approve the exchange.
Elan's loan to Bioject bears interest at the rate of 9% until December 31,
1997 and 12% thereafter. The convertible preferred stock will be convertible
into common stock at a conversion price of $1.50 per share. Of the
preferred stock, $10 million plus accrued interest on the loan prior to
exchange will accrue dividends at the rate of 9% per annum (compounded
semi-annually) and $2 million will not accrue dividends. Bioject has the
right to redeem one-third of the preferred stock annually after three years
by paying the liquidation preference plus accrued dividends, if the market
price of the common stock reaches and remains at $2.25 per share or greater
during the 30-day period prior to the redemption date. At the end of seven
years the original liquidation preference and accrued dividends of any
preferred stock not previously converted or redeemed will convert automatically
to common stock at a conversion price equal to the lesser of $1.50 per share
or 80% of the then market price.
Elan has agreed to fund research and development efforts in an amount of up
to $2.5 million prior to the earlier of human trials or April 1, 1998.
Thereafter the responsibility for funding the project shifts to the joint
venture company. Bioject and Elan have committed to fund approximately $4
million and approximately $1 million of these costs, respectively. Subject to
certain conditions,including approval by Bioject shareholders, Bioject has the
right to require Elan to fund Bioject's commitment by purchasing Bioject's
convertible preferred stock. Additional funding will be the responsibility
of the joint venture company.
Elan has also agreed to invest $3 million in Bioject in exchange for 2.7
million shares of Bioject's common stock and a five-year warrant to purchase
an additional 1.75 million shares of common stock at $2.50 per share.
Bioject has agreed that it will use its best efforts to cause a nominee of
Elan to be elected to its Board of Directors for as long as Elan owns at
least a 10 percent equity position in Bioject. Bioject anticipates that
its Board of Directors will add Michael Sember, Elan's vice president of
planning, investment and development, as a director upon closing of the
transactions contemplated by the agreement. Elan has agreed that it will
not purchase shares of Bioject from third parties or attempt to influence
management or control of Bioject or change the composition of Bioject's
Board of Directors for a period of three years.
The Agreement provides for the joint venture company to have an exclusive
license with respect to the technology in North America, which becomes a
world-wide license if Bioject's shareholders approve the conversion of
Elan's loan to convertible preferred stock of Bioject as described above.
Under the Agreement, Elan will be entitled to receive substantial payments
from the joint venture company as certain milestones are met and to receive
royalties on products sold.
Also, Elan has agreed to fund $500,000 of development expenses for the
development of pre-filled medication applications for Bioject's needle-free
injection technology.
<PAGE>
The Agreement executed between Bioject and Elan is a binding agreement,
but closing is subject to a number of conditions, including the preparation
and execution by the parties of further definitive agreements and documents.
Either party may terminate the agreement if such further definitive
agreements and documents are not executed or closing of the transactions
contemplated thereby does not occur by October 15,1997.
Bioject has undertaken to call a special meeting of shareholders
to consider issuance of the convertible preferred stock as soon as
practicable, but in any event on or prior to February 1, 1998.
The Agreement dated September 30, 1997 is filed as an exhibit to this report
on Form 8-K.
Certain statements in this report, including statements concerning the
formation of a new subsidiary of Bioject and the development, testing,
marketing and product characteristics of glucose monitoring and pre-filled
needle-free injection products intended to be developed, and other statements
that are not statements of historical fact, are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
There are a number of factors which could cause actual events to differ
materially from those projected in the forward-looking statements, including
uncertainties as to the timely satisfaction of conditions to closing of the
agreement, the parties' ability to develop the products presently contemplated,
the possibility of delays, the availability of adequate additional financing,
the ownership and protection of proprietary technology, the possibilities that
competing technology could be developed by others and other risks and
uncertainties described in Bioject's report on Form 10-K for the year ended
March 31, 1997 and other reports filed with the Securities and Exchange
Commission.
Item 7. Exhibits
10.39 Agreement between Elan Corporation, plc, Elan International Services,
Ltd. and Bioject Medical Technologies Inc. dated September 30, 1997.
Confidential treatment has been requested with respect to certain
portions of this exhibit pursuant to an Application for Confidential
Treatment filed with the Commission under Rule 24b-2(b) under the
Securities Exchange Act of 1934, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BIOJECT MEDICAL TECHNOLOGIES INC.
Date: October 3, 1997 By /s/ Peggy J. Miller
Peggy J. Miller
Vice President, Chief Financial Officer
and Secretary
<PAGE>
Exhibit Index
Exhibit
Number Exhibit Page
10.39 Agreement between Elan Corporation, plc, Elan
International Services,Ltd. and Bioject Medical
Technologies, Inc. dated September 30, 1997.
Confidential treatment has been requested with
respect to certain portions of this exhibit
pursuant to an Application for Confidential
Treatment filed with the Commission under Rule
24b-2(b) under the Securities Exchange Act of
1934, as amended.
EXHIBIT 10.39
NOTE: CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO AN APPLICATION FOR CONFIDENTIAL
TREATMENT UNDER RULE 24b-2 (b) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Elan Corporation, plc
Monksland, Athlone
County Westmeath
Ireland
Elan International Services, Ltd.
102 St. James Court
Flatts Smiths, FL 04
Bermuda
September 30, 1997
Bioject Medical Technologies, Inc.
7620 S.W. Bridgeport Road
Portland, Oregon 97224
Attention: James C. O'Shea
Chairman, President and Chief Executive Officer
Gentlemen:
This letter agreement sets forth the terms and conditions upon which (a)
Elan International Services, Ltd., a Bermuda corporation("EIS"), will
make (i) certain equity investments in Bioject Medical Technologies,
Inc., an Oregon corporation ("Bioject"), and (ii) certain debt
investments in Bioject, (b) EIS and Bioject shall subscribe for equity
securities of a to be newly-created corporation to be formed by Bioject
and EIS ("Newco"), and (c) Elan Corporation, plc, an Irish public
limited company (together with EIS and its other affiliates and
subsidiaries, "Elan"), will license certain intellectual property to
Newco, each as provided herein. The parties intend that this letter
agreement constitute a definitive agreement between them relating to the
subject matter hereof; nonetheless, it is their intention to execute and
deliver certain definitive and/or supplemental documents, as provided
below, in respect of the transactions contemplated hereby (the
"Definitive Documents"). If executed and delivered, the Definitive
Documents shall supersede this letter agreement.
The parties agree as follows:
1. License. Elan shall grant to Newco an exclusive license (the
"License") pursuant to the license agreement to be entered into
between Elan and Newco (the "License Agreement"). The License
Agreement shall be subject to the terms and conditions as described in
the term sheet attached hereto as Exhibit A (the "License Term
Sheet").
2. Financing. Bioject, Newco and EIS shall enter into certain
financing, equity purchase and related arrangements upon execution and
delivery of the other Definitive Documents, which arrangements shall be
subject to the terms and conditions as described in the term sheet
attached hereto as Exhibit B (the "Financing Term Sheet").
3. Certain Conditions. (a) The following shall be conditions to
Elan's obligation to execute and deliver the Definitive Documents and to
thereafter consummate the transactions contemplated hereby and thereby
(such transactions the "Closing"; the date of such Closing, the
"Closing Date"): (1)(a) Bioject and Newco, as applicable, shall have
executed and delivered and issued to Elan, as applicable, a Securities
Purchase Agreement, Promissory Note, certificates in respect of shares
of Bioject's common stock and warrants to acquire such shares, a
Registration Rights Agreement and such other reasonable and customary
documents and instruments as provided therein or as Elan may otherwise
reasonably request in respect of the transactions contemplated by the
Financing Term Sheet and (b) Newco shall have executed and delivered the
License Agreement and such other reasonable and customary documents and
instruments as provided therein or as Elan may otherwise reasonably
request in respect of the transactions contemplated by the License Term
Sheet, which, in each case, when duly executed and delivered by Bioject
or Newco, as applicable, shall be in full force and effect and there
shall be no breach or default by Bioject or Newco thereunder, (2) there
shall not have occurred from the date hereof through and including the
Closing Date any material adverse change in Bioject's business,
condition (financial or otherwise) or prospects, (3) Bioject shall not
have breached or defaulted in any of its obligations hereunder and its
representations herein shall be true and correct in all material
respects, as if made on the Closing Date, (4) no consent, approval or
filing (with any governmental authority or otherwise) shall be required
for the execution of the Definitive Documents, and provisions for the
securing of all such third-party consents necessary for the consummation
of the transactions contemplated by the Definitive Documents shall have
been made, and (5) the execution and delivery of the Definitive
Documents and the Closing shall have occurred on or prior to October 15,
1997.
(b) The following shall be conditions to Bioject's obligation to
execute and deliver the Definitive Documents and to thereafter
consummate the transactions contemplated hereby and thereby: (1)(a) Elan
shall have executed and delivered and issued to Bioject or Newco, as
applicable, a Securities Purchase Agreement, a Registration Rights
Agreement and such other reasonable and customary documents and
instruments as provided therein or as Bioject may otherwise reasonably
request in respect of the transactions contemplated by the Financing
Term Sheet and (b) Elan shall have executed and delivered the License
Agreement and such other reasonable and customary documents and
instruments as provided therein or as Elan may otherwise reasonably
request in respect of the transactions contemplated by the License Term
Sheet, which, in each case, when duly executed and delivered by Elan
shall be in full force and effect and there shall be no breach or
default by Elan thereunder, (2) Elan shall not have breached or
defaulted in any of its obligations hereunder and its representations
herein shall be true and correct in all material respects, as if made on
the Closing Date, (3) no consent, approval or filing (with any
governmental authority or otherwise) shall be required for the execution
of the Definitive Documents, and provisions for the securing of all such
third-party consents necessary for the consummation of the transactions
contemplated by the Definitive Documents shall have been made, and (4)
the execution and delivery of the Definitive Documents and the Closing
shall have occurred on or prior to October 15, 1997.
(c) In the event that the Closing shall not have been consummated on or
prior to October 15,1997 (other than as a result of the material breach
or default hereunder by either party, which party shall remain fully
liable for such breach or default), either party may terminate this
letter agreement by written notice to the other, whereupon the
transactions contemplated hereby shall be canceled and of no further
force and effect; provided, that each party shall remain liable to the
other for or in respect of any breach or default which shall have
occurred prior to such date.
4. Representations and Certain Covenants. (a) Bioject represents to
Elan the following: (i) Bioject is duly and validly existing in good
standing in the jurisdiction of its incorporation and each other
jurisdiction in which the conduct of its business requires such
qualification, (ii) Bioject has full corporate authority to execute and
deliver this letter agreement and the Definitive Documents and to
consummate the transactions contemplated hereby and thereby; this letter
agreement has been duly executed and delivered and constitutes the legal
and valid obligations of Bioject and is enforceable against Bioject in
accordance with its terms; (iii) the securities contemplated to be
issued by the Financing Term Sheet and the securities issuable upon
conversion or exercise thereof, have been or will be duly and validly
authorized and when issued will be fully paid and non-assessable and
free from any and all options, warrants and preemptive and other rights,
(iv) the financial statements of Bioject previously delivered to Elan
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied and fairly present the
financial condition of Bioject, (v) Bioject is not in default in any
material respect of its charter or by-laws, any applicable laws or
regulations or any contract or agreement binding upon or affecting it or
its properties or assets and the execution, delivery and performance of
this letter agreement and the transactions contemplated hereby will not
result in any such violation, (vi) Bioject owns all of its properties
and assets, as reflected in the financial statements previously
delivered to Elan and (vii) all of Bioject's periodic reports filed with
the U.S. Securities and Exchange Commission under the Securities
Exchange Act of 1934 (the "Exchange Act") for the fiscal year ended
March 31, 1997 and subsequent periods (all of which that are required to
have been filed having been duly and timely filed) comply as to form
with the requirements of the Exchange Act and applicable rules and
regulations thereunder and do not contain any misstatements of material
fact or omit to state any material fact that was required to be stated
or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(b) Elan represents to Bioject the following: (i) Elan is duly and
validly existing in good standing in the jurisdiction of its
incorporation and each other jurisdiction in which the conduct of its
business requires such qualification, (ii) Elan has full corporate
authority to execute and deliver this letter agreement and the
Definitive Documents and to consummate the transactions contemplated
hereby and thereby; this letter agreement has been duly executed and
delivered and constitutes the legal and valid obligations of Elan and is
enforceable against Elan in accordance with its terms; (iii) Elan is not
in default of its charter or by-laws, any applicable laws or regulations
or any contract or agreement binding upon or affecting it or its
properties or assets and the execution, delivery and performance of this
letter agreement and the transactions contemplated hereby will not
result in any such violation, and (iv) all of Elan's periodic reports
filed with the U.S. Securities and Exchange Commission under the
Exchange Act for the fiscal year ended December 31, 1996 and subsequent
periods(all of which that are required to have been filed having been
duly and timely filed) comply as to form with the requirements of the
Exchange Act and applicable rules and regulations thereunder and do not
contain any misstatements of material fact or omit to state any material
fact that was required to be stated or necessary to make the statements
made therein, in light of the circumstances under which they were made,
not misleading.
(c) Bioject shall not, outside of the ordinary course of business, prior
to the earlier of (x) the Closing Date and (y) the abandonment or
termination of the transactions contemplated hereby, as provided in
Section 3 above, without the prior written consent of Elan, (i) acquire
or dispose of any material asset or business (including any intellectual
property rights), (ii) permit to exist any lien or encumbrance against
Bioject's property or assets, (iii) make, pay or declare any dividend or
distribution to any equity holder (in such capacity) or redeem any of
its capital stock, (iv) consummate any financing, joint venture, license
or similar transaction, or (v) vary its business plan or practices, in
any material respect, from past practices.
(d) Bioject shall, prior to the earlier of (x) the Closing Date and (y)
the abandonment or termination of the transactions contemplated hereby,
as provided in Section 3 above, afford to the employees, agents and
authorized representatives of Elan reasonable access to Bioject's
properties, offices, files, agreements, books and records as may be
necessary in order that Elan may have a full opportunity to conduct such
investigations and due diligence reviews as it shall deem necessary in
connection with the transactions contemplated herein and by the
Definitive Documents.
(e) Elan shall, prior to the earlier of (x) the Closing Date and (y) the
abandonment or termination of the transactions contemplated hereby, as
provided in Section 3 above, afford to the employees, agents and
authorized representatives of Bioject reasonable access to Elan's books
and records to conduct such investigations and due diligence reviews as
it shall deem necessary in connection with the License Agreement.
5. Confidentiality and Non-disclosure. From and after the date of this
letter agreement and until the earlier of (x) the Closing Date and (y)
the abandonment or termination of the transactions contemplated hereby,
as provided in Section 3 above, Bioject shall not (a) disclose to any
person or entity, publicly or privately, this letter agreement or the
substance of the transactions contemplated hereby or the involvement of
Elan in the business of Bioject, without the prior written consent of
Elan; provided, that the foregoing covenant shall not be applicable to
the extent required by applicable law or judicial or administrative
process or to a press release issued by Bioject or periodic SEC reports
filed by Bioject in connection herewith, so long as the text thereof
shall have been provided to Elan and Elan shall have approved the text
thereof, which consent shall not be unreasonably withheld or delayed, or
(b) conduct or continue any discussions with any person or entity
relating to an investment in Bioject or a sale of Bioject or all or
substantially all of its assets or a merger involving Bioject or a
financing arrangement or a license agreement (in the case of a license
agreement, outside the normal course of business) involving any material
intellectual property, except as otherwise consented to in writing by
Elan.
6. Miscellaneous. This letter agreement (a) shall be governed by and
construed in accordance with the internal laws of the State of New York,
without regard to principles of conflicts of laws and, in connection
therewith, each party consents to the non-exclusive jurisdiction of any
Federal or state court sitting in the County, City and State of New York
over any dispute arising from this letter agreement; (b) shall not be
assigned or delegated by either party without the consent of the other
party (except that Elan shall have the right to assign or delegate such
rights and/or obligations to its affiliates, so long as Elan shall
remain liable therefor after any such assignment); subject to the
foregoing, shall be binding upon the parties' respective successors and
assigns; (c) may be executed in counterparts and delivered by facsimile
transmission; and (d) together with the Definitive Documents,
constitutes the entire agreement among the parties and supersedes all
prior agreements or understandings among the parties. Each party
consents to the entry of an injunction or other appropriate equitable
relief (in addition to other remedies at law), without the requirement
to post a bond or other security, in the event of any breach or
threatened breach of the terms of this letter agreement.
Please indicate your approval to the foregoing by signing a copy of this
letter agreement where indicated below.
Very truly yours,
Elan Corporation, plc
By:/s/Donal J. Geaney
Name: Donal J. Geaney
Title: Chairman and C.E.O.
Elan International Services, Ltd.
By:/s/ Kevin Insley
Name: Kevin Insley
Title: President and C.F.O.
Agreed to:
Bioject Medical Technologies, Inc.
By:/s/ James C. O'Shea
Name: James C. O'Shea
Title: Chairman, President and
Chief Executive Officer
<PAGE>
Exhibit A
Principal Terms of License (1)
License; Prosecution
An exclusive license (the "License") from Elan Corporation, plc or one or
more of its affiliates (collectively, "Elan") to a new subsidiary company
("Newco") to be established by Bioject Medical Technologies Inc. (the
"Company"), of Elan's patent rights relating to devices and methods for
directly or indirectly monitoring the concentration of glucose in a subject
and related know-how (the "Glucose Monitor Technology") . The Field shall
be defined as directly or indirectly monitoring the concentration of glucose
in a subject. The License will contain the terms and conditions set forth
below and other customary terms and conditions, including terms and conditions
relating to auditing and review rights; confidentiality and other provisions.
Newco will diligently pursue the research, development, prosecution and
commercialization of products based on the Glucose Monitor Technology (the
"Products"), as provided in the Business Plan.
Licensed Territory
North America, including the territories of the United States of America;
provided, that if Shareholders Approval is granted, the licensed territory
shall be worldwide (the "Territory").
Term
The greater of the [confidential portion omitted] in the relevant country or
countries within the Territory and [confidential portion omitted] years. In
addition, in the event that this Agreement shall run for its full term,
Newco will have a paid-up license after expiration of such term.
Royalty Rate
Between [confidential portion omitted] and [confidential portion omitted] of
(a) in-market net sales (whether by Newco or a sublicensee) and (b) all
other net revenues derived from the commercialization
of the Products. Such royalty shall vary from [confidential portion omitted]
to [confidential portion omitted] based upon the following ([confidential
portion omitted] amounts refer to royalty rates and [confidential portion
omitted] amounts refer to net revenues in a fiscal year): [confidential portion
omitted] on the first [confidential portion omitted] million, [confidential
portion omitted] on the amount between [confidential portion omitted] million
and [confidential portion omitted] million, and [confidential portion omitted]
on the amount in excess of [confidential portion omitted] million; provided,
that in the event of Shareholder Approval, such royalties shall be as follows:
[confidential portion omitted] on the first [confidential portion omitted]
million,[confidential portion omitted] on the amount between[confidential
portion omitted] million and [confidential portion omitted] million, and
[confidential portion omitted] on the amount in excess of [confidential
portion omitted] million.
Upfront Payment and Milestones
A. Upfront payment: $15 million in cash upon the execution of the License.
B. Milestones:
1. [confidential portion omitted] million in cash within 10 days of
commencement of pivotal clinical trials relating to the first product utilizing
or underlying the Technology and the concurrent agreement between Newco and
Elan of the success criteria for such pivotal clinical trials, which the
parties intend willinclude completed ISS/ISE;
2. [confidential portion omitted] million in cash within 120 days of
the successful completion of such pivotal clinical trials; provided, that
Newco shall be liable for interest on such amount at the rate of 10%
per year from and after the date that is 60 days after such completion;
3. [confidential portion omitted] million in cash within 10 days of
the initial filing of a 510(k), PMA or other required filing to obtain
regulatory approval for marketing, with the U.S. FDA; and
4. [confidential portion omitted] million in cash within 120 days of
the first approval for marketing by the FDA ; except that, in the event that
Shareholder Approval is obtained, such [confidential portion omitted] million
shall be payable as follows: [confidential portion omitted] million upon the
first FDA approval and [confidential portion omitted] million upon the first
approval by an FDA equivalent in the E.U. or Japan; provided, that Newco
shall be liable for interest on such amount at the rate of 10% per year from
and after the date that is 60 days after such approval.
Sublicense and Assignment Rights
Newco shall not be permitted to assign or sublicense any of its rights under
the License without the prior written consent of Elan, which consent will not
be unreasonably withheld or delayed; provided, that such reasonableness
standard shall not apply in the case of a proposed assignment or sublicense to
any of the entities listed on the attached list (the "Listed Companies").
Certain Changes of Control
In the event that Newco or the Company (or an interest therein in excess of
[confidential portion omitted] of the fully-diluted equity) is acquired (by
merger, sale of assets or stock or otherwise) by (a) any of the Listed
Companies or (b) any other entity to which Elan does not consent, which
consent shall not be unreasonably withheld or delayed, such reasonableness
to be determined by reference to Newco's and/or its controlling persons'
intention to continue diligent development and commercialization of the
Products, at the option of Elan, the License shall be immediately terminated,
without any further liability on the part of Elan to Newco.
Patent Prosecution
Both parties shall inform the other of any improvement or development made by
such party relating to the Glucose Monitor Technology.
Elan Improvements - Elan shall prepare, prosecute and maintain all initially
licensed patent applications and issued patents, and all improvements
attributable to employees of Elan ("Elan Improvements") made pursuant to the
License Agreement or otherwise. With respect to the Elan Improvements, Elan
shall apprise Newco of the status of any such prosecutionand, in the event
Elan shall decide not to seek patent protection for any Elan Improvement,
Newco shall have the option to take responsibility for such prosecution.
Newco and Joint Improvements - Newco shall prepare, prosecute and maintain all
patents applications and issued patents relating to Newco Improvements and
Joint Improvements that relate to Glucose Monitor Technology. With respect to
Newco Improvements, Newco shall apprise Elan of the status of any such
prosecution and, in the event Newco shall decide not to seek patent protection
for any Newco Improvement, Elan shall have the option to take responsibility
for such prosecution. In the event that Elan shall determine, in good faith,
that any Joint Improvement relates to an area other than Glucose Monitor
Technology, Elan shall have the right to take responsibility for the
preparation, prosecution and maintenance of such Joint Improvement. In the
event that Elan shall exercise such right, Elan shall timely inform Newco of
the status of such prosecution and allow Newco to assist in such prosecution.
In the event that Elan shall not exercise such right, Newco shall have the
right to take responsibility for the preparation, prosecution and maintenance
of such Joint Improvement
Research and Development Work
Elan will agree to undertake certain research and development work related to
the development and commercialization of the Products, at the request of Newco
and as articulated in one or more business plans reasonably agreed to by Elan
and Newco, in furtherance of the development and cultivation of know-how
related to the Technology. The cost of such development work shall be Elan's
fully-burdened actual costs in respect thereof plus [confidential portion
omitted] of such costs (which aggregate cost is Elan's normal and customary
cost for similar development work performed for third parties); provided,
that if the Shareholder Approval is granted, the cost of such development
work shall be Elan's fully-burdened actual costs in respect thereof plus
[confidential portion omitted] of such costs.
Regulatory Approvals
To be prosecuted by Newco, with due diligence, and to be owned by Newco.
Elan Improvements
The License shall include the right to any improvements or modifications
developed or acquired by Elan relating to the Glucose Monitor Technology in
the Field , [confidential portion omitted].
License Back
Elan shall be granted a non-exclusive fully-paid, worldwide license ,
(the "License Back") during the term of the License, of any improvements or
modifications to the Glucose Monitor Technology effected after the date of the
License made by or on behalf of Newco for all uses other than the Field .
Such License Back shall include the right to sublicense with Newco's consent,
which consent shall not be unreasonably withheld or delayed.
Elan Sales
In the event that Elan commercializes any products based on the Glucose
Monitor Technology in any territory in which Newco elects not to so
commercialize the Products (or is found not to have diligently prosecuted such
commercialization in such territory), Elan shall pay to Newco,[confidential
portion omitted] based on such commercialization, after recovery of Elan's
expenses related to the commercialization of such Products in such Territory.
Project Team
Elan and Newco shall establish a project team (on which they shall have equal
representation) to supervise the day-to-day activities related to the
cooperative aspects of the research and development of the Products. Disputes
on the project team that cannot be resolved by it will be resolved by Newco's
board of directors.
Termination
Customary provisions, including in the event of the bankruptcy or insolvency
of Newco or the Company.
Listed Companies
[confidential portion omitted]
[confidential portion omitted]
[confidential portion omitted]
[confidential portion omitted]
[confidential portion omitted]
[confidential portion omitted]
[confidential portion omitted]
[confidential portion omitted]
______________________________
(1) Capitalized terms not defined in this Exhibit A have the definitions
ascribed to them in the letter agreement to which it is attached or
Exhibit B to such letter agreement, as applicable.
<PAGE>
Exhibit B
Principal Terms of Financing and Related Matters (1)
Newco Initial Funding
The Company and Elan will initially capitalize Newco with $15 million (the
"Initial Funding"), as follows: (a) on the Closing Date, the Company will
subscribe for 80.1% of Newco's initial outstanding shares of common stock for
$12.015 million and (b) Elan will subscribe for 19.9% of Newco's initial
outstanding shares of common stock for $2.985 million. The Initial Funding
shall be applied solely to pay the up-front payment referred to in paragraph
A of the License Term Sheet.
Newco Additional Funding
A. It is estimated that Newco will require (in addition to any sums or
resources devoted by Elan pursuant to "Further Development") approximately
an additional $5 million (the "Additional Funding"), within the first 12
months after the earlier of the date of the Shareholder Approval (as defined
below) or February 1, 1998, in order to commence the further development of
the first product or products based upon the Technology (the "Products").
Such additional funds shall be provided 80.1% by the Company (i.e., $4.005
million) and 19.9% by Elan (i.e.,$995,000), at such time or times (in
aggregate $1 million minimum increments) as shall be necessary for such
development, as shall be reasonably determined in good faith by Newco's board
of directors and consistent with the then-current business plan approved by
such board of directors, which shall have been consented to by Elan, which
consent will not be unreasonably withheld or delayed; it being understood
that Newco shall not be permitted to obtain the Additional Funding or any
other material funding unless its board of directors shall have reasonably
determined, in good faith, that the Additional Funding or such other funding
is required for development of the Technology or product(s) based on the
Technology, as provided in such business plan. Elan's obligation with
respect to the Additional Funding shall terminate 30 months after the
earlier of the date of Shareholder Approval and February 1, 1998. Subject to
its commitments under "Subsequent Funding of the Company," Elan will not be
obligated to contribute additional funding to Newco in excess of the $995,000
stated in this section, nor more than 25% of the amount of additional funding
contributed by Company under this clause. In addition, unless and until
Newco becomes a publicly traded company, Elan and the Company shall be
afforded shareholders' preemptive rights on a reasonable basis to acquire
that portion of any additional equity or equity related security sales by
Newco necessary to maintain such shareholder's proportional interest in
Newco's outstanding equity securities.
B. In addition, if, after such time that Newco has expended (and documented
such expenditure to the reasonable satisfaction of Elan) at least
[confidential portion omitted] million on research and development funds
to develop and commercialize the Products (in addition to those amounts
expended by Elan pursuant to "Further Development" below), Newco requires
additional funding to complete such research, development and
commercialization, Elan shall undertake, for a period of at least 24 months,
to fund up to [confidential portion omitted] million of such additional
funding; provided, that (a) Elan shall have reasonably and in good faith
determined that such funding is likely to result in [confidential portion
omitted], as contemplated by the then-current business plan, (b) such funding
shall be in minimum increments of $500,000, (c) Newco shall have a market
capitalization (if public) or valuation, as determined by a financial
advisory or investment firm reasonably satisfactory to Newco and Elan, if
private, of less than [confidential portion omitted] million at the time of
Newco's request for such funding, and (d) such funding shall constitute senior
indebtedness of Newco and be evidenced by a secured promissory note on terms
and conditions that shall be satisfactory to each of Elan and Newco and
otherwise be consistent with similar transactions then being consummated in
the capital markets. Such note shall bear interest that shall be payable
quarterly in arrears in cash at a rate equal to [confidential portion omitted]
per year and have a term of three years.
Newco Governance
Until such time, if any, as Newco becomes a public company or material
investments in Newco by unaffiliated parties are consummated, Newco's
business and affairs shall be governed by a board of directors, comprised of
five members, one of whom shall be appointed by Elan. Approval of a majority
of the board shall be required for material company determinations, including
acquisitions of material assets (including intellectual property), incurrence
of debt or liens, payment of dividends or distributions in respect of or
redemption of equity; dispositions of material assets and changes in business
lines or material Company budgets.
Transfer Restrictions
Until such time, if any, as Newco becomes a public company or material
investments in Newco by unaffiliated parties are consummated, the Newco
common stock issued to the Company and Elan shall be subject to customary
restrictions and limitations on transfers (other than transfers to
affiliates, which shall be permitted), including (x) customary tag-along and
drag-along rights and (y) rights of first offer and/or refusal to Newco and
the other stockholders.
First Funding of the Company
A. The Company shall obtain funds to provide its portion of the Initial
Funding (i.e., $12.015 million) as follows: Elan shall lend to the Company at
the Closing the sum of $12.015 million in exchange for a promissory note (the
"Promissory Note") issued by the Company, bearing interest at the rate of 9%
per annum from Closing through December 31, 1997, and at a rate of 12% per
annum thereafter, with interest only payable commencing on the 180th day
following Closing and thereafter interest shall be payable quarterly in
arrears. All principal and accrued interest owing on the Promissory Note
shall become due and payable on the fourth anniversary of the Closing, unless
prepaid at the Company's option at any time on or after February 1, 1998.
The Promissory Note shall contain covenants (a) restricting the ability of
the Company without consent of Elan to incur any indebtedness or liens
outside the ordinary course of business (which ordinary course shall, without
limitation, include the Working Capital Line(s) defined below, if any), (b)
limiting the Company's ability without consent of Elan to acquire or dispose
of any material business or assets outside the ordinary course of business,
(c) restricting the Company's ability without the consent of Elan to effect
any merger, consolidation or similar transaction. Elan's consents, if
sought, will not be unreasonably withheld or delayed.
B. Within 10 days following Shareholder Approval, the Promissory Note shall
be canceled and exchanged for the Convertible Preferred Stock and the Initial
Preferred Stock, each as defined below. The "Convertible Preferred Stock"
shall be convertible preferred stock in the aggregate original issue price
and with a liquidation preference of $10.0 million plus then-accrued and
unpaid interest under the Promissory Note. The Initial Preferred Stock shall
be convertible preferred stock issued by the Company in the amount of $2.015
million.
Convertible Preferred Stock shall (I) accrue a mandatory dividend of 9% per
annum, compounded semi-annually, which shall be paid by issuance of
additional shares of such Convertible Preferred Stock, (II) have a mandatory
conversion feature as of the seventh anniversary of the Closing, in which
case the outstanding amount of the Convertible Preferred Stock (i.e., the
original issue price) and accrued and unpaid dividends thereon shall be
mandatorily converted into shares of Common Stock of the Company (the "Common
Stock"), based upon a price per share of Common Stock equal to 80% of the
average of the Closing Prices (as defined below) for the 10 trading days
ending on the day that is two business days prior to the date of issuance
thereof; provided, that if average of such Closing Prices is greater than or
equal to $1.80, such conversion price shall be equal to $1.50 per share,
(III) be convertible into a fixed number of shares of Common Stock, based
upon a conversion price of $1.50 per share of Common Stock and based upon the
original issue price thereof to be converted, without giving effect to
accrued and unpaid dividends, but subject to anti-dilution adjustments for
(a) so-called mechanical adjustments in the case of stock splits,
recapitalizations or similar events or (b) for issuances (or in the case of
options, grants thereof) to affiliates of the Company or the Company's or
such affiliates' respective directors, officers, employees or agents, at
prices below the then-market price other than pursuant to one or more duly-
established stock compensation plans for issuance of up to 3,000,000 shares
of Common Stock (the anti-dilution adjustments described above, the "Anti-
dilution Adjustments"), and (IV) be redeemable by the Company, as follows,
upon at least 45 days' and no more than 90 days' prior written notice, at a
price equal to the sum of the aggregate par value of the Convertible
Preferred Stock and accrued dividends: the Company shall have the right to
redeem the Convertible Preferred Stock, in incremental one-third tranches (as
to the original issue price thereof), and in each case, together with one-
third of the then-accrued and unpaid dividend through the first such date (or
one-half of the then-accrued and unpaid dividend at the second such date, if
there was a redemption or conversion as described herein at or after the
first such date, or else two-thirds of the accrued and unpaid dividend at the
second such date; and all of the accrued and unpaid dividend at the third
such date or thereafter), from and after each of the third, fourth and fifth
anniversaries of the date of Closing, so long as, in each case, (x) the
closing price of the Common Stock on the Nasdaq Stock Market or other
principal market of the Common Stock (the "Closing Price") shall have
equaled or exceeded $2.25 (subject to the mechanical Anti-dilution
Adjustments) for 20 out of any 30 consecutive trading days on or prior to any
such applicable date (or, if thereafter, prior to any date for such a
redemption if not effected prior thereto) and (y) the applicable redemption
notice is given by the Company within 60 days of the achievement of the
target set forth in clause (x) above; provided, that (a) the Convertible
Preferred Stock (or any portion thereof) may be redeemed by the Company prior
to such three, four or five-year period, as applicable, only in the event
that the Company shall have reasonably determined, in good faith, after
consultation with Elan, permanently to abandon development of the Technology
or products based on the Technology (an "Abandonment") and (b) during such
45 to 90-day redemption notice period, Elan shall retain the right to convert
the Convertible Preferred Stock (or the applicable portion thereof) in
accordance with its terms. The Convertible Preferred Stock shall contain
covenants (I) limiting the Company's ability to acquire or dispose of any
material business or assets outside the ordinary course of business, (II)
incur any indebtedness in excess of $10 million aggregate principal amount
unless the Company can reasonably establish (based on prudent and customary
commercial practices and standards in the capital markets) that the Company
may incur such indebtedness from an institutional lender, venture capital
firm or reputable "hedge" fund on a prudent and reasonable basis, based on
the Company's then credit-worthiness, prospects, solvency and business, and
(III) restricting the Company's ability to effect any merger, consolidation
or similar transaction, in each case, without the prior written consent of
Elan which consent shall not be unreasonably withheld or delayed; provided,
however, that in the event the Company shall desire to engage in any
transaction that would not be permitted under the Convertible Preferred Stock
because Elan has reasonably withheld its consent thereto, the Company shall
have the right to redeem the Convertible Preferred Stock, effective at the
closing of such transaction by paying to Elan the entire outstanding amount
of accrued and unpaid dividends then owing under the Convertible Preferred
Stock, together with a warrant which shall be non-transferable (other than to
Elan affiliates, or no more than five non-affiliates, such transfer to non-
affiliates to be subject to the consent of the Company, which consent shall
not be unreasonably withheld) and which shall entitle Elan to purchase that
number of shares of the securities of the Company (or securities or other
property of its successor or acquirer, if any, in accordance with the Anti-
Dilution Adjustments) into which the Convertible Preferred Stock (or the
then-unredeemed portion thereof) would have been convertible had it not been
redeemed under this provision, at an aggregate price equal to the entire
amount of the Convertible Preferred Stock and accrued and unpaid dividends
thereon paid by the Company under this clause to redeem the Convertible
Preferred Stock, together with an interest component on such sum at 9% per
annum from the redemption date to the date of exercise. Such warrant shall
expire, if not earlier exercised, on the seventh anniversary of the Closing.
Notwithstanding the foregoing, the Company may incur working capital lines
and equipment leases from unaffiliated third parties in bona fide financing
transactions in principal amounts up to the lesser of $5 million and 50% of
the Company's aggregate consolidated accounts receivable and inventory (the
"Working Capital Line(s)").
The Initial Preferred Stock shall (i) have an aggregate liquidation
preference equal to its issue price, (ii) be convertible into Common Stock,
at the conversion price of $1.50 per share, subject to the Anti-dilution
Adjustments, and have a mandatory conversion feature after seven years that
shall be the same as the Convertible Preferred Stock, (iii) participate with
the Common Stock on any declared or paid dividends or distributions and (iv)
not bear a mandatory dividend other than as set forth in clause (iii) above,
(v) be redeemable by the Company in the same manner and subject to the same
terms and conditions as the Convertible Preferred Stock
Shareholder Approval
The parties agree that, pursuant to NASDAQ rules, the Company may not,
without the approval of its shareholders, issue Common Stock or securities
convertible or exercisable into Common Stock in excess of those referred to
in "Initial Equity Investment." The Company agrees to submit to its
shareholders entitled to vote thereon, the issuance to Elan of the Initial
Preferred Stock and the Convertible Preferred Stock in exchange for the
Promissory Note, and to recommend that its shareholders approve such issuance
and exchange (the "Shareholder Approval"). The Company will exert its best
efforts to convene a special shareholders meeting as soon as practicable. If
no such meeting has been held prior to February 1, 1998, Elan may, at its
option and upon 30 days notice to the Company, deem this to mean that the
Company's shareholders have, in effect, voted to reject such issuance and
exchange (a "Shareholder Rejection").
Subsequent Funding of the Company
Provided that the Shareholder Approval shall have occurred, Elan shall, for a
period of up to 30 months after the date of such Shareholder Approval, at
the request of the Company, be required to purchase up to an additional $4
million of "Additional Preferred Stock" in order for the Company to be able
to fund its obligations under the Newco Additional Funding. The Company
shall use all proceeds generated by the sale of such Additional Preferred
Stock solely and exclusively to fund its obligations under the Newco
Additional Funding. The Additional Preferred Stock shall have the same terms
and conditions as described above for the Initial Preferred Stock; provided,
that the issuance price and the conversion price of the Additional Preferred
Stock shall be equal to the average of the Closing Prices for the 10 trading
days ending on the day that is two business days prior to the date of
issuance.
Initial Equity Investment
On the Closing of the initial funding of the Company contemplated hereby, the
Company shall issue to Elan and Elan shall purchase from the Company, for an
aggregate of $3 million, to be paid in cash by Elan to the Company on such
date, (a) an aggregate of 2,727,273 shares of the Company's Common Stock
(the "Initial Common Stock") and (b) a non-transferable (other than to
Elan affiliates, or no more than five non-affiliates, such transfer to non-
affiliates to be subject to the consent of the Company, which consent shall
not be unreasonably withheld) warrant to acquire an aggregate of 1,750,000
shares of Common Stock; such warrant having an exercise price of $2.50 per
share, a term of five years, and being afforded the benefits of the Anti-
Dilution Adjustments and the registration rights referred to herein.
Registration Rights
The Company shall use its best efforts to register the Initial Common Stock
with the U.S. Securities and Exchange Commission on Form S-3 or such other
form as may be available and appropriate so that such Initial Common Stock
will be freely-tradable, subject to customary restrictions, and shall exert
its best efforts to do so within 120 days following the Closing. All other
Common Stock (including Common Stock underlying any and all exchangeable,
convertible or exerciseable securities) and all shares of Newco common stock
(including Common Stock underlying convertible, exchangeable or exerciseable
securities) originally issued to Elan and the Company shall entitle the
holders to customary demand (i.e., two demand registrations in the case of
each of the Company and Newco) and piggy-back registration rights; provided,
that (a) such demand registration rights shall be effective, in the case of
Newco, only after the earlier to occur of (I) Newco's initial public
offering, if any and (II) three years after the date of the Closing. Elan
will agree to a customary stand-still, not to exceed 180 days in the case of
a Newco initial public offering, or 90 days in the case of other equity
offerings of the Company or Newco, in respect of Common Stock of Elan not
sold in such offerings.
Standstill
Elan shall agree to a standstill for a three-year period following the
Closing, on customary terms and conditions (including that (a) Elan shall not
purchase shares of Common Stock from any third party or attempt to influence
management or control of the Company or change of the composition of the
Company's board of directors, in each case, without such board's consent, and
(b) such standstill shall not be applicable in the event of a third-party so-
called "hostile" transaction or steps leading thereto). Such standstill
shall not apply to the conversion, exercise or exchange of any securities
issued to Elan as contemplated herein.
Board Representation
As long as Elan owns at least 10% of the Company's Common Stock (or
securities convertible, exchangeable or exerciseable for or into Common
Stock) Elan shall be entitled to nominate one member to the Company's Board
of Directors; the Company shall use best efforts to cause Elan's nominee to
be elected.
Further Development
The parties acknowledge that prior to execution of definitive documentation
in respect of the transactions contemplated hereby (or as soon thereafter as
practicable), the Company and Elan shall have formulated a development plan
reasonably acceptable to them in respect of products underlying the
Technology, including development work to be undertaken by Elan on a contract
basis for Newco from the after such execution (the "Early-Stage Business
Plan"); the parties agree that Elan shall perform, and shall fund the cost
of, such development (using a cost basis of Elan's normally-attributable
actual direct costs plus [confidential portion omitted] %), pursuant to and
in accordance with the Early-Stage Business Plan, such development through
and including the first to occur of (I) the first human clinical trials,
without regard to the result thereof; (II) March 31, 1998; or (III) the
devotion of Elan to such Further Development pursuant to the Early-Stage
Business Plan of an aggregate amount of $2.5 million (using such cost plus
[confidential portion omitted] % standard).
Technology Collaboration
Commencing with the first quarter of 1998, Elan shall cause to be invested up
to $500,000 in the form of grants in four equal, quarterly (in arrears)
payments of $125,000 each, in support of the development of the Company's
existing needleless injection technologies. The first such technology shall
be one or more pre-filled ampule projects mutually acceptable to Elan and the
Company, it being understood that other projects and/or applied engineering
projects may be substituted on an mutually-agreed basis if it is determined
that the initial projects have no practical commercial potential. All
intellectual properties and other results of any projects described in this
clause will belong to the Company, provided, however that Elan will, for a
period of one year following the completion of work directly funded by Elan
grant(s), have a right of first refusal, on then-current market terms, to
conduct, with the Company any further development or commercialization of
such intellectual properties or results.
Limitations on Conversions
In the event that the conversion of all or any part of the Initial Preferred
Stock or Additional Preferred Stock would result in Elan owning 20% or more
of the Common Stock of the Company or otherwise resulting in a situation
where Elan would be required to equity account for or consolidate its
investment in the securities of the Company, then at Elan's option, the
conversion of the Convertible Preferred Stock or such Initial or Additional
Preferred Stock (as the case may be) shall be into a new class of
participating, non-voting preferred shares of the Company without liquidation
preference, such that Elan will not be required to equity account for or
consolidate its investment in the Company. In the event that Elan shall
elect such a conversion, Elan shall retain the right to convert such non-
voting preferred shares into Common Stock of the Company, in Elan's sole
discretion. In addition, Elan shall retain the right to assign all or a
portion of such convertible securities (including Common Stock of the Company
issuable upon conversion thereof) to its affiliates. Each of Elan and the
Company shall use commercially reasonable efforts to effect such transactions
and any required subsequent conversions or adjustments to Elan's securities
position, on a quarterly basis, within 10 business days after the end of each
fiscal quarter of Elan.
Conditions
The transaction documents shall contain other terms and conditions, including
customary Closing conditions, including compliance with applicable laws and
regulations; the lack of breaches and defaults by Elan, the Company and Newco
and the continuation of the License; and the lack of material adverse changes
in the business, condition (financial or otherwise) or prospects of the
Company and Newco.
_________________________________
(1) Capitalized terms used herein but not defined have the meanings assigned
in the Letter Agreement.
